Income-Tax Officer, Ward-1, Puttur V. Wilfred D'Souza, Puttur

ITA 1418/BANG/2012

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1573 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-1969
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-10-2022
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIJU; M.K
• Assessee Lawyers: V.CHANDRESEKHAR
• Keywords: Capital asset; Capital Gains
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ‘C’, BANGALORE BEFORE SMT P. MADAHVI DEVI, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ITA No.1418(Bang) 2012 (Assessment years : 2008-09) Mr.Wilfred D’Souza, Prop: M/s Karnataka Cashew Corpn.and M/s Great India Finance Corpn., Kemmai, Puttur,D.K. Appellant PAN No.ABFPD3142C Vs The Income-tax Officer, Ward-I, Puttur. Respondent Assessee by : Shri V.Chandresekhar, Avocate Revenue by : Shri Biju, M.K. JCIT Date of hearing : 04-08-2014 Date of pronouncement : 22-08-2014 O R D E R PER SHRI ABRAHAM P GEORGE, AM: In this appeal filed by the assessee it is aggrieved that the CIT(A) confirmed the year of taxability of capital gains as assessment year 2008- 09. Assessee has raised one additional ground in which it assails the re- opening of assessment for the impugned assessment year. 2. Facts apropos are that the assessee who was running proprietary concerns in name of M/s Karnataka Cashew Corpn. and M/s ITA No.1418(Bang)2012 2 Great India Finance Corpn, failed to file return of income for the impugned assessment year. It seems the AO was having information on record about a transaction rendered by the assessee with one Mr.Rohan Monteiro, which would give rise to capital gains. A notice u/s 148 of the Act was issued and pursuant thereto, assessee had filed return on 118- 10-2010 declaring a loss of Rs.1,64,253/-. 3. Assessee had entered into an agreement on 10-02-1996 with one Shreshta family for purchasing 34.32 acres of land in Padavu & Kudupu village of Mangalore for a consideration of Rs.1.00 Crore. Out of the above sum assessee had paid Rs.69.00 lakhs during period 1995 to 1999. Despite the subsistence of the agreement with the assessee, Shreshta family thereafter sold the property to one Shri Guruswamy, in June 2006. Assessee had before the happening of this event filed a suit numbered O.S.No.100/2004 for specific performance and an injunction for restraining the Shreshta family from selling the land to a third party Interlocutory application was also filed alongwith original suit seeking temporary injunction which was rejected by the Court by its order dated 30-03-2005. Thereafter, assessee filed a Misc. Petition before the District Judge, against the dismissal of the IA, which was dismissed by the said Court on 19-10-2005. Assessee thereafter moved a Writ Petition before the Hon’ble High Court of Karnataka under Article 226 of the Constitution of India. ITA No.1418(Bang)2012 3 4. Meanwhile, Assessee on 15-09-2005 entered into an agreement with one Shri Rohan Monteiro for selling the land that he had contracted to acquire from Shreshta family and took an advance of Rs.1.00 lakh also. Shri Rohan Monteiro, who was acting on behalf of one M/s Mangalore Internet City(P)Ltd., later finding that Shreshta family had sold the property to Shri Guruswamy, in June 2006 entered in to an agreement with the said Shri Guruswami, for acquiring the said property for and on behalf of M/s Mangalore Internet City (P) Ltd., 5. Since assessee had a pre-existing agreement with Shreshta family for purchasing the subject property on which suits were filed by the assessee for specific performance, Mr.Rohan Monteiro, approached the asseseee for seeking withdrawal of the cases, so that the buyer of the property could enjoy peaceful possession. An agreement captioned as ‘Memorandum of Understanding’ was entered by the assessee with Mr.Rohan Monteiro, whereby he agreed for a consideration of Rs.2.32 Crores in lieu of assessee relinquishing his right in respect of the subject property viz.land at Padavu & Kudupu villages. The said agreement was entered on 01-10-2007. Pursuant to such agreement on 13-11-2007 assessee withdrew the cases filed by him relating to subject property. 6. The AO was of the opinion that the so called Memorandum of Understanding entered in the relevant previous year transferred the rights assessee had in the subject property to Shri Rohan Monteiro and ITA No.1418(Bang)2012 4 therefore, ought have returned the capital gains arising therefrom in the impugned assessment year. Assessee was put on notice why the capital gains arising on the agreement dated 01-10-2007 with Mr.Rohan Monteiro, should not be subject to tax in the impugned assessment year. Reply of the assessee was that the relinquishment of rights in respect of the subject property had happened only on 30-04-2008, when he received the final payment. As per the asseseee out of the total consideration of Rs.2.32 Crores a sum of Rs.2.00 lakhs was received in the previous year relevant to assessment year 2007-08, Rs.30.00 lakhs received during previous year relevant to assessment year 2008-09 and the balance of Rs.2.00 Crores received during the previous year relevant to assessment year 2009-10. As per the assessee the transfer could be deemed as complete only on 30-04-2008 when the last instalment of Rs.1.00 Crore out of the total consideration of Rs.2.32 Crores was received. Assessee also pointed out before the AO that the long term capital gains arising out of the transaction was offered by it as income in its return for assessment year 2009-10. Assessee also relied on a Deed dated 30-04-2008 purportedly surrendering possession of the subject property to Mr. Rohan Monteiro, in support of its contention that the capital gains could be assessed only in AY: 2009-10. 7. However, the AO was not impressed by the above reasonings of the assessee. According to him, assessee never enjoyed possession of ITA No.1418(Bang)2012 5 the property any time. Through the agreement dated 10-02-1996 with Shreshta family assessee had not received any possession. By this agreement assessee was only entitled to a right to get the property transferred to his name, on satisfactory completion of the conditions mentioned in the said agreement. Assessee’s application for temporary injection against Shreshta family was dismissed by the Court for the reason assessee was not in possession of the subject property As per the AO, through the agreement entered with Mr.Rohan Monteiro on 01- 10-2007 assessee had given up whatever rights he had in the said property. Though, part of the consideration was received by the assessee in a later year the amount stood crystallized. The assessee had earned the capital gains in the impugned assessment year. He thus, held the consideration of Rs.2.32 Crores received as exigible to capital gains in the impugned assessment year and accordingly, assessed the same. 8. In its appeal before the CIT(A), argument of the assessee was that he had agreed to deliver the original agreement entered with Shreshta family to Mr.Rohan Monteiro only on payment of the full consideration. Therefore, according to the assessee his rights over the property was extinguished only on the date of receipt of full consideration. As per the assessee the date of transfer was the date on which title was given. Mere withdrawal of a suit did not amount to relinquishment of the right or title. As per the assessee he would fall ITA No.1418(Bang)2012 6 within the purview of capital gains, only if there was a transfer within the meaning of sec.2(47) of the Act. Vide sub-clause(ii) of Sec.47 of the Act, a relinquishment of right would give rise to capital gains, but this event had occurred only on 30-04-2008. Thus, as per the assessee, the whole of the consideration was not exigible to capital gains tax in the impugned assessment year. 9. However, learned CIT(A) was not appreciative of the above contentions. According to him, the totality of the situation had to be seen. Claim of the assessee that it had handed over the original agreement with Shreshta family only on 30-04-2008 when the last part of the consideration was paid by Mr.Rohan Monteiro to him had no relevance, since the original agreement was cancelled. As per the CIT(A) decision of the Hon’ble Apex Court in the case of Alapati Venkatramiah Vs CIT (1965) 57 ITR 185, relied on by the assessee supported the view taken by the AO. He held that there was a transfer coming within the ambit of Sec.2(47) of the Act, 1961. He thus, sustained the addition of capital gains made by the AO. 10. Now before us, learned AR, first arguing on the additional ground, submitted that the reasons recorded for the re-opening was not in accordance with law. According to him, it was only on suspicion and there was no material on record for the re-opening. A reason to suspect would not be sufficient for effecting a re-opening. According to him, AO ITA No.1418(Bang)2012 7 should be able to demonstrate that there was reason to believe. Therefore, according to him, re-opening done by the AO for the impugned assessment year itself was bad. 11. Coming to the merits, learned AR submitted that the MOU entered by the assessee with Mr.Rohan Monteiro was no doubt in relevant previous year. However, according to him, a reading of the said MOU, a copy of which has been placed at page nos.97 to 109 clearly show that a sum of Rs.2.00 lakhs was paid to the assessee on 01-07- 2006 which fell in previous year 2006-07, relevant to assessment year 2007-08. Hence, according to him, even if the MOU was construed as something which transferred any rights, the capital gains if any, would be relatable only to assessment year 2007-08. Only a sum of Rs.30.00 lakhs was received by the assessee during the previous year relevant to the impugned assessment year. The balance of Rs.2.00 Crores was received by the assessee only in the previous year relevant to assessment year 2009-10. Assessee had returned the capital gains arising out of the transaction in assessment year 2009-10. The transaction whether considered in assessment year 2007-08,2008-09 or 2009-10 were revenue neutral. Further, according to him, the original agreement for sale entered by the assessee with Shreshta family was to be handed over to Mr.Rohan Monteiro, only at the time of settlement of full consideration, which happened in the succeeding assessment year. Possession was also ITA No.1418(Bang)2012 8 handed over only in the subsequent year. Thus, it was only an executory contract and the contract would fructify only when both the parties discharged their respective obligations Relying on paper book no.20 which is part of the original agreement dated 10-02-1996 entered by the assessee with Shreshta family, learned AR submitted that possession was handed over to the assessee by Shreshta family in 1996 itself. According to him, asseeee had handed over the possession to Shri Rohan Monteiro in the previous year relevant to assessment year 2009-10. Further, as per the learned AR capital gains ought not have been computed based on the MOU when outstanding obligations were there for both parties. Reliance was placed on the decision of the Hon’ble Apex Court in the case of CIT Vs Excel India Ltd., (2013) 93 DTR 457. 12. Per contra, learned DR submitted that there was no requirement of delivery of any document and right to receive the consideration as por the agreement entered by the assessee with Mr.Rohan Monteiro on 01-10-2007, crystallized on the very same day. According to him, assessee was never in possession of the subject property. The rights he received by virtue of his agreement dated 10-02- 1996 with Shreshta family was a right to get the property transferred to him for valuable consideration. Such right was in turn transferred by the assessee to Mr.Rohan Monteiro through his agreement dated 01-10- 2007. This gave rise to capital gains. Assessee had withdrew all the ITA No.1418(Bang)2012 9 suits for specific performance filed by him also in the relevant previous year. According to him, the transaction was not revenue neutral, since in subsequent assessment year vis-à-vis 2009-10, assessee had set off the whole of the capital gains against business loss. Thus, revenue was at a loss due to the shifting of year attempted by the assessee. 13. We have perused the orders and heard the rival contentions. There is no dispute that assessee had entered into an agreement with Shreshta family on 10-02-1996 for purchasing the subject property from them. There is also no dispute that out of Rs.1.00 Crore agreed, asseseee had paid Rs.69 Lakhs by 1999. Assessee itself had filed a suit for specific performance as per the said agreement and also an application for getting an injunction prohibiting them from selling the property to any another person. Thus, by virtue of agreement he had with Shreshta family, the assessee did receive a valuable of right in the subject property. Hon’ble Apex Court in the case of Shri Sanjeev Lal, Smt. Shail Motilal Vs CIT, 365 ITR 389 held as under at para 20 & 21 of its judgment, which is as under; “20. The question to be considered by this court is whether the agreement to sell which had been executed on December 27, 2002, can be considered as a date on which the property i.e the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immovable property, a right in personam is ITA No.1418(Bang)2012 10 created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose favour the right in personam is created, has a legitimate right to enforce specific performance of the agreement, if the vendor, for some reason is not executing the sale deed. Thus, by virtue of the agreement to sell some right is given by the vendor to the vendee. The question is whether the entire property can be said to have been sold at the time when an agreement to sell is entered into, in normal circumstances, the aforesaid question has to be answered in the negative. However, looking at the provisions of sec.2(47) of the Act, which defines the word ‘transfer’ in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of sec.2(47) defining the word ‘transfer’ is as under; “2(47) transfer in relation to a capital asset, includes- (ii) the extinguishment of any rights therein; or Now, in he light of the definition of ‘transfer’ as defined u/s 2(47) of the Act, it is clear that when any right in respect of any capital asset is extinguished and that right is transferred to someone, it would amount to transfer of a capital asset. In the light of the aforesaid definition, let us look at the facts of the present case where an agreement to sell in respect of a capital asset had been executed on ITA No.1418(Bang)2012 11 December 27, 2002 of Rs.15 lakhs had been received by way of earnest money. It is also not in dispute that the sale deed could not be executed because of pendency of the litigation between Shri Ranjeet Lal on the one hand and the appellants on the other as Shri Ranjeet Lal had challenged the validity of the will under which the property had developed upon the appellants. By virtue of an order passed in the suit filed by Shri Ranjeet Lal, the appellant were restrained from dealing with the said residential house and a law abiding citizen cannot be expected to violate the direction of a court by executing a sale deed in favour of a third party while being restrained from doing so. In the circumstances, for a justifiable reason, which was not within the control of the appellants, they could not execute the sale deed and the sale deed had been registered only on September 24, 2004, after the suit filed by Shri Ranjeet Lal, challenging the validity of the will, had been dismissed. In the light of the aforesaid fatcs and in view of the definition of the term ‘transfer’, one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and therefore, some right which he appellants had, in respect of the capital asset, in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in accordance with law. A right in personam had been created in favour of the vendee, in whose favour the agreement to sell had been executed and who had also paid Rs.15 lakhs by way of earnest money. No doubt, such contractual right can be surrendered or neutralized y the ITA No.1418(Bang)2012 12 parties through subsequent contract or conduct leading to no transfer of the property to the proposed vendee but that is not the case at hand”. 14. Thus, there cannot be any dispute that assessee had a valuable right in the subject property, by virtue of his agreement with Shreshta family. Vide his agreement dated 01-10-2007 with Mr Rohan Monteiro, assessee had relinquished the above right for claiming specific performance. One main plank of argument of the assessee is that major part of the consideration as per this agreement was still to be paid and during the relevant previous year only Rs.30.00 lakhs was paid. Another line of argument taken by assessee is that possession was not handed over and it was handed over only when substantial portion of the consideration was received in the subsequent year, along with the original agreement with Shreshta family. For resolving this issue, it is necessary to look at the pertinent clauses of the agreement dated 01-10- 2007 entered by the assessee with Mr Rohan Monteiro. Relevant part of the agreement is re-produced hereunder; “1. In pursuance of the aforesaid understanding the second party has paid to the first party a sum of Rs.2.00 Lakhs only by cheque No.009754 dated 01-07-2006 drawn on Karnataka Bank, Dongerkery branch, Mangalore, towards the advance consideration with regard to his claim on the schedule properties, receipt of which sum the first party acknowledges herewith. ITA No.1418(Bang)2012 13 2. It is agreed between the parties that the balance consideration of Rs.2,30,00,000 (Rs. Two Crore thirty lakhs only) shall be paid by the second party to the First Party within one year from this date, subject to withdrawal of the suit in O.S.No.100/2004 by the First Party and the Second Party shall obtain proper receipt from the First Party as and when the payment is made. 3. That in pursuance of the aforesaid understanding the first party has agreed to withdraw the suit in O.S.No.100/2004 which is pending before the II Addl.Civil Judge (Sr. Division) Mangalore. 4.That the first party hereby assures and declare that he will not make any claim of whatsoever nature in the schedule property or against the aforesaid previous owners with whom he had entered into agreement for sale and also against the present owners namely., M/s Mangalore Internet City(P)Ltd., 5. That the first party hereby assures and confirms with the second party that, except the above mentioned balance consideration of Rs.2.00 Crores only, the first party shall not make any additional claim with the second party or its aforesaid owners hereafter for any reason. 6. That the first party assures and confirms that he has not make any agreements, commitments, contracts and any other dealing in respect of the schedule properties with anybody by virtue of the aforesaid agreement for sale entered into between him and the Shreshta family and the schedule properties are free from all such acts deeds and ITA No.1418(Bang)2012 14 things. The first party further confirms that he had not initiated or pending any other legal proceeding relating to the schedule properties. 7. That the first party has agreed to deliver the original agreement for sale entered into between the first party and the aforesaid Shreshta family to the second party, at the time of settlement of entire consideration, as the same stands cancelled. In view of the aforesaid understanding”. 15. Pursuant to the above agreement, assessee had admittedly filed a withdrawal memo withdrawing O.S.No.100/2004 filed by him, copy of which has been placed at page nos.102 to 103. This was filed by him on 13-11-2007 and approved by the Court and these events also fell within the currency of the relevant previous year. Thus, assessee had complied with the conditions and discharged the obligations mentioned in agreement. The moment assessee complied with the obligations set out in the agreement it became an executed contract. What was left was only receiving the balance amount of the total consideration of Rs.2.32 Crores. In other words, there arose a debtor creditor relationship between the assessee and Mr.Rohan Monteiro, the moment assessee withdrew his suit for specific performance and made an application for settlement in the competent Court. Decision of the Hon’ble Apex Court in the case of Excel India Ltd.,(supra) by the learned AR only supports the case of the revenue. ITA No.1418(Bang)2012 15 Hon’ble Apex Court held that income would accrue and become due, only when there was a corresponding liability on the other party to pay the amount. Here, the moment assessee withdrew his claims over the subject property, Mr.Rohan Monteiro became legally bound to pay the balance consideration. Just because, payments were scheduled for a later year, would not in our opinion, change the position. Coming to the handing over of the earlier agreement for sale which has been relied on by the assessee, the relevant clause in the agreement with Mr.Rohan Monteiro, clearly mentions that the earlier agreement with Shreshta family stood cancelled. In any case, it was not a title deed. Assessee has been brought to capital gains tax not by virtue of clause(v) of Sec.2(47) but, by virtue of clause-ii of Sec.2(47). In other words, capital gains arose on relinquishment of a right. 16.Coming to the last aspect of possession, it is clear from paragraphs 36 of the order dated 30-03-2005 of Civil Judge, in the interlocutory application filed by the assessee for temporary injunction against Shreshta family which has been reproduced by the AO in the assessment order, that assessee was not having possession. The same is re-produced once again hereunder for better appreciation. “ 36. As per my detailed discussion vide the above point no.1, there are no sufficient materials on record to establish t he plaintiff’s (Mr. Wilfred D’Souza) prima facie possession over the suit properties. The draft agreement with fresh and modified proposals by the plaintiff to the ITA No.1418(Bang)2012 16 defendants (Shreshta family) clearly indicates that he is not prepared to abide by the terms and condition s of the original agreement. As per the materials on record, the agreement of sale between the parties has also been put to an end in 1998 itself. The RTC extracts produced by the defendants also reveals that they have been in actual, continuous and peaceful possession and enjoyment of the schedule properties. It is true the learned counsel for the plaintiff has argued that the presumptions with regard to the said RTC extracts are not conclusive and they are rebuttal. But as I have already discussed in details above, the plaintiff has not placed any material which contradicts the contends of these RTC extracts. Hence in the absence of anything to the contrary, at this stage the presumptions in respect if the RTC extracts are in favour of the defendants (The Shreshta family) in my opinion. Under these circumstances, I am of the opinion that the balance of convenience does not lie in the favour of the plaintiff and on the other hand it lies in favour of the defendants. Under the facts and circumstances of this case, no irreparable loss or injury will be caused to the plaintiff even if no order of temporary injunction is granted as prayed for. Because as I have repeatedly said when I do not find any satisfactory material to hold that the plaintiff is in physical and actual possession of the plain schedule property, no hardship will be caused to him if the order of temporary injunction is refused”. 17. Coming to the last line of argument taken by the learned counsel for the assessee that whether the capital gains whether offered in the current year or subsequent year, it is revenue neutral, in our opinion is not ITA No.1418(Bang)2012 17 acceptable. Learned CIT(A) clearly mentions in his order that in assessment year 2009-10 capital gains returned by the assessee Rs.94,80,066/- was adjusted against business loss of Rs.96,14,764 and this position has not been disputed. 17. Before leaving, it would be inappropriate if do not deal with the challenge to re-opening. Admittedly, assessee filed no return for the impugned assessment year. Notice was issued since the AO was having on record the agreement entered by the assessee with Mr Rohan Monteio. In such a situation, we cannot say that it was only a reason to suspect. AO had reason to believe that income escaped assessment. This reason has been clearly mentioned by him as well. Thus, we are of the opinion, that the challenge to re-opening has no legal legs to stand. 18. In the result, the appeal filed by the assessee is dismissed. Pronounced in the open court on 22-08-2014 Sd/- (P MADHAVI DEVI) Sd/- (ABRAHAM P GEORGE) JUDICAL MEMBER ACCOUNTANT MEMBER Bangalore: D a t e d : 22-08-2014 am* Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT ITA No.1418(Bang)2012 18 5 DR, ITAT, Bangalore. 6 Guard file By order AR, ITAT, Bangalore