DCIT Non Corporate Circle 9(1) , CHENNAI V. Anil Sheth , CHENNAI

ITA 1705/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5183 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 11-07-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: PETCHI
• Keywords: Deduction for capital gain; Capital asset; Business income; Search and seizure; Cost of acquisition
• Section: 54F; 12

Judgement Text

, (SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL A (SMC ) BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO. 1705/CHNY/2017 / ASSESSMENT YEAR : 2009-2010. THE DEPUTY COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 9(1) CHENNAI. VS. SHRI. ANIL SHETH, PROP. M/S. PRINCE MARBLES, NO.34, LANGS GARDEN ROAD, PUDUPET, CHENNAI 600 002. [PAN ADDPA 3880A ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI.B. SAGADEVAN, IRS, JCIT. /RESPONDENT BY : MS. PETCHI, C.A. /DATE OF HEARING : 07-06-2018 ! /DATE OF PRONOUNCEMENT : 11-06-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE REVENUE, WHICH IS DIR ECTED AGAINST AN ORDER DATED 28.04.2017 OF THE LD. COMMISSIONER O F INCOME TAX (APPEALS)-10, CHENNAI, IT IS AGGRIEVED ON A VIEW TA KEN BY LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT INCOME OF THE ASSESSEE ITA NO. 1705/CHNY/2017 :- 2 -: WAS TO BE CONSIDERED UNDER THE HEAD BUSINESS INCO ME AND NOT UNDER SHORT TERM CAPITAL GAINS. 2. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSI NESS OF MARBLES AND GRANITES HAD ENTERED INTO A JOINT DEVEL OPMENT AGREEMENT ON 23.01.2009 WITH ONE M/S. S & S SCAPES PVT. LTD FOR DEVELOPMENT OF AN PLOT OF LAND OWNED BY HIM BEARING NO.60, DOOR NO.D-6, 2 ND MAIN ROAD, NORTH JAGANATH NAGAR, VILLIVAKAM, CHENNAI-49 MEASURING 3440 SQ.FT. AS PER THE JOINT DEVELOPMENT AGREEMENT, DEV ELOPER WAS TO CONSTRUCT A BUILDING AND ALLOT 54% OF THE BUILT UP AREA TO THE ASSESSEE WHILE RETAINING 46% TO ITSELF. ASSESSEE WAS PAID A REFUNDABLE DEPOSIT OF RS.22,00,000/- BY THE DEVELOPER. POSSESSION OF THE PROPERTY WAS HANDED OVER ON THE DATE OF JOINT DEVELOPMENT AGREE MENT FOR MAKING CONSTRUCTION THEREIN. LD. ASSESSING OFFICER WAS OF THE OPINION THAT THERE WAS A TRANSFER COMING WITHIN THE MEANING OF S ECTION 2(47) (V) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND ASSESSEE WAS LIABLE TO PAY TAX ON CAPITAL GAINS ARISING FROM SUCH TRANS FER. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. ITS REPLY WENT AS UNDER;- 1. THE LAND AT VILLIWAKKAM HAS BEEN PURCHASED ON 14.09.2006. 2. THE LAND WAS GIVEN FOR JOINT-VENTURE TO MRS. S & S SCAPES PVT LTD, VIDE JOINT VENTURE AGREEMENT ON 23.01.2009. 3. THE LAND WAS GIVEN FOR' DEVELOPMENT ON 46:54 BASIS. THEREFORE 5 FLATS ARE GIVEN AS THE SHARE OF THE ASSESSEE IN EXCHANGE FOR 46% SHARE OF LAND GIVEN TO THE BUILDER. THIS ITA NO. 1705/CHNY/2017 :- 3 -: ,AGREEMENT IS ENTERED ON 23.01.2009. 4. THE ADVANCE GIVEN BY THE DEVELOPER HAS ERRONEOUSLY OFFSET AGAINST THE LAND AND THERE IS ANOTHER ERROR OF RS. 2 LAKHS RECEIVED HAS ERRONEOUSLY WRONGLY SHOWN AGAINS T THE LAND INSTEAD OF GIVING CREDIT TO THE OTHER ACCOUNT AND THEREFORE THERE IS A CREDIT ENTRY OF RS. 2 LAKHS SHOWN UNDER UNSECURED LOANS IN THE BALANCE SHEET DRAWN ON 31.03.2009. (I.E. ASST. YR. 2009-10). 5. THIS ERROR WAS RECTIFIED IN 2009-10 F. YR. AND THE LAND WAS SHOWN IN THE BALANCE SHEET UNDER ASSETS COLUMN. 6. THERE IS A SALE OF 1 APARTENT ON 21.01.2010 WHICH WAS SHOWN AS UNDER PROJECT SALES TO THE TUNE OF RS. 22,75,000/- (A COPY IS ENCLOSED). NO COST OF CONSTR UCTION IS TAKEN INTO ACCOUNT WHEREAS THE ENTIRE SALE PROCEEDS RECEIVED TOWARDS SALE OF APARTMENT IS SHOWN IN TRAD ING ACCOUNT, I. E., UNDIVIDED SHARE OF LAND VALUED AT RS. 2,25,000/- HAS BEEN SHOWN AS THE DEDUCTION FROM LAN D AND THE BALANCE OF RS. 19,75,000/- IS SHOWN IN BALANCE SHEET UNDER ASSETS COLUMN DURING THE F. Y 2009-10. 7. THE UNDIVIDED SHARE OF LAND SOLD WAS SHOWN UNDER LO NG TERM CAPITAL GAINS DURING THE F. Y 2009-10. 8. OUT OF RS. 24,67,490/-, RS.1,92,490/- IS RETAINED B Y THE BUILDER TOWARDS E.B AND OTHER MISCELLANEOUS EXPENSE S RETAINED BY THEM AND RS. 18 LAKHS IS RECEIVED AND RS. 7 LAKHS IS ADJUSTED AGAINST ADVANCE PAYMENT RECEIVED FROM THE BUILDER DURING THE F. Y 2008-09. 9. AFTER THE ADVANCE RECEIVED FROM THE BUILDER IS ADJUSTED TO THE TUNE OF RS. 7 LAKHS THE BALANCE OF RS. 15 LAKHS IS RETURNED TO THE BUILDER BY WAY OF CHQ. DURING THE F . Y 2010-11 .. (A COPY OF LEDGER IS ENCLOSED) 10. THE BALANCE OF 4 FLATS WAS SHOWN UNDER CLOSING STOCK DURING THE FY 2009-10, 2010-11, 2011-12,2012-13,2013- 14. ASSESSEE WAS ALSO REQUIRED TO EXPLAIN HOW ITS CLAIM FOR EXEMPTION U/S.54F OF THE ACT WAS JUSTIFIED. REPLY OF THE ASS ESSEE ON THIS ASPECT WAS AS UNDER:- ITA NO. 1705/CHNY/2017 :- 4 -: 'THE PROPERTY IS GIVEN FOR JOINT DEVELOPMENT ON 23/01/2009 WITH AN AGREEMENT TO AUTHORIZE THEM TO DEVELOP AND CONSTRUCT A NEW BUILDING AT PLOT NO. 60 , DOOR NO, 0-6, OLD NO. 60, 2 ND MAIN ROAD, NORTH JAGANNATHAN NAGAR, VILLIVAKKAM, CHENNAI - 600049. THE AGREEMENT IS MADE WITH THE FOLLOWING TERMS. THE DEVELOPERS WILL HOLD 46% OF BUILD UP PLINTH ARE A AND GIVE 54% OF BUILD UP PLINTH AREA TO THE OWNER OF TH E PROPERTY I. E. ME. DURING THE F. Y. 2009-10 OUT OF 54% OF MY SHARE I H AVE SOLD AN APARTMENT AND SAME IS SHOWN AS CONTRACT REC EIPT IN MY INCOME AND EXPENDITURE ACCOUNT, SINCE THIS IS A BUSINESS TRANSACTION AND THE BALANCE APARTMENTS ARE SHOWN IN THE CLOSING STOCK DURING F. Y. 2009-10. THESE APARTMENTS, WHICH IS OF MY SHARE IS NOT MY RESIDENTIAL PURPOSE AND IT IS FOR SALE. HENCE IT IS SHOWN AS BUSINESS INCOME DURING THE F. Y. 2009-10 TO THE EXTENT OF SALE MADE AND THE BALANCE IS SHOWN AS CLOSING ST OCK. DURING THE FINANCIAL YEAR 2010-11, I HAVE SOLD MY LAND AT PLOT NO. 12/2, 12/3, 12/4 AND 12/5 OF KOVALAM VILLAGE, CHENGLEPET TALUK, KANCHIPURAM DIST. AND OUT OF THE CAPITAL GAIN I HAVE INVESTED IN FLAT AT DOOR NO. 100 TO 102, EGMORE, EGMORE NUNGAMBAKKAM TALUK, CHENNAI. THIS APARTMENT IS MEANT FOR MY RESIDENTIAL PURPOSE. THEREFORE I HAVE CLAIMED EXEMPTION U/S 54F DURING T HE F. Y. 2010- 11. THEREFORE I REQUEST YOU TO CONSIDER THE ABOVE FACTS AND REQUEST TO ALLOW CAPITAL GAIN EXEMPTION U/S 54F FOR THE INVESTMENT MADE BY ME FOR MY RESIDENTIAL PROPERTY A T DOOR NO.L00 TO 102, EGMORE, EGMORE NUNGAMBAKKAM TALUK, CHENNAI.' 3. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED BY THE ABOVE REPLIES. ACCORDING TO HIM, THERE WAS A TRANS FER WHEN ASSESSEE ENTERED INTO A JOINT DEVELOPMENT AGREEMENT AND HAND ED OVER POSSESSION TO THE DEVELOPER. FURTHER, AS PER THE LD . ASSESSING OFFICER, ITA NO. 1705/CHNY/2017 :- 5 -: NATURE OF BUSINESS OF THE ASSESSEE AS GIVEN IN FOR M 3CB SUBMITTED BY IT WAS TRADING OF MARBLES/GRANITES. LD. ASSESS ING OFFICER TOOK A VIEW THAT THE GAINS ARISING FROM TRANSFER WAS SHORT TE RM CAPITAL GAINS AND NOT BUSINESS INCOME. TOTAL COST OF THE PROJECT AS CONFIRMED BY THE MANAGING DIRECTOR OF M/S. S & S SCAPES PVT. LTD WAS RS.96,00,000/-. SHORT TERM CAPITAL GAINS WAS WORKED OUT BY THE LD. ASSESSING OFFICER AS UNDER:- TOTAL DEEMED SALE CONSIDERATION OF PROPERTY = 54% OF 96 LAKHS = 51,84,000/- LESS: COST OF 46% OF LAND PURCHASED = 46% OF 22 LAKHS = 10,12,000/- 41,72,000/- 4. ASSESSEES APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS SUCCESSFUL. AS PER THE LD. COMMISSIO NER OF INCOME TAX (APPEALS), ASSESSEE WAS DECLARING ITS INCOME FROM THE PROJECTS UNDER THE HEAD BUSINESS FROM ASSESSMENT YEAR 2011-12 ONWA RDS. LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASS ESSEE HAD DECLARED THE SALE PROCEEDS UNDER THE HEAD BUSINESS INCOME, AND WAS ENGAGED IN THE BUSINESS OF PROMOTING APARTMENTS. LD . COMMISSIONER OF INCOME TAX (APPEALS) TOOK A VIEW THAT TERMS OF T HE JOINT DEVELOPMENT AGREEMENT INDICATED ASSESSEES INTENTIO N TO DO BUSINESS. ITA NO. 1705/CHNY/2017 :- 6 -: HE DIRECTED THE LD. ASSESSING OFFICER TO CONSIDER T HE INCOME UNDER THE HEAD INCOME FROM BUSINESS AND NOT AS SHORT TERM CAP ITAL GAINS. 5. NOW BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT ASSESSEE WAS NEVER ENGAGED IN THE BU SINESS OF SALE OF FLATS OR PROPERTY. AS PER THE LD. DEPARTMENTAL RE PRESENTATIVE, THE TRANSACTION CONSIDERED BY LD. ASSESSING OFFICER WAS THE ONLY ONE ENTERED BY THE ASSESSEE, IN RELATION TO ANY IMMOVA BLE PROPERTY, UPTO AND INCLUDING THE IMPUGNED ASSESSMENT YEAR. THUS, A CCORDING TO THE LD. DEPARTMENTAL REPRESENTATIVE, ASSESSEE HAD NO INTENTION TO DO A BUSINESS IN REAL ESTATE. FURTHER, AS PER THE LD. D EPARTMENTAL REPRESENTATIVE, ASSESSEE HAD IN ITS OWN RETURN CLAI MED TO BE A TRADER OF MARBLES AND GRANITES. THUS, AS PER THE LD. DEP ARTMENTAL REPRESENTATIVE, LD. COMMISSIONER OF INCOME TAX (APP EALS) FELL IN ERROR IN DIRECTING THE LD. ASSESSING OFFICER TO CONSIDER THE INCOME UNDER THE HEAD INCOME FROM BUSINESS/PROFESSION. 6. PER CONTRA, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THERE WAS NO TRANSFER DURING THE RELEVANT PREVIOUS YEAR SINCE JOINT DEVELOPMENT AGREEMENT WAS NOT REGISTERED. FURTHER, ACCORDING TO HER, NO POWER OF ATTORNEY WAS EXECUTED BY THE ASSESSEE IN FAVOUR OF THE ITA NO. 1705/CHNY/2017 :- 7 -: DEVELOPER. RELYING ON CLAUSE NO.25 OF THE JOINT DE VELOPMENT AGREEMENT, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE REMAINED THE SOLE OWNER OF THE PROPERTY. ACCORDING TO HER, VACANT POSSESSION WAS GIVEN ONLY FOR DEVELOPING THE PROPER TY. THERE BEING NO TRANSFER, AS PER THE LD. AUTHORISED REPRESENTATI VE, THERE COULD HAVE BEEN NO ASSESSMENT UNDER THE HEAD INCOME FROM CAPIT AL GAINS OR ANY OTHER HEAD. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. BALBIR SINGH MAINI, 398 ITR 531 . 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. FUNDAMENTAL ISSUE WHICH HAS BEEN RAISED BY THE LD. AUTHORISED REPRESENTATIVE IS THAT THERE WAS NO TRANSFER FALLING WITHIN THE MEANING OF SECTION2(47) OF THE ACT DURING THE RELEVANT ASSESSMENT YEAR AND THEREFORE THERE CO ULD NOT HAVE BEEN ANY INCOME FOR THE ASSESSEE UNDER THE HEAD SHORT TE RM CAPITAL GAINS OR FOR THAT MATTER ANY OTHER HEAD. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF BA LBIR SINGH MAINI (SUPRA). THEIR LORDSHIPS IN THE ABOVE CASE HAD CLE ARLY HELD THAT THERE CAN BE NO TRANSFER WITHOUT REGISTERING THE DOCUMENT SIGNIFYING THE TRANSFER. WHAT WAS HELD BY THEIR LORDSHIPS AT PARA 17 TO 28 IS REPRODUCED HEREUNDER:- ITA NO. 1705/CHNY/2017 :- 8 -: 17. THE RELEVANT SECTIONS THAT ARE NECESSARY FOR US TO DECIDE THE PRESENT MATTER ARE AS UNDER: TRANSFER OF PROPERTY ACT 53A. PART PERFORMANCE. - WHERE ANY PERSON CONTRACT S TO TRANSFER FOR CONSIDERATION ANY IMMOVEABLE PROPERTY BY WRITING SIGNED BY HIM OR ON HIS BEHALF FROM WHICH THE TERMS NECESSARY TO CONSTITUTE THE TRANSFER CAN BE ASCERTAINED WITH REASONABLE CERTAINTY, AND THE TRANSFEREE HAS, IN PART PERFORMA NCE OF THE CONTRACT, TAKEN POSSESSION OF THE PROPERTY OR ANY P ART THEREOF, OR THE TRANSFEREE, BEING ALREADY IN POSSESSION, CON TINUES IN POSSESSION IN PART PERFORMANCE OF THE CONTRACT AND HAS DONE SOME ACT IN FURTHERANCE OF THE CONTRACT, AND THE TR ANSFEREE HAS PERFORMED OR IS WILLING TO PERFORM HIS PART OF THE CONTRACT, THEN, NOTWITHSTANDING THAT WHERE THERE IS AN INSTRU MENT OF TRANSFER, THAT THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESCRIBED THEREFORE BY THE LAW FOR THE TIME BEING IN FORCE, THE TRANSFEROR OR ANY PERSON CLAIMING UNDER HIM SHALL BE DEBARRED FROM ENFORCING AGAINST THE TRANSFEREE AND PERSONS CLAIMING UNDER HIM ANY RIGHT IN RESPECT OF THE PROP ERTY OF WHICH THE TRANSFEREE HAS TAKEN OR CONTINUED IN POSS ESSION, OTHER THAN A RIGHT EXPRESSLY PROVIDED BY THE TERMS OF THE CONTRACT: PROVIDED THAT NOTHING IN THIS SECTION SHALL AFFECT THE RIGHTS OF A TRANSFEREE FOR CONSIDERATION WHO HAS NO NOTICE OF T HE CONTRACT OR OF THE PART PERFORMANCE THEREOF.] INCOME TAX ACT SECTION 2 - DEFINITIONS IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES, - (47) 'TRANSFER', IN RELATION TO A CAPITAL ASSET, IN CLUDES, - (I) TO (IV) XXX XXX XXX (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN P ART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 188 2) ; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREE MENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING, OR ENABLING THE ENJ OYMENT OF, ANY IMMOVABLE PROPERTY. ITA NO. 1705/CHNY/2017 :- 9 -: 45. CAPITAL GAINS - (1) ANY PROFITS OR GAINS ARISIN G FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOU S YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTIONS 54, 54B, 54D , 54E, 54EA, 54EB, 54F, 54G AND 54H, BE CHARGEABLE TO INCO ME-TAX UNDER THE HEAD CAPITAL GAINS, AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER T OOK PLACE. 48. MODE OF COMPUTATION - THE INCOME CHARGEABLE UND ER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTIN G FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: 18. SECTION 53A, AS IS WELL KNOWN, WAS INSERTED BY THE TRANSFER OF PROPERTY AMENDMENT ACT, 1929 TO IMPORT INTO INDI A THE EQUITABLE DOCTRINE OF PART PERFORMANCE. THIS COURT HAS IN SHRIMANT SHAMRAO SURYAVANSHI & ANR. V. PRALHAD BHAI ROBA SURYAVANSHI (D) BY LRS. & ORS., (2002) 3 SCC 676 AT 682 STATED AS FOLLOWS: 16. BUT THERE ARE CERTAIN CONDITIONS WHICH ARE REQ UIRED TO BE FULFILLED IF A TRANSFEREE WANTS TO DEFEND OR PROTEC T HIS POSSESSION UNDER SECTION 53- A OF THE ACT. THE NECE SSARY CONDITIONS ARE: (1) THERE MUST BE A CONTRACT TO TRANSFER FOR CONSID ERATION OF ANY IMMOVABLE PROPERTY; (2) THE CONTRACT MUST BE IN WRITING, SIGNED BY THE TRANSFEROR, OR BY SOMEONE ON HIS BEHALF; (3) THE WRITING MUST BE IN SUCH WORDS FROM WHICH TH E TERMS NECESSARY TO CONSTRUE THE TRANSFER CAN BE ASCERTAIN ED; (4) THE TRANSFEREE MUST IN PART-PERFORMANCE OF THE CONTRACT TAKE POSSESSION OF THE PROPERTY, OR OF ANY PART THE REOF; (5) THE TRANSFEREE MUST HAVE DONE SOME ACT IN FURTH ERANCE OF THE CONTRACT; AND (6) THE TRANSFEREE MUST HAVE PERFORMED OR BE WILLIN G TO PERFORM HIS PART OF THE CONTRACT. 19. IT IS ALSO WELL-SETTLED BY THIS COURT THAT THE PROTECTION PROVIDED UNDER SECTION 53A IS ONLY A SHIELD, AND CA N ONLY BE ITA NO. 1705/CHNY/2017 :- 10 -: RESORTED TO AS A RIGHT OF DEFENCE. SEE RAMBHAU NAMD EO GAJRE V. NARAYAN BAPUJI DHGOTRA (DEAD) THROUGH LRS. (2004 ) 8 SCC 614 AT 619, PARA 10. AN AGREEMENT OF SALE WHICH FUL FILLED THE INGREDIENTS OF SECTION 53A WAS NOT REQUIRED TO BE E XECUTED THROUGH A REGISTERED INSTRUMENT. THIS POSITION WAS CHANGED BY THE REGISTRATION AND OTHER RELATED LAWS (AMENDMENT) ACT, 2001. AMENDMENTS WERE MADE SIMULTANEOUSLY IN SECTIO N 53A OF THE TRANSFER OF PROPERTY ACT AND SECTIONS 17 AND 49 OF THE INDIAN REGISTRATION ACT. BY THE AFORESAID AMENDMENT , THE WORDS THE CONTRACT, THOUGH REQUIRED TO BE REGISTER ED, HAS NOT BEEN REGISTERED, OR IN SECTION 53A OF THE 1882 ACT HAVE BEEN OMITTED. SIMULTANEOUSLY, SECTIONS 17 AND 49 OF THE 1908 ACT HAVE BEEN AMENDED, CLARIFYING THAT UNLESS THE DOCUM ENT CONTAINING THE CONTRACT TO TRANSFER FOR CONSIDERATI ON ANY IMMOVABLE PROPERTY (FOR THE PURPOSE OF SECTION 53A OF 1882 ACT) IS REGISTERED, IT SHALL NOT HAVE ANY EFFECT IN LAW, OTHER THAN BEING RECEIVED AS EVIDENCE OF A CONTRACT IN A SUIT FOR SPECIFIC PERFORMANCE OR AS EVIDENCE OF ANY COLLATERAL TRANSA CTION NOT REQUIRED TO BE EFFECTED BY A REGISTERED INSTRUMENT. SECTION 17(1A) AND SECTION 49 OF THE REGISTRATION ACT, 1908 ACT, AS AMENDED, READ THUS: 17(1A). THE DOCUMENTS CONTAINING CONTRACTS TO TRAN SFER FOR CONSIDERATION, ANY IMMOVABLE PROPERTY FOR THE PURPO SE OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 ( 4 OF 1882) SHALL BE REGISTERED IF THEY HAVE BEEN EXECUTED ON O R AFTER THE COMMENCEMENT OF THE REGISTRATION AND OTHER RELATED LAWS (AMENDMENT) ACT, 2001 AND IF SUCH DOCUMENTS ARE NOT REGISTERED ON OR AFTER SUCH COMMENCEMENT, THEN THEY SHALL HAVE NO EFFECT FOR THE PURPOSES OF THE SAID SECTION 53A. 49. EFFECT OF NON-REGISTRATION OF DOCUMENTS REQUIR ED TO BE REGISTERED. NO DOCUMENT REQUIRED BY SECTION 17 OR B Y ANY PROVISION OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1882), TO BE REGISTERED SHALL- (A) AFFECT ANY IMMOVABLE PROPERTY COMPRISED THEREIN , OR (B) CONFER ANY POWER TO ADOPT, OR (C) BE RECEIVED AS EVIDENCE OF ANY TRANSACTION AFFE CTING SUCH PROPERTY OR CONFERRING SUCH POWER, UNLESS IT HAS BE EN REGISTERED: PROVIDED THAT AN UNREGISTERED DOCUMENT AFFECTING IM MOVABLE PROPERTY AND REQUIRED BY THIS ACT OR THE TRANSFER O F PROPERTY ACT, 1882 (4 OF 1882), TO BE REGISTERED MAY BE RECE IVED AS EVIDENCE OF A CONTRACT IN A SUIT FOR SPECIFIC PERFO RMANCE UNDER CHAPTER II OF THE SPECIFIC RELIEF ACT, 1887 (1 OF 1 877) OR AS EVIDENCE OF ANY COLLATERAL TRANSACTION NOT REQUIRED TO BE EFFECTED BY REGISTERED INSTRUMENT. ITA NO. 1705/CHNY/2017 :- 11 -: 20. THE EFFECT OF THE AFORESAID AMENDMENT IS THAT, ON AND AFTER THE COMMENCEMENT OF THE AMENDMENT ACT OF 2001, IF A N AGREEMENT, LIKE THE JDA IN THE PRESENT CASE, IS NOT REGISTERED, THEN IT SHALL HAVE NO EFFECT IN LAW FOR THE PURPOSE S OF SECTION 53A. IN SHORT, THERE IS NO AGREEMENT IN THE EYES OF LAW WHICH CAN BE ENFORCED UNDER SECTION 53A OF THE TRANSFER O F PROPERTY ACT. THIS BEING THE CASE, WE ARE OF THE VIEW THAT T HE HIGH COURT WAS RIGHT IN STATING THAT IN ORDER TO QUALIFY AS A TRANSFER OF A CAPITAL ASSET UNDER SECTION 2(47)(V) OF THE ACT, TH ERE MUST BE A CONTRACT WHICH CAN BE ENFORCED IN LAW UNDER SEC TION 53A OF THE TRANSFER OF PROPERTY ACT. A READING OF SECTION 17(1A) AND SECTION 49 OF THE REGISTRATION ACT SHOWS THAT IN TH E EYES OF LAW, THERE IS NO CONTRACT WHICH CAN BE TAKEN COGNIZ ANCE OF, FOR THE PURPOSE SPECIFIED IN SECTION 53A. THE ITAT WAS NOT CORRECT IN REFERRING TO THE EXPRESSION OF THE NATURE REFER RED TO IN SECTION 53A IN SECTION 2(47)(V) IN ORDER TO ARRIVE AT THE OPPOSITE CONCLUSION. THIS EXPRESSION WAS USED BY TH E LEGISLATURE EVER SINCE SUB-SECTION (V) WAS INSERTED BY THE FINANCE ACT OF 1987 W.E.F. 01.04.1988. ALL THAT IS MEANT BY THIS EXPRESSION IS TO REFER TO THE INGREDIENTS OF APPLIC ABILITY OF SECTION 53A TO THE CONTRACTS MENTIONED THEREIN. IT IS ONLY WHERE THE CONTRACT CONTAINS ALL THE SIX FEATURES ME NTIONED IN SHRIMANT SHAMRAO SURYAVANSHI (SUPRA), THAT THE SECT ION APPLIES, AND THIS IS WHAT IS MEANT BY THE EXPRESSIO N OF THE NATURE REFERRED TO IN SECTION 53A. THIS EXPRESSION CANNOT BE STRETCHED TO REFER TO AN AMENDMENT THAT WAS MADE YE ARS LATER IN 2001, SO AS TO THEN SAY THAT THOUGH REGISTRATION OF A CONTRACT IS REQUIRED BY THE AMENDMENT ACT OF 2001, YET THE A FORESAID EXPRESSION OF THE NATURE REFERRED TO IN SECTION 53 A WOULD SOMEHOW REFER ONLY TO THE NATURE OF CONTRACT MENTIO NED IN SECTION 53A, WHICH WOULD THEN IN TURN NOT REQUIRE R EGISTRATION. AS HAS BEEN STATED ABOVE, THERE IS NO CONTRACT IN T HE EYE OF LAW IN FORCE UNDER SECTION 53A AFTER 2001 UNLESS TH E SAID CONTRACT IS REGISTERED. THIS BEING THE CASE, AND IT BEING CLEAR THAT THE SAID JDA WAS NEVER REGISTERED, SINCE THE J DA HAS NO EFFICACY IN THE EYE OF LAW, OBVIOUSLY NO TRANSFER CAN BE SAID TO HAVE TAKEN PLACE UNDER THE AFORESAID DOCUMENT. SINC E WE ARE DECIDING THIS CASE ON THIS LEGAL GROUND, IT IS UNNE CESSARY FOR US TO GO INTO THE OTHER QUESTIONS DECIDED BY THE HIGH COURT, NAMELY, WHETHER UNDER THE JDA POSSESSION WAS OR WAS NOT TAKEN; WHETHER ONLY A LICENCE WAS GRANTED TO DEVELO P THE PROPERTY; AND WHETHER THE DEVELOPERS WERE OR WERE N OT READY AND WILLING TO CARRY OUT THEIR PART OF THE BARGAIN. SINCE WE ARE OF THE VIEW THAT SUB-CLAUSE (V) OF SECTION 2(47) OF THE ACT IS NOT ATTRACTED ON THE FACTS OF THIS CASE, WE NEED NO T GO INTO ANY OTHER FACTUAL QUESTION. 21. HOWEVER, THE HIGH COURT HAS HELD THAT SECTION 2 (47)(VI) WILL NOT APPLY FOR THE REASON THAT THERE WAS NO CHA NGE IN MEMBERSHIP OF THE SOCIETY, AS CONTEMPLATED. WE ARE AFRAID THAT WE CANNOT AGREE WITH THE HIGH COURT ON THIS SC ORE. UNDER ITA NO. 1705/CHNY/2017 :- 12 -: SECTION 2(47)(VI), ANY TRANSACTION WHICH HAS THE EF FECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF ANY IMMOV ABLE PROPERTY WOULD COME WITHIN ITS PURVIEW. THE HIGH CO URT HAS NOT ADVERTED TO THE EXPRESSION OR IN ANY OTHER MAN NER WHATSOEVER IN SUB-CLAUSE (VI), WHICH WOULD SHOW TH AT IT IS NOT NECESSARY THAT THE TRANSACTION REFERS TO THE MEMBER SHIP OF A COOPERATIVE SOCIETY. WE HAVE, THEREFORE, TO SEE WHE THER THE IMPUGNED TRANSACTION CAN FALL WITHIN THIS PROVISION . 22. THE OBJECT OF SECTION 2(47)(VI) APPEARS TO BE T O BRING WITHIN THE TAX NET A DE FACTO TRANSFER OF ANY IMMOV ABLE PROPERTY. THE EXPRESSION ENABLING THE ENJOYMENT OF TAKES COLOR FROM THE EARLIER EXPRESSION TRANSFERRING, S O THAT IT IS CLEAR THAT ANY TRANSACTION WHICH ENABLES THE ENJOYM ENT OF IMMOVABLE PROPERTY MUST BE ENJOYMENT AS A PURPORTED OWNER THEREOF, THE MAXIM NOSCITUR A SOCIIS HAS BEEN REP EATEDLY APPLIED BY THIS COURT. A RECENT APPLICATION OF THE MAXIM IS CONTAINED IN COASTAL PAPER LIMITED V. COMMISSIONER OF CENTRAL EXCISE, VISAKHAPATNAM, (2015) 10 SCC 664 AT 677, PA RA 25. THIS MAXIM IS BEST EXPLAINED AS BIRDS OF A FEATHER FLOCKING TOGETHER. THE MAXIM ONLY MEANS THAT A WORD IS TO BE JUDGED BY THE COMPANY IT KEEPS. THE IDEA IS TO BRING WITHI N THE TAX NET, TRANSACTIONS, WHERE, THOUGH TITLE MAY NOT BE T RANSFERRED IN LAW, THERE IS, IN SUBSTANCE, A TRANSFER OF TITLE IN FACT. 23. A READING OF THE JDA IN THE PRESENT CASE WOULD SHOW THAT THE OWNER CONTINUES TO BE THE OWNER THROUGHOUT THE AGREEMENT, AND HAS AT NO STAGE PURPORTED TO TRANSFE R RIGHTS AKIN TO OWNERSHIP TO THE DEVELOPER. AT THE HIGHEST, POSSESSION ALONE IS GIVEN UNDER THE AGREEMENT, AND THAT TOO FO R A SPECIFIC PURPOSE -THE PURPOSE BEING TO DEVELOP THE PROPERTY, AS ENVISAGED BY ALL THE PARTIES. WE ARE, THEREFORE, OF THE VIEW THAT THIS CLAUSE WILL ALSO NOT ROPE IN THE PRESENT TRANS ACTION. 24. THE MATTER CAN ALSO BE VIEWED FROM A SLIGHTLY D IFFERENT ANGLE. SHRI VOHRA IS RIGHT WHEN HE HAS REFERRED TO SECTIONS 45 AND 48 OF THE INCOME TAX ACT AND HAS THEN ARGUED TH AT SOME REAL INCOME MUST ARISE ON THE ASSUMPTION THAT THE RE IS TRANSFER OF A CAPITAL ASSET. THIS INCOME MUST HAVE BEEN RECEIVED OR HAVE ACCRUED UNDER SECTION 48 AS A RE SULT OF THE TRANSFER OF THE CAPITAL ASSET. 25. THIS COURT IN E.D. SASSOON & CO. LTD. V. CIT, ( 1955) 1 SCR 313 AT 343 HELD: IT IS CLEAR THEREFORE THAT INCOME MAY ACCRUE TO AN ASSESSEE WITHOUT THE ACTUAL RECEIPT OF THE SAME. IF THE ASSE SSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME, THE INCOME CAN BE SA ID TO HAVE ACCRUED TO HIM THOUGH IT MAY BE RECEIVED LATER ON I TS BEING ASCERTAINED. THE BASIC CONCEPTION IS THAT HE MUST H AVE ACQUIRED A RIGHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT ITA NO. 1705/CHNY/2017 :- 13 -: OWED TO HIM BY SOMEBODY. THERE MUST BE AS IS OTHERW ISE EXPRESSED DEBITUM IN PRESENTI, SOLVENDUM IN FUTURO; SEE W.S. TRY LTD. V. JOHNSON (INSPECTOR OF TAXES) [(1946) 1 AER 532 AT P. 539], AND WEBB V. STENTON, GARNISHEES [11 QBD 51 8 AT P. 522 AND 527]. UNLESS AND UNTIL THERE IS CREATED IN FAVOUR OF THE ASSESSEE A DEBT DUE BY SOMEBODY IT CANNOT BE SAID T HAT HE HAS ACQUIRED A RIGHT TO RECEIVE THE INCOME OR THAT INCO ME HAS ACCRUED TO HIM. 26. THIS COURT, IN COMMISSIONER OF INCOME TAX V. EX CEL INDUSTRIES, (2014) 13 SCC 459 AT 463-464 REFERRED T O VARIOUS JUDGMENTS ON THE EXPRESSION ACCRUES, AND THEN HEL D: 14. FIRST OF ALL, IT IS NOW WELL SETTLED THAT INCO ME TAX CANNOT BE LEVIED ON HYPOTHETICAL INCOME. IN CIT V. SHOORJI VA LLABHDAS AND CO. [CIT V. SHOORJI VALLABHDAS AND CO., (1962) 46 I TR 144 (SC)] IT WAS HELD AS FOLLOWS: (ITR P. 148) ... INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOM E OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF I NCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOU GH IN BOOKKEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME', WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FA CT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN T HOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INC OME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIO USLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN M ADE IN THE BOOKS OF ACCOUNT. 15. THE ABOVE PASSAGE WAS CITED WITH APPROVAL IN MO RVI INDUSTRIES LTD. V. CIT [MORVI INDUSTRIES LTD. V. CI T, (1972) 4 SCC 451 : 1974 SCC (TAX) 140 : (1971) 82 ITR 835] I N WHICH THIS COURT ALSO CONSIDERED THE DICTIONARY MEANING O F THE WORD ACCRUE AND HELD THAT INCOME CAN BE SAID TO ACCRUE WHEN IT BECOMES DUE. IT WAS THEN OBSERVED THAT: (SCC P. 454 , PARA 11) 11. ... THE DATE OF PAYMENT ... DOES NOT AFFECT TH E ACCRUAL OF INCOME. THE MOMENT THE INCOME ACCRUES, THE ASSESSEE GETS VESTED WITH THE RIGHT TO CLAIM THAT AMOUNT EVEN THO UGH IT MAY NOT BE IMMEDIATELY. 16. THIS COURT FURTHER HELD, AND IN OUR OPINION MOR E IMPORTANTLY, THAT INCOME ACCRUES WHEN THERE ARISES A CORRESPONDING LIABILITY OF THE OTHER PARTY FROM WHO M THE INCOME BECOMES DUE TO PAY THAT AMOUNT. ITA NO. 1705/CHNY/2017 :- 14 -: 17. IT FOLLOWS FROM THESE DECISIONS THAT INCOME ACC RUES WHEN IT BECOMES DUE BUT IT MUST ALSO BE ACCOMPANIED BY A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PAY T HE AMOUNT. ONLY THEN CAN IT BE SAID THAT FOR THE PURPOSES OF T AXABILITY THAT THE INCOME IS NOT HYPOTHETICAL AND IT HAS REALLY AC CRUED TO THE ASSESSEE. 18. INSOFAR AS THE PRESENT CASE IS CONCERNED, EVEN IF IT IS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEF ITS UNDER THE ADVANCE LICENCES AS WELL AS UNDER THE DUTY ENTI TLEMENT PASSBOOK, THERE WAS NO CORRESPONDING LIABILITY ON T HE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY-FREE IMP ORTS TO THE ASSESSEE UNTIL THE GOODS ARE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, A HYPOTHETICAL INCOME WHICH MAY OR MAY NOT MATERIALIS E AND ITS MONEY VALUE IS, THEREFORE, NOT THE INCOME OF THE AS SESSEE. 27. IN THE FACTS OF THE PRESENT CASE, IT IS CLEAR T HAT THE INCOME FROM CAPITAL GAIN ON A TRANSACTION WHICH NEVER MATE RIALIZED IS, AT BEST, A HYPOTHETICAL INCOME. IT IS ADMITTED THAT , FOR WANT OF PERMISSIONS, THE ENTIRE TRANSACTION OF DEVELOPMENT ENVISAGED IN THE JDA FELL THROUGH. IN POINT OF FACT, INCOME D ID NOT RESULT AT ALL FOR THE AFORESAID REASON. THIS BEING THE CASE, IT IS CLEAR THAT THERE IS NO PROFIT OR GAIN WHICH ARISES FROM THE TR ANSFER OF A CAPITAL ASSET, WHICH COULD BE BROUGHT TO TAX UNDER SECTION 45 READ WITH SECTION 48 OF THE INCOME TAX ACT. 28. IN THE PRESENT CASE, THE ASSESSEE DID NOT ACQUI RE ANY RIGHT TO RECEIVE INCOME, INASMUCH AS SUCH ALLEGED RIGHT W AS DEPENDENT UPON THE NECESSARY PERMISSIONS BEING OBTA INED. THIS BEING THE CASE, IN THE CIRCUMSTANCES, THERE WA S NO DEBT OWED TO THE ASSESSEES BY THE DEVELOPERS AND THEREFO RE, THE ASSESSEES HAVE NOT ACQUIRED ANY RIGHT TO RECEIVE IN COME UNDER THE JDA. THIS BEING SO, NO PROFITS OR GAINS AROSE FROM THE TRANSFER OF A CAPITAL ASSET SO AS TO ATTRACT SECTIO NS 45 AND 48 OF THE INCOME TAX ACT. WHEN THE LOWER AUTHORITIES WAS CONSIDERING ASSESSE ES CASE THEY DID NOT HAVE THE BENEFIT OF THE JUDGMENT OF HONBLE A PEX COURT IN THE CASE OF BALBIR SINGH MAINI (SUPRA). UNLESS AND UNT IL A CAREFUL EXAMINATION OF THE JOINT DEVELOPMENT AGREEMENT ENTE RED WITH THE M/S. S&S SCAPES PVT. LTD IS MADE AND COMPARED WITH THE JOINT ITA NO. 1705/CHNY/2017 :- 15 -: DEVELOPMENT AGREEMENT CONSIDERED BY HONBLE APEX CO URT IN THE CASE OF BALBIR SINGH MAINI (SUPRA), WE ARE OF THE OPINIO N THAT THE QUESTION WHETHER ANY INCOME AROSE TO THE ASSESSEE, CAN NOT BE ADDRESSED. IN THE FITNESS OF THE THINGS, WE ARE OF THE OPINION THAT THE MATTER NEEDS TO BE REVISITED THE LD. ASSESSING OFFICER. WE THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE BACK TO LD. ASSESSING OFFICER FOR DENOVO CONSIDERATION. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 11 TH DAY OF JUNE, 2018, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:11TH JUNE, 2018 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF