TaxTMI 
TaxTMI 
2006 (12) TMI 170
X X X X Extracts X X X X
X X X X Extracts X X X X
....3) r/w s. 147 of the IT Act, 1961, for the asst. yr. 1996-97. Grounds of appeal, as set out in the memorandum of appeal, are as follows: "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding the reopening of assessment under s. 147 of the IT Act, 1961, was proper and thereby erred in confirming the reopening of assessment. Looking to the facts and in the circumstances of the case and in law, the appellant submits that CIT(A) ought to have held that reopening of assessment is bad in law and void, and ought to have quashed the assessment. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs. 5,27,13,079/- on account of alleged capital gains on the sale of plot of land. Looking to the facts and circumstances and in law, the appellant submits that learned CIT(A) ought to have held that the additions made by the AO is incorrect and invalid and ought to have deleted the same. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not adjudicating upon the ground that the amount of capital gain, as computed by the AO, is highly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elays in payments, as agreed to by the parties. The supplemental agreement, whereby the payments were rescheduled, also, inter alia, provided as follows: "The said Lok Housing (i.e. intending buyer) have issued postdated cheques, in favour of said Shamvik and the said General Glass (i.e. the assessee before us) for the payment of the instalments of the purchase price as also for payment of interest calculated upto the revised dates of payments as per particulars mentioned hereinabove. The said Lok Housing gives a warranty to the said Shamvik and the said General Glass that ail the said postdated cheques may be presented by the said Shamvik and the said General Glass for encashment on the respective due dates and that the cheques will be honoured on presentation. Further that the Lok Housing will not issue stop payment instructions in any circumstances nor put forward any excuses of any type to avoid presentation and consequent encashment of the said cheques on their respective due dates. Further encashment of the said cheques on presentation shall be as of the essence of the contract." (Emphasis by underlining, italicised in print, and words in brackets are supplied by us) 5. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....get substantial funds in a near future. In the event of our getting these funds, we shall definitely inform you and prepone the instalment payments. With regard to additional interest payable by us due to the suggested reschedulement, the same shall be paid separately. We hope, you will understand the difficulties and will accommodate us by accepting our proposal for further reschedulement of the instalments as suggested in this letter and oblige. In case you feel necessary, we shall sit together tomorrow and finalize the reschedulement. Meanwhile you are requested to present only one of the two cheques dt. 8th March, 1996 as mentioned above and to deposit the second cheque after a week." 6. The fact that group did not discharge its payment obligations is also evident from the following extracts arbitration petition No. 48 of 2001, as General Glass Co. (P) Ltd vs. Lok Housing & Construction Ltd., filed by the assessee before the Hon'ble Bombay High Court-a copy of which is placed before us at pp. 150 to 186 of the paper book. In the said petition, after making a reference to the supplemental MoU dt. 12th Oct., 1995, it was stated that: "Here again, the Respondent failed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pso facto terminated as well as the supplemental MoU dt. 12th Oct., 1995. The respondent also undertook not to part with possession of the tenements constructed by them under the aforesaid licence till the full purchase price along with interest had been paid. It is clear from the above that, the respondent has acted mala fide and consequently failed to act in good faith in making the payment due and payable by them to the petitioner the respondent had failed and neglected in fulfilling, its financial obligations, liabilities and commitments. The respondent by its conduct/act of refusing to bring into existence the aforesaid security, viz. the flats at "Lok Everest" has resulted in depriving the petitioner of its security. The respondent has also committed breaches of its payment obligations under the supplemental MoU dt. 12th Oct., 1995, the petitioner is therefore desirous of referring to Arbitration all the aforesaid differences and disputes pursuant to cl. (31) of the MoU, dt. 10th May, 1995 entered into between them and the respondent, as aforestated. Since the respondent is now trying to create third party rights by exploiting, the said property, despite above breaches on i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... over to the escrow agent M/s DSK Legal, 3 (three) postdated cheques, viz. (1) Cheque No. 774618 dt. 16th Aug., 2001 for Rs. 35,00,000/-, (2) Cheque No. 77420 dt. 31st Dec., 2001 for Rs. 50,00,000/- and (3) Cheque No. 774622, dt. 30th June, 2002 for Rs. 1,00,00,000/-, respectively, all drawn on State Bank of India, Marol Branch, Mumbai, in favour of the petitioner, General Glass Co. (P) Ltd., for a total value of Rs. 1,85,00,000/- (Rupees one crore eighty five lakh only), to be held in escrow and released in the manner more specifically spelt out in the escrow agreement entered into by and between M/s Shamvik Glasstech Ltd., General Glass Co. (P) Ltd., M/s Lok Housing Construction Limited and M/s DSK Legal dt. 16th July, 2001; a copy of which is attached hereto as Annexure D (hereinafter referred to as "escrow agreement"). These cheques have been duly signed by Mrs. Meena Merchant and Mr. Uni Krishnan and the respondent undertakes and declares that Mrs. Meena Merchant and Mr. Uni Krishnan are duly authorised to sign these cheques for and on behalf of the respondent. The respondent undertakes to honour the aforesaid 3 (three) cheques on their presentation on the respective dates men....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n done at the rate of Rs. 1,500 per sq. ft. built up area. This value shall remain constant irrespective of what the price may be on 30th June, 2002 and at every stage thereafter. The respondent expressly undertakes to this Hon'ble Court not to raise any dispute or the grounds that prices of flats have risen subsequently. Similarly the petitioner undertakes not to raise any such dispute if the prices should fall below Rs. 1,500 per sq. ft. (4) On or before 30th June, 2002 the respondent shall construct and deliver vacant possession to the petitioner 30 (thirty) flats fully completed in 'ready to use' condition, viz. 8 (eight) flats in building 'B-1' bearing flat Nos. 003, 006, 104, 405, 605, 703, 705, 706, 3 (three) flats in building 'B-2' bearing flat numbers 001, 104, 403, 4 (four) flats in building 'B-3' bearing flat numbers 001, 002, 203, 304, 11 (eleven) flats in building 'B-4' bearing flat Nos. 001, 004, 005, 006, 403, 501, 801, 701. 703, 704, 706 and 4 (four) flats in building 'B-5' bearing flat Nos. 001, 002, 004, 304 more particularly set out in Annexure-A hereto, to the petitioner together with their respective keys. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2002 of the value of Rs. 2,60,00,000/- (Rupees two crores sixty lakhs only) as spelt out under the escrow agreement. (9) Therefore, the respondent undertakes to this Hon'ble Court, that, the respondent shall pay to the petitioner the amount of each instalment on the date they fall due as per Annexure-A for the exact amount in each instance. The respondent may however request 30 days' extension from due date if such an application is made in writing to the escrow agent, and a copy thereof is sent to the petitioners not later than 10 days prior to any of the stipulated due dates, in the manner as spelt out under the escrow agreement. Only one extension can be asked for or granted per scheduled date of payment. In all such cases, the respondent shall, along with the payment of instalment, also pay interest for the extended period at the rate of 15 per cent (fifteen percent) per annum. On each cheque/payment being thereafter duly cleared/made by the petitioners bankers, the escrow agent shall return the sale agreements of the exact number of flats set out in Annex. A aforesaid as corresponds to the money value of the paid up instalments in the manner spelt out in the escrow a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... desire for the option the respondent does not actually make payments at the above rates and within the above stipulated time, the petitioners shall be forthwith released of any further obligation to the respondent in this behalf and may then sell the said flats in the open market and at market rates without further reference to the respondent. The respondent undertakes to this Hon'ble Court that in case they do not repurchase the said flats in the time specified above they shall not raise any objection or create any obstruction to the open market sale of the said flats by the petitioners. (11) If despite the above undertakings the respondent defaults in giving ready possession flats to the petitioners as abovementioned on or before the 30th June, 2002, then the respondent undertakes that till the next payment becomes due, i.e. 30th Sept., 2002 he will not part with possession of any flats whatsoever in the said Project to any other party or person either on 30th Sept., 2002 if the said flats are still not constructed and handed over. The petitioner may, at their discretion give further time for delivery of possession. In such event also no possession shall be given by the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng subject matter of these minutes is being constructed, physically stops, and the respondent is directly as a consequence thereof not in a position to arrange for the amount as mentioned in the aforesaid postdated cheques on their respective due dates, then, and in that event only, the respondent and/or its directors shall not be held liable and responsible for any criminal liabilities including criminal proceedings under s. 138 of the Negotiable Instruments Act. The respondent shall forthwith intimate to the petitioner the fact of any litigation civil/criminal being initiated against them as regards the said project. (15) The balance liability then outstanding, if any, shall remain and the respondent shall continue to acknowledge the same in writing so as to save limitation, until the same is paid. The petitioners shall, in any such case retain their option to recover the aforesaid liability by any other legal process available to them at law. (16) The respondent further undertakes to this Hon'ble Court, that, in the event of the cl. 14 above becoming operation, or, if independently of cl. 14, the respondent Company is unable to construct or pay at the relevant instalment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espondent undertakes to this Hon'ble Court that they have not at this date sold the said 12 flats listed in Annexure-C hereto in Lok Everest nor created any charge or third party rights therein and will not sell, part with or otherwise create any third party rights in the same. (20) The respondent further hereby expressly undertakes to this Hon'ble Court that the respondent shall also construct and complete, on or before 31st March, 2003 another building identified as B-7 in the complex/project known as "Lok Nisarg" situate on the property bearing CTS 3, 3/1 to 8 at Mulund, Taluka Kurla, Dist. Mumbai Suburban and hand over to the petitioners vacant peaceful and physical possession with clear and marketable title free of any encumbrances 20 (twenty) flats therein calculated at the rate of Rs. 1500 per square foot for the value of Rs. 2,00,00,000/- (Rupees two crores only) as per Annexure "B" hereto. The number of flats equal in value to each cheque payment is also mentioned therein. For the purpose of the tower flats referred to in cl. 13 above the said sum of Rs. 2,00,00,000/- (Rupees two crores only) shall be secured by fiats totalling 13,333 (thirteen thousand three hun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also any supplementary writings attached thereto which are not expressly dealt with and/or covered by this order. (25) All undertakings given by both parties herein are accepted and both parties are directed to ensure due compliance with the same. (26) Both parties undertake to this Hon'ble Court to apply to the arbitrators for appropriate orders related to the arbitration proceedings. (27) Both the petitions disposed of accordingly. No order as to costs." For the time being, we are not really concerned about the developments beyond this point of time. 7. On these facts, the AO reopened the assessment of the assessee company mainly on the ground that the capital, gains arising to the assessee as a result of transfer of plot of land, in the asst. yr. 1996-97, have escaped assessment. The AO also held that in the light of Hon'ble Bombay High Court's judgment in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 180 CTR (Bom) 107 : (2003) 260 ITR 491 (Bom), the capital gains are to be taxed in the year in which licence to enter the property has been given by the assessee. The AO's justification was "the transaction has taken place in the financial year 199....
X X X X Extracts X X X X
X X X X Extracts X X X X
....matter-right from the legality of service of notice, to the correctness of the reasons recorded, furnishing of reasons recorded, to merits of the case. However, for the reasons we shall now state, it is not really necessary to go into all these aspects. We would first like to address ourselves to the core issue of taxability of capital gains in this year. 10. As Revenue has placed heavy reliance on the judgment of Hon'ble Bombay High Court's in the case of Chaturbhujdas Dwarkadas Kapadia vs. CIT, and it is based on this judgment that the impugned addition has been made by the AO, and sustained by the CIT(A), it is necessary to first appreciate what this judgment lays down, and perhaps even more important that that, what it does not lay down. 11. Their Lordships of Hon'ble Bombay High Court were examining the scope and import of s. 2(47)(v) which was introduced w.e.f. 1st April, 1988. This provision, which covers one of the modes of deemed 'transfer', lays down that the scope of expression 'transfer' includes "any transaction involving the allowing of, the possession of any immovable property (as defined) to be taken or retained in part performance of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e nature referred to in s. 53A of the Transfer of Property Act" and in the case before Hon'ble Bombay High Court, there was no dispute that the conditions of s. 53A were satisfied. In other words, the proposition laid down by their Lordships can at best be inferred as that when conditions under s. 53A are satisfied, and when the assessee enters into a contract which is a development agreement, in the garb of agreement of sale, it is the date of this development agreement which is material date to decide the date of transfer. However, by no stretch of logic, this legal precedent can support the proposition that all development agreements, in all situations, satisfy the conditions of s. 53A which is a sine qua non for invoking s. 2(17)(v). 15. In order to invoke the principles' laid down by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia, it is, therefore, necessary to demonstrate that the conditions under s. 53A of the Transfer of Property Act are satisfied. This section is reproduced below for ready reference: "Sec. 53A: Part performance-Where any person contracts to transfer for consideration any immovable property by writing signed by him ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sferee always abides by the terms of the agreement and is willing to perform his part of the contract. Part performance, as a statutory right, is conditioned upon the transferee's willingness to perform his part of the contract in terms covenanted thereunder. Willingness to perform the roles ascribed to a party in a contract is primarily a mental disposition. However, such willingness in the context of s. 53A of the Act has to be absolute and unconditional. If willingness is studded with a condition, it is in fact no more than an offer and cannot be termed as willingness. When the vendee company expresses its willingness to pay the amount, provided the (vendor) clears his income tax arrears, there is no complete willingness but a conditional willingness or partial willingness which is not sufficient... In judging the willingness to perform, the Court must consider the obligations of the parties and the sequence in which these are to be performed......" 18. We are in considered agreement with the views so expressed in this commentary on the provisions of the Transfer of Property Act. It is thus clear that 'willingness to perform' for the purposes of s. 53A is someth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....after the consent terms were arrived at before the Hon'ble High Court, it is not necessary to go into whether or not the transferee was 'willing to perform' his obligation under these consent terms, it is sufficient to take note of the fact that the matter travelled to Hon'ble High Court in the year 2001, i.e. much after the end of the relevant previous year. When transferee, by his conduct and by his deeds, demonstrates that he is unwilling to perform his obligations under the agreement, the date of agreement ceases to be relevant. In such a situation, it is only the actual performance of transferee's obligations which can give rise to the situation envisaged in s. 53A of the Transfer of Property Act. On these facts, it is not possible to hold that the transferee was willing to perform his obligations in the financial year 1995-96 in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down under s. 53A of the Transfer of Property Act was not satisfied. Once we come to the conclusion that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression under s. 53A o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e factual inconsistencies and glaring errors. At one stage, the AO states that the seven cheques of Rs. 8,78,478/- each, out of these cheques two these cheques two cheques remained unencashed, were received by the assessee in May, 1996 which was at the end of the relevant financial year, but then the AO also includes the value of these cheques in the amounts said to have been received in the financial year 1995-96 itself. In this letter itself, the AO himself refers to the MoU dt. 12th Oct., 1995, and, therefore, it is clear that the AO was aware of the contents of this agreement which, inter alia, laid down that Rs.. 2,80,00,000/- was to be paid by the transferee within the same financial year, and yet, having noted that only Rs. 73,92,380/- was received by the assessee in the relevant financial year, concludes that this agreement was given effect to. There was no material before the AO to infer that the transferee had performed, or was willing to perform his obligations under the agreement, and yet he concludes that the conditions of s. 53A are satisfied. On the contrary, there was material on record to suggest that the transferee has not, and is not willing to, perform his oblig....