Azad Zabarchand Bhandari v. Asstt. CIT

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2013 TaxPub(DT) 2086 (Mum-Trib) : (2013) 058 SOT 0347 Income Tax Act, 1961 --Capital gains--Transfer under section 2(47) Recognition of date of transfer from date of agreement vis-a-vis date of transfer of possession of property--Assessee builder had entered into an agreement for selling the property on 16-3-2005 and possession was given to the developer on 20-9-2005. Assessee taking the view that the transfer, within the meaning of section 2(47) read with section 53A the Transfer of property Act, had taken place on 29-9-2005 i.e. in the financial year 2005-06 relevant to assessment year 2006-07 and the assessee having invested a sum of Rs. 25 lakhs in December, 2005, it claimed deduction thereof under section 54EC. Assessing officer held that the transfer had taken place on the date of agreement on 16-3-2005, in the assessment year 2005-06 and therefore, denied deduction under section 54EC as amount was not invested within 6 months from date of transfer. Assessing officer, however, admitted the taxability of entire sale proceeds in assessment year 2006-07. *Held:* It is well-settled that in order to bring the sale proceeds to tax under the head 'Capital Gains' transfer of the property has to take place in the relevant previous year and in order to come to the conclusion that the transfer has taken place within section 2(47)(v) read with section 53A of Transfer of Property Act twin conditions have to be satisfied, i.e., execution of the agreement and handing over of possession. It is not necessary that both conditions should be satisfied in one year but at the same time only upon satisfying the second condition also, it would amount to transfer. The Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT 2003 TaxPub(DT) 1029 (Bom-HC) : (2003) 260 ITR 491 (Bom) has decided the issue that in the guise of agreement of sale, a development agreement was contemplated, whereby the developer was held to have taken possession on account of the irrevocable licence granted to him to enter upon the property, whereas in the instant case no such finding was given by the tax authorities. In fact, the Commissioner (Appeals) opined that the date of handing over of possession in the instant case was 20-9-2005, and based on this factual premise, it had to be held that the transfer had taken place in the previous year relevant to assessment year 2006-07. Reckoned from the date of possession, i.e., 20-9-2005, the assessee having invested the money within six months in long-term specified asset, the benefit of exemption under section 54EC deserves to be extended to the assessee in the instant case. Income Tax Act, 1961 Section 2(47) Income Tax Act, 1961 Section 54EC Transfer of Property Act Section 53A In the ITAT, Mumbai a Bench D. Manmohan, V. P. & Sanjay Arora, A. M. Azad Zabarchand Bhandari v. Asstt. CIT IT Appeal No. 7800 (Mum.) of 2011 A.Y. 2006-07 26 April, 2013 Appellant by : J. G. Arora Respondent by : Neeraja Pradhan ORDER *D. Manmohan, V.P.* This appeal by the assessee is directed against the order dated 16-8-2011 passed by Commissioner (Appeals)-30, Mumbai and it pertains to assessment year 2006-07. 2. The assessee is admittedly engaged in the activity of development of plots/houses as builder. Assessee entered into an agreement for selling the property at Caddle Road on 16-3-2005. According to the assessee possession was given to the developer on 20-9-2005 which falls in the accounting year relevant to assessment year 2006-07 and going by the clauses in the agreement the assessee held the view that the transfer, within the meaning of section 2(47) of the Income Tax Act read with section 53 A of the Transfer of Property Act, took place in the financial year 2005-06 relevant to assessment year 2006-07 and the assessee having invested a sum of Rs. 25 lakhs in December, 2005, it claimed deduction thereof under section 54EC of the Act. The assessing officer was, however, of the view that the assessee having entered into contract with the builder on 16-3-2005, the transfer is deemed to have taken place in the previous year relevant to assessment year 2005-06 and hence assessee is not entitled to claim deduction under section 54EC of the Act in the year under consideration. In response to a show cause notice the assessee submitted that the assessee is entitled to invest the whole or any part of the capital, upon transfer of long term capital assets, within a period of six months after the date of such transfer. Reference was also made to clause 7 of the Articles of agreement to state that the owners, i.e. the assessee and another, deposited all the original title deeds and documents of the said property with M/s. ALN Khatri & Co. Advocates and Solicitors, who shall hold the same as escrow agents till the time of payment under clause 2(c) of the agreement and thereafter hand over the documents to M/s. Purnanand & Co., Advocates and Solicitors of the developer. Thus the property would remain with the assessee till the developer pays the entire consideration. In the instant case a sum of Rs. 7,75,000 to each owner is payable before execution of this agreement, i.e. before 16-3-2005 and within three months from execution of the agreement a sum of Rs. 10 lakhs is payable to Mr. Bharat V. Gada, one of the co-owners and Rs. 40 lakhs in favour of Shri Azad Z. Bhandari, the assessee herein. Thereafter, within six month, a sum of Rs. 50 lakhs is payable to Shri Bharat V. Gade and Rs. 20 lakhs to Shri Azad Z. Bhandari. The balance consideration of Rs. 10 lakhs each is payable to the owners simultaneously against completion of the sale and execution of Deed of Conveyance in favour of the nominees of the developer. Time for payment of the above consideration is the essence of the contract. It was therefore contended that till the payment is made the developer could not have taken possession. Unless both the conditions, i.e. execution of agreement and giving possession, are satisfied it cannot be treated as a transfer within the meaning of section 2(47) of the Act. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 2086 (Mum-Trib) : (2013) 058 SOT 0347

Income Tax Act, 1961

--Capital gains--Transfer under section 2(47) Recognition of date of transfer from date of agreement vis-a-vis date of transfer of possession of property--Assessee builder had entered into an agreement for selling the property on 16-3-2005 and possession was given to the developer on 20-9-2005. Assessee taking the view that the transfer, within the meaning of section 2(47) read with section 53A the Transfer of property Act, had taken place on 29-9-2005 i.e. in the financial year 2005-06 relevant to assessment year 2006-07 and the assessee having invested a sum of Rs. 25 lakhs in December, 2005, it claimed deduction thereof under section 54EC. Assessing officer held that the transfer had taken place on the date of agreement on 16-3-2005, in the assessment year 2005-06 and therefore, denied deduction under section 54EC as amount was not invested within 6 months from date of transfer. Assessing officer, however, admitted the taxability of entire sale proceeds in assessment year 2006-07. Held: It is well-settled that in order to bring the sale proceeds to tax under the head 'Capital Gains' transfer of the property has to take place in the relevant previous year and in order to come to the conclusion that the transfer has taken place within section 2(47)(v) read with section 53A of Transfer of Property Act twin conditions have to be satisfied, i.e., execution of the agreement and handing over of possession. It is not necessary that both conditions should be satisfied in one year but at the same time only upon satisfying the second condition also, it would amount to transfer. The Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT 2003 TaxPub(DT) 1029 (Bom-HC) : (2003) 260 ITR 491 (Bom) has decided the issue that in the guise of agreement of sale, a development agreement was contemplated, whereby the developer was held to have taken possession on account of the irrevocable licence granted to him to enter upon the property, whereas in the instant case no such finding was given by the tax authorities. In fact, the Commissioner (Appeals) opined that the date of handing over of possession in the instant case was 20-9-2005, and based on this factual premise, it had to be held that the transfer had taken place in the previous year relevant to assessment year 2006-07. Reckoned from the date of possession, i.e., 20-9-2005, the assessee having invested the money within six months in long-term specified asset, the benefit of exemption under section 54EC deserves to be extended to the assessee in the instant case.

Income Tax Act, 1961 Section 2(47)

Income Tax Act, 1961 Section 54EC

Transfer of Property Act Section 53A

In the ITAT, Mumbai a Bench

D. Manmohan, V. P. & Sanjay Arora, A. M.

Azad Zabarchand Bhandari v. Asstt. CIT

IT Appeal No. 7800 (Mum.) of 2011

A.Y. 2006-07

26 April, 2013

Appellant by : J. G. Arora

Respondent by : Neeraja Pradhan

ORDER

D. Manmohan, V.P.

This appeal by the assessee is directed against the order dated 16-8-2011 passed by Commissioner (Appeals)-30, Mumbai and it pertains to assessment year 2006-07.

2. The assessee is admittedly engaged in the activity of development of plots/houses as builder. Assessee entered into an agreement for selling the property at Caddle Road on 16-3-2005. According to the assessee possession was given to the developer on 20-9-2005 which falls in the accounting year relevant to assessment year 2006-07 and going by the clauses in the agreement the assessee held the view that the transfer, within the meaning of section 2(47) of the Income Tax Act read with section 53 A of the Transfer of Property Act, took place in the financial year 2005-06 relevant to assessment year 2006-07 and the assessee having invested a sum of Rs. 25 lakhs in December, 2005, it claimed deduction thereof under section 54EC of the Act. The assessing officer was, however, of the view that the assessee having entered into contract with the builder on 16-3-2005, the transfer is deemed to have taken place in the previous year relevant to assessment year 2005-06 and hence assessee is not entitled to claim deduction under section 54EC of the Act in the year under consideration. In response to a show cause notice the assessee submitted that the assessee is entitled to invest the whole or any part of the capital, upon transfer of long term capital assets, within a period of six months after the date of such transfer. Reference was also made to clause 7 of the Articles of agreement to state that the owners, i.e. the assessee and another, deposited all the original title deeds and documents of the said property with M/s. ALN Khatri & Co. Advocates and Solicitors, who shall hold the same as escrow agents till the time of payment under clause 2(c) of the agreement and thereafter hand over the documents to M/s. Purnanand & Co., Advocates and Solicitors of the developer. Thus the property would remain with the assessee till the developer pays the entire consideration. In the instant case a sum of Rs. 7,75,000 to each owner is payable before execution of this agreement, i.e. before 16-3-2005 and within three months from execution of the agreement a sum of Rs. 10 lakhs is payable to Mr. Bharat V. Gada, one of the co-owners and Rs. 40 lakhs in favour of Shri Azad Z. Bhandari, the assessee herein. Thereafter, within six month, a sum of Rs. 50 lakhs is payable to Shri Bharat V. Gade and Rs. 20 lakhs to Shri Azad Z. Bhandari. The balance consideration of Rs. 10 lakhs each is payable to the owners simultaneously against completion of the sale and execution of Deed of Conveyance in favour of the nominees of the developer. Time for payment of the above consideration is the essence of the contract. It was therefore contended that till the payment is made the developer could not have taken possession. Unless both the conditions, i.e. execution of agreement and giving possession, are satisfied it cannot be treated as a transfer within the meaning of section 2(47) of the Act.