TaxTMI 
TaxTMI 
TaxTMI 
2021 (5) TMI 567
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....s 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 stamp value of Rs. 4.6 Crores be not treated as sale consideration ....
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....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 to sale dated 06.04.1993, only on 27.05.2005 when full payments of agreed consideration wer....
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....e 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 the assessee and learned Senior Departmental Representative (DR) for the revenue and perused the order of Lower Authorities carefully. The ....
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....etain 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 well as in conveyance deed dated 08.05.2007. The ld. CIT(A) wrongly held that transfer of property was handed over to the assessee on 15.07.200....
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....d 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 crucial fact to be seen is "whether assessee enjoyed the possession in the land in absence of making balance payment of land" or "the assessee had right for specific performance before 2005, when ....
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....d 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 assessee again vide his application dated 30.03.2015 contended that section 50C is not applicable on the sale of the asset. 15. We have seen that the valuation report of DVO was not received by the ....
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....ansfer 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 possession is with the tenants as referred in the schedule. The Seller assure that no notice for acquisition or requisition has been received in respect of the Said Property from any government or other authorities. Fu....
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....f 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 the Purchaser. However if any dispute arises at a later date, the Seller indemnifies the Purchaser against all the costs for defending the same* Similarly the Seller indemnifies the Purchaser against all outstanding actions and claims whatsoever in respect of the Said Property. 12....
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....eof 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 managing trustee, Shri Vithalbhai P. Patel, has agreed to sell their undivided 50% share in the total property described as First Property as well as Second Property, in favour of the Confirming Party, on the terms-and conditions set out therein. 21. By an Agreement for Sale dated 06/04/1993, "registered on 06/04/1993 at Sr. No. 5972 with the Sub Registrar, Mrs. Gangaben Raojibhai Patel, through power of attorney holder Shri Vithalbhai ....
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....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, the assessee had constructed a Factory Building and started business activity. Further there is no averment in the Conveyance deed that the assessee was making any periodical payments as a tenant or in default of the conditions of the agreements the status of the assessee was treated as tenant. 19. In clause 22 of Conveyance deed it is mentioned that "in view of the agreements and the reasons set out hereinabove, the confirming party continued to be in exclusive use, occupation and posse....
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....erring 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 member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art." Sec. 2(47) defines what 'transfer' means in relation to a capital asset, as under : "'transfer', in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asse....
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....ll 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;" Similarly, ss. 2(42A) and 2(42B) defines what 'short-term capital asset' and 'shortterm capital gain' means. It reads as under : "(42A) 'short-term capital asset' means a capital asset held by an assessee for not more than (thirty-six) months immediately preceding the date of its transfer : (42B) 'short-term capital gain' means capital gain arising from the transfer of a short-term capital asset." 16. When once the Act defines the aforesaid terms, in deciding the section or the provisions in the Act. we have to go by the aforesaid definitions. Therefore, when once the word 'transfer' in relation to a capital asset is defined under the IT Act, we cannot import the meaning assigned....
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....,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 (Bom) 29 : [1990] 186 ITR 693 (Bom), dealing with the case of a suit for specific performance of the agreement where a consent decree was passed in favour of the assessee for a certain sum, where he gave up his right to claim specific performance, held as under : "Having regard to the statutory provisions and the authorities cited above, it cannot be said that the right acquired under an agreement to purchase immovable property is a mere right to sue. The assessee acquired under the said agreement for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign the right. What he acquired un....
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....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 of any kind'. The question of the assessee's right under the agreement of 1945 being converted or substituted by another right which can be said to be a 'capital asset' does not therefore, arise. In the next place, the right to sue for damages for breach of contract no doubt is capable of maturing into a right to receive damages for breach of contract. But that happens only when the damages claimed for breach of contract are either admitted or decreed and not before." 20. The Gujarat High Court in the case of Rustom Spinners Ltd. v. CIT [1992] 103 CTR (Guj) 142 : [1992] 198 ITR 351 (Guj) dealing with a case of an assignment of a right in immovable property acquired under a purchase agreement, held as under; "Contention that the assessee had not incurred any cost in respect of the agreement o....
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....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 only did not rescind the contract but proceeded to assign its benefits and liabilities which it had incurred under the contract in favour of the assignee by a deed of assignment. Under the agreement the 'purchaser' was defined to mean as the assessee or his successors and assigns and, therefore, under the original agreement itself it was envisaged that the purchaser could assign his rights and liabilities in favour of an assignee. Neither the vendor nor the assessee ever treated the contract as having been frustrated by virtue of the interim orders which were operative on the date on which the deed of assignment was executed. It is clear that this is not a case where the parties had not foreseen the fact that interim relief would be granted in the winding up petition, nor is it a case where mere grant of a temporary injunct....
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....igh 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 'property of any kind' used in s. 2(14) is of wide import. When this expression is read along with expression defined in s. 2(47)(ii), i.e., extinguishment of any rights therein, there is no hesitation in holding that giving up of right to claim specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration resulted in extinguishment of right in property thereby attracting the rigour of s. 2(14) r/w s. 2(47). In other words, the action on the part of assessee in giving up her right to claim the property and instead accepting the money compensation was a clear case of relinquishment of a right in the property resulting in transfer as defined in s. 2(47). When the legislature in its wisdom defines a particular type of transaction to be in the nature of transfer for taxing purpose, then the effect has to be given to such t....
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....inated 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 clear that the right to obtain a conveyance of immovable property falls within the expression 'property of any kind' used in s. 2(14) of the Act and consequently it is a capital asset. It is because the expression 'property of any kind' is of wide import. When this expression is read along with the expression defined in s. 2(47)(ii) i.e., 'extinguishment of any rights therein', the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of conside....