TaxTMI 
TaxTMI 
2021 (5) TMI 567
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.... 143(3) read with section (r.w.s.) 147 of Income -tax Act, was completed in the case of assessee on 03.11.2010. The assessee in hits return of income had showed income at Rs. 19,34,420/-. The ld. Assessing Officer (AO) while passing the assessment order made addition on account of Long Term Capital Gain (LTCG) on account of sale consideration of Rs. 2 Crore. The addition of LTCG was made on the basis of consideration shown in the conveyance deed dated 08.05.2017. Subsequently, the case was reopened by the ld.AO on the basis of information received by the AO that conveyance deed of the property was cleared on 25.07.2010 on charging additional stamp duty by Stamp Valuation Authority. The Stamp Valuation Authority valued the property at Rs. 4,67,51,985/-. In the Return of Income, the assessee has shown/offered the sale consideration of Rs. 2 crores only. Thus, in view of the aforesaid fact the ld.AO again reopened the case of the assessee. The notice u/s.148 of the Act was issued on 26.03.2014. The AO after serving statutory notice u/s 142(1) and 143(2) proceeded for reassessment. The AO also issued show cause notice on 17.02.2015 requiring the assessee to show cause as to why stam....
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.... its Director, copy of conveyance deed dated 08.05.2007, which was signed on behalf of assessee as confirming party. The ld. CIT(A) after perusal of agreement of sale dated 06.04.1993 and conveyance deed dated 08.05.2007, signed on behalf of assessee as confirming party, took his view that at the time of signing the agreement of sale dated 06.04.1993, no possession of land was given to the assessee as the same was dependent upon on payment of balance consideration of Rs. 30 lakhs. The payment of remaining consideration was paid by assessee to the sellers as per Annexure -VI & VII of Conveyance deed dated 08.05.2007, on the following dates; (i) Rs. 15 lakhs each on 21.05.2004, (ii) Rs. 9 lakhs each on 27.05.2005, (iii) Rs. 6 lakhs each on 27.05.2005. 6. The ld CIT(A) also held that the seller handed over possession of property to the assessee on 15.07.2006, thus, the transfer of land to the assessee within the meaning of section 2(47) took place only on 15.07.2006. The assessee was not having right prior to this date and was not having right to specific performance. The right to specific performance accrues to the assessee as per Clause 6 of agreement t....
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....rmance is taxable as capital gain in the hands of the assessee and in such circumstances, the earnest money paid by the assessee to the seller is allowed as deduction as cost of acquisition while computing capital gain. 5.3.2. Thus, it is held that the appellant had earned Short Term Capital Gain on account of transfer of its right acquired on 27.05.2005 for the purchase of the land in pursuance to the sale deed agreements signed on 16.04.1993. The appellant was also handed over the possession of the land on 15.07.2006. Thus, the capital gain earned by the appellant was short term in nature. Accordingly, no indexation of the amounts paid by the appellant as earnest money is required to be given while computing the Short Term capital Gain. Besides, by showing the Short Term Capital Gain as Long Term Capital Gain, the appellant has filed inaccurate particulars of income and hence, penalty proceedings u/s 271(1)(c) of the IT Act, 1961 are being initiated separately in this regards." 8. Thus, further aggrieved by the order of ld. CIT (A) the assessee has filed present appeal before this Tribunal. 9. We have heard the submissions of ld. Authorized Representative (AR) of t....
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....yance deed dated 08.05.2007. The ld.AR further submits that u/s.2(47)(v) any transaction involving allowing possession to be taken over or retain in part performance of contract in the nature referred to in section 53A of Transfer of Property Act would come within the ambit of section 2(47) of the Act. In order to attract section 53A there should be contract for consideration, it must be in writing, it should pertain to transfer of immoveable property, transferee should have taken possession of the property and transferee should be ready and willing to perform his part of contract. All conditions in case of assessee were fulfilled while singing as a confirming party and received consideration for surrendering there right in the property. The ld.AR submits that the Lower Authority has not disputed that the assessee had transferred the capital asset; only question for determination for Tribunal is whether the capital gain earned by assessee on transfer of asset is short term or long term capital gain. Admittedly, the assessee was occupying/ possessing the asset/property prior to 1993, this fact was duly acknowledged by the transferor in the agreement to sale dated 06.04.1993 as....
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....cts, it is clear that assessee was never in the possession of piece of land before 2005. The possession of land was given to the assessee in 2005 and the right to specific performance accrued to the assessee only in the year of 2005, after making balance payment and fulfillment of conditions of the original agreement dated 06.04.1993. 12. The ld. DR for the Revenue submitted that case laws relied by the ld. AR for the assessee is not helpful to him. In case of Rustom Spinners Ltd. (supra) the Hon'ble Gujarat High Court clearly held that court can give relief on the ground of subsequent impossibility, when it finds that whole purpose or the basis of contract has not been fulfilled by the occurrence of unexpected events which was not contemplated by parties that date of contract. In the instant case, it is clear that the terms and conditions were completely laid down in the agreement dated 06.04.1993. There were not such occurrences of an unexpected event in the case. Moreover, the assessee failed to complete the terms and conditions of the contract. It was clearly mentioned that in case of assessee failed to make the full payment, the payment shall be forfeited. The most cruc....
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....he AO that conveyance deed of the property was cleared on 25.07.2010. The Stamp Valuation Authority valued the said property at Rs. 4,67,51,985/-, however, in the Return of Income, the assessee offered the sale consideration of Rs. 2.00 Crores only. The notice under section 148 of the Act was issued on 26.03.2014. The AO after serving statutory notice under section 142(1) and 143(2) proceeded for reassessment. The AO also issued show cause notice on 17.02.2015 requiring the assessee to show cause as to why stamp value of Rs. 4.6 Crores be not treated as sale consideration for the purpose of computation of capital gain and further addition of Rs. 2.6 Crore should not be made as per the provision of section 50C. The assessee in its reply and contended that the stamp duty value as adopted by stamp valuation authority is far excess of the fair market value on the date of transfer of the said property. The assessee had appointed an independent registered valuer, who valued the fair market value of the said property. During the second re-assessment, the AO referred the case to the District Valuation Officer (DVO) to determine the value of the fair market value of the asset/ property. The....
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.... deed as confirming party is not a tenancy right by the right to specific performance acquired by it through sale agreements dated 16.04.1993 after payment of the full consideration on 27.05.2005. Such transfer of right to a specific performance is taxable as capital gain in the hands of the assessee and in such circumstances, the earnest money paid by the assessee to the seller is allowed as deduction as cost of acquisition while computing capital gain. Thus, it is held that the appellant had earned Short Term Capital Gain on account of transfer of its right acquired on 27.05.2005 for the purchase of the land in pursuance to the sale deed agreements signed on 16.04.1993. The appellant was also handed over the possession of the land on 15.07.2006 and the capital gain earned by the appellant was short term in nature. We have gone through various clauses of the agreements to sale dated 06.041993 and the Conveyance deed dated 08.05.2007. 17. For appreciation better appreciation of facts, the various clauses of agreement to sale and conveyance deed are reproduced below:- "1. The Seller is in absolute ownership with clear marketable I title of the Said Property and the posse....
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.... the time of the execution of the sale deed. However copies of these documents will be made available immediately. 8. All the municipal and other taxes upto date of this agreement have already been paid. However, if any dues till the time of execution of sale deed are unpaid the Seller undertakes the payment of the same. All the rates and taxes thereafter related to the Said Property shall be responsibility of the Purchaser. 9. The Purchaser shall not be liable for the expense incurred by the Seller for providing infrastructure Said Property. The Seller shall not be liable to do any further work to complete or provide any further infrastructure to the said building. 10. The seller shall at their own cost and expense get the consent of the persons including legal heirs, if required, having interest in the property agreed to be sold and shall get the documents duly executed by them whenever necessary. The Seller shall also clear the revenue or city survey record or such other record of rights. 11. The Seller assures the clear, and unencumbered title of the Said Property to the Purchaser. The Seller will furnish report on title within two months to ....
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....956, having Registration No. 1988 of 1971-72, having its registered office at Chhani Road, Navayard, Vadodara - 390 002 and having Mumbai Office at 401/E, Poonam Chambers, Dr. A.B. Road, Worli, Mumbai - 400018, represented by it's Director, MR. MAHESH C. PITA WALLA, hereinafter referred to as "THE CONFIRMING PARTY" (which expression shall unless it be repugnant to the context or meaning thereof shall deem to mean and include it's administrators, successors-in-title and assigns) of the SECOND PART(PA No.: AAAPP8879 L) AND TANMAN FINVEST PRIVATE LIMITED, a company registered under Companies Act, 1956, having it's registered address at 146, Nagdevi Street, Mumbai 400003, represented by it's Director, MR.JUGAL KABRA, hereinafter referred to as "THE PURCHASER" (which expression shall unless it be repugnant to the context or meaning thereof shall deem to mean and include it's administrators, successors-intile and assigns) of the THIRD PART (PA No.: AJQPK 1301H). 1.----- 2----- 3------ 20. By an Agreement for Sale dated 06/04/1993 registered on 06/04/1993 at Sr. No. 5971 with the Sub Registrar, Matushri Gangaba Trust, through managin....
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..... The purchaser after verifying the title documents came to the conclusion that the confirming party is not the holder of the said property and thus, requested to approach the Co - owners to convey the said property in favour of the purchasers. 28. On the representation of the Confirming Party the Co-Owners agree to sell, transfer and convey their entire rights in respect of the said property described in the Schedule hereunder, written in favour of the Purchasers, without any consideration as the consideration." 18. A careful reading of the various clauses of the aforesaid documents shows that the assessee was in possession of the asset of the property much prior to execution of the agreement to sale April 1993. This fact that the assessee was in possession of the property is clearly mentioned in the last clause of the agreement, though, it was possessed (occupied) as a tenant. Further, a careful reading of various clauses of the Conveyance deed dated 08.05.2007 nowhere stipulates that after the agreement dated 06.04.1993, the assessee was occupying the property as a tenant. In clause 12 of Conveyance deed it is clearly mentioned that under the lease dated 16.09.1975, ....
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.... purchase of a property by paying an advance of Rs. 50,000 cannot be treated as a transfer and brought to capital gains tax". The Hon'ble Court after referring the decisions of various High Courts answered the question by passing the following order; "13. Before we answer these substantial questions of law, it is necessary to look into the views expressed by the various High Courts in this country, which will be helpful in answering the aforesaid substantial questions of law. 14. Before referring to the aforesaid decisions, it is necessary to look into a few definitions which would be helpful in answering the substantial questions of law. 15. Sec. 2(14) of the Act defines what a 'capital asset' means. It reads thus : "'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any mem....
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....action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of s. 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Explanation : For the purposes of this sub-section, the expression 'insurer' shall have the meaning assigned to it in cl. (9) of s. 2 of the Insurance Act, 1938 (4 of 1938)." However, ss. 2(29A) and 2(29B) defines what a 'long-term capital asset' and 'longterm capital gain' means, which reads thus : "2(29A) 'long-term capital asset' means a capital asset which is not a short-term capital asset; 2(29B) 'long-term capital gain' means capital gain arising from the transfer of a long-term capital asset;" Simi....
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....assignable. Therefore, a right to obtain conveyance of immovable property, was clearly 'property' as contemplated by s. 2(14). The mere fact that ultimately the earnest money was to be treated as a part of the purchase price, the balance of which was to be paid on the completion of sale, did not detract from the fact that the immediate consideration for the execution of the agreement of sale was the payment of earnest money. Therefore, this was clearly a case which squarely fell within s. 45 and the assessee had made a profit or gain arising from the transfer of the capital asset which was the right to obtain a sale deed in respect of immovable property. Therefore, the entire amount of Rs. 5,00,000, being the difference between the amount of Rs. 5,90,000 received by the assessee and Rs. 90,000 originally paid by the assessee as earnest money, would be capital gain in the hands of the assessee. Therefore, it is liable to capital gain tax. The assessee would, however, be entitled to a deduction of Rs. 14,115 on account of legal and other expenses transferred to by the ITO." 18. Again the Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 81 CTR ....
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....., 1958, i.e., the date of breach of contract mentioned by the Court in its decree. Unlike compensation payable by the State when it acquires a citizen's land under the Acts such as the Land Acquisition Act where the right to receive compensation is statutory right, the right that a person acquires on the establishment of a breach of contract is at best a mere right to sue. Despite the definition of the expression 'capital asset' in the widest possible terms in s. 2(14), a right to a capital asset must fall within the expression 'property of any kind' and, must not fall within the exceptions. Sec. 6 of the Transfer of Property Act which uses the same expression 'property of any kind' in the context of transferability makes an exception in the case of a mere right to sue. The decisions thereunder make it abundantly clear that the right to sue for damages is not an actionable claim. It cannot be assigned. Transfer of such a right is as much opposed to public policy as is gambling in litigation. As such, it will not be quite correct to say that such a right constituted a 'capital asset' which in turn has to be 'an interest in property o....
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....hs would have been paid by the assignee to the assignor in view of the assignee having undertaken the liability to pay the entire amount of consideration under the deed of assignment. Therefore, it cannot be said that the assessee had acquired rights under the agreement of sale without having had to incur any cost simply because the cheque for Rs. 5 lakhs was returned to it unencashed by the vendor. The amount of Rs. 5 lakhs it received less from the assignee because instead of being paid to it, it was directly paid to the vendor by the assignee in view of the assignor having been returned the earnest amount by the vendor. Thus, the Tribunal was right in holding that the claim of the assessee that it did not incur any cost in acquiring the rights under the said agreement was not acceptable. It is a settled legal position that the Court can give relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract has frustrated by the inclusion or occurrence of an unexpected event or change of circumstances which were not contemplated by the parties on the date of the contract. In the instant case, it is evident that the assessee not onl....
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....the time of performance of the contract in cl. 21 of the agreement and described it as of essence, in reality, it never treated the time to be the essence of the contract. It is a settled legal position that in the case of sale of immovable property, there is a presumption against time being of the essence of the contract and mere fixation of the period within which the contract has to be performed, does not make the time the essence of the contract. Therefore, it cannot be said that there was no assignment made by the assessee. Once it is held that there is no frustration of the contract and that there was cost of acquisition of the rights of the contract, the assessee would be liable for tax on capital gains in respect of sum received by it in consideration of the assignment of the contract." 21. Similarly, the Indore Bench of the Madhya Pradesh High Court in the case of CIT v. Smt. Laxmidevi Ratani & Ors. [2005] 198 CTR (MP) 336 : [2008] 296 ITR 363 (MP) dealing with a case of giving up a right to claim specific performance of a contract in lieu of consideration received in terms of the compromise between the parties, held as under : "The expression 'proper....
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....ugh the word 'transfer' in relation to capital asset has been defined in s. 2(47) which includes 'sale, exchange or relinquishment of the asset or the extinguishment of any right therein'. The damages which were received by the assessee cannot be said to be on account of relinquishment of any of his assets or on account of extinguishment of his right of specific performance under the contract for sale. Under s. 5 of the Transfer of Property Act, transfer of property means an act by which a person conveys property to another and 'to transfer property' is to perform such act. A mere right to sue may or may not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a 'transfer within the meaning of s. 45 r/w s. 2(47). Since there could not be any transfer in the instant case, it has to be held that the amount of Rs. 1,02,500 received by the assessee as damages was not assessable as capital gains. 23. From the aforesaid judgments it is clea....