IT: For purpose of determining quantum of section 80-IA deduction in year in which assessee put forth claim, revenue cannot take into consideration loss and depreciation from eligible business of earlier year which was already set-off against income of assessee from other source
■■■
[2014] 45 taxmann.com 98 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax
v.
Anil H. Lad*
N. KUMAR AND C.R. KUMARASWAMY, JJ.
IT APPEAL NO. 176 OF 2011†
FEBRUARY 5, 2014
Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Assessment year 2008-09 - Whether where depreciation and loss of earlier assessment years had already been set off against profit of another source of those assessment years, and a deduction under section 80-IA was subsequently claimed by assessee, there was no need for notionally carrying forward and setting off of earlier year depreciation and losses when computing quantum of deduction available under section 80-IA - Held, yes [Para 10] [In favour of assessee]
FACTS
| ■ | The assessee was engaged in the business of operating windmills. During the assessment year 2008-09, the assessee claimed deduction under section 80-IA in respect of profits derived from a windmill which had become operational during financial year 2005-06. Accordingly, assessment year 2008-09 was the first year of claim for deduction under section 80-IA in respect of the said windmill. | |
| ■ | During assessment years 2006-07 and 2007-08, the assessee had incurred a loss from operation of the aforesaid windmill which had been adjusted against income of the taxpayer from other business activities. | |
| ■ | The Assessing Officer denied deduction under section 80-IA as claimed by the assessee. The Assessing Officer held that, in view of the provisions of section 80-IA(5), the loss and depreciation in respect of the aforesaid windmill for earlier years had to be notionally brought forward and set off against profits of eligible business while computing deduction under section 80-IA. | |
| ■ | On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer on the basis that there needed to be a notional setoff of prior years' unabsorbed depreciation and losses against the profits of eligible business, in accordance with section 80-IA(5). | |
| ■ | On further appeal the Tribunal relying upon the decision of Madras High Court in the case ofVelayudhaswamy Spg. Mills (P.) Ltd. v. Asstt. CIT [2012] 340 ITR 477/21 taxmann.com 95 held that where depreciation and loss of earlier assessment years had already been set off against other business income of those assessment years, there was no need for notionally carrying forward and setting off the said depreciation and loss in computing the quantum of deduction available under section 80-IA. | |
| ■ | On further appeal by revenue to the High Court the revenue contended that according to section 80-IA(5), for the purpose of determining the quantum of deduction under section 80-IA(1), only the source of income of the taxpayer from the eligible business during the previous year relevant to the assessment year had to be taken into consideration. Thus, the loss and depreciation claimed by the taxpayer in respect of the said eligible business from the date the business was commenced (i.e., from 2006) had to be setoff against the profits earned by the taxpayer for any relevant previous year. | |
| ■ | On the other hand the assessee contended that section 80-IA(5) had to be read along with section 80-IA(2). Thus, only when the taxpayer made a claim for the said benefit in the returns filed would he be entitled to the said benefit for a period of ten consecutive assessment years. Before putting forth such a claim, all losses and depreciation that the taxpayer could claim must be set-off against the profits of the taxpayer from other business sources. However, once a claim was put forth, a stand-alone basis of income computation of the eligible business had to be made. |
HELD
| ■ | On perusal of sub-section (5) of section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Such profits are to be computed as if such eligible business is the only source of income of the assessee. Sections 80-I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified dates. Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words 'derived from industrial undertaking' as against 'profits attributable to industrial undertaking'. [Para 6] | |
| ■ | Section 80-IA(2) provides an option to the taxpayer to choose any ten consecutive years out of 15 years from the date of establishment of the undertaking. Sub-section (5) deals with determination of quantum of deduction. It provides that notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. [Para 7] | |
| ■ | Thus, from a reading of the aforesaid provisions, it is clear that, sub-section (5) of section 80-IA comes into picture only when a claim is put forth for deduction. It is only then the profits earned in the eligible business is to be set off against the depreciation and losses of the eligible business. If no claim is put forth, there is no question of setting off the profits against the losses. If the assessee is carrying on other business, that loss and depreciation incurred by him under the provisions of the Act can be set off against other sources. There is no prohibition. Therefore, once the assessee sets off his profits earned from other source against the depreciation and loss suffered in the eligible business, again the same cannot be set off against the profits derived from the eligible business if and when a claim for deduction is made. [Para 8] | |
| ■ | The Madras High Court in Velayudhaswamy Spg. Mills (P.) Ltd.'s case (supra) while interpreting the very provision held, that 'initial assessment year' employed in sub-section (5) is different from the words 'beginning from the year' referred to in sub-section (2). Sub-section (5) starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; for the purpose of determining the quantum of deduction; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provision and therefore, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. [Para 9] | |
| ■ | Therefore, keeping in mind the object with which these provisions (of section 80-IA) are introduced, it is clear that an assessee is given the benefit of 100 per cent deduction of the profits and gains from the eligible business. The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business is set-off against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section (5) of section 80-IA, the revenue cannot take into consideration the loss and depreciation which is already set off against the income of the assessee from other source and compute the profit under section 80-IA. Therefore, the approach of the Tribunal is in accordance with law. The assessing authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under section 80-IA against the losses and depreciation of the eligible business which is already set off from other source before such a claim is put forth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the assessing authority as well as the lower appellate authority. The substantial question of law is answered in favour of the assessee and against the revenue. [Para 10] | |
| ■ | However, in the instant case, both the assessing authority and the appellate authority proceeded on the basis that the initial claim for deduction is made in the assessment year 2006-07. Factually, if it is correct, then there is no case for interference with the orders passed by the assessing authority and lower appellate authority. However, the assessee contends that the claim for deduction was put forth for the first time in the assessment year 2008-09. Therefore, as this aspect has not been carefully looked into by either of the authorities and the finding to be recorded is based on the finding of fact i.e., when the claim was putforth, first the assessing authority has to record a finding on this aspect. Then only, the law as laid down could be applied. Therefore, it was proper to remand the matter back to the assessing authority to consider the claim of exemption under section 80-IA in the light of what has been stated above in interpreting section 80-IA, and that would meet the ends of justice. Hence, the matter is remanded to the assessing authority to consider the claim of exemption under section 80-IA. Petition disposed of. [Para 11] |
CASE REVIEW
Anil H. Lad v. Dy. CIT [2012] 25 taxmann.com 454 (Bangalore-Trib.) (para 10) affirmed.
CASES REFERRED TO
Velayudhaswamy Spg. Mills (P.) Ltd. v. Asstt. CIT [2012] 340 ITR 477/21 taxmann.com 95 (Mad.)(para 2) and Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 (SC) (para 6).
Y.V. Raviraj for the Appellant. A. Shankar for the Respondent.
JUDGMENT
1. This appeal is preferred by the Revenue against the order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A, Bangalore (hereinafter referred to as 'the Tribunal', for short), directing the Assessing Authority to grant deduction to the assessee under Section 80-IA of the Income-tax Act (for short 'the Act') for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation.
2. The assessee is engaged in the business of windmill operations. The said windmill was started in the year 2006. The assessee claimed deduction of Rs. 1,97,73,931/- under Section 80-IA of the Act being the income derived from the business of windmill power generation for the Assessment Year 2008-09. The Assessing Authority while granting the benefit of deduction relying on sub-section (5) of Section 80-IA of the Act deducted the said profit and gains from the business in the depreciation/unabsorbed depreciation and carried forward losses in a sum of Rs.36,90,28,139/- and directed carry forward of unabsorbed loss in a sum of Rs.34,92,54,208/- for the subsequent year. Aggrieved by the said set off, to arrive at the income eligible for deduction under Section 80-IA for the relevant Assessment Year, the assessee preferred an appeal to the Commissioner of Income-Tax (Appeals). The Appellate Authority held, the Assessing Officer was justified in denying the deduction of Rs. 1,97,72,931/- claimed under Section 80-IA of the Act as the losses and depreciation in respect of eligible business for the Assessment Years 2006-07 and 2007-08 has to be set off notionally against the profits of eligible business as the Assessment Year as per sub-section (5) of Section 80-IA of the Act. Thus, he dismissed the appeal Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal relying on the judgment of the Madras High Court in the case of Velayudhaswamy Spg. Mills (P.) Ltd. v. Asstt. CIT [2012] 340 ITR 477/21 taxmann.com 95, held where the depreciation and loss of earlier assessment years have already been set off against other business income of those assessment years, there is no need for notionally carrying forward and set off the same depreciation and loss in computing the quantum of reduction available under Section 80-IA of the Act. Following the said judgment, the Tribunal accepted the contention of the assessee and reversed the order of the Commissioner of Income-tax (Appeals) on that point and directed the Assessing Authority to grant deduction to the assessee under Section 80-IA of the Act for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation. Aggrieved by the said order, the Revenue is in appeal.
3. The learned counsel for the Revenue assailing the impugned order of the Tribunal contended in view of sub-section (5) of Section 80-IA of the Act, for the purpose of determining the quantum of deduction under sub-section (1) of Section 80-IA, the only source of income of the assessee from the eligible business during the previous year relevant to the assessment year is to be taken into consideration and, therefore, the loss and depreciation claimed by the assessee in respect of the said eligible business from the date the business was commenced is to be set off against the profits earned by the assessee for any relevant previous year and assessment is to be made. Therefore, the Assessing Authority and the Appellate Authority were justified in setting off the profits earned by the assessee against carry forward loss and the Tribunal committed a serious error in interfering with the said orders.
4. Per contra, learned counsel appearing for the assessee submitted sub-section (5) of Section 80-IA of the Act has to be read along with sub-section (2) of Section 80-IA; if so read, it is clear that the benefit granted to the assessee under sub-section (1) of Section 80IA can be claimed by the assessee for 10 consecutive assessment years out of 15 years beginning from the year under which the business or enterprise develops. Therefore, only when a claim is made for the said benefit in the returns filed by the assessee, from that assessment year consecutively he will be entitled to the said benefit for a period of 10 years. Before putting forth such claim, all the losses and depreciation, which the assessee could claim, has to be set off against the profits of the assessee from other business source. But, once he put forths such a claim, then from that day onwards the losses and depreciation of the said eligible business is to be taken into consideration for determining the quantum of deduction for the purpose of benefit under Section 80-IA of the Act. Therefore, in the instant case, though the business was commenced in 2006-07, the assessee did not claim the benefit for the Assessment Years, 2006-07 and also 2007-08; for the first time, the said claim was made for the Assessment Year 2008-09 and, therefore, the loss and depreciation till such time was set off against the profit from other source. The Assessing Authority could not have set off the profit of the eligible business against the said depreciation and losses which were already claimed set off from other sources. Therefore, the Tribunal was justified in following the judgment of Madras High Court and upholding the claim of the assessee.
5. The substantial question of law that arises for our consideration in this appeal is as under:
"Whether, in the facts and circumstances of the case, the depreciation and losses of the eligible business can be set off against the profits earned by the eligible business for the period anterior to the claim for deduction put forth under Section 80-IA?"
6. The Apex Court in the case of Liberty India v. CIT [2009] 317 ITR 218/183 Taxman 349 analysing the provisions contained chapter VI-A in which Section 80-IA finds a place, has held that Chapter VIA which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives; when Section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under Section 80-IA/80-IB is the generation of profits. The Parliament has confined deduction to profits derived from eligible businesses mentioned in sub-sections (3) to (11A) constitutes a stand-alone item in the matter of computation of profits. That is the reason why the concept of "Segment Reporting" stands introduced in the Indian Accounting Standards (IAS) by the Institute of Chartered Accountants of India (ICAI). Sections 80-IB/80-IA are the Code by themselves as they contain both substantive as well as procedural provisions. Sub-section (13) of Section 80-IB provides for applicability of the provisions of sub-section (5) and sub-sections (7) to (12) of Section 80-IA, so far as may be, applicable to the eligible business under Section 80-IB. Sections 80I, 80-IA and 80-IB as having a common Scheme. On perusal of sub-section (5) of Section 80-IA, it is noticed that it provides for manner of computation of profits of an eligible business. Such profits are to be computed as if such eligible business is the only source of income of the assessee. Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub-section (5) of Section 80-IA, which are also required to be read into Section 80-IB. Sections 80I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified dates. Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking.
7. In the background of the aforesaid law enunciated by the Apex Court, when we look at Section 80-IA of the Act, it deals with deduction in respect of the profits and gains from industrial undertakings or enterprises engaged in infrastructure, development etc. Section 80-IA of the Act provides where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business engaged in infrastructure, development, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive assessment years, is exempted from payment of tax. That is the incentive given by the Parliament with the avowed object of encouraging the private entrepreneurs investing money in development of infrastructure in the country. This benefit is not a permanent one. Sub-section (2) of Section 80-IA provides that the said deduction can be claimed by the assessee for any ten consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops and begins to operate in infrastructure facility. In other words, an option is given to the assessee to choose ten consecutive years out of 15 years from the date of establishment of the undertaking. Sub-section (5) deals with determination of quantum of deduction. It provides that notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
8. From the aforesaid provisions, it is clear that incentive is given to the assessee which has invested in infrastructure. The said benefit has to be claimed from the eligible business for a period of ten consecutive years. This ten consecutive years is to be decided by the assessee out of 15 years. That 15 years is to be computed from the day the business was set up. Claiming of deduction would arise only when there is a profit earned by the eligible business. Before any profit is earned, the question of determining the quantum of deduction would not arise. Before the assessee starts earning profit, from this eligible business, as he has already made investment and the depreciation of that investment and losses sustained in the said eligible business could be set off against the profits earned by the assessee, if the assessee has other business. Therefore, the "Previous year" as defined under Section 3 of the Act makes it clear for the purpose of this Act, 'previous year' the financial year immediately preceding the assessment year. Proviso to that provisions states that in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as the case may be, the date on which the source of income newly comes into existence and ending with the said financial year. Therefore, the previous year shall be the period beginning with the date of setting up of the business or profession. But, sub-section 80-IA comes into picture only when a claim is put forth for deduction. It is only then the profits earned in the eligible business is to be setoff against the depreciation and losses of the eligible business. If no claim is putforth, there is no question of setting off the profits against the losses. If the assessee is carrying on other business, that loss and depreciation incurred by him under the provisions of the Act can be set off against other sources. There is no prohibition. Therefore, once the assessee sets off his profits earned from other source against the depreciation and loss suffered in the eligible business, again the same cannot be set off against the profits derived from the eligible business if and when a claim for deduction is made.
9. The Madras High Court in the aforesaid Velayudhaswamy Spg. Mills (P.) Ltd.'s case (supra) interpreting the very provision held, from a reading of sub-section (1) Section 80-IA, it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised. If it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that 'initial assessment year' employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). Sub-section (5) starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; for the purpose of determining the quantum of deduction; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provision and therefore, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
10. Therefore, keeping in mind the object with which these provisions are introduced, it is clear that an assessee is given the benefit of 100% deduction of the profits and gains from the eligible business. The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business is set off against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section (5) of Section 80-IA, the revenue cannot take into consideration the loss and depreciation which is already set off against the income of the assessee from other source and compute the profit under Section 80-IA Therefore, the approach of the Tribunal is in accordance with law. The Assessing Authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under Section 80-IA against the losses and depreciation of the eligible business which is already set off from other source before such a claim is put forth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the Assessing Authority as well as the lower Appellate Authority. The substantial question of law is answered in favour of the assessee and against the Revenue.
11. However, in the instant case, both the Assessing Authority and the Appellate Authority proceeded on the basis that the initial claim for deduction is made in the assessment year 2006-07. Factually, if it is correct, then there is no case for interference with the orders passed by the Assessing Authority and lower Appellate Authority. However, the assessee contends that the claim for deduction was put forth for the first time in the Assessment Year 2008-09 and therefore, it is his specific contention that loss and depreciation incurred by the eligible business was set off against the income of the assessee from other source, therefore, for the first time, when the claim was put forth for the Assessment Year 2008-09, the Assessing Authority was not justified in setting off the profit from eligible business against the said loss and depreciation which had already been set off against the income of the assessee. the learned counsel for the assessee produced before us the Returns filed in support of his case. Therefore, as this aspect has not been carefully looked into by either of the Authorities and the finding to be recorded is based on the finding of fact i.e., when the claim was put forth, first the Assessing Authority has to record a finding on this aspect. Then only, the law which we have laid down could be applied. Therefore, we deem it proper to remand the matter back to the Assessing Authority to consider the claim of exemption under Section 80-IA of the Act in the light of what we have stated above in interpreting Section 80-IA of the Act, and that would meet the ends of justice. Hence, we pass the following:
ORDER
| (i) | Appeal is disposed of. | |
| (ii) | Though we have upheld the legal position as set out above, the matter is remanded to the Assessing Authority to consider the claim of exemption under Section 80-IA in the light of what we have stated above. |
†Arising out of order of Tribunal in Anil H. Lad v. Deputy Commissioner of Income-tax [2012] 25 taxmann.com 454 (Bangalore - Trib.).
IT/ILT : Where assessee provided design and engineering for laying pipelines, prepared welding procedure, reviewed work procedure and deputed expertised manpower for site review, assessee's income was taxable at rate of 10 per cent only as technical supervision
■■■
[2014] 44 taxmann.com 429 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'B'
Assistant Director of Income-tax (International Taxation)
v.
Joint Stock Company Zangas*
D.K. TYAGI, JUDICIAL MEMBER
AND T.R. MEENA, ACCOUNTANT MEMBER
AND T.R. MEENA, ACCOUNTANT MEMBER
IT APPEAL NO. 15 (AHD.) OF 2013
[ASSESSMENT YEAR 2009-10]
[ASSESSMENT YEAR 2009-10]
FEBRUARY 14, 2014
Section 9, read with section 115A, of the Income-tax Act, 1961, read with articles 7 and 12 of Indo Russia DTAA - Income - Deemed to accrue or arise in India (Fees for technical services/Business profits) - Assessment year 2009-10 - Assessee, a foreign company, was dealing in construction of pipelines - Assessee-company was duly registered under laws of Russia - Assessee-company entered into a consortium agreement with KPTL - Consortium made a bid for PDPL project of GAIL, and was finally awarded contract by GAIL - Assessee-company further entered into a co-operation agreement with KPTL - As per said agreement, substantial work for executing contract was to be undertaken by KPTL by deploying all required input resources and assessee-company would provide its technical guidance and consultancy for project management and specialized manpower was also to be supplied by assessee-company - Assessee-company would get 3 per cent of contract receipts as full consideration for its contribution in project and KPTL would be entitled to 96 per cent of contract value and remaining 1 per cent would be used to meet expenses of consortium - Assessee-company had offered income arising out of PDPL project at rate of 10 per cent, claiming it to be 'fees for technical services', as per Article 12 - Assessing Officer found that all mainline activities required to be performed for construction of said pipeline were to be carried out solely by assessee-company or jointly by it with KPTL, or by KPTL under guidance of assessee-company - He held that income from said project was taxable as business profits at rate of 40 per cent as per article 7 - Tribunal in earlier year, on identical facts, had treated income of assessee as FTS on grounds that assessee was required to provide design and engineering of various aspects and was also required for preparing welding procedure, review work procedure for pipeline laying and in addition to this, assessee was required to depute experts for site review and implementation by KPTL - It was held that, since technical supervision was provided by assessee, it could not be said that assessee was doing construction work - Whether following said decision, income of assessee was liable to be taxed at rate of 10% as per section 9(1)(vii), read with section 115A - Held, yes [Part 5] [In favour of revenue/Matter remanded]
FACTS
| ■ | The assessee, a foreign company, was dealing in construction of pipelines project. The company was having its registered office at Moscow and duly registered under Companies Law of Russia. The assessee-company entered into a consortium agreement with KPTL and the consortium made a bid for the PDPL project of GAIL and was finally awarded the contract by GAIL. | |
| ■ | The assessee-company further entered into a Co-operation agreement with KPTL. As per said agreement, substantial work for executing contract was to be undertaken by KPTL by deploying all required input resources and assessee-company would provide its technical guidance and consultancy for project management and specialized manpower was also to be supplied by assessee-company. As per co-operation agreement, assessee-company would get 3 per cent of contract receipts as full consideration for its contribution in project and KPTL would be entitled to 96 per cent of contract value and remaining 1 per cent would be used to meet expenses of Consortium. Assessee-company had offered income arising out of PDPL project @ 10 per cent, claiming it to be 'fees for technical services', as per the provisions of Article 12 of Indo-Russia DTAA. | |
| ■ | The Assessing Officer observed that the amount received by the assessee was for construction project and hence, it was outside the definition of FTS. Overall management of project was the sole responsibility of the assessee-company. Completion certificate issued by the GAIL showed that assessee company continued its project and supervisory activities for a period of 26 months and 18 days and 22 months which established that the assessee had a permanent establishment in India as per article 5(2)(i) of the Indo-Russia DTAA and thus, the income received by the assessee from the said PDPL contract was taxable as per the provisions of Article 7 as 'business profits'. | |
| ■ | On appeal, the Commissioner (Appeals) held that no case had been made out by the Assessing Officer to show that section 115A and section 9(1)(vii) were not applicable and, thus, the income of the assessee with regard to PDPL project was liable to tax @ 10 per cent. | |
| ■ | On second appeal by the revenue, the assessee gave the bifurcation of the receipts of all the projects and had pointed out that KPTL had received 96 per cent of total receipts as per agreement which had been shown by it in income in respective years and paid tax on it and he also submitted that Tribunal, in case of assessee for Assessment year 2007-08 held these receipts as fees for technical services and had not found any permanent establishment for all projects executed through KPTL. |
HELD
| ■ | The Co-ordinate Bench had considered identical issue in assessment year 2007-08. By respectfully following the co-ordinate Bench's decision, the order of the Commissioner (Appeals) was to be confirmed, but the Assessing Officer is directed to verify that 96 per cent receipts of contract has been disclosed by assessee in case of KPTL and tax had been paid on it. [Para 5] |
P.L. Kureel for the Appellant. Milin Mehta for the Respondent.
ORDER
T.R. Meena, Accountant Member - This is an appeal at the behest of Revenue which has emanated from the order of CIT(A), Gandhinagar, dated 15.10.2011 for assessment year 2009-10. The effective grounds of Revenue's appeal are as under:
| "(I) | The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the primary responsibility of the execution of the contract was of the assessee. Further the assessee company's responsibility was for the execution of the project right from the review of drawings, project management till the final commissioning of the project. Thus it is evident that the assessee company's role is much more than simply providing technical services thereby the receipts were treated as business income. | |
| (II) | The Ld. CIT(A) has erred in law and on facts in directing to treat the income as Fees for Technical Services and tax the same as such. " |
2. The assessee is a foreign company non resident and is dealing in construction of pipelines project. The company having its registered office at Moscow and duly registered under Companies Law of Russia. The company has expertise and experience of many years in laying and installation of gas and liquid pipelines. It is recognized as the Major Contractor onshore by the International Pipeline & Offshore Contractors Association for a wide range of activities in the pipeline construction sector. In India, it is engaged in construction of pipeline projects for Bharat Petroleum Corporation Limited (hereinafter referred to as "BPCL") and Gas Authority of India Limited (hereinafter referred to as "GAIL"). As per the statement of total income filed by the assessee, the gross total income of the assessee has been shown at Rs. 1,38,99,114/-. Out of the said income, income amounting to Rs. 4,90,224/- has been shown as business income and offered to tax at normal rates of tax i.e. @ 40%. However, income amounting to Rs. 1,34,08,890/- has been shown as Technical fees and offered to tax @ 10%, as per the provisions of Article 12 of Indo-Russia DTAA (hereinafter referred to as "DTAA"). The assessee company entered into an agreement with BPCL for the construction of Mumbai-Mangalya-Manmad Pipeline (hereinafter referred to as "MMPL") on 10.11.2005 and established a project office for that purpose at a/4-1, Sector 25, GIDC Estate, Gandhinagar, 382028, with prior permission of RBI. The said contract commenced on 06.10.2005 and was completed on 20.04.2007. Further, the assessee company entered into a consortium agreement with Kalpataru power transmission Limited (hereinafter referred to as "KPTL") on 11.05.2006 for the purposes of making a bid and entering into a contract for the work of Panvel Dabhol pipeline project (hereinafter referred to as "PDPL") of GAIL (India) Ltd. Also during the relevant previous year assessee has entered into another consortium agreement with KPTL for executing Vijaipur-Dadri-Bawana pipeline project (hereinafter referred to as "VDPL") on 08.05.2008. As per the "consortium agreement", the assessee-company has been designated as the "lead partner" and KPTL" as the second partner. As per para 2 of the consortium agreement, the entire execution of the contract including receiving and making payment shall be done exclusively by the leading partner (i.e. the assessee company). Further, as per para-9 of the Consortium agreement the said agreement is irrevocable and forms an integral part of the contract entered into by the consortium with GAIL India Ltd. The consortium made a bid for the said project and was finally awarded the contract by GAIL India Ltd. and the same was conveyed to the Consortium vide letter of acceptance dated 05.09.2006 and 07.11.2008, respectively for the two projects as above.
2. (i) The assessee-company further entered in a Co-operation agreement with KPTL on 12.09.2006 and 08.10.2008, respectively for the two projects, after the award of the contract by GAIL India Ltd. The co-operation agreement was entered into with the object to put in writing the oral understanding between the assessee-company and KPTL. As per the said agreement, substantial work for executing the contract is to be undertaken by KPTL by deploying all the required input resources while the assessee-company will provide its technical guidance and consultancy for project management. Moreover, the supply of specialized manpower is to be supplied by the assessee-company, and for the same personnel were deputed by the assessee-company from time to time. As per the co-operation agreement, the assessee-company will get 3%of the contract receipts as full consideration for its contribution in the project and KPTL shall be entitled to 96% of the contract value. The remaining 1% will be used to meet the expenses of Consortium. The contract commenced on .05.09.2006 and 07.11.2008, respectively for the two projects as per the letter of acceptance issued by GAIL India Ltd. and the same was completed on 23.11.2008 and 05.09.2010, as per the Completion certificate supplied by GAIL India Ltd. Thus, the overall duration of the projects is 26 months and 18 days and 22 months respectively. The assessee-company has offered income arising out of the PDPL and VDPL projects, i.e. 3% of the project consideration received during the year amounting to Rs. 80,98,507/-, and Rs. 53,10,385/- @ 10%, claiming it to be "fees for technical services", as per the provisions of para 2 of Article 12 of Indo-Russia DTAA. On examination of the scope, management and organization of work of the consortium as a whole and that of the two partners separately as per the various agreements entered into by the assessee viz. the consortium agreement, co-operation agreement, and agreement with GAIL India Ltd. the following facts emerge:
A. The responsibilities and obligations of each of the partner of the consortium have been clearly designated in the consortium agreement and placed as appendix-1 to the agreement; the copy of the same is appended as Annexure-l. As per the "responsibility matrix between JSC Zangas & Kalpatru Power Transmission Ltd." the project activities highlighted herein-under have to be carried out solely by Zangas or by KPTL under guidance of JSC Zangas or by them jointly.
| 1. | Project Management is the sole responsibility of Zangas. | |
| 2. | Construction Management has to be carried out by KPTL under guidance from JSC Zangas. | |
| 3. | Under the head "construction and installation": |
| a. | Residual engineering is the sole responsibility of Zangas. | |
| b. | ROU, Grading, Stinging, Trenching, back filling restoration and other mainline activities are to be carried out by KPTL under guidance of Zangas. | |
| c. | Other activities under this are joint responsibilities of JSC Zangas and KPTL and have to be carried by way of sub-contract through specialized agencies. |
| 4. | Resource mobilization is joint responsibility of JSC Zangas and KPTL. | |
| 5. | All specialized manpower required for the project management, technical matters and specialized works of pipeline laying is the sole responsibility of JSC Zangas. | |
| 6. | Hydrostatic Testing is the sole responsibility of JSC Zangas. | |
| 7. | Commissioning of the project is the joint responsibility of JSC Zangas and KPTL. |
From the above it clearly emerges that overall project management of the project is the sole responsibility of the assessee-company and all the mainline activities required to be performed for the construction of the said pipeline are to be carried out solely by the assessee-company or jointly by it with KPTL or by KPTL under guidance of the assessee-company. It is pertinent to note here that, as per clause 9 of the said consortium agreements forms an integral part of the contract and shall continue to be enforceable till GAIL India Ltd. discharges the same. In light of these facts it is evidently clear that the project is being executed by the Consortium with the prime responsibility for the project management and overall completion lying with the assessee-company.
2. (ii) The A.O. further observed that the assessee company shall perform the various activities for the execution of the contract awarded to the consortium. The A.O. gave reasonable opportunity of being heard on this issue, which was afforded by the assessee company vide letter dated 07.12.2011. After considering the assessee's reply, the ld. A.O. held that MMPL contract has been awarded to the assessee company and the PDPL & VDPL projects have been awarded to the consortium formed by the assessee company with KPTL. Thus, the taxation of income derived from the two contracts has been seen differently. In case of MMPL project, the project was sub-contracted to KPTL on back to back basis whereas in case of PDPL and VDPL project the contract was awarded to the consortium. The distribution of work was carried on between the assessee-company was carried on between the assessee company after being awarded the contract through a cooperation agreement entered into between the assessee company and KPTL. As per the distribution of work, KPTL was responsible to carry out the entire work and the role of the assessee-company was only to provide supervisory services in terms of technical support and guidance. Thus, the consideration received by the assessee-company is for the technical services rendered by the assessee company for the project and same are taxable as fees for technical services as per the provisions of the Act read with the provisions of Indo-Russia DTAA. The income derived by the assessee in India shall be taxable as per Section 9 r.w.s. 90(2) of the IT Act and income derived on account of technical services rendered by the assessee to the consortium and shall be taxable as "fees for technical services" as per provisions of Section 9(1)(vii) of the IT Act,1961. As per the provisions of Article 12(2) of Indo-Russian DTAA, the rate of tax on the income derived by the assessee in India from PDPL project shall not exceed 10% of the gross receipts.
2. (iii) Ld. A.O. has considered the assessee's reply in detail on page nos. 15 to 32 and held that assessee company was continues for a period of more than 12 months and constitutes a permanent establishment. In India, Article 12 of DTTA is not applicable in case of assessee. The income/profit arising out of construction, installation and assembly project/site rendered in connection with such projects or site of a non-resident are to be taxed as business profits as per the provisions of Domestic Tax Laws if such project/site or supervisory activities performed in relation to such project or site continue for a period of more than 12 months. From the perusal of the Article, it is clear that the project or the site should continue for a period of 12 months or more so as to constitute a permanent establishment as per the provisions of 5(2)(i) of the DTAA. The Completion Certificate issued by the GAIL India Ltd. shows that assessee company was continued its project and supervisory activities for a period of 26 months and 18 days and 22 months established beyond doubt that the assessee company has a permanent establishment in India as per Article 5(2)(i) of the Indo-Russia DTAA. Thus, the income received by the assessee from the said PDPL contract is taxable as per the provisions of Article 7 of the DTAA as "business profits" and not as per Article 12 of the DTAA as "fees for technical services".
3. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who has allowed the appeal by observing as under:
"6. I have gone through the facts of the case, the decision of the Hon'ble ITAT, Ahmadabad for A.Y. 2007-08 and the assessment order.
I agree with the appellant that between PDPL project and VDPL project there is no change in the facts. The VDPL project was also executed for GAIL (India) Ltd. and on the same lines as done for the PDPL project. Similar agreements (consortium and co-operation were entered into. Even the AO has discussed the two projects together.
In the case, all the objections of the A.O. are based on the consortium agreements and agreements of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work, of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS.
The same issue has been decided hon'ble ITAT Ahd for AY 2007-08 in the case of the assessee on essentially same facts. Following Voith Siemens Hydro Kraftwerkstechnik GMBH & Co. v. ADIT in ITA No. 2353/Del/2008 dated 05.03.2010 and also on the tribunal decision rendered in the case ofAditya Birla Nuvo Ltd. v. ADIT as reported in 44 SOT 601 (Mumbai), it has decided that the activities undertaken by the assessee does not fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the Income tax Act, 1961.
The Hon'ble Tribunal has observed that, even if extra responsibility of the assessee is there as per the consortium agreement and as per the terms of contract awarded by GAIL to the, consortium, the assessee has not done those extra activities and the consideration received by the assessee is as per the co operation agreement for the activities provided in the co operation agreement and having accepted by the A. O. the amount of consideration received by the assessee at 3% of gross receipts of the consortium, it has to be accepted that the same is for providing FTS as per the cooperation agreement.
It has been held that no case has been made out by the A.O. to show that Section 115A and Section 9(1)(vii) are not applicable in the present case as per which the income of the assessee with regard to PDPL project is liable to tax @ 10% as has been claimed by the assessee. The tribunal has therefore, directed the A.O. to apply the provisions of Sub clause BB of clause (b) of sub-section (1) of Section 115A along with Section 9(1)(vii) of the Act.
Submitting to the judicial discipline, the same decisions are followed and upheld for the current year also for both PDPL project and VDPL projects undertaken for GAIL and the AO is directed to apply the provisions of Sub clause BB of clause (b) of sub-section (1) of Section 115A along with Section 9(1)(vii) of the Act.
The first five grounds are decided as above.
7. The other aspect i.e. existence of PE etc.(ground No 6) is not required to be decided because the same is of academic interest only once it is held that the income of the assessee is liable to be taxed as per the provisions of Section 115A and section 9 (1) (vii)".
4. Now the Revenue is before us. Ld. Sr. D.R. vehemently relied upon the order of the A.O. and written submission filed by the A.O. He has explained the difference between the PDPL & VDPL agreement and argued that assessee was indulged in the construction activity and fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the Act. On the basis, the various contracts, it has emerged that over all projects, management of the project is the sole responsibility of the assessee company. All the main line activities required to be performed for the construction of the said pipelines are to be carried out solely by the assessee company or jointly by it with KPTL. The assessee company, later on, entered into agreement with KPTL for completing the PDPL & VDPL contracts and final agreement entered into between the consortium and GAIL India Ltd. Thus, specification of contract is only for providing the working arrangement and the manner in which revenue arising out the said contract are to be distributed among the partners of the consortium. The assessee company lead partner in the consortium which is only inter se arrangement between the assessee company and KPTL. He further argued that Hon'ble ITAT order in case of assessee for A.Y. 07-08 has not been accepted by the department, an appeal pending before the Hon'ble Gujarat High Court. Thus, he requested to confirm the order of the A.O.
4. (i) At the outset, ld. A.R. for the assessee gave the bifurcation of the receipts of all the projects for A.Y. 07-08, 08-09, 09-10 & 0-11 and has drawn our attention that KPTL had received 96% of total receipts as per agreement which has been shown by it in income in respective years and paid tax on it. There is no change in any condition prescribed in the agreement during the year as compare to A.Y. 07-08. He also submitted that Hon'ble 'B' Bench, ITAT, Ahmedabad in case of assessee in ITA No. 3399/Ahd/2010 for A.Y. 07-08 held these receipts partly as business income and partly fees for technical services and had not found any permanent establishment for all projects executed through KPTL. Thus, he requested to confirm the order of the CIT(A).
5. We have heard the rival contentions and perused the material on record. The Co-ordinate Bench has considered identical issue in A.Y. 07-08 and held as under:
'8. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. It is by now a settled position of law that if the provisions of Income tax Act, 1961 are more favourable as compared to the provisions of DTAA then the assessee can always opt for assessment as per the provisions of Income tax Act, 1961. The provisions of Income tax Act, 1961 with regard to the issue in dispute before us are contained in Section 9(1)(vii) and also in Section 115A and the provisions of Section 44DA are also relevant. We, therefore, reproduce the provisions of Section 9(1)(vii), Section 44DA and section 115A of the Act:
"Section 9(1) : The following incomes shall be deemed to accrue or arise in India: —
(vii) : Income by way of fees for technical services payable by —
| (a) | the Government ; or | |
| (b) | a person who is a resident except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or | |
| (c) | a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income form any source in India: |
Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.
Explanation 1. — For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before 9 that date if the agreement is made in accordance with proposals approved by the Central Government before that date.
Explanation 2 — For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of nay managerial, technical or consultancy services (including the provision of services of technical or other personnel) but doe not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"."
"44DA. (1) The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head "Profits and gains of business or profession" in accordance with the provisions of this Act: Provided that no deduction shall be allowed,—
| (i) | in respect of any expenditure or allowance which is not wholly and exclusively incurred for the business of such permanent establishment or fixed place of profession in India; or | |
| (ii) | in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent, establishment to its head office or to any of its other offices:" |
"115. Omitted by She Finance Act, 1987, w.e.f. 1-4-1988.
Tax on dividends, royalty and technical service fees In the case of foreign companies.
115A. [(1) Where the total income of—
(b) [a non-resident (not being a company) or a foreign company, includes any income by way of royalty or fees for technical services other than 10 income referred to in sub-section (I) of section 44DA] received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after the 31st day of March, 1976, and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1 A) and (2), the income-tax payable shall be the aggregate of,—
(BB) the amount of income-tax calculated on the income by way of fees for technical services, if any, included in the total income, at the rate of ten per cent if such fees for technical services are received in pursuance of an agreement made on or after the 1st day of June, 2005; and"
9. From the above provisions we find that as per Explanation (2) to section 9(1)(vii) of the Income tax Act, 1961, FTS will not include consideration for any construction, assembly, mining or like project undertaken by the recipient for consideration of the income chargeable under the head 'salary'. Hence, there are two exclusions where the consideration received by the assessee will not be considered as FTS. First exclusion is where receipt is chargeable to tax under the head 'salary'. This is not applicable in the present case because this is not the case of the A.O. that the receipt in question is chargeable to tax under the head 'salary'. The second exclusion is regarding those considerations, which are for any construction, assembly, mining or like project undertaken by the recipient i.e. the assessee in the present case. The case of the A.O. in the present case is that the amount received by the assessee is for construction project and hence, it is outside the definition of FTS and the claim of the assessee is that this objection of the A.O. is not valid. When we examine the factual matrix of the present case, we find that admittedly, the contract in question was awarded by GAIL to the consortium of the assessee and KPTL but after awarding this contract by GAIL to the consortium, both the parties of the consortium entered into a cooperation agreement between themselves as per which they determined the responsibilities of each party and the manner of share of consideration also. The manner of sharing the consideration has been prescribed in the ratio of 3% for the assessee, 96% for KPTL and the balance 1% was reserved for common expenses of the consortium. Regarding the 1% also, it was agreed afterwards that if there is any surplus, it will go to KPTL and ifs there is any deficit, it will be made good by KPTL. Hence it was agreed that 3% of gross receipt of consortium will go to the assessee company and the balance 97% will go to KPTL. KPTL will be responsible for all the arrangements of resources as well as expenses including common expenses of the consortium. The responsibility of the assessee as described in Annexure 1 to the cooperation agreement is available on page 218-219 of the paper book and hence, it is very relevant to reproduce the same here in below:
"ACTIVITIES UNDER THE SCOPE OF WORK OF ZANGASUNDER I'ANVEL-DABHOL GAS PIPE LINE PROJECT OF GAIL (INDIA) LIMITED
The activities included in the scope of work of Zangas are as follows —
1. Design & Engineering: ,—
Civil & Structural
Zangas Shall provide (he following design & engineering services under civil & structural head, based on the topographical and soil investigation data collected by KPTL (through an experienced & competent agency)-
(i) Review of Layout plan to enable finalization of Plot plan for —
l Sectionalizing Valve Station - 9 Nos.
| ♦ | Intermediate Pigging Station - 1 Nos. |
(ii) Review of Structural & Architectural design of Control Room for a typical
| ♦ | Sectionalizing Valve Station | |
| ♦ | Sectionalizing Valve Station with CP | |
| ♦ | Terminals |
(iii) Review of Detailed Engineering of Building Construction of Control Rooms giving Foundation & reinforcement details etc
(iv) Review of Structural Design of Foundations it supports for Equipment to be installed in SV and Terminal stations.
| ♦ | Scraper Traps | |
| ♦ | Piping | |
| ♦ | Valves | |
| ♦ | All other equipments |
(v) Review of Road and drainage design & detailed engineering
(vi) Review of fencing and Gate design & detailed engineering
b. Electrical
Review of Design & Engineering of Electrical system for each SV and Terminal station covering & including the following:
| ♦ | Single Line Diagram | |
| ♦ | Cable Layout | |
| ♦ | Earthing Grid Layout | |
| ♦ | Electrical Distribution Plan within the Building | |
| ♦ | incoming Power Pane) Design & Engineering | |
| ♦ | Design & Engineering of Distribution Panels & Boards | |
| ♦ | Switchgear and Safety Engineering | |
| ♦ | Light Engineering for Control Room, Guard Cabin, Operating Area | |
| ♦ | Review of Specification for all material | |
| ♦ | Material Take-oft" for various items to be procured for installation |
c. Cathodic Protection of design & engineering included in the Packages of following-
| ♦ | Temporary Cathodic Protection based on Sacrificial Anodes | |
| ♦ | Permanent Cathodic Protection based on Impressed Current |
d. Equipment Design & Engineering
Design & Engineering to enable procurement of valves, scraper Traps, Flow nsulating joints, TEGs, AC Package, Fire Extinguishing System based on CO2 flooding and clean agent system, including the fallowing:—
| ♦ | Data sheets of equipment | |
| ♦ | Review of vendor data | |
| ♦ | Review of constructional details given by vendor |
e. Pipeline Crossings
| ♦ | Review of Design & Engineering of HDD crossings | |
| ♦ | Design &.Engineering of Bored crossings |
f. Instrumentation
Review off Design of field Instrumentation System as per Specifications including following:-
| ♦ | Material Take Off | |
| ♦ | Instrument Cable Layout | |
| ♦ | Detailed Engineering of instrument Installation |
2. Preparation of Welding Procedure and Welder qualification Procedure
3. Review of Work procedures for Pipeline Laying.
4. Deputation of Experts for Site review of implementation by KPTL of technical services provided by ZANGAS."
10. From the above details regarding scope of work of Zangas i.e. the assessee in respect of PDPL project of GAIL, it is seen that the activities included in the scope of work of the assessee is regarding design and engineering for various aspects i.e. (a) Civil, & structural (b) Electrical, (c) Cathodic protection, (d) equipment Design & Engineering, (e) Pipeline Crossing and (f) Instrumentation. The 2nd item of activities included in the scope of work of the assessee company was preparation of welding procedure and welder qualification procedure, 3rd item is review of work procedure for pipeline laying and 4th responsibility is for deputation of experts for site review of implementation by KPTL and technical services provided by Zangas. Some objections raised by DRP, A.O. and the Ld. D.R. that when the assessee company was required to depute expert for site review of implementation by KPTL and technical services provided by Zangas, the assessee company was very much engaged in the entire construction project. These objections of the authorities below and the Ld. D.R. of the revenue are not valid in the light of these two Tribunal decisions cited by the Ld. A.R. of the assessee.
11. In the case of Voith Siemens Hydro Kraftwerkstechnik GMBH & Co. (supra), it was held by the Tribunal that although as per the terms of contract with OHPC, the assessee could be assumed be liable to do assembly erection, testing and commissioning of power project as also the supervision thereof, in the absence of being any evidence that assessee having done any such activity other than supervision simplicitor, erection and testing and commissioning, the activities of the assessee cannot be said to fall within the meaning of term "business of erection of plant & machinery and testing and commissioning" as provided in the provisions of Section 44BBB and to fall within the meaning of term "construction and assembly" as provided in the exclusion provided in Explanation (2) to Section 9(1)(vii) of the Act. Hence in that case, it was noticed by the tribunal that although as per the terms of contract with OHPC, it can be assumed that the assessee was liable to do the assembly, erection, testing and commissioning of power project as also the supervision thereof but the actual activities undertaken by the assessee company in that case was supervision simplicitor and assembly, erection, testing and commissioning and hence such activities of the assessee do not fall within the meaning of term "construction and assembly" as provided in the exclusion provided in Explanation (2) to section 9(1)(vii) of the Income tax Act, 1961. Hence, as per this Tribunal decision, the term contract alone is not the deciding factor and it is very important to see as to what was the actual activity is undertaken by the assessee. In the present case, all the objections of the A.O., DRP and the Ld. D.R. of the revenue are based on the consortium agreement and agreement of the consortium with GAIL and it has been contended that since the assessee is the leader of consortium and as per the terms of contract with GAIL, the assessee was the leading partner of the consortium, the entire construction work of the project in the hands was done by the assessee and the assessee's activities are not confined to mere providing of FTS. But the assessee has brought on record the corporation agreement along with its Annexure 1 which outlines the scope of the activities of the assessee. As per the scope of activities as has been reproduced above, the assessee is required to provide design and engineering of various aspects and is also required for preparing the welding procedure and is also required to review the work procedure for pipeline laying and in addition to this, the assessee is required to depute experts for site review and implementation by KPTL and technical supervision provided by the assessee. As per the scope of work, the assessee is required to provide technical services and is also required to depute expert for site review of implementation by KPTL and technical services provided by Zangas. Hence, it is seen that deputing expert was for a limited purpose for site review of implementation by KPTL and technical services provided by the assessee and the entire construction work was to be undertaken by the KPTL. As per these activities included in the scope of work of the assessee company, we are of the considered opinion that on the basis of these facts, it cannot be said that the assessee is doing the construction work and the consideration received by the assessee is from doing the construction work. Nothing has been brought on record by the A.O. to show that anything extra was done by the assessee in addition to the responsibility specified in the co operation agreement. In fact, this is not even an allegation of the A.O.
12. Hence, the Tribunal decision rendered in the case of Voith Siemens Hydro (supra) is squarely applicable in the present case and as per this decision of the tribunal in the light of the facts of the present case, the activities undertaken by the assessee does not fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the Income tax Act, 1961.
13. The other Tribunal decision rendered in the case of Aditya Birla Nuvo Ltd. (supra), is also supporting the case of the assessee and as per this Tribunal decision also, the scope of work actually undertaken by the assessee company does not fall within the exclusion category of Explanation (2) to Section 9(1)(vii) of the act.
14. One aspect of cooperation agreement has also been accepted by the authorities below in so far as the amount of income of the assessee is concerned. The amount of income of the assessee was declared by the assessee to the extent of 3% of gross receipt of the consortium which is on the basis of cooperation agreement and the same has been accepted by the A.O. and he has not disputed the amount of income of the assessee as has been declared by the assessee. If the A.O. says that the construction work was undertaken by the assessee company then he should have assessed the income of the assessee by disregarding this cooperation agreement and the income should have been quantified by him after considering the gross receipt of the consortium and after deducting al the expenses incurred for the purpose and the remaining income should have been distributed between the two partners of the consortium i.e. the assessee and KPTL on the basis of consortium agreement or on some reasonable basis. This has not been done by the A.O. and he has accepted the income declared by the assessee which is to the extent of 3% of gross receipt of the consortium on the basis of this cooperation agreement. Having accepted the cooperation agreement on this aspect, it was not justified on the part of the A.O. and DRP to say that with regard to the scope of activities of the assessee company, cooperation agreement is not valid and they have to go by consortium agreement. They have also not brought on record any evidence to show that the assessee has undertaken any extra activity in addition to the activities falling within its scope of work as per the co operation agreement. Hence, even if extra responsibility of the assessee is there as per the consortium agreement and as per the terms of contract awarded by GAIL to the consortium, the assessee has not done those extra activities and the consideration received by the assessee is as per the co operation agreement for the activities provided in the co operation agreement and having accepted by the A. O. the amount of consideration received by the assessee at 3% of gross receipts of the consortium, it has to be accepted that the same is for providing FTS as per the co operation agreement.
15. Regarding the applicability of Section 115A of ht Income tax Act, 1961, we find that only exception is regarding of an income which are referred to in sub-section (1) of Section 44DA. Section 44DA is applicable where the contract in respect of which FTS had been paid to the assessee is effectively connected with a permanent establishment (PE) where such foreign company is carrying on its business in India. In the present case, this is not the case of the A.O. that Section 44DA is applicable with regard to the receipt in dispute. Moreover, we also find that the receipt in question was in relation to PDPL project cannot be said to be effectively connected with PE in relation to the other project i.e. MMTL project where the assessee is carrying on business activities. In addition to MMTL project, the assessee is not carrying on any business activities and no effective connection with MMTL project has been established by the A.O. for this receipt in question relating to PDPL project. Both are independent projects. MMTL project was awarded by BPCL whereas PDPL was awarded by GAIL and hence, there is no relationship between the two and hence, we find that no case has been made out by the A.O. to show that Section 115A and Section 9(1)(vii) are not applicable in the present case as per which the income of the assessee with regard to PDPL project is liable to tax @ 10% as has been claimed by the assessee. We, therefore, direct the A.O. to apply the provisions of Sub clause BB of clause (b) of sub-section (1) of Section 115A along with Section 9(1)(vii) of the Act.'
By respectfully following the co-ordinate 'B' Bench decision on identical issue, we confirm the order of the CIT(A), but the A.O. is directed to verify from the A.O. that 96% receipts of contract has been disclosed by it in case of KPTL and tax has been paid on it.
6. In the result, Revenue's appeal is allowed.
Extension of validity period for names reserved as on 31st March, 2014
General Circular no. 13/2014, Dated- Date: 23.05.2014
Subject: Extension of validity period for names reserved as on 31st March, 2014.
In continuation of the General Circular No.11/2014 dated 12.05.2014, approval of the Competent Authority is hereby conveyed to extend continuity of all reserved names as on 31st March, 2014 for another fifteen days period from the date of issue of this circular.
This issues with approval of Competent Authority.
F. No.: MCA21/28/2014-e.gov
Yours faithfully,
(KMS Narayanan)
Astt. Director- 23387263
Astt. Director- 23387263
Urban Co-Operative banks not to levy pre-payment penalty on Floating Rate Term Loans to individual borrowers
D. CO. BPD. PCB. Cir. No. 64/12.05.001/2013-14
May 26, 2014
The Chief Executive Officers of
All Primary (Urban) Co-operative Banks
All Primary (Urban) Co-operative Banks
Levy of foreclosure charges/pre-payment penalty on Floating Rate Term Loans
Please refer to our circular UBD.BPD (PCB).Cir.No.41/12.05.001/2011-12 dated June 26, 2012 on 'Home Loans- Levy of Fore-closure Charges/ Pre-payment Penalty by UCBs'.
2. A reference is invited to Part B of the First Bi-monthly Monetary Policy Statement 2014-15 announced on April 1, 2014 proposing certain measures for consumer protection. It was indicated that in the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. Accordingly, it is advised that urban cooperative banks will not be permitted to charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect
Yours faithfully,
(A. K. Bera)
Principal Chief General Manager
Principal Chief General Manager
Prior RBI approval required in cases of acquisition/ transfer of control of NBFCs
The Reserve Bank of India has today issued directions to all the non-banking financial companies (NBFCs), both deposit accepting and non-deposit accepting, stating that prior approval of the Reserve Bank is required in case of any takeover/acquisition of shares of an NBFC; or merger/amalgamation of an NBFC with another entity; or any merger/amalgamation of an entity with an NBFC, that would give the acquirer/ another entity control of the NBFC, or would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC. The said requirement is applicable to all NBFCs, irrespective of it being a deposit taking or a non-deposit taking NBFC. Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
In view of the above, it is brought to the notice of the prospective acquirers of NBFCs that acquisition of shares/ takeover of an NBFC without the prior approval of the Reserve Bank shall result in adverse regulatory action by the Reserve Bank, including, cancellation of Certificate of Registration of the concerned NBFC.
——————
RBI/2013-14/606
DNBS (PD) CC.No.376/03.10.001/2013-14
DNBS (PD) CC.No.376/03.10.001/2013-14
May 26, 2014
All NBFCs (excluding Primary Dealers)
Dear Sirs,
Requirement for obtaining prior approval of RBI in cases of acquisition/ transfer of control of NBFCs
Under Section 45 IA (4)(c) of the RBI Act, 1934, a certificate of Registration can only be given to a company if the Bank is satisfied, inter alia, that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the public interest or the interests of its depositors.
2. In this connection attention is drawn to DNBS (PD) C.C.No.160/ 03.10.001/2009-10 dated September 17, 2009 requiring prior approval of the Reserve Bank in cases of acquisition/ transfer of control of NBFCs accepting deposits. In supersession of those instructions, and to enable RBI to ensure that the 'fit and proper' character of the management of NBFCs, both deposit accepting and non-deposit accepting, is continuously maintained, it has been decided as under:
The prior written permission of the Reserve Bank of India shall be required for –
(i) any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
(ii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC;
(iii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
(iv) Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
3. Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the Company is located.
4. Notification No.DNBS(PD) 275/GM(AM)/2013-14 dated May 26, 2014, issued in this regard by the Reserve Bank in exercise of powers under Sections 45K and 45L of the RBI Act, 1934 is enclosed for meticulous compliance.
5. Any transfer of shares in violation of the notification would result in adverse regulatory action including cancellation of Certificate of Registration (CoR).
Yours faithfully,
(A.Mangalagiri)
General Manager
General Manager
RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.
Notification No. DNBS.(PD) 275/GM(AM)-2014 dated May 26, 2014
The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that for the purpose of enabling it to regulate the credit system to the advantage of the country, it is necessary to give the directions as set out below, in exercise of the powers conferred by sections 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, gives to every non-banking financial company the directions hereinafter specified.
Short title and commencement of the Directions
1. (1) These Directions shall be known as the 'Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014'.
(2) These Directions shall be applicable to every non banking financial company whether accepting deposits or not, except Primary Dealers.
(3) These Directions shall come into force with immediate effect.
Definitions
2. For the purpose of these Directions, unless the context otherwise requires,-
(a) "control" shall have the same meaning as is assigned to it under clause (e) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
(b) "NBFC" means a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934.
3. Requirement to obtain prior approval of Reserve Bank of India for acquisition or transfer of control of NBFCs. – The prior written permission of the Reserve Bank of India shall be required for –
(i) any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise;
(ii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC;
(iii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC.
(iv) Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
4. Application of other laws not barred. – The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations or directions, for the time being in force.
5. Repeal and saving.- (i) The Non-Banking Financial Companies (Deposit Accepting) (Approval of Acquisition or Transfer of Control) Directions, 2009 issued vide Notification No. DNBS.(PD) 208/ CGM(ANR)-2009 dated September 17, 2009 shall stand repealed.
(ii) Notwithstanding such repeal, any action taken, purported to have been taken or initiated under the directions hereby repealed shall continue to be governed by the provisions of the said directions.
(A.Mangalagiri)
General Manager
General Manager
AHMEDABAD, JUNE 27, 2014: THE issue before the Bench is - Whether non-disclosure of income by not filing return of income on which the TDS is deducted, can be treated as "undisclosed income" within the meaning thereof in Section 158B(b) under Chapter XIV-B. And the answer goes against the assessee.
Facts of the case
The assessee, an individual, is a salaried employee working as Works Manager with M/s. Khemani Distillery Private Limited, Daman from June, 1995 onwards. However, from 01.04.1987 to 31.03.1995 included in the block period the assessee was employed with Zandu Pharmaceutical Works Limited, Mumbai as Chief Engineer. The assessee had never filed his returns of income although he had income liable to tax during the block period. There was a search and seizure operation in the case of entire Khemani Group on 20.08.1997 and consequently the search was also conducted at the assessee's residence on 20.08.1997. In the course of search, cash of Rs.84,500/and jewelery of Rs.2,29,804/- were found, out of which, cash of Rs.50,000/- was seized. In the course of search, the assessee was also found to have investment in fixed deposit and other securities regarding to Rs.12,25,400/-. After search, the assessee consulted CA and he was advised that as the assessee had made the investment in FDRs etc. from his salary income and interest income, which can be considered as known sources, the salary and income from other sources can not be treated as undisclosed income. Accordingly, the assessee filed regular return of income of AY 1996-97 and 1997-98 u/s.139(4) showing salary and income from other sources considering it as normal income. Then the AO, issued a notice u/s 158BC which was served on the assessee on 09.10.1997. In response to the said notice, the assessee filed the return showing undisclosed income at Rs.13,64,954/- for the block period and paid full tax at the rate of 60% on this income. The assessment was however, framed by AO at a total income of Rs.18,33,771/- making certain other additions to the income of salary and interest/dividend disclosed by the assessee in the return of undisclosed income. AO also treated the returns of income filed u/s.139(4) of AYs 1996-97 and 1997-98 as invalid as he assessed the whole income of these assessment years in the assessment of undisclosed income. The AO however allowed deduction under Chapter VIA rebate u/S. 88 and TDS from salary and self assessment tax paid u/s.140A for AYs 1996-97 and 1997-98 against the assessment of undisclosed income.
On appeal before CIT(A), assessee did not raise the ground relating to the assessment of salary income earned by the assessee which was declared in the return of undisclosed income by way of abundant caution the assessee was of the opinion that the salary income cannot be treated as undisclosed income because TDS was deducted by the employer from the salary and form No.24 was filed by the employer with the Department as required u/s 206. The assessee raised certain other grounds with regard to the addition made to the undisclosed income on account of seized cash as well as addition on account of alleged unexplained investment in FDRs as well as alleged low household expenses which were dismissed by the CIT(A).
On further appeal, Tribunal had allowed the said appeal by holding and directing that the income earned by way of salary by the assessee cannot be treated as "undisclosed income" within the meaning thereof in section 158B(b) under Chapter XIV-B of the Act and also reducing the addition on account of unexplained investment of Rs.1,88,884/- to Rs.35,000/-.
Before HC, the Revenue's counsel had submitted that the Tribunal had materially erred in not treating the non-disclosure of the income earned by way of salary by the assessee as "undisclosed income" within the meaning thereof in section 158B(b) under Chapter XIV-B of the Act on the ground that on the aforesaid amount of salary TDS was deducted. It was submitted that as such the aforesaid issue was not res integra in view of the decision of SC in the case of ACIT v. A.R. Enterprises 2013-TIOL-04-SC-IT-LB. In that case SC held that since the tax to be deducted at source was computed on the estimated income of an assessee for the relevant FY, such deduction cannot result into disclosure of the total income for the relevant AY and therefore, mere deduction of TDS, does not amount to disclosure of income, nor does it indicate the intention to disclose income most definitely when the same was not disclosed in the returns filed for the concerned assessment years. It was submitted that therefore non-disclosure of the income received by the assessee by way of salary was required to be treated as "undisclosed income" within the meaning thereof in Section 158B(b) under Chapter XIV-B liable to tax at 60%. It was further submitted that in the present case even after the search and seizure the assessee did not file the return and subsequently filed the return only after initiation of block assessment proceedings and declaring the said income as "undisclosed income". It was submitted that therefore even considering the decision of SC in the case of A.R. Enterprises, non-disclosure of income earned by the assessee by way of salary was required to be treated as undisclosed income. with regard to reduction in the addition on account of unexplained investment of Rs.1,88,884/- to Rs.35,000/-, it was submitted that as such the aforesaid was without any evidence and no reasons had been signed by the Tribunal to reduce the addition on account of unexplained investment of Rs.1,88,884/- to Rs.35,000/-. Therefore, it was requested to allow the present appeal and answer the questions in favour of the revenue.
On the other hand, though served, nobody appeared on behalf of the assessee.
Held that,
++ present tax appeal is of the year 2000 and therefore, this Court is proceeding with hearing of the present tax appeal ex parte. At the outset it is required to be noted that after search and seizure it was found that the asssessee did not disclose the income received by him by way of salary and thereafter the block assessment proceeding was initiated treating the non-disclosure of the said income received by the assessee by way of salary as "undisclosed income". Both, the AO as well as the CIT(A) held against the assessee. However, on an appeal, the Tribunal has held that as on the aforesaid income the TDS was deducted and therefore, it cannot be said that there was a non-disclosure of the income by way of salary;
++ the issue is not res integra in view of the decision of SC in the case of A.R. Enterprises. In this case SC considered the payment of advance tax and tax deducted at source. While dealing with the advance tax, it had observed and held that since the Advance Tax payable by an assessee is an estimate of his "current income" for the relevant financial year, it is not the actual total income, to be disclosed in the return of income. To repeat, the vital distinction being that the "current income" is an estimation or approximation, which may not be accurate or final; whereas the "total income" is the exact income disclosed in a valid return, assessable by the Revenue. The fact that the "current income" is an estimation implies that it is not final and is subject to further adjustments in the form of additions or reductions, as the case may be, and would have to be succeeded by the disclosure of final and total income in a valid return. It will be a misconstruction of the law to construe the undisclosed income for purposes of Chapter XIVB as an "estimate" of the total income, which is assessable and chargeable to tax. Therefore, we are unable to accept that payment of Advance Tax based on "current income" involves the disclosure of "total income", as defined in Section 2(45) of the Act, which has to be stated in the return of income. The same is evidenced in the scheme of Chapter XIVB, in particular. In view of the above, Tribunal has committed a grave error in directing that the income earned by way of salary by the assessee cannot be treated as undisclosed income for levying tax at 60% on the salary income as undisclosed income;
++ in the aforesaid decision in the case of A.R. Enterprises, SC has also considered one another aspect with respect to the intention of the assessee to disclose the income. In the aforesaid decision the SC has observed and held that return was filed only when the block assessment proceedings are initiated by the Assessing Officer declaring the income in the said return. It indicates that there was no intention to disclose the income. In the present case the assessee filed return of income declaring the income received by him by way of salary only after the block assessment proceedings were initiated by the Assessing Officer. Under the circumstances also, the Tribunal has materially erred in not treating the income earned by way of salary by the assessee as "undisclosed income". Under the circumstances, question (a) & (b) are answered in favour of the revenue and against the assessee;
++ so far as the question No.(c) is concerned, by impugned order the Tribunal has reduced the addition made by the AO on account of unexplained investment of Rs.1,88,884/-to Rs.35,000/-. It is required to be noted that at the time of search unexplained investment of Rs.1,88,884/-was found and even after the search the assessee did not file the return of income and declared the same at the time of filing the return after the block assessment proceedings were initiated. Considering the decision of SC in the case of A.R. Enterprises, when the return was filed by the assessee after the block assessment proceedings were initiated by AO as observed by SC in the aforesaid decision, the intention of the assessee is to be presumed that he was not to disclose the income and therefore, the same is required to be treated as undisclosed income within the meaning thereof in section 158B(b) under Chapter XIV-B of the Act. Even as such no specific reasons and/or evidence on record to reduce the addition on account of unexplained investment of Rs.1,88,884/-to Rs.35,000/-. Under the circumstances, the Tribunal has materially erred in reducing the addition on account of unexplained investment of Rs.1,88,884/- to Rs.35,000/-. Under the circumstances, the question No. (c) is also answered in favour of the revenue and against the assessee. In view of the above and for the reasons stated above, present tax appeal succeeds. Question Nos.(a), (b) & (c) are held in favour of the revenue and against the assessee. Consequently, the impugned judgment and award dated 04.07.2000 passed by the Tribunal is hereby quashed and set aside and the order passed by the Assessing Officer confirmed by the CIT(A) is hereby restored. No costs.
(See 2014-TIOL-1018-HC-AHMIT: Where no documents pertaining to assessee was found/seized in search carried out at premises of third person and Assessing Officer having jurisdiction over third person had also not recorded his satisfaction that assessee had undisclosed income, proceedings under section 158BD initiated against assessee were invalid and liable to be quashed
■■■
[2013] 38 taxmann.com 251 (Jodhpur - Trib.)
IN THE ITAT JODHPUR BENCH
Smt. Kusum Lata Sarda
v.
Deputy Commissioner of Income-tax*
HARI OM MARATHA, JUDICIAL MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
AND N.K. SAINI, ACCOUNTANT MEMBER
IT (SS) APPEAL NO. 12 (JODH.) OF 2010
[BLOCK PERIOD 1997-98 TO 2003-04]
[BLOCK PERIOD 1997-98 TO 2003-04]
JUNE 19, 2013
Section 158BD, read with section 158BC, of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income of any other person [Conditions precedent] - Block period 1-4-1996 to 17-7-2002 - Whether where nothing was brought on record to substantiate that during course of search carried out at office premises of third person any books of account or other documents pertaining to assessee were found or seized and Assessing Officer having jurisdiction over case of such third person recorded any satisfaction that assessee had undisclosed-income, notice issued to assessee under section 158BD was not valid and subsequent proceedings were also invalid - Held, yes [Paras 2.9 & 2.11] [In favour of assessee]
FACTS
| ■ | A search and seizure action under section 132 was carried out at the office premises of 'P' wherein the Assessing Officer found that the assessee had made unaccounted investment in certain flats Accordingly, proceedings under section 158BD were initiated against the assessee. | |
| ■ | The assessee carried the matter to the Commissioner (Appeals) and challenged the satisfaction acquired by the Assessing Officer under section 158BD by stating that there being no requisition under section 132A by the Assessing Officer before framing assessment order and that in the notice so issued under section 158BD the block period was not mentioned. | |
| ■ | The Commissioner (Appeals), however, upheld the validity of block assessment proceedings against the assessee. | |
| ■ | On second appeal: |
HELD
| ■ | Nothing is brought on record to substantiate that during the course of search carried out at the office premises of 'P' any books of account or other documents or other assets pertaining to the assessee were found or seized and the Assessing Officer having jurisdiction over the case of 'P' recorded any satisfaction which is mandatory requirement that the assessee had undisclosed income. [Para 2.9] | |
| ■ | The conditions precedent had not been satisfied because the Assessing Officer having jurisdiction over the case of 'P' in whose case the search was conducted, has not recorded his satisfaction that any undisclosed income belonged to the assessee or any books of account/other documents of the assessee seized from 'P' were handed over to the Assessing Officer having jurisdiction over the assessee. Therefore, notice issued to the assessee under section 158BD was not valid and subsequent proceedings were invalid. The assessment order passed by the Assessing Officer is quashed. [Para 2.11] |
CASE REVIEW
Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341/159 Taxman 258 (SC) and CIT v. Raj Pal Bhatia [2011] 333 ITR 315/202 Taxman 140/10 taxmann.com 191 (Delhi) (para 2.11) followed.
CASES REFERRED TO
Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341/159 Taxman 258 (SC) (para 2.6), V.B. Giri v. Asstt. CIT [2009] 126 TTJ (Jodh) 217 (para 2.6), Asstt. CIT v. Fashion Fabrics [2012] 20 taxmann.com 175 (Chd.) (para 2.6) and CIT v. Raj Pal Bhatia [2011] 333 ITR 315/202 Taxman 140/10 taxmann.com 191 (Delhi) (para 2.6).
N.R. Mertia for the Appellant. G.R. Kokani for the Respondent.
ORDER
N.K. Saini, Accountant Member - This is an appeal by the assessee against the order dt. 1st Oct., 2010 of the learned CIT(A), Central, Jaipur. Following grounds have been raised in this appeal :
| "1. | The impugned order under s. 250, dt. 1st Oct., 2010 in ITA No. 120/2007-08 made by learned CIT(A), Central, Jaipur is bad in law and bad in facts, thus, learned CIT(A) erred in maintaining the assessment order under s. 158BD dt. 25th July, 2007 passed by Dy. CIT, Circle, Nagaur, as valid in law and on merit of the case. | |
| 2. | That the learned CIT(A) has erred and was unjustified in giving finding that the original documents seized were forwarded/transmitted to the learned AO of appellant as required under s. 158BD of the Act. The finding is wrong on facts. | |
| 3. | That the learned CIT(A) has erred and was unjustified in giving the finding for recording of satisfaction required by s. 158BD of the Act as valid one. | |
| 4. | That the learned CIT(A) has erred and was unjustified in holding and approving finding of learned AO relating to the appearance of the name of the late Shri Ramavtar Sharda, in the statement recorded during the course of search of Shri Narvir Sing Parmar, whereas no name of appellant appeared in the relevant copy of statement provided to the appellant, as was alleged. | |
| 5. | That the learned CIT(A) erred and was unjustified in holding that the proceedings under s. 158BD were valid as the notice issued itself was valid under s. 158BD/158BC. The learned CIT(A) also erred in holding that the block period as was mentioned on the notice under s. 142(1) dt. 12th June, 2007, therefore, it is to be treated as the block period was also mentioned on the notice issued under s. 158BD/158BC of the Act. | |
| 6. | That the learned CIT(A) erred and was unjustified in holding that the notice under s. 158BD was valid in view of s. 292B of the Act. | |
| 7. | That the learned CIT(A) erred in holding that impugned assessment proceedings were not barred by limitation whereas in view of the law and also binding judicial pronouncements the same was barred by limitation. | |
| 8. | That, in the facts and in the circumstances of the case and in view of the material available on record the learned CIT(A) erred in maintaining the addition of Rs. 1,00,000 solely on assumption and presumption and by relying on statement of third party in which there was no mention of appellant's name and on the contrary the statement relied upon had supported the case of the appellant. | |
| 9. | That the learned AO and the CIT(A) ought not to have made the impugned addition of Rs. 1,00,000. The Hon'ble Tribunal may very kindly delete the addition by quashing the order. | |
| 10. | That appellant craves leave to add, alter, amend or delete the grounds hereinabove taken on or before the hearing. | |
| 11. | The appellant, therefore, most respectfully prays that her appeal may kindly be allowed." |
2.1 Vide ground Nos. 1 to 7, the assessee has challenged the validity of block assessment order passed under s. 158BD r/w s. 158BC of the Act.
2.2 The facts of the case in brief are that a search and seizure action under s. 132 of the IT Act, 1961 (hereinafter referred to as 'the Act' in short) was carried out at the office premises of M/s Parmar Builders & Developers, Silvassa at I, Gurudev Complex, Sayali Road, Silvassa. The AO observed that during the course of search, Annex. B-1 page Nos. 1 to 8 was found which contained the name of Shri Ramavatar Sarda to whom unaccounted consideration was paid by the persons against their names. The AO also observed that the assessee had made unaccounted investment in the flats in Gurudev Complex-II, Building H, Silvassa as mentioned in column- as unaccounted consideration and accordingly proceedings under s. 158BD of the Act were initiated and the assessee was required to furnish the return of the block period by 13th June, 2006. But no return of income for the block period was furnished by the assessee, the AO framed the assessment at an income of Rs. 1 lac, considering the same as undisclosed investment in Plot No. H/B-11, Gurudev Complex-II, Silvassa.
2.3 The assessee carried the matter to the learned CIT(A) and challenged the satisfaction acquired by the AO under s. 158BD of the Act by stating that there being no requisition under s. 132A of the Act by the AO before framing assessment order and that in the notice so issued under s. 158BD on 15th July, 2005, the block period was not mentioned and only block period with date as 17th July, 2002 was mentioned which did not quantify the complete block period. It was further stated that notices also did not specify the status of the assessees to whom notices were issued. It was contended that vide letter dt. 17th Aug., 2005, the assessee requested to provide the reasons recorded for issuing the notice and vide subsequent letter dt. 17th May, 2006/30th May, 2006 of AO, the assessee was requested to furnish the return for the block period by 13th June, 2006 but extension was sought. It was stated that another notice under s. 142(1) dt. 12th June, 2007 was issued for the block period and till that date i.e. 12th June, 2007, the assessee was not aware about the proceedings of block period and even from the intervening communication letter dt. 17th May, 2006 it seems that the information was passed on by the Asstt. CIT, Central Circle, Surat to the AO of the assessee and no documents were passed on. Accordingly, no return was filed by the assessee because of the facts of invalidity and action becoming barred by limitation and moreover loose papers page Nos. 20 to 24 revealed that there was no name of the assessee on those papers and factually the assessee had not given any unaccounted money to M/s Parmar Construction.
2.4 The learned CIT(A) after considering the submissions of the assessee observed that notice dt. 15th July, 2005 was issued for the block period requiring the assessee to furnish the return of income and in the said notice, block period with date 17th July, 2002 was mentioned which implied that notice was for the block period ending on 17th July, 2002. He further observed that the assessee did not object to this notice on the ground of non-mention of block period but in reply to it, details of reasons for issue of notice were asked for. According to the learned CIT(A), the assessee was communicated the reasons for issue of such notice under s. 158BD of the Act vide letter dt. 17th May, 2006/30th May, 2006. Therefore, the notice under s. 158BD could not be held to be invalid. The learned CIT(A) held that in view of the provisions under s. 292B of the Act, such notice shall not be deemed to be invalid merely by reasons of the alleged mistake as the notice is in substance and in effect in conformity with or according to the intent and purpose of this Act. The learned CIT(A) pointed out that notice was issued for the block period ending on 17th July, 2002 which was mentioned instead of explicit period of block period from 1st April, 1996 to 17th July, 2002 being mentioned. The learned CIT(A) held that there was no time-limit provided for issuance of notice under s. 158BD of the Act and that the time-limit had been provided for completion of assessment. The learned CIT(A) also held that in assessee's case, the notice under s. 158BD of the Act was issued on 15th July, 2005 and the time-limit for completion of the assessment as prescribed in s. 158BE of the Act was 31st July, 2007 and the order was passed on 25th July, 2007. Therefore, it was not barred by limitation. The learned CIT(A) also rejected the contention of the assessee that books of account or documents were not passed on to the AO, which is the condition of issuance of notice under s. 158BD of the Act by stating that the AO of the assessee had not only received the relevant documents from the AO having jurisdiction over Parmar Builder Group of cases but had even supplied those copies of documents to the assessee vide letter dt. 12th July, 2007.
2.5 Now the assessee is in appeal.
2.6 The learned counsel for the assessee reiterated the submissions mane before the authorities below and further submitted that notice dt. 15th July, 2005 purportedly issued under s. 158BD r/w s. 158BC was not at all a notice under s. 158BD of the Act because the same did not disclose any satisfaction having been recorded on any date or proceedings during which it was so recorded and also did not give any communication of any material on which satisfaction was based and did not say as to whether the said seized material was handed over to the AO of the assessee. Reference was made to page No. 23 of the assessee's paper book which is the copy of notice dt. 15th July, 2005, issued under s. 158BD/158BC of the Act. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341/159 Taxman 258. It was contended that no satisfaction was recorded in the case of the persons searched. Therefore, the notice under s. 158BD of the Act in the case of assessee was invalid. Reliance was placed on the following case laws :.
| (i) | V.B Giri v. Asstt. CIT [2009] 126 TTJ (Jodh.) 217 : | |
| (ii) | Asstt CIT v. Fashion Fabrics [2012] 20 taxmann.com 175 (Chd.) | |
| (iii) | CIT v. Raj Pal Bhatia [2011] 333 ITR 315/202 Taxman 140/10 taxmann.com 191 (Delhi) |
2.7 In his rival submissions, the learned Departmental Representative for the Revenue supported the orders of the authorities below.
2.8 We have considered the submissions of both the parties and carefully gone through the materials available on record. In the present case, it appears that while issuing the notice under s. 158BD of the Act, copy of which is placed at page No. 23 of the assessee's paper book, the AO had not mentioned the block period and also had not mentioned whether the said notice was under s. 158BD or 158BC of the Act because both the sections are printed on the said notice. In the present case, it is also not brought on record as to whether any satisfaction was recorded by the AO who framed the assessment under s. 158BC of the Act in the hands of the person searched. On a similar issue, the Hon'ble Delhi High Court in the case of Raj Pal Bhatia (supra) held as under :
"Before invoking the provisions of s. 158BD of the IT Act, 1961, the AO of the person searched under s. 132(1) must satisfy himself that some undisclosed income belongs to a person other than the persons with respect to whom search was made under s. 132(1) of the Act. Such satisfaction must be based on material found in the course of search. In the absence of any such satisfaction (which is to be recorded in writing) the concerned AO does not get any jurisdiction to assess that other person by invoking s. 158BD of the Act. Further, the satisfaction of the AO has to be in respect of the following aspects :
| (i) | there should be 'undisclosed income' within the meaning of s. 158B(b) referable to the assets or books/documents found seized/requisitioned; | |
| (ii) | there should be a finding by the AO that there was undisclosed income in such assets or books of account or documents of the searched person; and | |
| (iii) | that such undisclosed income belonged to the person other than the one searched." |
2.9 In the present case also, nothing is brought on record to substantiate that during the course of search carried out at the office premises of M/s Parmar Builders & Developers, Silvassa, any books of account or other documents or other assets pertaining to the assessee were found or seized and the AO having jurisdiction over the case of M/s Parmar Builders & Developers recorded any satisfaction which is mandatory requirement that the assessee had undisclosed income. Therefore, the proceedings under s. 158BD of the Act were not valid.
2.10 Similarly, the Hon'ble Supreme Court in the case of Manish Maheshwari (supra) has held as under :
"Before the provisions of s. 158BD of the IT Act, 1961 are invoked against a person other than the person whose premises have been searched under s. 132 or documents and other assets have been requisitioned under s. 132A, the conditions precedent have to be satisfied."
It has been further held that :
"Where the premises of a director of a company and his wife were searched under s. 132 of the IT Act, 1961 and a block assessment had to be done in relation to the company, the AO had to (i) record his satisfaction that any other undisclosed income belonged to the company, and (ii) handover the books of account and other documents and assets 1 seized to the AO having jurisdiction against the company."
2.11 In the present case also, the conditions precedent had not been satisfied because the AO having jurisdiction over the case of M/s Parmar Builders & Developers, Silvassa in whose case the search was conducted, (sic-has not) recorded his satisfaction that any undisclosed income belonged to the assessee or any books of account/other documents of the assessee seized from M/s Parmar Builders & Developers, Silvassa were handed over to the AO having jurisdiction over the assessee. Therefore, in view of above discussions and the ratio laid down in the aforesaid referred to judicial pronouncements, we are of the view that notice issued to the assessee under s. 158BD of the Act was not valid and subsequent proceedings were invalid. We therefore, quash the assessment order passed by the AO.
2.12 Since we have quashed the assessment order passed by the AO, therefore, other grounds raised by the assessee become of academic interest and no findings are required to be given on our part.
3. In the result, the appeal filed by the assessee is allowed.
IT: Assessee could not be denied cost of improvement simply because contractors to whom payments were made did not carry out work
■■■
[2013] 37 taxmann.com 260 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'B'
S.P. Balasubramaniyam
v.
Income-tax Officer*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
IT APPEAL NO. 757 (MDS.) OF 2011
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
APRIL 29, 2013
Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of [Cost of improvement] - Assessment year 2007-08 - Assessee declared short-term capital gain in respect of sale of building - While computing capital gains, assessee claimed cost of improvement of property which was paid to contractors - Whether since assessee had paid amounts to contractors deducting TDS, assessee could not be denied cost of improvement for purpose of computing capital gains simply because contractors to whom payments were made did not carry out work - Held, yes - Whether, therefore, Assessing Officer was to be directed to consider cost of improvement in computing capital gains - Held, yes [Para 5] [In favour of assessee]
K.C. Srinivasan for the Appellant. Guru Bhashyam for the Respondent.
ORDER
Challa Nagendra Prasad, Judicial Member - This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-VI, Chennai dated January 4, 2011 for the assessment year 2007-08. The only grievance of the assessee in this appeal is that the Commissioner of Income-tax (Appeals) is not justified in not considering Rs.13,70,000 paid to contractors as cost of improvement to the property while computing the capital gains.
2. The brief facts of the case are that the assessee is a renowned playback singer, actor and proprietor of recording theatres filed return of income showing net taxable income at Rs. 34,80,280. The assessee also declared short-term capital gain of Rs. 35,48,200 in respect of sale of building at Hyderabad. The assessee while computing capital gains claimed cost of improvement of property at Rs. 39,69,500 which was paid to contractors for improvement and construction of the property. It was the submission of the assessee that he has purchased a semi-finished building and made alterations and additions for using it as dubbing and recording theatre. In this process, the assessee made payments to contractor for the works. It was also the submission of the assessee that the assessee has deducted TDS on payments made to these contractors. However, the Assessing Officer while completing the assessment did not accept the submission of the assessee and excluded cost of improvement for the purpose of computing capital gains. On appeal, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the expenditure of Rs.25,74,500 claimed by the assessee in respect of payment made to one Shri P. V. Prasad as the assessee produced bank account wherein the assessee paid the said sum to Mr. P. V. Prasad for construction purposes. In respect of the balance of Rs. 13,17,000, paid to contractors the Commissioner of Income-tax (Appeals) denied the cost of improvement stating that the assessee himself admitted that contract work was not carried out by the above persons. The assessee is in appeal before us.
3. Counsel for the assessee submits that the assessee made payments to various contractors for modification and alteration of the property in order to suit the property as dubbing and recording theatre. Counsel for the assessee submits that the contractors left without carrying out the work due to some differences with the assessee in carrying out the work. The counsel submits that the assessee himself carried out the work later and completed the works. Counsel submits that the assessee had in fact, deducted TDS on payments made to those contractors and remitted the TDS to government account. Therefore, he submits that there is no justification in denying the cost of improvement of Rs. 13,70,000 on the ground that the contractors have not completed the work.
4. The Departmental representative supported the orders of the lower authorities.
5. Heard both sides. Perused the orders of the lower authorities and materials on record. It is a fact that the assessee made payments to sub-contractors which is not in dispute. The assessee also deducted TDS on such payments to contractors is also not in dispute. It is also a fact that the assessee himself carried out the unfinished portion of the building without which he could not have used that property as dubbing and recording theatre. It is a fact that the assessee has sold the property, i.e., dubbing and recording theatre. So it is not the contention of the Assessing Officer that the cost of improvement was not at all met by the assessee. The assessee has paid amounts to contractors deducting TDS. Therefore, in our view, the assessee cannot be denied cost of improvement for the purpose of computing capital gains simply because the contractors to whom the payments were made did not carry out the work. Therefore, we direct the Assessing Officer to consider Rs. 13,70,000 in computing the capital gains as cost of improvement of the asset and recompute the capital gains.
6. In the result, the appeal of the assessee is allowed.
USP IT: Where assessee, owner of plot, entered into a development agreement with developer in terms of which he was entitled to receive certain amount in cash and a furnished flat, assessee was liable to pay capital gain tax in year in which said joint development agreement was signed and not afterwards
■■■
[2013] 38 taxmann.com 7 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Hussan Lal Puri
v.
Income-tax Officer, Ward -6(1), Mohali*
T.R. SOOD, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
IT APPEAL NO. 1062 (CHD.) OF 2011
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
AUGUST 23, 2013
Section 2(47), read with section 45, of the Income-tax Act, 1961 - Capital gains - Transfer [Land dealings] - Assessment year 2008-09 - Whether where assessee, owner of plot, entered into a development agreement with developer in terms of which he was entitled to receive certain amount in cash and a furnished flat, following order passed by co-ordinate Bench in case of Charanjit Singh Atwal v. ITO [2013] 36 taxmann.com 10 (Chd - Trib), it was to be concluded that assessee was liable to pay capital gain tax in year in which said joint development agreement was signed and not afterwards - Held, yes [Para 6] [In favour of revenue]
CASES REFERRED TO
Charanjit Singh Atwal v. ITO [2013] 36 taxmann.com 10 (Chd. - Trib.) (para 3), Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/162 Taxman 316 (SC) (para 5) and Dy. CIT v. Punjabi Co-operative House Building Society Ltd. [IT Appeal No. 310 (Chd.) of 2012] (para 7).
Akhilesh Gupta for the Appellant.
ORDER
T.R. Sood, Accountant Member - This appeal is directed against the order dated 19.8.2011 of the ld. CIT(A), Chandigarh.
2. The assessee has raised the following effective grounds in this appeal:
"2 That the ld. Commissioner of Income Tax (Appeals) Chandigarh is not justified in upholding the order of the ld. Assessing Officer as the reopening if the assessment by the ld. Assessing Officer u/s 147 read with 148 of the Income-tax Act, 1961 is bad in law.
3. That the ld. Commissioner of Income Tax (Appeals), Chandigarh is not justified in upholding the order of the ld. Assessing Officer wherein the whole of the Long Term Capital Gains of Rs. 78,63,408/- has been made taxable during the year under consideration as there has been no Transfer of such Property by the appellant under the provisions of the Income-tax Act, 1961 and Transfer of Property Act, 1882, during the year under consideration. This addition of Rs. 78,63,408/- being made on estimation, surmises and conjectures is uncalled for and deserves to be deleted.
4. That the ld. Commissioner of Income Tax (Appeals), Chandigarh is not justified in upholding the order of the ld. Assessing Officer as the appellant has correctly offered a sum of Rs. 19,20,000/- under the head Capital Gains for taxation as only a part of the property was transferred during the year under consideration as per the terms and condition of the agreement dated 27-04-2007 and taxing the whole of the Long Term Capital Gains of Rs. 78,63,408/- is unjustified.
5. That the ld. Commissioner of Income Tax (Appeals) is not justified in upholding the order of the ld. Assessing Officer by bringing to tax the capital gains arising out of futuristic event pertaining to the allotment of one furnished flat and is also unjustified in estimating the value of such flat at Rs. 60,75,000/- being purely based on presumption, inferences, surmises and conjectures. This addition is uncalled for and deserves to be deleted.
6. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is not justified by passing a non-speaking order regarding the issue of determining the real 'Owner' in whose hands the 'Capital Gains is to be assessed' viz M/s Defence Service Co-operative Housing Society Ltd., Mohali or the appellant being its Member and is unjustified in sustaining the addition of Long Term Capital gains of Rs. 78,63,408/- in the hands of the appellant."
3. None appeared in this case despite notice. It was pointed out by the ld. DR for the revenue that the issues in this case are covered by the order of the Tribunal in case of Charanjit Singh Atwal v. ITO [2013] 36 taxmann.com 10 (Chd - Trib). Therefore, we have proceeded to hear the appeal on ex parte basis.
4. Ground No. 2 - The ld. DR for the revenue was heard. After considering the submissions of the ld. DR for the revenue and relevant material on record we find that original return in this case was processed u/s 143(1). Later on information came to be available with the Department which shows that The Defence Services Cooperative House Building Society has transferred land measuring 27.3 acres to M/s Tata Housing Development Company Ltd. and or Hash Builders Pvt Ltd. therefore, notice u/s 148 was issued.
5. Since originally no assessment was framed u/s 143(3) of the Act and information also came to the Revenue, therefore, revenue had right to reopen the assessment particularly in view of the decision of Hon'ble Supreme Court in case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316. Therefore, we find nothing wrong with the order of the CIT(A) in respect of this issue and confirm the same.
6. Grounds No. 3, 4 & 5 - Through these grounds the assessee has challenged the chargeability of capital gain on the transfer of plot. The assessee is a Member of The Defence Services Coop House Building Society Ltd. Mohali and was owner of plot measuring 300 sqyd for which the assessee was entitled to receive a sum of Rs. 48 lakh as monetary consideration and a furnished flat measuring 1350 sqft which has been valued at Rs. 4500 per sqft. at Rs. 60,75,000/-. Whole of the consideration amounting to Rs. 1,08,75,000/- has been subjected to charge of capital gain. This issue has been considered by us in detail in case of Shri Charanjit Singh Atwal (supra). The issue has been decided vide paras 27 to 110 which are as under:
'27 We have considered the rival submissions and carefully gone through the written submissions filed by both the parties in the light of material on record, paper books and various judgments cited by the parties. The main issue is whether assessee is liable to capital gain tax in the year under consideration i.e. assessment year 2007-08 in view of the JDA. For charging capital gains, the charging section is 45 and the relevant portion is as under:—
Section 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F 54G and 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.
28 The plain reading of the above provision would show that charging an item of income under the head "Capital gains" require three ingredients i.e. (i) there should be some profit. (ii) Such profit must be arising on account of transfer and (iii) there should be capital asset which has been transferred. There is no dispute that a capital asset was involved and there was some profit also i.e. why assessee has himself returned income under the head "capital gains". The dispute is mainly on account of transfer and that too whether the transfer could be covered under clauses (ii), (v) & (vi) of section 2(47) so as to bring into picture the whole of consideration arising on transfer of such assets. We shall deal with each of the aspect in detail at appropriate time.
29. Apart from charging provisions u/s 45 another important provision is section 48 which deals with the mode of computation and relevant portion reads as under :—
48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing 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 cost of any improvement thereto: |
30 Again plain reading would show that capital gain would be computed by considering the full value of consideration whether received or accruing as a result of the transfer . Therefore, it is not only the consideration received which is relevant but the consideration which has accrued is also relevant.
31. The expression 'transfer' has been defined u/s 2(47) of the
Act which reads as under:-
2 (47) "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 asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or | |
| (iva) | the maturity or redemption of a zero coupon bond; or | |
| (v) | any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; 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 agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. |
Explanation.—For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;
Clauses (v) & (vi) to section 2(47) of the Act have been inserted by Finance Act, 1987 w.e.f. 1.4.1988. The purpose of this insertion has been explained by CBDT in Circular No. 495 dated 22.9.1987. The relevant part 11.1 and 11.2 of the circular reads as under:—
"11.1 The existing definition of the word "transfer" in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member or acquiring shares in a co-operative society, company, or as way of any agreement or any arrangement whereby such any building which is either being constructed or which is to be constructed. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multi-storeyed constructions in big cities. The definition also does not cover cases where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of Transfer of Property Act, 1882. New sub-clauses (v) & (vi) have been inserted in section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above.
11.2 The newly inserted sub-clause (vi) of section 2(47) has brought in to the ambit of transfer", the practice of enjoyment of property rights through what is commonly known as Power of Attorney arrangements. The practice in such cases is adopted normally where transfer of ownership is legally not permitted. A person holding the power of attorney is authorized the powers of owner, including that of making construction. The legal ownership in such cases continues to be with the transferor."
32 Before insertion of the clause (v) & (vi) to section 2(47) of the Act, the position of law was that unless and until a sale deed was executed for transfer of immovable property, the same could not be construed as transfer for the purpose of charging capital gain tax. This was particularly so in the light of various judgments particularly the judgment of Hon'ble Apex Court in the case of Alapati Venkatramianv. CIT(57 ITR 185) (SC). In this case it was held that in the context of transfer for the purpose of capital gain tax, what is meant by transfer is the effective conveyance of the capital asset by a transfer or to the transferee. Delivery of possession and agreement to sell by itself could not constitute conveyance of the immovable property. In the meantime apart from this decision a practice came into vogue by which certain properties were being transferred without executing the proper sale deeds. This was being done because there was restriction on sale of properties in various towns e.g. in case of leasehold plots and flats in Delhi if the same were to be transferred, permission was required to be taken from the Government / DDA and transferor was required to pay 50% of the market value - cost (i.e. unearned increase) to the Government. To avoid such payments and/or also to avoid the payment of stamp duty or cumbersome procedure of obtaining permission, some properties were being sold by way of sale agreement and also execution of General Power of Attorney and possession was given on receipt of full consideration without executing the proper sale deeds etc. which as mentioned earlier was not even permissible in some cases. These transactions are popularly called "power of attorney" transactions. To avoid these and to stop the leakage of Revenue, the Parliament has inserted clauses (v) & (vi) to section 2(47) so as such type of transactions are also be brought into taxation net. However, interpretations of these clauses has led to lot of litigation and the main point of litigation was that at what point of time the possession can be said to have been given. In the present case, the Revenue has mainly relied on two decisions namely (i) Chaturbhuj Dwarkadas Kapadia v CIT 260 ITR 491 (Bom.) and; (ii) Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria 294 ITR 196.
33. In the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra), the facts before the Hon'ble Bombay High Court were that assessee who was an individual had 44/192 undivided share in an immovable property in Greater Bombay which consisted of various lands and buildings. By Agreement dated August 18, 1994, the assessee agreed to sell to Floreat Investment Ltd, (herein referred to 'Floreat') his share of immovable property for a total consideration of Rs. 1,85,63,220/- with right to said Floreat to develop the property in accordance with the rules/regulations framed by local authorities. For this purpose, the assessee also agreed to execute a limited power of attorney authorizing Floreat to deal with the property and also obtain permissions and approvals from various authorities. Under clause 11 of the agreement, it was provided that after Floreat was given an irrevocable license to enter upon the assessee's share of property and after Floret investment have obtained all necessary approvals, the Floreat was entitled to demolish various buildings for settling the claims of the tenants. Under clause 14 of the agreement, the assessee was entitled to receive proportionate rent till the payment of last installments and till that time assessee was bound to pay all outgoings. Under clause 20 of the Agreement, it was agreed that sale shall be completed by execution of conveyance, however, till the matter was adjudicated by the Hon'ble High Court, no conveyance was executed. Pursuant to this agreement, Floreat obtained various permissions namely (i) clearance from CRZ Authority dated February 7, 1996; (ii) letter from ULC for redevelopment of property dated April 26, 1995. Other permissions were also obtained during the financial year ending March 31, 1996 relevant to assessment year 1996-97. By March, 31, 1996, Floreat had paid almost the entire consideration expected for a small sum of Rs. 9,98,000/-. However, the commencement certificate permitting construction of the building was issued on November 15, 1996. The power of attorney was executed on March 12, 1999. The question arose whether liability of the assessee for capital gain arose in the assessment year 1996-97 or 1999-2000. The observation of the Court has been summarized in headnote as under:-
"Clauses (v) and (vi) were introduced in section 2( 47) of the Income-tax Act, 1961, with effect from April 1, 1988. They provide that "transfer " includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. Under section 2(47)(v) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration ; it should be in writing ; it should be signed by the transferor ; it should pertain to transfer of immovable property ; the transferee should have taken possession of the property ; lastly, the transferee should be ready and willing to perform his part of the contract. Even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Assessees used to enter into agreements for developing properties with builders and under the arrangement with the builders, they used to confer privileges of owner ship without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced in the Act.
| ** | ** | ** |
Held, that section 2( 47) (v) read with section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property is not effective or complete under the general law. In this case, the test had not been applied by the Department. No reason had been given why that test had not been applied, particularly when the agreement in question, read as a whole, showed that it was a development agreement. Once under clause 8 of the agreement a limited power of attorney was intended to be given to the developer to deal with the property, then the date of the contract, viz., August 18, 1994, would be the relevant date to decide the date of transfer under section 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter would not arise……"
34. The Hon'ble Court referred to clauses (v) & (vi) of section 2(47) and made the following observations at page 499 of the report:
".... The above two clauses were introduced with effect from April 1,1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property (see section 269UA(d)). Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law (see Kanga and Palkhivala's Law and Practice of Income-tax-VIII edition, page 766) . This test is important to decide the year of chargeability of the capital gains."
35 The above observations were made on the basis of opinion expressed by Ld. author in the commentary - "The Law and Practice of Income Tax by Kanga and Palkhivala Eighth Edition at page 766. Relevant observations read as under:
"Cls. (v) and (vi) of s. 2(47), inserted by the Finance Act 1987 with effect from 1st April 1988, provide that "transfer" includes (a) any transaction which involves the allowing of the possession of an immovable property (s. 269UA(d)) to be taken or retained in part performance of a contract of the nature referred to in s.53A of the transfer of Property Act 1882, and (b) any transaction entered into in any manner which has the effect of transferring, or enabling the enjoyment of, any immovable property (s. 269UA(d)). Therefore in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under general law."
36 From the above, it is clear that Court was of the view that in case any transaction covered by clause (v) and (vi) to section 2( 47) the liability for capital gain would arise on the date when such transactions are entered into. In the judgment at some other places, the similar observations have been made. However, despite this observation the case was decided in favour of the assessee. The reason for the same have been given in the judgment itself. Firstly it is observed that provision of section 2(47)(v) of the Act were not invoked by the Revenue itself. This becomes clear from the following para:
"It was argued on behalf of the assessee that there was no effective transfer till grant of irrevocable licence. In this connection, the judgment of the Hon'ble Supreme Court were cited on behalf of the assessee, but all those judgment were prior to introduction of the concept of deemed transfer u/s 2(47)(v). In this matter, the agreement in question is a development agreement. Such development agreements do not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. That the aim of these professional contractors was only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements. That such agreements are only a mode of remunerating the builder for his services of constructing the building (see Gurudev Developers v. Kurla Konkan Niwas Co-operative Housing Society [2003] 3 Mah LJ 131). It is precisely for this reason that the Legislature has introduced section 2(47)(v) read with section 45 which indicates that capital gains is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law. In this case that test has not been applied by the Department. No reason has been given why that test has not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement. There is a difference between the contract on the one hand and the performance on the other hand. In this case, the Tribunal as well as the Department have come to the conclusion that the transfer took place during the accounting year ending March 31,1996, as substantial payments were effected during that year and substantial permissions were obtained. In such cases of development agreements, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is in view of section 2 (47)(v) of the Act."
Secondly it is mentioned in the order of the Court that law was not very clear on this point and since the assessee has admitted and paid capital gain in the Assessment year 1999-2000, therefore, tax was held to be chargeable in Assessment year 1999-2000.
Thirdly certain shortcomings were also noted in the order of the Tribunal where certain documents were mentioned to have been executed before March 31, 1996 e.g. the following observation of the Tribunal was not found correct as something is done on Ist April, 1997 then the same cannot fall in the year ending 31.3.1996.
"From the dates it is evident that from the very next day, i.e., April 1, 1997, from the end of the financial year ending on March 31, 1996, the builder was using the well water against payment of relevant charges to the assessee."
37 Thus it is very clear that in cases where an arrangement had been entered into by an assessee in terms of clause (v) of Section 2(47) which has effect of handing over the possession then the transfer is said to have been taken place on the date of entering into such arrangement.
38 We do not find any force in the contention of the ld. Counsel for the assessee that judgment has to be read in the context of the decision made in such judgment. In fact, it is well settled that doctrine of precedent which means what needs to be followed later on particularly by subordinate Tribunals and Courts is the ratio of a particular judgment given by the higher Court or Forum. Further , there is no force in the contention that decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra) does not show that the date of agreement itself constitute the transfer. Again there is no force even in the contention that in that case it was ultimately decided that capital gain taxes is chargeable in Assessment year 1999-2000 because of the reasons given in above noted paras particularly because the Revenue itself never invoked the provisions of section 2(47)(v) of the Act and held it to be taxable in Assessment year 1996-97. No doubt in that case ultimately it was held that capital gain was in assessment year 1999-2000 but Court had made it very clear that this is first time that law is being laid down and guidelines are being issued which means that there was a confusion earlier. Clauses (v) & (vi) to section 2(47) were introduced in the year only in 1998. Perhaps Court took a lenient view because of these reasons and held that capital gain was taxable in Assessment year 1999-2000. It is quite clear that ratio of the above decision is that in case of any arrangements or transactions whereby the other party becomes entitled to enjoy the property then that date of such transaction itself needs to be construed as the date of transfer.
39 The second relevant decision cited by the Revenue is by Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria (supra). In that case the assessee was co-owner of agricultural land measuring about 27.7 acres and his share was 4/9. The co-owner decided to develop the land by constructing residential complex through developer and entered into a Collaboration agreement on 8.6.2005 with M/s Santur Developer Pvt Ltd. New Delhi (hereinafter called 'Developer'). According to the terms of agreement, the Developer should obtain a letter of intent from the concerned government department and obtain other permissions and sanctions for developing the land at its own risk and cost. The Developer was to take 84% of the builtup area and balance 16% would belong to assessee and other co-owner. The consideration for the agreement was taken as the builtup area to be handedover to the owners free of cost. The owners were entitled to visit the site in order to review the progress of the project. It was clarified by clause 18 that ownership would remain exclusively with the owners till it vests with both the parties as per their respective shares on the completion of the project. The other clauses and the steps in the agreement were that a sum of Rs. 1 crore towards payment of earnest money at the time of entering into agreement; a special power of attorney was to be executed in favour of the Developer to enable to deal with the Statutory authorities etc. for obtaining necessary approvals/sanctions; letter of intent was to be obtained not later than March 8, 2006 and in case of a failure to do so, the agreement shall stand terminated. Letter of intent is basically a license granted by the Director of Town Planting to Developer of land for the purpose of constructing residential flats subject to payment of certain charges and compliance of other conditions. It was further stated in the agreement that on fulfilment of the requirement in the letter of intent, owners will have to execute irrevocable general power of attorney in favour of the Developer authorizing the Developer to took and sell the dwelling units out of developer's share and collect the money for the same. However, finally sale deeds could be executed only after the owner received their share of constructed area. Three months later, a supplementary agreement was entered on September 15, 2005 between the assessee and other co-owners and Developers through which it was agreed that owners will sell their 16% share in the built-up area to the Developer or its nominee for consideration of Rs. 42 crore. A sum of Rs. 2 crore was received. This collaboration agreement and balance of Rs. 40 crore was payable by the Developer to the owners in six instalments from March 06, 2008. The instalments could be extended subject to payment of interest and further subject to maximum extension of three months. There were various other clauses which are not relevant for our purposes. The question arose whether capital gain accrue/arise to the assessee during the financial year 2006-07 relevant to assessment year 2007-08 or during financial year 2007-08 relevant to assessment year 2008-09.
40. On the above, the Hon'ble Authority after referring to the provisions of section 45 and observed as under:-
"....The section can be analysed thus :
| (a) | transfer of a capital asset effected in the previous year, | |
| (b) | resultant profits or gains from such transfer, | |
| (c) | those profits or gains would constitute the income of the assessee/ transferor | |
| (d) | such income shall be deemed to be the income of the same previous year in which the transfer had taken place. |
Two aspects may be noted at this juncture. Firstly, the expression used is "arising" which is not to be equated with the expression "received". Both these expressions and in addition thereto, the expression "accrue" are used in the Income-tax Act either collectively or separately according to the context and nature of the charging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place.
The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading text books. The following statement of law in Sampath Iyengar's Commentary (10th Edition- Revised by Shri S. Rajaratnam) brings out the correct legal position :
"Section 45 enacts that the capital gains shall by fiction 'be deemed to be the income of the previous year in which the transfer took place'. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer.
. . . . In the words of section 45, the capital gains arising from the transfer 'shall be the income of the previous year in which the transfer took place'. So, the payments of consideration stipulated to be paid in future would have to be attributed, by statutory mandate, to the year of transfer, even as payments made prior to the year of transfer."
41. Thereafter , the Authority referred to section 2(47) and objects of the introduction of clauses (v) & (vi) and also referred to paras 11.1 & 11.2 of the Board Circular No. 495 (which we have already discussed earlier). The Hon'ble Authority has discussed various implications of clause (v) of section 2(47) and also implication of section 53A of the Transfer of Property Act as well as observations of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra). The Authority observed that to understand this provision properly meaning of 'possession' has to be understood properly and went on to discuss the meaning of term 'possession, and how the same is to be understood in the context of clause (v). These are very important observations and have been discussed in most elucidated fashion. These observations will answer many of the questions raised before us and, therefore, we are extracting these observations as under:—
Meaning of "possession" and how should it be understood in the context of clause (v)
The next question is, in what sense we have to understand the term "possession" in the context of clause (v) of section 2(47). Should it only mean the right to exclusive possession which the transferee can maintain in his own right to the exclusion of everyone including the transferor from whom he derived the possession ? Such a criterion will be satisfied only after the entire sale consideration is paid and the transferor has forfeited his right to exercise acts of possession over the land or to resume possession. In our view, there is no warrant to place such a restricted interpretation on the word "possession" occurring in clause (v) of section 2(47). Possession is an abstract concept. It has different shades of meaning. It is variously described as "a polymorphous term having different meanings in different contexts" (per R. S. Sarkaria J. in Superintendent and Remembrance of Legal Affairs, W. B. v. Anil Kumar Bhunja [1979] 4 SCC 274 and as a word of "open texture" (see Salmond on Jurisprudence, paragraph 51, Twelfth Edition, Indian reprint). Salmond observed : "to look for a definition that will summarize the meanings of the term "possession" in ordinary language, in all areas of law and in all legal systems, is to ask for the impossible". In the above case of Anil Kumar Bhunja [1979] 4 SCC 274, Sarkaria J. speaking for a three-judge Bench also referred to the comments of Dias and Hughes in their book on Jurisprudence that "if a topic ever suffered too much theorizing it is that of 'possession'". Much of the difficulty is caused by the fact that possession is not a pure legal concept, as pointed out by Salmond. The learned judge then explained the connotation of the expression "possession" by referring to the well known treatises on jurisprudence (page 278) :
" 'Possession', implies a right and a fact : the right to enjoy annexed to the right to property and the fact of the real intention. It involves power of control and intent to control, (see Dias and Hughes)
| 14** | ** | ** |
15. While recognizing that 'possession' is not a purely legal concept but also a matter of fact, Salmond (12th Ed., 52) describes possession, in fact, as a relationship between a person and a thing. According to the learned author, the test for determining 'whether a person is in possession of anything is whether he is in general control of it'.'
In Salmond's Jurisprudence, at paragraph 54, we find an illuminating discussion on "immediate" and "mediate possession". The learned author states "in law one person may possess a thing for and on account of someone else. In such a case the latter is in possession by the agency of him who so holds the thing on his behalf. The possession thus held by one man through another may be termed mediate, while that which is acquired or retained directly or personally may be distinguished as 'immediate or direct'." Salmond makes reference to three types of mediate possession. In all cases of "mediate possession", two persons are in possession of the same thing at the same time. An allied concept of concurrent possession has also been explained in paragraph 55 of Salmond's Jurisprudence in the following words :
"It was a maxim of the civil law that two persons could not be in possession of the same thing at the same time. As a general proposition this is true : for exclusiveness is of the essence of possession. Two adverse claims of exclusive use cannot both be effectually realized at the same time. Claims, however, which are not adverse, and which are not, therefore, mutually destructive, admit of concurrent realization. Hence, there are several possible cases of duplicate possession.
1. Mediate and immediate possession co-exist in respect of the same thing as already explained.
2. Two or more persons may possess the same thing in common, just as they may owe it in common
| ** | ** | **" |
On a fair and reasonable interpretation and on adopting the principle of purposive construction, it must be held that possession contemplated by clause (v) need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property and to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of agreement does not introduce any incompatibility. The concurrent possession of the owner who can exercise possessory rights to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled. Clause (v) of section 2(47) will have its full play even in such a situation. There is no warrant to postpone the operation of clause (v) and the resultant accrual of capital gain to a point of time when the concurrent possession will become exclusive possession of developer/transferee after he pays full consideration.
Further, if "possession" referred to in clause (v) is to be understood as exclusive possession of the transferee/developer, then, the very purpose of the amendment expanding the definition of transfer for the purpose of capital gains may be defeated. The reason is this: the owner of the property can very well contend, as is being contended in the present case, that the developer will have such exclusive possession in his own right only after the entire amount is paid to the owner to the last pie. There is then a possibility of staggering the last instalment of a small amount to a distant date, may be, when the entire building complex gets ready. Even if some amount, say 10 per cent., remains to be paid and the developer/transferee fails to pay, leading to a dispute between the parties, the right to exclusive and indefeasible possession may be in jeopardy. In this state of affairs, the transaction within the meaning of clause (v) cannot be said to have been effected and the liability to pay capital gains may be indefinitely postponed. True, it may not be profitable for the developer to allow this situation to linger for long as the process of transfer of flats to the prospective purchasers will get delayed. At the same time, the other side of the picture cannot be overlooked. There is a possibility of the owner with the connivance of the transferee postponing the payment of capital gains tax on the ostensible ground that the entire consideration has not been received and some balance is left. The mischief sought to be remedied, will then perpetuate. We are, therefore of the view that possession given to the developers need not ripen itself into exclusive possession on payment of all the instalments in entirety for the purpose of determining the date of transfer.
While on the point of possession, we would like to clarify one more aspect. What is spoken to in clause (v) of section 2(47) is the "transaction" which involves allowing the possession to be taken. By means of such transaction, a transferee like a developer is allowed to undertake development work on the land by assuming general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. The actual date of taking physical possession or the instances of possessory acts exercised is not very relevant. The ascertainment of such date, if called for, leads to complicated inquiries, which may frustrate the objective of the legislative provision. It is enough if the transferee has, by virtue of that transaction, a right to enter upon and exercise acts of possession effectively pursuant to the covenants in the contract. That tantamounts to legal possession. We are referring to this aspect because the authorized representative has submitted when he appeared before us in the last week of May, 2007, that even by that date the development work could not be commenced for want of certain approvals, and therefore, the developer was "not willing to take possession of the land". Such an unsubstantiated statement which is not found in the original application or even written submissions filed earlier need not be probed into especially when it is not his case that the developer was not allowed to take possession in terms of the agreement."
42. After the above discussion, the Authority discussed the facts of the case before it. It was observed that paragraph 18 of the Collaboration Agreement provides that on issuance of letter of intent, the owners will allow and permit the Developer to enter upon and survey the land, erect site/sales office, carry out the site development work and do activities for advancing & sale promotion, construction etc. The Authority further observed that if this clause is read in isolation this would suggest on passing of possession but according to Authority the other factors are to be considered. Clause 15 provided that on fulfilment of the requirements laid down in the letter of intent which is provisional license, the owners should execute an irrevocable general power of attorney in favour of the developer allowing inter alia to book and sell the dwelling unit failing under their share. This was possible only after deposit of requisite charges etc. and perhaps there was litigation regarding ownership of land which has also to be withdrawn. The Authority has discussed the significance of general power of attorney and the terms of the general power of attorney at para 33 and the relevant portion of the same is as under:—
"A copy of the irrevocable GPA executed in terms of paragraph 15 of the agreement has been furnished by the applicant. It authorizes the developer : (i) to enter upon and survey the land, prepare the layout plan, apply for renewal/extension of licence, submit the building plans for sanction of the appropriate authority and to carry out the work of development of a multi-storied residential complex, (ii) to manage and control, look after and supervise the property in any manner as the attorney deems fit and proper, (iii) to obtain water, sewage disposal and electricity connections. The developer is also authorized to borrow money for meeting the cost of construction on the security and mortgage of land falling to the developer's share. The other clauses in the GPA are not relevant for our purpose. The GPA unequivocally grants to the developer a bundle of possessory rights. The acts of management, control and supervision of property are explicitly mentioned. It is fairly clear that the GPA is not a mere licence to enter the land for doing some preliminary acts in relation to the development work. The power of control of the land which is an incidence of possession as explained supra has been conferred on the developer under this GPA. The developer armed with the GPA cannot be regarded merely as a licensee or an agent subject to the control of the owners. His possession cannot be characterized as precarious or tentative in nature. The fact that the agreement describes the GPA as irrevocable and an express declaration to that effect is found in the GPA itself is not without significance. Having regard to the second and supplemental agreement by virtue of which the entire developed property including the owners' share has been agreed to be sold to the developer or his nominees for valuable money consideration, the developer has a vital stake in the entire property. As far as the quality of possession is concerned, he is on a higher pedestal than a developer who apportions built up area with the owner. Even if he is an agent in one sense in the course of developing the land, that agency is coupled with interest. For these reasons, the prefix "irrevocable" is deliberately chosen. As discussed earlier, the owner's limited right to enter the land and oversee the development work is not incompatible with the developer's right of control over the land which he derives from the GPA. Exclusive possession, as already pointed out, is not necessary for the purpose of satisfying the ingredients of clause (v) of section 2(47). We are therefore, of the view that the irrevocable GPA executed by the owners in favour of the developer must be regarded as a transaction in the eye of law which allows possession to be taken in part performance of the contract for transfer of the property in question...."
43. Thus, the above clearly shows that irrevocable general power of attorney which leads to overall control of the property in the hands of the Developer, even if that means no exclusive possession by the Developer would constitute transfer. It can be said that it has to be construed as 'possession' in terms of clause (v) of section 2( 47) of the Act.
44. A question may arise that why the transfer was not held to be taken place in Assessment year 2006-07 when first agreement was entered into on June 8, 2005. The supplementary agreement was also entered into on Sept 15, 2005 both of which fall in Financial Year 2005-06 relevant to Assessment year 2006-07. Then why transfer was not construed in Assessment year 2006-07 it was because the first agreement itself contained a condition that "letter of intent" should be procured not later than March 8, 2006. In case of failure to do so the agreement shall stand terminated. Therefore, obtaining the "letter of intent" was the crucial factor. It has been explained in the decision that the "letter of intent" basically is a license issued by the Director of Town and Country Planning, Haryana which gives permission for construction of the flats. The other crucial point was execution of irrevocable of GPA which was executed on May 8, 2006 which according to the ld. authority depicts the intention of the handing over of the possession. Therefore, it becomes very clear that it is not necessary that transfer would take place on the signing of development agreement but the same has to be inferred only when the possession has been handed over by the transferor to the developer which can be inferred from the documents e.g. Power of Attorney. After above discussion Hon'ble authority has summarized the decision in para 41 which is as under:
"The following is the summary of conclusions:
| 1. | Where the agreement for transfer of immovable property by itself does not provide for immediate transfer of possession, the date of entering into the agreement cannot be considered to be the date of transfer within the meaning of clause (v) of section 2 (47) of the Income-tax Act. | |
| 2. | To attract clause (v) of section 2(47), it is not necessary that the entire sale consideration up to the last instalment should be received by the owner. | |
| 3. | In the instant case, having regard to the terms of the two agreements and the irrevocable GPA executed pursuant to the agreement, the execution of the GPA shall be regarded as the "transaction involving the allowing of the possession" of land to be taken in part performance of the contract and therefore, the transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date of execution of such GPA. The irrevocable GPA was executed on May 8, 2006, i.e., during the previous year relevant to the assessment year 2007-08 and the capital gains must be held to have arisen during that year. Incidentally, it may be mentioned that during the said year, i.e., financial year 2006-07, a final license was granted and the applicant/owners received nearly 2/3rds of the consideration. " |
45. Legal position has been discussed in abovenoted paras and now let us discuss the facts of the case in the light of abovenoted legal position.
46 Undisputed facts of the case are that the assessee is a Member of Punjabi Cooperative House Building Society Ltd. which had 96 members (Number of members were stated as 95 during arguments but clause 13 of the JDA refers to number of members as 96). The Society was owning 21.2 acres of land in village Kansal Distt. Mohali adjacent to Chandigarh. There were two types of members firstly the members who were owning plot of 500 sqyd and secondly the members who are holding plot of 1000 sqyd. Somewhere in 2006 it was decided to develop a Group Housing commercial project and do development as per the applicable municipal building bye-laws in force and accordingly a bid was invited through advertisement in the Tribune dated 31.5.2006. HASH a developer, approached the Society with proposal for development of the property. Since Hash did not have sufficient means to develop the property, Hash had approached THDC for development of the property by constructing the building and/or structures to be used for inter alia residential, public use and commercial purposes. This proposal was discussed by the Society in its Executive Committee meeting on 4.1.2007. Minutes of the meeting are placed at pages 58 to 65 of the paper book. In the Executive committee it was decided to appoint Hash who was acting along with the joint developer THDC as joint developer on the terms and conditions to be mentioned in the JDA. It was further resolved that member owing plot of 500 sqyd would receive a consideration of Rs. 82,50,000/- each to be paid in four instalments by Hash directly in favour of the members and one flat with super area of 2250 sqft to be constructed by THDC. The members who held the plot of 1000 sqyd were to receive a consideration of Rs. 1,65,00,000/- and two flats consisting of 2250 sqft to be constructed by the THDC. It was further resolved to enter into a JDA with THDC/HASH. It was also resolved to execute irrevocable Power of attorney by the Society in favour of THDC for this purpose. This resolution was ultimately ratified in the General Body meeting held by the Society on 25.2.2007. Pursuant to the above resolution, tripartite JDA was executed (copy of the same is available at page 15 to 54 of first paper book). Through recitation clause it has been mentioned that owner is in possession of land measuring about 21.2 acres of land which has come in the purview of Nagar Panchayat, Naya Gaon vide Notification issued on 18.10.2006 duly substituted by another notification dated 21.11.2006 and that no part of land of the property falls under Forest Area under the Punjab Land Preservation Act. It has been further recited that the Society has agreed to accept the proposals of Hash and further executed this agreement with THDC/HASH. Hash was responsible to make payment to the owner as described earlier and the flats were to be provided by THDC. In case of Hash fails to make the payment, THDC agreed to make the payments. Copy of the resolution of the Executive Committee of the Society dated 4.1.2007 as well as resolution of the General Body Meeting of the Society dated 25.2.2007 were made part of JDA by way of annexure. The Society agreed to execute an irrevocable Special Power of Attorney in favour of THDC and all other necessary documents, at the request of the developers.
47 In clause 1 of JDA various expressions have been defined. Clause 2 describes the project as under:
"2.1 The owner hereby irrevocably and unequivocally grants and assigns in perpetuity all its rights to develop, construct, mortgage, lease, license, sell and transfer the property along with any and all the construction, premises, hereditaments, easements, trees thereon in favour of THDC for the purpose of development, construction, mortgage, sale, transfer, lease, license and or exploitation for full utilization of the Property (Rights) and to execute all the documents necessary to carry out, facilitate and enforce the Rights in the Property including to execute Lease Agreement, License Agreements, Construction Contracts, Supplier Contracts, Agreement for sale, Conveyance, Mortgage Deeds, finance documents and all documents and agreements necessary to create and register the mortgage, conveyance, lease deeds, license agreement, Power of Attorney, affidavits, declaration, indemnities and all such other documents, letters as may be necessary to carry out, facilitate and enforce the Rights and to register the same with the revenue/Competent authority and to appear on our behalf before all authorities, statutory or otherwise, and before any court of law (the 'Development Rights'). The owner hereby handsover the original title deeds of the Property as mentioned in the list Annexed hereto and marked as Annexure IV and physical, vacant possession of the property has been handed over to THDC simultaneous to the execution and registration of this agreement to develop the same as set out herein.
It is hereby agreed and confirmed that what is stated in the recitals hereinabove, shall be deemed to be declarations and representations on the part of the Owner as if the same were set out herein verbatim and forming an integral part of the agreement.
2.2 The Project shall comprise of development/construction of the Property into the premises as permissible under Punjab Municipal Building Bye-laws/Punjab Urban Development Authority or any other Competent Authority by the Developer at their own cost and expense. The Project shall be developed as may be sanctioned by the concerned local authority i.e. Department of Local Bodies, Punjab/Punjab Urban Planning and Development Authority (PUDA) or any other Competent Authority.
2.2 The owner hereby irrevocably and unequivocally grants and assigns all its Development Rights in the property to THDC to develop the property and undertake the project at its own costs, efforts and expenses whereupon the Developer shall be entitled to apply for and obtain necessary sanctions, licenses and permissions from all the concerned authorities for the commencement, development and completion of the project on the property."
48 Clause 3 describes the obligations of the developers & Society for getting the plans, etc. sanctioned from competent authority/applications to be signed by owner for plans, drawings etc., construction. Clause 4 deals with consideration clauses 5 to 8 deals various aspects of project and obligations of Society and Developer. Clause 9 talks about ownership and rights and read as under:
"9 Transfer of ownership/Rights
9.1 The owner shall simultaneously on receipt of Payment as set out in Clause 4.1 above, execute an irrevocable Special Power of Attorney to THDC for development of the property authorizing THDC to do all lawful acts, deeds, matters and things pertaining to the development of the property for the project along with inter alia right to mortgage the property and/or premises, sell, lease, license the premises and receive/collect monies in its name in respect of the same and approach interact, communicate with the Competent authorities and for doing all acts, deeds, matters and things to be done or incurred by THDC in that behalf as also to sign all letters, applications, agreements and register the same if necessary, documents, court proceedings, affidavits and such other papers containing true facts and correct particulars as made from time to time be required in this behalf.
9.2 The owner shall execute in favour of THDC the sale deed is in accordance with the provisions of clause 4.1(ii) to Clause 4.1(iv) of this Agreement and execute all other necessary documents and papers to complete the aforesaid transaction.
9.3 That all the original title deeds pertaining to property as mentioned in Annexure IV has been handedover to THDC by the owner at the time of signing of this Agreement and in furtherance of the common interest of the Parties for the development of the Project and except the Sale Transaction made by the Owner in favour of THDC as set out in Clause 4.1 above. THDC hereby undertake and assure the owner that they shall use the title deeds only for the purpose of furtherance of the Project in the manner that it does not adversely effect the Owner/Allottee in any manner whatsoever."
49 Clause 10 describes the consent given by the Society to THDC for raising finance for development and completion of project. Clause 11 talks about formation of maintenance Society for the project after its completion. Clause 13 talks about transfer of rights which reads as under:
"13 Transfer of Rights
The owner herein i.e. The Punjabi Cooperative House Building Society Ltd. along with all its ninety six (96) members have given their express, free and clear consent in writing in the form of an Affidavit/No Objection Certificate/Consent Letter whereby the Developers have been allowed to develop the property in accordance with the Project and that THDC shall be entitled to transfer the rights obtained under this agreement to any third party and to get the development / construction work completed on such terms and conditions as THDC may deem fit so long as it does not adversely effect the Owner in terms of their right to receive Entire consideration as mentioned in this agreement subject to all other conditions mentioned therein as well. The owner shall at all times provide full support to the Developers herein."
50. Other clauses provide for termination, General provisions, Disclaimer, Partial Invalidity, Arbitration, Notices and Force Majeure & Jurisdiction.
51. In addition to above an irrevocable Special Power of Attorney has also been executed by the Society in favour of the developers i.e. THDC. (Copy of which is available at pages 40 to 52 of the paper book in case of Society in ITA No. 556 of 2012 as discussed earlier in para 25 (complete copy of Supplementary Power of Attorney was not available in the paper book of the assessee, therefore, reference was made to the paper book in case of the Society) .
53. The first major contention of the ld. counsel of the assessee is that the possession was not given by the Society because according to him as per clause 2.1 of the JDA the possession of the property was to be handedover simultaneously to the execution and registration of JDA and since the JDA was not registered, therefore, the possession was not given. We can not accept this contention because in "Power of Attorney" transactions, it is not necessary to register the JDA if a special Power of Attorney has been given and same is registered. Secondly clause 9.3 of the JDA as reproduced above clearly show that original title deed which have been mentioned along with the possession in para 2.1 which according to the ld. counsel of the assessee were to be handedover simultaneously to execution and registration of the JDA, is not correct because clause 9.3 clearly mention that original title deed of the property have been handedover to the THDC at the time of signing of this agreement because clause 9.3 there is no mention about registration of JDA.
54. Special Power of Attorney which has been executed on 26.2.2007 and has been registered also. The irrevocable special Power of Attorney has been executed as provided in clause 6.7 of the JDA which reads as under:
"6.7 The Owner shall execute an irrevocable special Power of Attorney granting its complete Development Rights in the Property in favour of THDC inter alia including the right to raise finance by mortgaging the property and register the charge with the Competent Authority and execute registered sale deeds) as set out in Clause 4.1 (ii), (iii), (iv) and (v) and the Owner confirms, undertakes, declares and binds itself not to revoke the same for any reason whatsoever out of its own will and discretion without obtaining a specific prior written consent of THDC or any of its duly constituted attorneys."
Through this Power of Attorney various powers have been given like to assign, file, amend etc. various plans, designs to represent before various authorities, to appoint architect, Lawyers. Some of the specific clauses relevant, are extracted below:
(j) To negotiate and agree to any/or to enter into agreement(s) to construct/sell and to undertake construction/sale of the Premises on the Property or any portion thereof with/to such persons(s) or body and for such consideration and upon such terms and conditions as the Attorney deem fit.
(n) To enter upon the Property either alone or with others for the purpose of development, Coordination, execution, implementation of the Project and commercialization of the Property/Premises.
(t) To amalgamate the Property with any other contiguous, adjacent and adjoining lands and properties wherein development and/or other right, benefits and interests are acquired and/or proposed to be acquired and developed or proposed to be developed by THDC and/or their associate and/or group concerns/s and/or utilize the FSI, FAR, DR and TDR of the contiguous, adjacent and adjoining lands for the purpose of constructing buildings and/or structures thereon and/or on the Property or utilize such lands and properties for making provision of parking spaces thereon, and/or may utilize the same for any other lawful purpose, as THDC and/or their associate and/or group concerns may in their sold, absolute and unfettered discretion think fit.
(w) To handover the possession of the Property or any part or portion thereof to the authorities to whom the same is required to be handedover or otherwise and to execute and deliver any undertakings, declarations, affidavits, bonds, deeds, documents, etc. as may be required by the authorities concerned for vesting such a part or portion in such authority and to admit execution thereof before the concerned Competent Authority and get the same registered with the concerned sub-registrar.
(y) Reasonable opportunity of hearing shall be given to mortgage, encumber or create a charge on the Property or any part or portion thereof and execute the necessary security documents in favour of any bank /financial institution to raise funds for the construction/development of the Property and for the said purpose to deposit title deeds (if required) in respect of the Property in favour of such bank/financial institution, execute the necessary documents and register the charge created on the Property if so required in the revenue records and/or desired by the Attorney.
(aa) To sell, transfer , lease, license the Premises that may be constructed on the Property on ownership basis, lease, license and/or in any other manner for such price as the Attorneys may deem fit and proper. To collect and receive from the purchased, transferees, lessees, licensees of the Premises, monies/price and/or consideration and/or maintenance charges and to sign and execute and/or give proper and lawful discharge for the receipts.
(bb) To execute from time to time all the writing, agreement, deeds etc. in respect of the premises which maybe constructed on the Property and also to execute and sign conveyance, transfer or surrender in respect of the Property or an y part thereof.
(cc) To sign, execute and register the conveyances or assignments and/or Power of Attorney's and/or other documents and/or agreements and/or any other writings in respect of the Property in part or full and/or the Premises constructed thereon or any part thereof in favour of any person as the Attorneys may determine including in favour of any individual and/or legal entitles and/or Co-operative Society and/or Limited Company and/or any other entity that may be formed for such purpose.
(dd) To issue letter of lien/NOC's and to sign documents on behalf of the Owner as required by the prospective buyers/lending instructions to create a charge on the allotted premises.
(gg) To look after and maintain the Property and the Premises constructed thereon till its transfer in favour of the Co-operative Society or Limited Company or any other Organisation.
54 It is pertinent to note that power/authorization which have been given by the Society to the developer, were in fact were required to be given in terms of various clauses of the JDA. Clause 6.7 reproduced above itself shows that the Society was required to give powers to raise finance to mortgage the property and even the registration of charge was also required to be given. Further through clause 6.15 it was agreed that documents of original title deeds of the property would be handed over to the developer i.e. THDC/HASH so that same can be used in furtherance of development of the Project as well as security for the money paid by the owner. Through clause 6.24 it was agreed that developer THDC/HASH was always permitted by owner to amalgamate the property with any other contiguous, adjacent and adjoining land and the properties wherein developmental and or other rights, benefits and interest were acquired by the developer or would be acquired in future. This clearly shows that the Society was under obligation in terms of agreement itself to allow the developer to amalgamate the project. Towards the end of clause 6.24 it has been clearly stated that in the event of termination of JDA, provision of clause 6 would be surviving which clearly shows that developer continues to be in possession for the purpose of development, mortgage etc. even after termination. Clause 8 which describes the obligation and undertaking of the THDC/HASH and provides specifically that all environmental clearance shall be obtained by THDC/HASH out of its own sources. Thus it was clearly understood by the parties that requisite environmental clearances had to be obtained before start of the project. Clause 10 again casts specific obligation on the owner Society to give consent to THDC/HASH to raise finance for the development and completion of the project on the Security of the property by way of mortgaging the property. Thus whatever power/authorization have been given through irrevocable special Power of Attorney are emanating from the terms and conditions agreed to among the parties from the JDA.
55. The combined reading of the above clauses of the Irrevocable Special Power of Attorney and JDA clearly show that the developer was authorized to enter upon the property for not only for the purpose of development but other purposes also. THDC was authorized to amalgamate the project with any other project in the adjacent area or adjoining area as per clause (t) of the special Power of Attorney. If the possession was never given to the developer by the Society then how the developer could amalgamate the project with another project which may be acquired latter in the adjoining area. Through clause (w) THDC was authorized to hand over the possession of property or portion thereof to the authority to whom the same is required. In large Housing Society Projects sometimes Municipal authorities takes some portion of land for the purpose of roads, parks or other general utility purposes like installation of electricity transformers and before sanctioning the plans the developer is required to undertake that such portions of land would be given for such a common purpose. If possession was not given then how THDC was authorized to hand over such land or portions thereof which have not been identified in the JDA out of the total land. Similarly through clause (y) THDC has been authorized to mortgage, encumbrance or create charge on the property in favour of any bank or financial institution for raising the funds for the project. In the absence of possession such powers cannot be given. Clause (aa) clearly authorized the THDC to sell, transfer, lease, license the premises which were to be constructed on ownership basis and further to receive moneys against such sale etc. and to issue final receipt. Nowhere it is mentioned in this clause that such sale deeds were to be signed by the Society as confirming party. In the absence of possession it is just not possible for the developer to sell and transfer the premises which were to be constructed. This is further clarified by clause (bb) and (cc) which gives the power of execution of conveyance and other documents involving in respect of the premises to be constructed without any interference of the Society being made confirming party. All these clauses clearly show that the possession was given by the Society and/or its members to THDC/HASH on the execution of irrevocable Power of Attorney. Through these clauses of JDA and irrevocable Power of Attorney the developer was able to completely control the property and make use of it not only for the purpose of development but also for the purpose of amalgamation, sale, mortgage etc. W hen the above clauses are compared on touchstone of the discussion on possession in paras 26 to 28 in the case ofJasbir Singh Sarkaria (supra) which we have reproduced above, it becomes clear that the possession has been given.
56 In that discussion, it has been clearly mentioned that the position contemplated by clause (v) of section 2(47) of the Act need not to be exclusive possession. What is required is that the transferee by virtue of possession should be able to exercise control from overall intended purposes. We do not think in the present case the assessee has given only a license as claimed by ld. counsel of the assessee because of the powers of selling, amalgamating etc. mentioned in the JDA and irrevocable Special Power of Attorney. The issue has been discussed in the judgment of Jasbir Singh Sarkaria (supra) in further discussion which has been made in para 33 regarding Power of Attorney (which has been reproduced earlier). In that case the powers were given to enter upon and survey the land, prepare lay out plans, submit building plan for sanction with the appropriate authorities to control, manage and look after and supervise the property, to obtain water and sewerage, disposal and electricity connection. In that case the developer was authorized to mortgage the property to obtain money for meeting the cost of construction on security and mortgage of land falling only to the developer 's share. In that case it was held that GPA was not a license to enter upon for doing some preliminary acts in relation to development of work but the power to control the land has also been confirmed. It has also been noted that the agreement described the Power of Attorney as irrevocable and extra declaration to that effect in the Power of Attorney is not without significance. In case before us, many more powers have been given to THDC in addition to powers which have been described in that judgment and Power of Attorney has been described as irrevocable in clause 6.7 of JDA. Therefore, it is clear that the assessee's plea that the possession was to be given only at the time of registration of the JDA, is not correct. Once irrevocable power was given then it cannot be said that the possession was not given. The issue regarding revocation of irrevocable Power of Attorney and cancellation of the JDA would be discussed later on while dealing with that contention.
57 We find force in the submissions of the ld. DR for the revenue that interpretation of clause (v) to section 2(47) should be made in the light of Heydon's Rule. There is no force in the objection of the ld. counsel of the assessee that this clause should be interpreted on general rules of interpretation particularly in the light of the fact that no reason has been given for the same. Heydon's Rule has been applied by the Indian Courts many times. The Rule was applied and initiated in Heydon's case (1584) 3 Co. Rep 7a. This Rule was upheld by the Constitution Bench of Hon'ble Apex Court in case of Bengal Immunity Co. Ltd. v. State of Bihar [1955] 2 SCR 603 for consideration of Article 286 of the Constitution. It has been held in case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin and another, 176 ITR 1that for understanding amendment in the Act, perhaps Heydon's Rule is best rule for interpretation of such amendment. We find that without mentioning this rule Ld. Authority For Advance Ruling has discussed this issue in para 27 of the judgment which we have extracted above. It has been held that if 'possession' referred to in clause (v) is to be understood as exclusive basis of the transferee then very purpose of the amendment or enlargement of the definition of transfer would get defeated. We are reproducing following headnote of the Hon'ble Apex Court in case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin and another (supra) :
"The following principles enunciated in Heydon"s case (1584) 3 Co. Rep 7a and firmly established, are still in full force and effect: "that for the sure and true interpretation of all statutes in generals (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered: (1) what was the common law before the making of the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy Parliament has resolved and appointed to cure the disease of the common wealth and (4) the true reason of the remedy. And then, the office of all the judges is always to make such construction as shall suppress the evasions for the continuance of the mischief and pro private commando and to add force and life to the cure and remedy according to the true intent of the makers of the Act pro bono public." There is now the further addition that regard must be had not only to the existing law but also to prior legislation and to the judicial interpretation thereof."
58 Going by the Heydon's Rule of interpretation if we analyze the purpose of clause (v) of Section 2(47) then it would emerge that law before making the amendment was that capital gain could be charged only if a transfer has been effected and transfer was interpreted by various Courts including the decision of Hon'ble Supreme Court in case of Alapati Venkatraman v. CIT, 57 ITR 185 (SC) that proper conveyance of the property has been made under the common law. The mischief was with regard to transfer in the sense that there was common practice that properties were being transferred in such a manner that transferee could enjoy the benefit of the property without execution of the conveyance deed. Thirdly we need to examine the remedy which was insertion of clause (v) and (vi) so that cases of giving possession of the property, were also covered by the definition of transfer. Fourthly, true reason for this amendment was to plug a loophole in the law. Therefore, considering the purpose of insertion of clause (v) and (vi) of section 2(47) and various clauses of Power of Attorney and JDA it becomes absolutely clear that the Society has handed over the possession of the property to THDC/HASH.
59 Second important contention on behalf of the assessee is that JDA was executed on 25.2.2007 and if possession was given then how the assessee was having possession in terms of later sale deeds executed on 2.3.2007 and 25.4.2007. The Society has executed two sale deeds for conveyance of parts of the total land. First sale deed has been executed on 2.3.2007 for 3.08 acres and recitation clause ( A) reads as under:
Clause (A) - The vendor is the absolute owner and in possession of land total measuring 169 kanal 7 marlas equivalent to approx. 21.2 acres in Village Kansal, Tehsil Mohali and more particularly described in Schedule A hereunder written and delineated in green colour boundary line in the Shizra Plan issued by the Patwari dated 23.2.2007."
60 According to the ld. counsel of the assessee if Society had already given the possession then the Society would not have/had possession on 2.3.2007 of the land. At face value this argument looks attractive but when examined in terms of possession which has been explained in case of Jasbir Singh Sarkaria (supra), actual reality will come forward. In this judgment concept of concurrent possession has also been discussed and following extract of paragraph 55 of Salmond's Jurisprudence has been extracted which reads as under:
"It was a maxim of the civil law that two persons could not be in possession of the same thing at the same time. As a general proposition this is true: for exclusiveness is of the essence of possession. Two adverse claims of exclusive use cannot both be effectually realized at the same time. Claims, however, which are not adverse, and which are not, therefore, mutually destructive, admit of concurrent realization. Hence there are several possible cases of duplicate possession.
| 1. | Mediate and immediate possession cross-objections-exist in respect of the same thing as already explained. | |
| 2. | Two or more persons may possess the same thing in common; just as they may owe it in common. |
The concurrent possession of the owner who can exercise possession right to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled."
61. In further discussion in para 26 to 28 of the above decision it has been held that it is not necessary in terms of clause (v) that the developer should have exclusive possession. The concurrent possession of the owner is possible which gives rights to a limited extent for a limited purpose. Thus it is very much possible to hold concurrent possession. Mere recitation in the sale deed to the effect that the Society was owner of and in possession of land measuring 21.2 acres, does not show that the Society was having actual possession. What the Society was having is only ownership right and the possession was only concurrent as the possessary right. Further it is a standard clause in the conveyance deed and it does not prove or indicate anything except that a portion of land measuring 3.08 acres, has been sold/conveyed to the developer. In the light of this position, this contention is rejected.
62. We find no force in the next contention of the ld. counsel of the assessee that possession if at all was given should be held to be only a license as defined in Section 52 of Indian Easement Act because clearly as per Section 52 of this Act, where one person grants to another or many other persons to do something upon immovable property which in the absence of such right would be unlawful.
63. Here in case before us, the right has not been given for the purpose of doing something but all the possible rights in property including right to sell, right to amalgamate the project with another project in the adjoining area which may be acquired later, right to mortgage etc. clearly show that rights given by the Society are much more larger than what is covered in the term "license".
64. Fourth contention is that the money received at the time of execution of JDA can be termed as advance and whatever money has been received has already been shown as capital gain. We find no force in this submission because Section 45 which has been extracted above clearly provide for taxing of profits and gains arising from the transfer. We have already discussed the implication of Section 45 r.w.s. 48 while discussing the legal position. We had also discussed this issue in the light of the decision in case of Jasbir Singh Sarkaria (supra) and pointed out that when Section 45 is read along with Section 48 it becomes clear that whole of the consideration which is received or accrued is to be taxed once capital asset is transferred in a particular year.
65. We would like to discuss this aspect of the issue in little more detail and try to understand why the whole of the consideration is required to be taxed. At the cost of repetition let us again reproduce the observations of the Ld. authority in case of Jasbir Singh Sarkaria(supra) which we have earlier extracted at para 40 and the relevant portion is as under:
"40. On the above, the Hon'ble Authority after referring to the provisions of section 45 and observed as under:—
"....The section can be analysed thus :
| (a) | transfer of a capital asset effected in the previous year, | |
| (b) | resultant profits or gains from such transfer, | |
| (c) | those profits or gains would constitute the income of the assessee/ transferor | |
| (d) | such income shall be deemed to be the income of the same previous year in which the transfer had taken place. |
Two aspects may be noted at this juncture. Firstly, the expression used is "arising" which is not to be equated with the expression "received". Both these expressions and in addition thereto, the expression "accrue" are used in the Income-tax Act either collectively or separately according to the context and nature of the charging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place.
The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading text books. The following statement of law in Sampath Iyengar's Commentary (10th Edition- Revised by Shri S. Rajaratnam) brings out the correct legal position :
"Section 45 enacts that the capital gains shall by fiction 'be deemed to be the income of the previous year in which the transfer took place'. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer.
. . . . In the words of section 45, the capital gains arising from the transfer 'shall be the income of the previous year in which the transfer took place'. So, the payments of consideration stipulated to be paid in future would have to be attributed, by statutory mandate, to the year of transfer, even as payments made prior to the year of transfer."
66 The above clearly shows that it is because of expression used in Section 45 that is "arising" which cannot be equated with "receipt". In this respect the ld. authority has quoted a very old decision of Hon'ble Madras High Court in case of T.V. Sundaram Iyengaar and Sons Ltd. v. CIT, 37 ITR 26 (Mad). At para 13 of the said decision is extracted in the following manner:
"13. In T.V. Sundaram Iyengar and Sons Ltd. v. CIT [1959] 37 ITR 26, a Division Bench of the Madras High Court while construing section 12 B of the Indian Income-tax Act, 1922 clarified the import of the expression "arise" as follows
"Section 12B does not require that profits should have been actually received. It is sufficient if they have arisen. Throughout the Income-tax Act the words "accrue' and "arise" are used in contradistinction to the word "receive" and indicate a right to receive. This was explained by Fry L.J., in Colquhoun v. Brooks. The learned judge observed:
'I think, therefore, that the words "arise or accruing" are general words descriptive of a right to receive profits.'
See also CIT v. Anamallais Timber Trust Ltd. To attract the operation of section 12B it is therefore sufficient if the profits arose. They need not have been actually received."
14. Thus the criterion of right to receive the profits/gains was applied in that case.
15. The legal position does not therefore admit of any doubt that the actual receipt of the entire sale consideration during the year of "transfer" is not necessary for the purpose of computing capital gains."
Further the expression arising has been defined in the Advanced Law Lexicon by P. Ramanatha Aiyer edited by Y.V. Chandrachud, Former Chief Justice of India:
"The words "Arising or accruing" describe a right to receive profits, and that there must be a debt owed by somebody. Ld. Commissioner of Income Tax, West Bengal-II, Calcutta v. Hindustan Housing and Land Development Trust Ltd. AIR 1986 S.C 1805, 1807."
The expression "accrual of income" has been defined in the same Lexicon as under:
"Accrual of income. E.D Jassoon & C. Ltd. v. Ld. Commissioner of Income Tax, AIR 1954 S.C 470 quoted - Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. Bhogilal v. Income Tax Ld. Commissioner, AIR 1956 Bom 411, 414 (Income Tax Act (11 of 1992) Ss. 16(1) and (3)}"
67 The combined reading of these two definitions show that it (i.e. accrual) is not equal to the receipt of income. In fact it is a stage before the point of time when the income becomes receivable. In other words, once the vested rights come to a person then it can be said that such right or income has accrued to such person. The concept of accrual or arousal of income has also been discussed by the ld. author S. Rajaratnam in the commentary of Law of Income Tax by Sampath Iyengar XIth Edition by discussing the meaning of "accrued and arise" at page 1300 it has been observe as under:
"(1) Important principles.- (a) Meaning - 'Accrue' means 'to arise or spring as a natural growth or result', to come by way of increase'. 'Arising' means 'coming into existence or notice or presenting itself'. 'Accrue' connotes growth or accumulation with a tangible shape so as to be receivable. In a secondary sense, the two words together mean 'to become a present and enforceable right' and 'to become a present right of demand'. In the Act, the two words are used synonymously with each other to denote the same idea or ideas very similar, and the difference lies only in this that one is more appropriate than the other, when applied, to a particular case. It will indeed be difficult to distinguish between the two words, but it is clear that both the words are used in contradistinction to the word 'receive' and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which is more or less inchoate and which is something less than a receipt. An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual."
68. Therefore, it is not only the money which has been received by the assessee which is required to be taxed but the consideration which has accrued to the assessee is also required to be taxed. In view of this, this contention is rejected.
69. The fifth contention made by the Ld. Counsel for the assessee was that since section 53A of the Transfer of Property Act itself has undergone amendment w.e.f. 24.9.2001 by which the agreement referred to in that section is required to be registered and therefore, now in section 2(47)(v) only the amended provisions can be read. We find no force in this contention. It is well known that section 53A of the Transfer of Property Act was passed on equitable doctrine so as to protect the taking over or retention of the possession by the transferee. It was not a source by which title of immovable property could be acquired. Section 53A of TP Act read as under:-
53A. Part performance.- Where any person contracts to transfer for consideration any immovable 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 performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, where there is an instrument 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 property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract"
70 A plain reading of the above provision shows that it provides a safety measure or a shield in the hands of the transferee to protect the possession of any property which has been given by the transferor as lawful possession under a particular agreement of sale. This position of law was incorporated in the definition of 'transfer' by insertion of clauses (v) & (vi) in section 2(47) of the Act. It is important to note that clause (v) uses the expression "contract of the nature referred to in section 53A of T.P. Act, therefore, clearly the idea is that an agreement which provides some defense in the hands of transferee was incorporated under the definition of 'transfer ' in the Income-tax Act. Now originally section 53A of T.P. Act provided that even if "the contract though required to be registered has not been registered", which means the right of defending the possession was available even if the contract was not registered but by Amendment Act 48 of 2001, the expression "though required to be registered has not been registered", has been omitted which means for the purpose of possession u/s 53A of T.P. Act, a person has to prove that possession has been given under a registered agreement. In other words, now u/s 53A of T.P. Act, the agreement referred is required to be registered. This requirement cannot be read in clause (v) of section 2(47) because that refers only to the contract of the nature of section 53A of T.P. Act without going into the controversy whether such agreement is required to be registered or not. The Ld. Counsel for the assessee had referred to the decision of Hon'ble Supreme Court in the case of Surana Steels v. DCIT 237 ITR 777 (SC) for the proposition that when a section of a particular statute is introduced into another Act it must be read in the same sense as it bore in the original Act. The careful perusal of that judgment would show that situation is applicable only when a particular provision of an Act has been incorporated in the later Act. In that case a question arose that for the purpose of MAT provision what is the meaning of past losses or unabsorbed depreciation. It w as found that in Explanation to section 115J clause (iv) , the following expression was used:-
"(iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (i) of section 205 of the Companies Act, 1956 (1 of 1956) are applicable.
71 The Hon'ble Apex Court referred to the Principles of Statutory Interpretation by Shri G.P. Singh and extracted following piece:
"Section 115J, Explanation clause (iv), is a piece of legislation by incorporation. Dealing with the subject, Justice G .P. Singh states in Principles of Statutory Interpretation (7th edition, 1999).
Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later. When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so incorporated become part and parcel of the later Act as if they had been "bodily transposed into it". The effect of incorporation is admirably stated by LORD ESHER, M.R. : "If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those Sections into the new Act as if they had been actually written in it with the pen, or printed in it.(p.233)
Even though only particular Sections of an earlier Act are incorporated into later, in construing the incorporated Sections it may be at times necessary and permissible to refer to other parts of the earlier statute which are not incorporated. As was stated by LORD BLACKBURN: "When a single Section of an Act of Parliament is introduced into another Act, I think it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the Sections meant, though those other Sections are not incorporated in the new Act. ( p.244)
72. On the basis of above observation, it was held that meaning of past losses or unabsorbed depreciation has to be taken same as was defined in the Companies Act. In this case it is clear that provision itself refers to clause (b) of sub-section (1) of section 205 of Company's Act 1956 and therefore, same meaning was given to past losses or unabsorbed depreciation as is given under the Companies Act, 1956.
73. In case of clause (v) to section 2( 47) , clearly the expression used is "contract of the nature referred to in section 53A of T.P. Act", which means it is not a case of incorporation of one piece of legislation into another piece of legislation. If that was the intention of the Parliament, obviously clause (v) would contain the expression "contract as defined under section 53A of Transfer of Property Act, 1882". Further, it is settled position of law that any interpretation which could render a particular provision redundant should be avoided. If the contention of the ld. counsel was to be accepted, obviously the provisions of clause (v) of section 2(47) of the Act would become redundant in the sense that registration of agreement would again be made compulsory but since properties were being sold in the market on "power of attorney" basis through unregistered agreements which would make this provision redundant. This position we have already discussed earlier while discussing the Heydon's Rule in the interpretations of this clause. Further the issue of interpretation of clause (v) and amendment to section 53A of the Transfer of Property Act came for consideration before the Mumbai Bench of the Tribunal in the case of Suresh Chander Aggarwal v. ITO 48 SOT 2010. The Tribunal discussed this issue at page 7 and after quoting the provisions of section 2(47) and also section 53A before and after amendment as wall as para Nos. 11.1 to 11.2 of the Board's Circular No. 495 dated 22.9.1987 observed as under:-
"The above clearly shows that there was certain situation where properties were being transferred without registration of transfer instruments and people were escaping tax liabilities on transfer of such properties because the same could not be brought in the definition of "transfer" particularly in many States of the country properties were being held by various people as leased properties which were allotted by the various Govt. Departments and transfers of such lease were not permissible. People were transferring such properties by executing agreement to sell and general power of attorney as well as Will and receiving full consideration, but since the agreement to sell was not registered and though full consideration was received and even possession was given, still the same transactions could not be subjected to tax because the same could not be covered by the definition of "transfer". To bring such transactions within the tax net, this amendment was made. It has to be appreciated that clause (v) in section 2(47) does not lift the definition of part performance from section 53A of the Transfer of Property Act, 1882. Rather, it defines any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. This means such transfer is not required to be exactly similar to the one defined u/s.53A of the Transfer of Property Act, otherwise legislature would have simply stated that transfer would include transactions defined in sec. 53A of the Transfer of Property Act. But the legislature in its wisdom has used the words "of a contract, of the nature referred in section 53A". Therefore, it is only the nature which has to be seen. As discussed above, the purpose of insertion of clause (v) was to tax those transactions where properties were being transferred by way of giving possession and receiving full consideration. Therefore, in our humble opinion, in the case of a transfer where possession has been given and full consideration has been received, then such transaction needs to be construed as "transfer". Therefore, the amendment made in section 53A by which the requirement of registration has been indirectly brought on the statute need not be applied while construing the meaning of "transfer" with reference to the Income-tax Act.
8. The above situation further becomes clear if we refer to the celebrated decision of Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd. (supra}. In that case, the assessee was owner of four flats in a building called "Silver Arch"/on Nepean Sea Road, Bombay. Out of these four flats, two were purchased directly from the Builders, Malabar Industries Pvt. Ltd., and two were purchased by its sister concerns which were later purchased by the assessee. The possession of the flats was taken after full payment of consideration. The flats were let out. The assessee contended that the rental income from these flats was assessable as "income from other sources" because the assessee was not the legal owner because the title of the property had not been conveyed to the Co-operative Society which was formed by the purchasers of the flats. The Hon'ble Court noted that section 27 had been amended vide clause 3(a) wherein when a person was allowed to take possession of the building in part performance of the nature referred to in section 53A, such person shall be deemed to be the owner. It was further observed that for all practicable purposes the assessee was the owner and possibly there cannot be two owners of same property at the same time. In fact, the amendments to section 27 were made later on but were taken into cognizance on the basis of above principle and ultimately it was held as under:
"Hence, though under the common law "owner" means a person who has got valid title legally conveyed to him after comply with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in the context section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted."
Thus, from the above, it is clear that it is not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person has got a valid legally conveyed after complying with the requirements of the law.
9. Similarly, in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC), the assessee had purchased for the use of its staff seven low income group houses from a Housing Board. The payment had been made and in turn possession of the houses was taken over by the assessee. The actual conveyance deed was not executed. The assessee claimed depreciation which was denied by the department. After great discussion, it was observed that for all practicable purposes and for the purpose of Income-tax Act, the assessee shall be construed as owner of the property. In fact, it was held as under:—
"Held, reversing the judgment of the High Court, that the finding of fact arrived at in the case at hand was that though a document of title was not executed by the Housing Board in favour of the assessee, the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. The assessee was entitled to depreciation in respect of the seven houses in respect of which the assessee had not obtained a deed of conveyance from the vendor although it had taken possession and made part payment of the consideration".
Thus, from the above two decisions, it becomes absolutely clear that for the purpose of the Income-tax Act the ground reality has to be recognized and if all the ingredients of transfer have been completed, then such transfer has to be recognized. Merely because the particular instrument of transfer has not been registered will not alter the situation. This position is further strengthened by the fact that legislature itself has inserted clause (v) to section 2(47) and while referring to the provisions of section 53A, reference has been made by stating that contracts in the nature of section 53A should also be covered by the definition of "transfer". Therefore, in our humble view, the amendment to sec. 53A of the Transfer of Property Act, whereby the requirement of the documents not being registered has been omitted, will not alter the situation for holding the transaction to be a transfer u/s.2(47)(v) if all other ingredients have been satisfied."
74. Thus, it is clear that non-registration of agreement cannot lead to the conclusion that provision of section 2(47) (v) is not applicable. Similar view has been taken by ITAT Cochin Bench of the Tribunal in case of G. Sreenivasan v. DCIT 28 Txmann.com 200 (Coch.) and ITAT Pune Bench in the case of Mahesh Nemichandra Ganeshwade v. ITO 21 Taxmann.com 136 (Pune). In view of this legal position, this contention is rejected.
75. The next contention was that the decision of Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia (supra) is not applicable particularly because ultimately in that case it was held that capital gain tax should be charged in Assessment year 1999-2000 whereas agreement was executed in August, 1994.
76. We have already discussed the implications of the decision in case of Chaturbhuj Dwarkadas Kapadia (supra) in para 33 to 38. We had also examined why in that case capital gain was not held to be chargeable in Assessment year 1995-96.There is no need to repeat the same and in view of the said observations, we reject this contention.
77. The next contention is that it is necessary for invoking of section 2(47)(v) of the Act to comply with the provisions of section 53A of the Transfer of Property Act to the extent that there should be willingness on the part of the transferee to perform his part of the contract.
78. In this aspect we have no quarrel with the proposition that for invoking section 53A of T.P. Act read with clause (v) of section 2 (47), the transferee has to perform or is willing to perform his part of the contract. In this respect as referred to by Ld. Counsel for the assessee, the comments of the ld. Author in the commentary by Mulla - Dinshan Frederick Mulla vide para 16 are clear and shows that this requirement has to be absolute and unconditional. Some observations have been made in the case of General Glass Company (P.) Ltd. v.DCIT (supra). In that case it was held that willingness to perform for the purpose of section 53A is something more than a statement of intent and it is unqualified and unconditional willingness on the part of the transferee to perform his obligation. In that case the transferee has agreed to make certain payments in instalments in consideration of the development agreement but such payments were not made. Later on, the agreement was modified and more time was given to the transferee for payment of such instalments. However, the instalments were not paid even under the modified terms and that is why it was ultimately held that such agreement cannot be construed as transfer.
79. The second decision referred to by Ld. Counsel for the assessee is K. Radika v. DCIT (supra). In this case, similar observations were made, though it is not pointed out in what respect the transferee has failed to perform his part but it has been observed that the facts of the case shows that transferee has not performed his part of the contract.
80. The third judgment relied upon by the ld. Counsel for the assessee is in the case of DCIT v Tej Singh (supra). In that case land was acquired by the government and the matter went for litigation. During the pendency of litigation, the assessee entered into a Development agreement with a Developer for the purpose of development of the property, however, it was clarified in the agreement that there is litigation in respect of acquisition of property and the developer has to take clearance from the government in the matter of denotification of the land. It was held that since the land was under compulsory acquisition and no compensation has been received, therefore, there could not be any capital gain tax u/s 2(47)(iii) which deals with the compulsory acquisition. It was further observed that assessee could not have given possession unless and until the land was denotified. Since facts of the case are different than the case in hand and therefore, same are not relevant for our purpose.
81. Now coming to the facts, firstly it was contended that Developer i.e. transferee has not obtained various permissions which were required to be taken by the Developer as per clauses 3.1, 7.9, 8.4 and 8.6 of the JDA. This is not correct as pointed out by the Ld. CIT DR that assessee had already got the municipal plan sanctioned but in the meantime PIL was filed before the Hon'ble Punjab & Haryana High Court against the implementation of the project. Initially, the construction was banned by the Hon'ble High Court. However, later on it was observed in the CWP No. 20425 of 2010 and as clarified by the order of the Hon'ble Supreme Court that refusal of sanction under the Environment (Protection) Act, the society have sought a review of the order because the findings arrived were ex. parte. No order in the matter has been passed by the competent authority perhaps because of the order of High Court. In the interim order passed in the PIL it has been clarified by the Hon'ble Supreme Court vide order dated 31.1.2012 permitting the concerned authority under the different statutes governing the matter to their respective jurisdiction to be decided in accordance with law. Thus, it becomes clear that developer i.e. THDC has applied for various permissions before the relevant authorities and in some cases permission were declined on ex. parte basis and in some cases the same were declined in view of the High Court order banning the construction. After the clarification of the order of the High Court by Hon'ble Supreme Court by order dated 31.1.2012, the authorities have already been permitted to examine the issue on merits under various laws. Further in the JDA there is a clause 26 which deals with the Force Majeure clauses. The clause 26 (i) to (v) reads as under:—
FORCE MAJEURE
| (i) | None of the parties shall be liable to the other Party or be deemed to be in breach of this Agreement by reasons of any delay in performing or any failure to perform, any of its own obligations in relation to the Agreement, if the delay or failure is due to any Event of Force Majeure. Event of Force Majeure is any event caused beyond the parties reasonable control. The following shall be regarded as issues beyond the Parties reasonable control. | |
| (ii) | For the purposes of this Clause, an Event of Force Majeure shall mean events of war, war like conditions, block ads, embargoes, insurrection, Governmental directions, riots, strikes, acts of terrorism, civil commotion, lock-outs, sabotage, plagues or other epidemics, acts of God including fire, floods, volcanic eruptions, typhoons, hurricanes, storms, tidal waves, earthquake, landslides, lightning, explosions and other natural calamities, prolonged failure of energy, court orders/injunctions, charge of laws, action and/or order by statutory and/or government authority, third party actions affecting the development of the Project, acquisition/requisition of the Property or any part thereof by the government or any other statutory authority and such circumstances affecting the development of the project (Event of Force Majeure). | |
| (iii) | Any Party claiming restriction on the performance of any of its obligations under this agreement due to the happening or arising of an Event of Force Majeure hereof shall notify the other Party of the happening or arising and the ending of ceasing of such event or circumstance with three (3) days of determining that an Event of Force Majeure has occurred. In the event any Party anticipates the happening of an Event of Force Majeure, such Party shall promptly notify the other party. | |
| (iv) | The Party claiming Event of Force Majeure conditions shall, in all instances and to the extent it is capable of doing so, use its best efforts to remove or remedy the cause thereof and minimize the economic damage arising thereof. | |
| (v) | Either Party may terminate this Agreement after giving the other Party a prior notice of fifteen (15) days in writing of the Event of Force Majeure continues for period of ninety (90) days. In the event of termination of this Agreement all obligations of the Parties until such date shall be fulfilled. |
82. The combined reading of these clauses show that if any of the party could not perform its part of the obligation because of the unforeseen circumstances which included government directions, court orders, injunctions etc. such party would not be liable to other party. In view of Force Majeure clause which included Court Injunction it can not be said that THDC is not willing to perform its obligation. In fact Develpers i.e. THDC/HASH were perusing the issue of permissions/sanctions vigorously. These aspects become further clear if the judgment of the Hon'ble Punjab & Haryana High Court in CWP No. 20425 of 2010 vide order dated March 26, 2012 is perused. Paras 3, 4, 22, 25 & 26 of the judgment read as under:-
3. The broad contours of the present proceeding having been outlined, we may now proceed to take note of the specific contentions of the contesting parties as made before us. However, before we do so, it may be appropriate to mention the somewhat conflicting stand of the parties with regard to the present stage of the applications filed under the provisions of the Environment (Protection) Act as well as the Wild Life (Protection) Act. While the petitioner , who is supported by the respondent No.6-Chandigarh Administration, asserts that necessary sanction/permission under both the Acts have been refused by orders passed by the competent authorities, the promoters of the project contend to the contrary. The facts, as unfolded before us, indicate that against the refusal of sanction under the Environment (Protection) Act, the respondents have sought a review of the order on the ground that the findings arrived at, which have formed the basis of the refusal, are ex parte. No order in the review matter has been passed by the competent authority, perhaps, because of the interim order passed in the PIL which has been clarified by the Hon'ble Supreme Court by order dated 31.1.2012 permitting the concerned authority under the different statutes governing the matter to exercise their respective jurisdictions in accordance with law. Insofar as the Wild life ( Protection) Act is concerned, it appears that the rejection has been made by the Chief Wild Life Warden who, the respondents claim, is merely a recommending authority and is required to forward his recommendation to the Central Government. As the rejection under the Wild Life (Protection) Act has been made by an authority not competent to do, the promoters of the project have sought a review of the order which is still pending for the same reason(s) as noticed above.
4. On these facts we are of the view that it would be prudent on our part to take the view that the issue with regard to clearance/sanction under the two enactments i.e. Environment (Protection) Act and Wild life (Protection) Act is presently pending and as the promoters of the project have submitted themselves to the jurisdiction of the authorities under the said enactments we should refrain from addressing ourselves on any of the issues connected with either of the two statutory enactments as any such exercise, even though may be unintended, may have the effect of fettering the jurisdiction of statutory authorities functioning under the two relevant statutes.
22. Insofar as the provisions of the Environment (Protection) Act and the Wild life (Protection) Act are concerned, it need not be emphasised that every project attracting the provisions of the Periphery Control Act and/or the provisions of the 1995 Act must satisfy the ecological concerns of the area in the light of the provisions of the two statues in question. As already held by us, a public trust has been bestowed on the authorities by provisions of the said Acts which cast on such authorities a duty to interdict any project or activity which even remotely seems to create an imbalance in the pristine ecology and environment of the area on which the city of Chandigarh is situated or for that matter in the immediate vicinity thereof. As already observed, necessary clearances under the aforesaid two enactments, insofar as the respondents are concerned, are presently pending before the concerned authorities and, therefore, it would be highly incorrect on our part to enter into any further discussion on the aforesaid aspect of the case.
25. We also hasten to emphasise that a more rigorous regulated development in what are now the remnants of the periphery and the areas adjoining to it is the need of the hour for which the stakeholders i.e. the Administration of Chandigarh, the States of Punjab and Haryana as also the authorities under the Environment (Protection) Act and the Wild life Protection Act have to demonstrate the need to engage themselves intensively and not acquire a placid approach indicating an eloquent acquiescence to the violation of the 1995 Act, Periphery Control Act and the Periphery Policy.
26. We thus conclude on the aforesaid note by holding and observing that the provisions of the Periphery Control Act and the 1995 Act are complementary to each other and the provisions of the two statutes would apply to the housing project in question. The respondents, therefore, will have to comply with all the requirements spelt out by both the aforesaid statutes. As the requirement of clearances under the Wild Life (Protection) Act and Environment (Protection) Act is not a contentious issue, and as we have already held that the process of grant of such clearances is pending before the appropriate authorities under the respective Acts, the same will now have to be brought to its logical conclusion keeping in mind our observations and directions contained hereinabove.
83. The combined reading of the above paras in the order of Hon'ble High Court clearly shows that Developer THDC/HASH i.e. transferee have made their sincere efforts for obtaining the necessary permissions/sanctions which were required under the JDA. However, some of the sanctions could not be taken in time because of the litigation by way of PIL but since none of the party was liable to the other party in view of the clause 26 dealing with FORCE MAJEURE it cannot be said that Developer was not willing to perform his part of contract. In any case no specific evidence has been shown us to prove that THDC/HASH were declining to perform particular obligation provided in JDA. In view of this discussion, it cannot be said that transferee i.e. Developer THDC/HASH is not willing to perform his part of contract.
84. Secondly, it was contended that payments have not been made as per the JDA. However, again this is not correct. As per clause 4(iv) of the JDA, the instalment for Rs. 31,92,75,000/- was required to be paid. The clause 4(iv) read as under:-
"(iv) Payment being Rs. 31,92,75,000/- (Rupees One crore ninety two lakh seventy five thousand only) calculated @ Rs. 24,75,000/- (Rs. Twenty Four lakhs seventy five thousand only) per plot holder of 500 Sq. yards and (Rs. 49,50,000/-(Rs. Forty nine lakhs fifty thousand only) as per plot holder of 1000 square yards to be made to the Owner and/or the respective members of the Owner (as the case may be) within six( 6) months from the date of execution of this agreement or within two (2) months from the date of approval of the plans/Design and Drawings and grant of the final licence to develop whereupon the construction can commence, whichever is later, against which the Owner shall execute a registered sale deed for land of equivalent value being 6.36 acres out of the Property as demarcated in green colour (also hatched in green colour) in the Demarcation Plan annexed hereto as Annexure V and bearing Khasra nos. 123/15, 123/6, 123/7 (balance part), 123/3 (part), 123//4//1, 123///4//1/2, 123//4/2, 123/5/1, 123//5/2, 123//5/3, 112/24/24 (part)"
85. The careful reading of the said clause of the JDA would show this payment was required to be made within a period of six months from the date of execution of this agreement or within two months from the date of approval of plan / sanction and drawing grant of final license to develop whereupon the construction can commence, whichever is later. Thus, this instalment was dependent on two contingencies first the expiration of a period of six months from the date of agreement or alternatively on the expiration of a period of two months from the date of approval of plans/designs drawing etc. leading to grant of final licenses which can lead to commencement of construction, whichever is later. The matter was taken up by way of PIL by certain citizens and Administration of the Union Territory before the Hon'ble High Court which initially stayed the sanction of such plan etc. This led to situation where construction could not be commenced and hence payment was not required to be made in view of the pending litigation. The clauses of force majeure came into operation and therefore, it cannot be said that the developer is not willing to perform its part of the contract. In any case there is no default on the part of the developer as payment was not yet due as per clause 4(i)(iv) of JDA.
86 This position was informed to the Society by letter dated 4.2.2011 by HASH Builder, copy of which has been filed at pages 23 & 24 of the paper book dealing with the additional evidence. Through this letter it has been clearly stated that since permission is pending from the Ministry of Environment and Forest Department and therefore constructions could not commence. These permissions were pending because of the PIL filed by Shri Aalok Jagga before the Hon'ble Punjab & Haryana High Court. All these facts clearly shows that in view of clause 4.1(iv) read with clause 26(v) of the JDA, HASH Builder were not required to make the payment and it cannot be said that they were not willing to perform their part of the contract on this aspect. Therefore, this contention is rejected.
87 Seventh contention is that revenue wrongly held that even clause (vi) of Section 2(47) is applicable. We find no force in this contention. Clause (vi) to Section 2(47) reads as under:
"any transaction (whether by way of becoming a member of, or accruing shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property".
88 The plain reading of the provision shows that any transaction by way of becoming a Member or acquiring shares in the Cooperative Society or shares in the company which has the effect of transferring or enabling the enjoyment of any immovable property would be covered by the definition of transfer. In the case before us, initially the Members of the Society were holding shares in the Society for ownership of plot of 500 sqyd or 1000 sqyd. This membership was surrendered to the Society vide resolution of the Society passed in the Executive Committee on 4.1.2007 which was later ratified in the General Body Meeting of the Society on 25.1.2007, so that the society could enter into JDA. In the JDA the Society has agreed to transfer the land. Therefore, technically it can be said that the developer i.e. THDC/HASH has purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable.
89 Eighth contention is that since the Society has transferred the land through JDA on a pro rata basis, therefore, only whatever money is received against which sale deeds have also been executed, can be taxed and notional income i.e. the money to be received later, cannot be taxed. In this regard reliance was placed on certain Supreme Court decisions and other cases for the proposition that notional income cannot be taxed. There is no need to discuss the cases relied on by the ld. counsel of the assessee because it is settled position of law that no notional income can be taxed. Though there is no quarrel that it is a settled principle of law that notional income cannot be taxed but in case of capital gain, Section 45 which is charging Section and Section 48 which is computation section, makes it absolutely clear that rigour of tax in case of capital gain would come into play on the transfer of capital asset and total consideration which is arising on such transfer, has to be taxed. Section 48 clearly talks about full consideration received or accruing as result of transfer. This aspect we have already discussed in detail at paras 64 to 68.
90 Second aspect of this contention was that if consideration which has not been received was to be taxed then the assessee would be deprived for claiming exemption u/s 54 and 54EC. As observed above as per Section 45 r.w.s 48 whole of the consideration, received or accrued has to be taxed. Every person is supposed to know the law and if the transaction is structured in such a way for the transfer of capital asset that some of the consideration would be received later then such person is supposed to know the consequences of the denial of such benefits. However , if the section is interpreted in the manner suggested by the ld. counsel of the assessee then no person would pay capital gain tax on transfer of a property. This will be clear from a simple example. Let us assume if "A" sells the property to "B" for a consideration of Rs. 100 crore and receive only a consideration of 1.00 crore and it is mentioned in the transfer instrument that balance of consideration would be paid after 20 years then no tax can be levied on such balance consideration of Rs. 99.00 crore which has not been received as per the contention of the ld. counsel of the assessee. But in that case no taxes can be levied even after 20 years because no transfer can be said to have taken place after 20 years and Revenue cannot do anything because capital gain can be charged u/s 45 only on transfer of capital asset. We do not think that this kind of interpretation can be made while interpreting Section 45 r.w.s. 48 by invoking the rule that there cannot be any tax on notional receipt. Generally speaking it is only the real income which can be taxed but this has to be understood subject to limitations. Commenting on these limitations, the ld. Author Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sampat Iyengar's Volume 1, (11th Edition) has observed at page 343 as under:—
"5. Reservations on real income theory. - Whether accrual of income has taken place or not, must be judged on the principle of the real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialized or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the self-serving statement of the assessee. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view or real income taking the probability or improbability of realization in a realistic manner, but once accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has been accrued cannot be made "no income'."
91 The above position can be understood by examining some of the provisions of the Act which would show that concept of notional income can not be extended if specific provision is available in the Act. For example in case of income from house property, the income has to be determined as per section 23. Section 22 of the Income Tax Act provides that it is the annual value of the property which can be taxed under the head "income from house property". Sector 23 prescribes the method for determining the annual value. Section 23(1)(a) reads as under:-
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be —
| (a) | the sum for which the property might reasonably be expected to let from year to year; or | |
| (b) | where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or.... |
92 On this aspect the settled position of the law is that the annual value has to be determined even if the property is not let out. This position has been discussed by the Ld. author Chaturvedi & Pithisaria's in Commentary of Income Tax Law (fifth edition) Volume 1 in this respect at pages 1275 & 1276 observed as under:
"Annual value- determination of - Section 23(1)(a) provides that for the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. The word used is 'might' and not 'can' or 'is'. It is thus a notional income to be gathered from what a hypothetical tenant would pay which is to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not [Sultan Bros. (P.) Ltd. v. CIT, [1964] 51 ITR 353 (SC);Jamnadas Prabhudas v. CIT, [1951] 20 ITR 160 (Bom); D.M. Vakil v. CIT, [1946] 14 ITR 298, 302 (Bom); CIT v. Biman Behari Shaw, Shebait, [1968] 68 ITR 815 (Cal); Sri Sri Radha Govinda Jew v. CIT, [1972] 84 ITR 150, 156 (Cal); CIT v. Ganga Properties Ltd.,[1970] 77 ITR 637, 647 (Cal); Liquidator, Mahmudabad Properties Ltd. v. CIT, [1972] 83 ITR 470 (Cal), affirmed, [1980] 124 ITR 31 (SC); CIT v. Zorostrian Building Society Ltd., [1976] 102 ITR 499 (Bom); C.J. George v. CIT, [1973] 92 ITR 137 (Ker); D.C. Anand & Sons v. CIT, [1981] 131 ITR 77 (Del). Also see, CIT v. Parbutty Churn Law, [1965] 57 ITR 609, 619 (Cal); In the matter of Krishna Lal Seal, AIR 1932 Cal 836; Lalla Mal Samgham Lal v. CIT, [1936] 4 ITR 250 (Lah); New Delhi Municipal Committee v. Nand Kumar Bussi, [1977] Tax LR 2130 (Del)]"
93. Similar view has been expressed by Shri N.A. Palkhivala in his commentary on the Law land Practice of Income Tax, Volume 2 (Eighth edition) by Kanga and Palkhivala's observation at pages 22 & 23. Again even Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sampat Iyengar's Volume 2, (11th edition) expressed identical views in his commentary at page 2738.
94. In all the leading commentaries cited above, it has been observed that annual value is to be computed whether property has been let out or not. This means that notional value of the property has to be charged to the Income Tax under the head "income from house property". From the above, it becomes clear that though there is no real income from letting out of the property, still the notional annual value is subjected to tax under the head "income from house property". However, we may mention that u/s 23(1)(c) of the Act if the property is let out and then remained vacant for some part of the year or for whole of the year then vacancy allowance can be claimed. Here, it is important to note that if property is not let out, then notional income becomes chargeable to the tax because of provisions of sections 22 and 23(1)(a) of the Act. Similarly, under the Mat provisions, it is basically the notional income which is being subjected to charge under the head "income from business and profession". A businessman may have income of Rs. 100/- but because of higher depreciation allowable under the Income-tax Act or some other weighted deductions say for example in case of expenditure on scientific research, the taxable income as per the provisions of the Act may be zero but still because of the Mat provisions, tax has to be charged on book profits. Similarly in the case of presumptive tax provisions e.g. u/s 44AD if a person is civil contractor and does not maintain books of account and his turnover is less than Rs. 60 lakhs then the profit would be presumed to be 8% of turnover even if he has suffered a loss. Another example of Section 2(22)(e) can be taken. Under this provision a loan or advance given by certain companies to a substantial shareholder is to be treated as deemed dividend. Such loan under the normal accounting principle or on commercial principles cannot be regarded as income but because of this specific provision regarding deemed dividend such amount has to be treated as income of the person receiving such loans.
95. The above position of law makes it absolutely clear that theory of real income is subject to the provisions of the Act and whenever any specific provisions of the Act is there for charging of a particular item of income, then the same has to be charged accordingly. It may be sometimes hard to the assessee's but again it has been held in numerous decisions that Fiscal statues have to be interpreted on the basis of language used and there is no scope for equity or intent. Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income Tax by Sampat Iyengar's Volume 1, page 236 in this regard has observed as under:—
"Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind. Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity. Thus, any benevolent construction in favour of the assessee has been held to be uncalled for.
96. Therefore, it can be said that generally speaking notional income could not be subjected to tax but whenever there is a specific provision, the same has to be taxed. Now, in case of capital gain, section 45 read with section 48 very clearly provides that it is the profit "arising" from the transfer of a capital asset which would be subjected to charge of capital gain tax and section 48 clearly provides for taking the total consideration into account while computing the capital gains. This aspect we have already discussed in detail at paras No. 64 to 68 from which it becomes clear that it is the whole consideration whether received or accrued, which has to be taxed under the capital gain once transfer of the capital asset takes place. Accordingly, there is no force in this part of the contention.
97. Now let us examine the issue of taxability of flat on the basis of above principles. Relevant portion of clause 4 of the JDA which deals with consideration are as under:
"4. CONSIDERATION
4.1 It is specifically understood and agreed amongst the Parties that THDC shall use its expertise and its Brand name and/or any other brand name at its discretion to develop the Property into the Premises as per applicable building bye-laws of the Competent Authority and the Owner shall have no objection to the same in whatsoever manner. In consideration of the Owner granting and assigning, its Development Rights in the Property, irrevocably and in perpetuity, to THDC to develop the Property and for transfer of the Property upon the surrender of allotment rights of 500 sq. yards and/or 1000 sq. yards (as the case may be) by its members to the Owner, vide resolution dated 04.01.2007 and 25.02.2007 (copy attached as per Annexure I & II), HASH is committed to pay to the Owner and/or the respective members of the Owner (as the case may be) a total amount of Rs. 106,42,50,000/- (Rupees One Hundred Six Crore Forty Two Lacs Fifty Thousands Only) calculated @ Rs. 82,50,000/- (Rupees Eighty Two Lacs Fifty Thousands Only) payable to 65 members having plot of 500 sq. yards each, Rs. 1,65,00,000/- (Rupees One Crore Sixty Five Lacs Only) payable to 30 members having plot of 1000 sq. yards each and Rs. 3,30,00,000/- (Rupees Three Crores Thirty Lacs Only) payable to the Owner for the 4 plots of 500 sq. yards each, which shall tantamount to the full and final payment to the Owner and / or the respective members of the Owner (as the case may be) in a manner set out herein below ('Payment'). Further, the transfer, sale and conveyance of 21.2 acres of land of the Property shall be made by the Owner in favour of THDC pro rata to the Payment received by the Owner and/or the respective members of the Owner (as the case may be) from HASH by executing sale deeds and registering the same. It is expressly provided that as resolved by the Owner, the total amount payable by HASH to the Owner and / or the respective members of the Owner (as the case may be) for assignment of the Development Rights and for transfer and sale of 21.2 acres of land of the Property shall be Rs. 106,42,50,000/- (Rupees One Hundred Six Crores Forty Two Lacs Fifty Thousand only) and one hundred and twenty nine (129) flats consisting of Super Area of 2250 Sq. feet ('Flats'); one flat each for sixty five members having a plot of 500 sq. yards, two flats for the (thirty) 30 members having a plot of 1000 sq. yards and 4 flats to the Owner for the 4 plots of 500 sq. yards each as per list annexed with this Agreement as Schedule B ('Sale Transaction')
It is expressly agreed between the Developers that HASH shall be responsible for making all payments to the Owner and/or the respective members of the Owner (as the case may be) as per the negotiated and agreed terms between the Owner and HASH, HASH expressly undertakes to make timely payments of the Payment to the Owner and / or the respective members of the Owner (as the case may be) as under:
4.2 As resolved by the Owner, THDC either by itself or along with HASH shall allot the Flats in the name of members of the Owner as per list annexed with this Agreement as Schedule B attached herein (hereinafter referred to as the 'Allottees'). The specifications of the flats would be provided by the Developers to the Owner and more particularly described in the Schedule C attached herein (hereinafter referred to as the 'Specifications'). The Allotment letters shall be issued to the Allottees (members of the Owner) within forty-five (45) days from the date of sanction of the building plans / Design and Drawing and on obtaining final license/permission for the development of the Project from the Competent Authority. Thereafter, the possession of the flats shall be handed over to the Allottees within thirty(30) months from the date of issuance of the Allotment Letter.
It is expressly provided that the Payment to be made by HASH to the Owner and/or to the respective members of the Owner (as the case may be) and the Flats to be allotted to the Allottees as set out in this Clause 4.2 shall hereinafter be collectively referred to as the 'Entire Consideration'
98. From this clause it becomes absolutely clear that each Member having 500 sqyd of plot was entitled to receive one furnished flat measuring 2250 sqft and Members having 1000 sqyd flat were entitled to receive two furnished flats. Thus upon execution of the JDA vested right came to such Members to receive such flats. Once this vested right arises out of the above contract it can easily be said that this right has also accrued to the assessee. Clause 4.2 makes it absolutely clear that developer i.e. THDC/HASH was to allot the letters of allotment within 45 days from final sanction from the competent authority and such flats were part of entire consideration. Merely because such allotment letter has not been given because of sanctions/permissions could not be obtained because of Public Interest Litigation before the Hon'ble Punjab & Haryana High Court, it cannot be said that such right has not accrued. Though it may be hard on the assessee but it is well settled that taxation and equity are strangers. Further commenting on this aspect Shri Rajarathnam in his commentary has observed at page 5164 as under:
"It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is overdue."
99. These comments and the other detailed discussion on this aspect clearly show that capital gain tax has to be paid on the total consideration arising on transfer which would include the consideration which has been received as well as the consideration which has arisen and become due and may be received later on. In view of this discussion this contention is rejected.
100. Ninth contention is that the assessee has already terminated the agreement and has revoked the Power of Attorney. We find no force in this submissions.
101. In this regard ld. counsel of the assessee has relied on the decision of Mumbai Bench of the Tribunal in case of Chemosyn Ltd. v.ACIT (supra). In that case the assessee-Company was owner of two plots bearing 256 & 257 in Gundabali Andheri Mumbai. The assessee-company entered into a development agreement with Dipiti Builders for the development rights for a consideration of Rs. 16.11 crore. Dipiti Builders had also agreed to construct 18000 sqft carpet area for the benefit of assessee on plot No. 256. In the return of income total consideration was shown only at Rs. 16.11 crore. It was explained that before Dipiti Builders could start the development/construction work, entire property comprising of plot no(s). 256 & 257 was sold to a third party M/s Financial Technology Ltd. by a tripartite conveyance deed executed on 5.7.2007 for Rs. 29.11 crore and therefore, additional consideration of Rs. 13 crore has been offered to tax in Assessment year 2008-09. This explanation was rejected by the Assessing Officer because according to him it was a case of transfer u/s 2(47)(v) and total consideration has to be charged in the year of transfer. The Tribunal after considering the provisions of section 45 & 48 posed a question to itself that what should be the consideration in the case before the Bench. The case law relied on by the Department was rejected because same was relevant to accrual of interest. The Bench followed the decision of Kalptaru Construction Oversees Pvt Ltd. 13 SOT 194. In that case the assessee had agreed to sell to its subsidiary equity shares for a consideration of Rs. 1.25 crore which was finally settled at Rs. 1.00 crore and the Tribunal held that the consideration of Rs. 1.00 crore has to be accepted.
102. From the above decision it is not clear whether in case of Kalaptaru Construction Oversees (P.) Ltd. (supra) which has been followed in above case, was concerning capital gain or not? Secondly it is not clear that whether the amended consideration i.e. settlement for Rs. 1.00 crore was made in the same year or not? As observed earlier while discussing the issue of notional income that provisions of section 45 r.w.s. 48, are absolutely clear and there is no ambiguity that once a capital asset is transferred then whole of the consideration received or accruing has to be considered for the purpose of taxation in the year in which the transfer has taken place. We further find that in the JDA there is a clause for termination of the agreement. Relevant clause 14 reads as under:
"Termination
"14(i) Save and except the provision of clause 26, THDC shall at all times have the right to terminate this Agreement in the event there is any material breach of the representations, warranties, undertakings, declarations, covenants and/or obligations given by the Owner under this Agreement after giving thirty (30) days written notice for rectification of such breach. In the event the Agreement is termination by THDC, all the lands registered in the name of THDC as per the terms of this Agreement up to the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC.
(ii) In the event all the requisite government and statutory approvals, authorizations, consents, licenses, approvals of all the plans/designs and Drawings as may be required for the development of this Property in relation to the Project and to undertake the Project are not granted within nine (9) months of the submission of the final plans/Designs and Drawings to the Competent Authority for approval then THDC may as its sole discretion either decide that it does not desire to undertake and complete the Project and hence terminate this Agreement after giving thirty (30) days written notice in this regard or decide to wait for any further times deemed fit by THDC for the grant of the aforesaid approvals and licenses. In the event the Agreement is terminated by THDC, all the lands registered in the name of THDC as per the terms of this Agreement up to the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC.
(iii) In the event THDC is unable to develop the Property due to refusal/non-grant of approvals, consents, permission, licenses or revocation of the same by the appropriate statutory authority, then THDC may at its sale discretion terminate this Agreement. In the event the Agreement is terminated by THDC, all the lands registered in the name of THDC as per the terms of this Agreement up to the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC.
(iv) The owner shall have the right to terminate the Agreement only in the event of default by the Developers for making the Payment in accordance with the terms of this Agreement and the allotment of Flats within the time period as mentioned in this Agreement after giving Thirty (30) days written notice for rectification of such breach or any further time as may be desired by the Owner. In the event the Agreement is terminated by Owner, all the lands registered in the name of THDC as per the terms of this Agreement up to the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall forfeit the Adjustable Advance/Earnest Money mentioned in clause 4(i)."
103 The reading of the above clause would show that power of termination has been given in many circumstances to THDC vide clause 14(i), (ii) and (iii). The power for termination by the owner has been mentioned in clause 14(iv) only. Reading of this clause would show that right to terminate with the owner i.e. the Society was available only in case of default in making the payment. The issue regarding default for making payment has already been discussed by us in Paras 84 to 86 above while discussing the issue of willingness on the part of the transferee to perform its part of the contract We have already held that there was no default on the part of developer i.e. THDC/HASH in making the payment, therefore, the assessee had no right to terminate the contract. In any case we further find that clause 20 of the JDA refers to Arbitration and it is clearly provided that all the disputes under it should be referred to the arbitration. Therefore, if the Society had some grievance it was duty-bound to give a notice for appointment of an Arbitrator to the developer. In the absence of such notice the termination will not stand scrutiny of law. Here it is also pertinent to note that though it was stated that irrevocable Power of Attorney has been revoked and some documents have been filed before us for revocation but clause 6.7 of the JDA which we have reproduced earlier clearly provides that such Power of Attorney cannot be revoked. We reproduce clause 6.7 again which is as under:
"6.7 The Owner shall execute an irrevocable special Power of Attorney granting its complete Development Rights in the Property in favour of THDC inter alia including the right to raise finance by mortgaging the property and register the charge with the Competent Authority and execute registered sale deeds) as set out in Clause 4.1 (ii), (iii), (iv) and (v) and the Owner confirms, undertakes, declares and binds itself not to revoke the same for any reason whatsoever out of its own will and discretion without obtaining a specific prior written consent of THDC or any of its duly constituted attorneys."
104 The above clearly shows that this Power of Attorney could not be revoked for any reason without obtaining specific prior written consent of THDC/HASH. No document showing the consent of THDC for revocation of this irrevocable Power of Attorney has been produced before us. We fail to understand that in the absence of such document how the assessee can claim that this Power of Attorney has been revoked. As discussed earlier while considering the legal position, we would again recall the words of Hon'ble Authority for Advance Ruling in case of Jasbir Singh Sarkaria (supra) wherein at para 33 of the decision while discussing the issue in respect of Power of Attorney, it was highlighted that execution of irrevocable Power of Attorney is of significant nature and the words "irrevocable" are very important. The expression "irrevocable" itself shows that normally such attorney cannot be revoked. Therefore, no cognizance can be taken in respect of revocation of the irrevocable Power of Attorney. In the absence of specific consent as provided in clause 6.7 of the JDA from THDC.
105 We may also note that CIT D.R has pointed out that total consideration was to be determined as under:
| (i) | Consideration in cash (Rs. 82,50,000 x 129 plots) | Rs. 106,42,50,000/- | |
| (ii) | Consideration in kind (Rs. 101,25,000/- x 129 plots) | Rs. 130,61,25,000/- | |
| Total | Rs. 237,03,75,000/- |
Average cost of consideration Rs. 11.18 crore per acre
(Total consideration of Rs. 237.03 crore divided by 21.2 acres of land)
It is claimed on behalf of the assessee that JDA has been cancelled and the developer has been allowed to retain the property which has also been conveyed to developer through two sale deeds. If that is so then what would happen to the balance consideration because in such situation the assessee has received consideration of only about Rs. 5 crore per acre because the assessee has registered land measuring 3.08 acres for Rs. 15.48 crores through first conveyance deed, whereas consideration as per original agreement was Rs. 11.18 crore per acre as shown above. The difference is because of non-receipt of consideration in kind and the assessee has not shown any evidence that it has made the claim for receipt of balance consideration. This leads to the conclusion that there was no cancellation of the JDA.
106 Some arguments were made by both the parties that if the contract is finally stand abandoned then what would happen. The contention on behalf of the assessee is that if the contract is abandoned then the assessee would have paid tax in the year of transfer and would be left with no recourse for relief. The contention on behalf of the Department was that the assessee could always file revised return or make a petition u/s 264 and some relief was possible in case of the assessee. However, if revenue fails to tax the total consideration in the year of transfer then same cannot be subjected to tax in any other year. We find that this question was seriously considered by the ld. Authority for Advance Ruling in case of Jasbir Singh Kataria (supra) which has been relied on by both the parties for various aspects. In that case it was observed at para 39 as under:
"We have to advert to one aspect which has caused some concern to us. What will happen if during the year following the one in which the deemed transfer took place, the proposed venture collapses for reasons such as refusal of permissions, the developer facing financial crunch etc. By that time, the owner would have received only a part of the agreed consideration, but he is obliged to file the return showing the entire capital gain based on the full sale price whether or not received during the year of deemed transfer. In such an eventuality, hardship may be caused to the owner who would have paid full tax. No doubt, such a situation could be avoided if the contention of the applicant is accepted. On deep consideration, however, we find that the construction of the relevant provision should not be controlled by giving undue importance to such hypothetical situations. Normally, the owner executes a Power of Attorney or does similar act to left the transferee take possession only after the basic permissions are granted and he is satisfied about the ability of transferee/developer to fulfil the contract. In spite of that, if such rate situations take place, the owner/transferor will not be without remedy. He can file a revised return and make out a case for exclusion or reduction of income. However, if the time-limit for filing a revised return expires, the difficulty will arise. It is for Parliament or the Central Government to provide a remedy to the assessee in such cases. Moreover, the other side of the picture as depicted in paragraph 27 (supra) should also be kept in view."
Here the comments of Shri Rajaratnam quoted at para 5164 above are also relevant again:
" "It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is overdue."
We may mention here that no doubt sometimes an assessee may be put in a difficult situation and as mentioned by Hon'ble Authority in case of Jasbir Singh Sarkaria (supra) as well as Ld. Author Shri Rajaratnam it is for the legislature to take corrective steps. However, it may not be out of place that if considering the difficulty the interpretation given by the ld. counsel of the assessee is accepted then the Revenue may not be able to tax such assessees when these difficulties are removed. For example in the present case if tomorrow when all permissions are obtained and construction is completed and if no taxes are held to be payable then later on also the assessee may not be subjected to any tax under the head "capital gain" because then it can be easily contended on behalf of the assessee that the transfer has already taken place on the date when irrevocable Power of Attorney was executed. In that situation the Revenue will have no remedy.
107 The above clearly shows that such hypothetical consideration cannot be considered for giving true meaning to a particular provision. It has also been observed that in some genuine cases the difficulties may arise but it was for the Parliament or the Government to provide remedy in such cases and judicial forums cannot do anything. Therefore, in view of the provisions of Section 45 r.w.s. 48 we are of the opinion that subsequent events, if at all any will not make any difference because total consideration received or accrued has to be assessed in the year of transfer. We may also note that it was stated that irrevocable Power of Attorney has been revoked but the word "irrevocable" itself shows that in the eye of law special Power of Attorney could not have been revoked. In view of this analysis, we are of the opinion that either the JDA has not been cancelled or in any case the same cannot be considered for determining the taxation of capital gain. Accordingly this contention is rejected.
108 The next contention of the assessee is that even if the whole consideration has to be taxed then value of the flats cannot be taken at Rs. 4,500/- per sq. feet. It is also pointed out that in view of the agreement between the HASH & THDC consideration has been shown at Rs. 2,000/- per sq. feet for 126 flats whereas it is Rs. 4,500/- per sq. feet for three flats. We find no force in these submissions. The assessee has filed along with the written submissions copy of the addendum of agreement between THDC and HASH by Joint Developer (at page 265 & 266) and this issue is discussed in clause 5 which is as under:—
"5. Clauses 4.1, 4.2, 4.3 and 4.4 on the page nos. 18 and 19 of the Agreement shall stand amended, modified and substituted by the following:—
4.1 It is expressly agreed and understood by and between the Parties hereto
| (a) | in the ratio of 72,28 between THDC and HASH in case Gross Sales Proceeds does not exceed Rs. 1272 crore; | |
| (b) | in the ratio of 70: 30 between THDC and HASH in case Gross Sales Proceeds is equal to Rs. 1272 crore; | |
| (c) | in addition (b), in the ratio of 60: 40 between THDC and HASH in respect of gross sales Proceeds in excess of Rs. 1272 crore. |
"It is agreed that the minimum guaranteed amount from the Gross Sales Proceeds for THDC and HASH is Rs. 890.40 crores and Rs. 225.76 crore respectively. The minimum guaranteed amount of Rs. 225.76 crore to HASH includes Rs. 58.88 crore that shall be expended by THDC towards construction of 126 flats equivalent to 2,83,500 sq. ft,, which flats are to be allotted in the names of the members of the Society or otherwise, as the case may be, calculated as Rs. 2000 per sq. ft. for the area 2,83,500 sq. ft. and the 72% share of 3 flats of 2250 Sq. ft. to be purchased by HASH @ Rs, 4500/- per sq. ft. Should the application of the ratio stipulated in (a) above result in HASH being entitled to a sum greater than the minimum guaranteed amount and THDC being entitled to a sum less than the minimum guaranteed amount, THDC shall-be entitled to the entitlement of HASH which is in excess of its minimum, guaranteed amount until THDC achieves its minimum guaranteed amount.-The same is illustrated in Annexure I hereto."
109 The above clearly shows that HASH was entitled to total proceeds of Rs. 225.76 crore out of total proceeds of the project which were agreed to be shared by THDC and HASH but the portion of HASH includes a sum of Rs. 58.88 crore which was required to be spent towards construction of 126 flats equivalent to 283500 square feet area which were to be allotted to the members of the society. Thus, it is clear that figure of Rs. 2,000/-per sq. feet represents only the cost of constructions to be incurred by THDC which was debited to the account of HASH. Further, HASH has agreed to purchase three Flats @ 4,500/- per square feet. Some news reports were quoted before us in one of the cases to show that various brokers had issued various advertisements for sale of these flats and these flats were ultimately to be sold at Rs. 7,000/- to Rs. 10,000/- per square feet. This also becomes clear from the addendum of agreement in terms of total proceeds of 1272 crore. In any case if the cost of construction is Rs. 2,000/-, then cost of land which has been paid to the society is also to be added to the cost of the flat because this portion of consideration in any case was received or to be received later by the society in cash. Considering the present market value of the flats in and around Chandigarh area which is Rs. 4,000/- to 12,000/- per square feet we are of the opinion that value of the flat at Rs. 4,500/- per square feet is absolutely fair. In any case M/s HASH has agreed to purchase the flats at this rate from M/s THDC. It may be noted as pointed out by the ld. DR for the revenue some of the News report clippings filed by various assessees clearly shows that flats were booked in the "Tata Camleot" (this was the name which was given to the Project which was to be developed on the land of two societies) in the Pre Launch offer in the range of Rs. 7500 to 8000 per sqft. It is a common knowledge that rates in Pre Launch offer are lower than the rates when bookings open for the Public. Considering these facts we are of the opinion that Assessing Officer has estimated the value of the flats on most reasonable basis. In view of these observations this contention is rejected.
110 The Ld. Counsel for the assessee had made some submissions on the issue of deduction u/s 54F. He has pointed out that this issue has been rejected wrongly by CIT(A). However, carefully perusal of the grounds of appeal show that no ground in respect of deduction u/s 54F has been raised before us and, therefore, we decline to adjudicate this issue and all the arguments made in this behalf are rejected. Though reference was made to ground No. 2.3 in this regard. The perusal of grounds No. 2.3 would show that reference has been made only to Section 54 and Section 54EC. Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house and in case before us, the assessee has transferred the plot. Therefore, it cannot be said that deduction u/s 54F and 54 is same. Since no ground has been raised for deduction u/s 54F, we reject this contention."
Following the above we decide this issue against the assessee.
7. Ground No. 6 - Through this issue the assessee has challenged whether the capital gain should be levied in the hands of the assessee or in the hands of the Society. This issue has also came up for consideration in case of Charanjit Singh Atwal (supra) and in case of Dy. CIT v. Punjabi Co-operative House Building Society Ltd., ITA No. 310/Chd/2012 and was adjudicated by following paras.
8. In case of Charanjit Singh Atwal (supra) this issue was adjudicated vide ground No. 3 in para No. 113 which is as under:
"We have heard the rival submissions carefully and find that the Society was formed by various Members for the purpose of purchase of land and to develop the same and they allotted the plots to the Members. The Society purchased 21.2 acres of land and ultimately plots in the sizes of 500 sqyd and 1000 sqyd were allotted to various Members. When the proposal for development of property came it was resolved in the General Body Meeting of the Society that the Members would surrender their rights in favour of the Society so that the Society can enter into the JDA. Thus it is clear that the Society has entered into JDA on behalf of the Members. It is the members who are owning the plots and the Society was only a facilitator. It becomes clear from the JDA that payment for consideration was to be made to an individual plot holder and in fact consideration was mentioned in terms of per Member. Each Member holding 500 sqyd plot was to receive a sum of Rs. 82,50,000/- and one fully furnished flat measuring 2250 sqft and the Members holding 1000 sqyd plot were to receive monetary consideration of Rs. 1.65 crore plus two flats measuring 2250 sqft. In fact the payment of cheques is made by Hash by issuing cheques in the name of individual Member and not the Society. This fact stands admitted because assessee has filed a return declaring capital gain against part money received against his plot. Thus it becomes clear that it is the individual member who are liable to tax in respect of transfer to plots and the Society being only a facilitator or Post office. Some more details have been discussed in this respect while adjudicating the appeal of Punjabi Cooperative House Building Society Ltd. in ITA No. 310/Chd/2012 and 556/Chd/2012 which have been adjudicated little later in this order itself. Accordingly we find no force in the submissions and this ground is rejected."
9. In case of Punjabi Co-operative House Building Society Ltd. (supra) this issue was further considered vide paras 356 & 357 which are as under:
"356 After considering the rival submissions we find that in the assessment order it has been observed by the Assessing Officer that to prevent leakage of revenue entire consideration of Rs. 234 crore consisting of monetary consideration to be received by the members and consideration in the form of flats to be received by the members, was assessed on protective basis in the hands of the society.
357 We have already adjudicated this issue vide para No. 111 to 113 in relation to ground no. 3 in case of Shri Charanjit Singh Atwal(supra) where it has been held that it is individual member who is responsible for paying the taxes. We would reiterate that the plots were allotted by the society to the individual members and it was the members who surrendered their rights in the plots in favour of the Society so that the Society could enter into JDA for transfer of property in favour of the developer i.e. THDC/HASH. Consideration has been fixed in terms of per member depending upon the size of plots held by such members. Therefore, it was the individual member who was owner of the property which has been transferred to the Society through developer and accordingly it is only the individual member who has to be charged under the head "capital gain" in respect of transfer of such plots. Since we have already held that it is the individual members who are liable to pay the taxes, therefore, in our opinion, protective addition made in the hands of the society, needs to be deleted and has been rightly deleted by the ld. CIT(A). Accordingly we find nothing wrong with the order of the ld. CIT(A) in this respect and confirm the same."
Following the above this issue is also decided against the assessee.
10. In the result, appeal of the assessee is dismissed.
SUNIL IT/ILT : Sum paid to NR for canvassing business abroad is not taxable in India even after amendment to section 9(2) by Finance Act, 2010
■■■
[2013] 38 taxmann.com 158 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'B'
Assistant Commissioner of Income-tax, Company Circle -I (3)
v.
Capricorn Food Products India Ltd.*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
IT APPEAL NO. 1247 (MDS.) OF 2013
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
AUGUST 29, 2013
Section 9, read with sections 40(a)(ia) and 195, of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India [Business profits] - Assessment year 2008-09 - Assessee exporter claimed deduction on commission paid to agents abroad who were canvassing for assessee in overseas market - During relevant year, when assessee had effected payments to foreign agents, such payments were not income of non-residents exigible for tax in India - Whether neither subsequent circular allegedly withdrawing benefits given to assessee, nor addition of Explanation to section 9(2) through Finance Act, 2010 with retrospective effect from 1-6-1976 would have any effect on taxability of such income earned by non-resident agents outside India during relevant year in course of his business or profession carried out outside India - Held, yes [Para 7] [In favour of assessee]
Circulars and Notifications : Circular Nos. 23 dated 23-7-1969, 786 dated 7-2-2000 and 7 dated 22-12-2009
FACTS
| ■ | The assessee was engaged in export of food product. | |
| ■ | The assessee had paid and claimed sales commission to agents abroad but did not deduct tax at source relying on Circular No. 786, dated 7-2-2000. | |
| ■ | According to the Assessing Officer:- |
| - | Circular No. 7/2009 dated 22-10-2009 had made Circular No. 23 dated 23-7-1969 and Circular No. 786 dated 7-2-2000 redundant. | |
| - | When source of income emanated from business activities of assessee in India, the taxability of income was governed by section 9. | |
| - | Since the assessee had not deducted tax at source on managerial service rendered by the foreign agents, the rigours of section 40(a)(i) was attracted to disallow the payment. |
| ■ | On appeal, the Commissioner (Appeals) held that :- |
| - | At the time when the assessee effected the payments to the foreign agents, what was applicable was Circular No. 786 of 7-2-2000. The assessee could not foresee that the CBDT would withdraw the benefits given under Circular No. 786 dated 7-2-2000through subsequent circulars. Doctrine of promissory estopple applied. | |
| - | Since there was no permanent establishment for non-resident in India, there could be no liability in India for such non-resident for their business earnings and, thus, the assessee was well covered by Circular No. 786. |
| ■ | Thus, she deleted the disallowance. | |
| ■ | On further appeal: |
HELD
| ■ | The Assessing Officer had made disallowance under section 40(a)(i) for a reason that assessee could not take benefit of Circular No. 786 dated 7-2-2000. However, the subsequent Circular No. 7/2009 dated 22-10-2009, which allegedly withdrew the benefits given to an assessee under Circular No. 786 dated 7-2-2000 and Circular No. 23 dated 23-7-1969, were not there, when assessee made payments to non-resident agents since the relevant previous year was 2007-08. Assessee therefore was definitely saved by the doctrine of promissory estoppel. At the time when it had effected the payments to foreign agents, it could reasonably have held the bona fide belief that such payments were not income of the non-resident, exigible for tax in India. Once assessee held a bona fide belief that the payments made to non-residents, were not taxable in India, then it could not be fastened with a liability to deduct tax under section 195. In any case, Assessing Officer has not given any finding that the non-residents had rendered any services which were in the nature of technical services. There is nothing on record to show that any technical knowledge was made available to the assessee through the services rendered by the non-residents, which assessee could make use of in future. In any case, sub-clause (b) of clause (vii) of section 9(1) clearly mentions that fees paid in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning income from any source outside India, would not come within the purview of income by way of fees for technical services. Addition of Explanation to sub-section (2) to section 9 through Finance Act, 2010 with retrospective effect from 1-6-1976 will, therefore, have no effect on taxability of income earned by non-resident outside India in the course of his business or profession carried out outside India by him. There is no case for the revenue that the foreign agents were not engaged in a business of earning commission by canvassing market overseas. Therefore, the Commissioner (Appeals) was justified in deleting the disallowance. [Para 7] |
Guru Bashyam for the Appellant. J. Prabhakar for the Respondent.
ORDER
Abraham P. George, Accountant Member - In this appeal filed by the Revenue, it is aggrieved that the CIT(Appeals) deleted a disallowance of Rs. 58,02,597/- made by the Assessing Officer under Section 40a(i) of Income-tax Act, 1962 (in short 'the Act'), for want of deduction of tax at source on commission paid to foreign agents.
2. Assessee, engaged in export of food products, had filed its return for impugned assessment year declaring an income of Rs. 45,66,550/-. During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had paid sales commission of Rs. 58,02,597/- to agents abroad. As per A.O., assessee failed to deduct tax at source. Though assessee had relied on Circular No.786 dated 7.2.2000 for non-deduction of tax at source, the A.O. was not impressed. According to him, Circular No.7/2009 dated 22.10.2009 had made Circular No.23 dated 23.7.1969 and Circular No.786 dated 7.2.2000 redundant. When the source of income emanated from business activities of the assessee in India, the taxability of income was governed by Section 9 of the Act. Assessee having not deducted tax at source on the managerial service rendered by the foreign agents, Assessing Officer was of the opinion that rigours of Section 40a(i) was attracted. He disallowed the claim of Rs. 58,02,597/-.
3. In its appeal before CIT(Appeals), argument of the assessee was that at the time when assessee effected the payments to the foreign agents, what was applicable was Circular No.786 of 7.2.2000. Assessee could not foresee that the CBDT would withdraw the benefits given underCircular No.786 dated 7.2.2000 through subsequent circulars. Doctrine of promissory estoppel applied. Assessee having acted on a bonafide impression that no deduction of tax at source was required, could not be fastened with the peril of an injury caused due to subsequent withdrawal of circular.
4. CIT(Appeals) was impressed by the argument of the assessee. He held that there was no permanent establishment for the non-residents in India and therefore, there could be no liability in India for such non-residents for their business earnings. According to her, assessee was well covered by Circular No.786. Thus, she deleted the disallowance.
5. Now before us, Shri Guru Bashyam, appearing for the Revenue, submitted that by virtue of amendment to Section 9(2) of the Act, through Finance Act, 2010, whereby an explanation was added with retrospective effect, the requirement of having a residence or place of business or business connection in India for non-residents was no more there. This amendment, according to him, had retrospective effect from 1.6.1976. The requirement that non-residents should have rendered services in India for bringing such non-residents within the ambit of Indian taxation, stood obviated. According to him, the services rendered by the non-resident agents to the assessee fitted within the definition of "fees for technical services" given under Explanation (2) to Section 9(1)(vii) of the Act. The said foreign agents were rendering managerial services to the assessee. Therefore, assessee should have deducted tax at source as stipulated under Section 195 of the Act. Having not done so, Assessing Officer was justified in applying Section 40a(i) for making a disallowance. Learned D.R. submitted that the CIT(Appeals) fell in error by giving benefit of Circular No.786 dated 7.2.2000 to the assessee despite such Circular having become redundant by virtue of Circular No.7/2009 dated 22.10.2009.
6. Per contra, Sh. J. Prabhakar, FCA, ld. Counsel for the assessee, strongly supported the order of CIT(Appeals).
7. We have perused the orders and heard the rival submissions. The A.O. had made disallowance under Section 40a(i) for a reason that assessee could not take benefit of Circular No.786 dated 7.2.2000. However, the subsequent Circular No.7/2009 dated 22.10.2009, which allegedly withdrew the benefits given to an assessee under Circular No.786 dated 7.2.2000 and Circular No.23 dated 23.7.1969, were not there, when assessee made payments to non-resident agents since the relevant previous year was 2007-08. Assessee therefore was definitely saved by the doctrine of promissory estoppel. At the time when it had effected the payments to foreign agents, it could reasonably have held the bonafide belief that such payments were not income of the non-residents, exigible for tax in India. Once assessee held a bonafide belief that the payments made to non-residents, were not taxable in India, then it could not be fastened with a liability to deduct tax under Section 195 of the Act. In any case, Assessing Officer has not given any finding that the non-residents had rendered any services which were in the nature of technical services. There is nothing on record to show that any technical knowledge was made available to the assessee through the services rendered by the non-residents, which assessee could make use of in future. In any case, sub-clause (b) of clause (vii) of Section 9(1) of the Act clearly mentions that fees paid in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning income from any source outside India, would not come within the purview of income by way of fees for technical services. Addition of Explanation to sub-section (2) to Section 9 through Finance Act, 2010 with retrospective effect from 1.6.1976 will therefore have no effect on taxability of income earned by non-resident outside India in the course of his business or profession carried out outside India by him. There is no case for the Revenue that the foreign agents were not engaged in a business of earning commission by canvassing market overseas. We are, therefore, of the opinion that ld. CIT(Appeals) was justified in deleting the disallowance. No interference is required.
8. In the result, appeal filed by the Revenue is dismissed.
SBIT: When an appeal is preferred before Tribunal by any of parties, whole appeal is before Tribunal and it has to decide case irrespective of fact as to whether it would amount to granting relief to other party who did not prefer appeal
■■■
[2013] 38 taxmann.com 344 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'B'
M. Nataraj
v.
Deputy Commissioner of Income-tax, Co. Circle -I(3), Coimbatore*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
IT APPEAL NO. 2168 (MDS.) OF 2012
M.P. NO. 115 (MDS.) OF 2013
[ASSESSMENT YEAR 2006-07]
M.P. NO. 115 (MDS.) OF 2013
[ASSESSMENT YEAR 2006-07]
AUGUST 23, 2013
Section 254, read with section 54EC, of the Income-tax Act, 1961 - Appellate Tribunal - Powers of [Subject matter of appeal] - Assessment year 2006-07 - Assessee having invested consideration received on sale of assets in specific bonds, Assessing Officer allowed exemption to assessee under clause (a) of section 54EC(1) - On appeal, Tribunal finding that entire sale consideration had not been invested, directed Assessing Officer to allow exemption under clause (b) of section 54EC(1) - Assessee challenged order of Tribunal contending that quantum of relief allowed under section 54EC was never a subject-matter of appeal before Commissioner (Appeals) or Tribunal - Whether when an appeal is preferred before Tribunal by any of parties, whole appeal is before Tribunal and it has to decide case irrespective of fact as to whether it would amount to granting relief to other party who did not prefer appeal - Held, yes - Whether, therefore, there was no infirmity in order of Tribunal - Held, yes [Paras 7 and 8][In favour of revenue]
FACTS
| ■ | The assessee had invested consideration received on sale of asset in a specific asset mentioned under section 54EC(1)(a). | |
| ■ | The Assessing Officer allowed exemption under section 54EC(1)(a). | |
| ■ | On appeal, the Tribunal held that the assessee had not invested entire sale consideration in specified assets and, therefore, assessee's case fell under clause (b) of section 54EC(1) and not clause (a). | |
| ■ | The assessee filed miscellaneous petition for review of the order of Tribunal as it had resulted in an additional burden and liability on the assessee. The assessee contended that since the quantum of relief allowed under section 54EC was never a subject-matter of appeal before the Commissioner (Appeals) or the Tribunal, the Tribunal had no powers to direct the Assessing Officer to apply clause (b) of section 54EC(1). |
HELD
| ■ | When an appeal is preferred before the Tribunal by any of the parties, the whole appeal is before the Tribunal. The Tribunal is supposed to pass appropriate order as it may deem fit in the appeal preferred by any of the parties. It is immaterial whether such order will benefit one or the other of the parties. In the process it might be in favour of a party, who had not preferred the appeal but is a respondent therein, particularly, when the principle of law is laid down and on such legal principle the appellant may not be entitled to any relief. There is nothing to prevent the Tribunal from passing appropriate order in such an appeal preferred by one of the parties even though it might amount to granting of relief to a party, who did not prefer any appeal. In case it is found that such order cannot be passed since no appeal has been preferred by the other party, the Tribunal has the power to remand the matter for a decision by the Tribunal in accordance with the law laid down. The Tribunal discharges judicial function. It dispenses justice. The principle, on which justice is dispensed, is founded on fair play and doing justice in the case. Therefore, while the Tribunal lays down a particular proposition of law, it cannot close its eyes and withdraw its selves without applying the principle or the rationale laid down in the facts of the case. The Tribunal whenever sitting in appeal has to examine the case before it. It cannot avoid its responsibility when deciding the appeal in a manner, which will render the entire order passed by the Tribunal contradictory. It cannot leave the matter in a fluid state deciding the principle in favour of one of the parties and passing an order in favour of the other against whom the principle has been laid down. The Tribunal is not supposed to pass an anomalous order. Neither can it create a confusing state and permit confusion to continue, nor can it pass an incongruous order. It has to decide the case irrespective of the fact as to whether it would amount to granting relief to the other party who did not prefer the appeal. [Para 7] | |
| ■ | There was no mistake in the order of the Tribunal much less any mistake apparent on record. [Para 8] | |
| ■ | In the result, miscellaneous petition filed by the assessee is dismissed. [Para 9] |
CASES REFERRED TO
CCAP Ltd. v. CIT [2004] 270 ITR 248/141 Taxman 471 (Cal.) (para 8), Controller of Estate Duty v. Smt. K. Narasamma [1980] 125 ITR 196/4 Taxman 126 (AP) (para 8) and CIT v. Assam Travels Shipping Service [1993] 199 ITR 1/67 Taxman 269 (SC) (para 8).
Guru Bashyam for the Respondent.
ORDER
Abraham P. George, Accountant Member - Through this Miscellaneous Petition, assessee seeks a rectification of the order dated 2.5.2013 of this Tribunal. As per the assessee, direction given by the Tribunal for applying clause (b) of Section 54EC(1) of Income-tax Act, 1961 (in short 'the Act') has resulted in an additional burden and liability on the assessee.
2. Nobody appeared on behalf of assessee. There was a request for adjournment. However, on the first date of hearing, which was 26.7.2013, nobody appeared despite issue of notice. Again notice was issued Registered Post on 04/07/2013 for hearing on 23.8.2013. Since sufficient advance notice was given to the assessee, the reason given as his authorized representative was out of station, cannot be accepted. Hence, the petition for adjournment is rejected and we are disposing of this Miscellaneous Petition on merits.
3. In the written submission, it is stated by the assessee that the quantum of relief allowed under Section 54EC was never a subject matter of appeal before the CIT(Appeals) or the Tribunal. Assessing Officer had considered allowance of exemption under clause (a) of Section 54EC(1) of the Act. Since this aspect was never in appeal, the Tribunal had no powers, according to him, to direct the Assessing Officer to apply clause (b) of Section 54EC(1) of the Act. Therefore, according to him, directions were required, to ensure that the Assessing Officer retained the relief already given under Section 54EC of the Act.
4. Per contra, Shri Guru Bashyam, appearing for the Revenue, submitted that there was no error in the order of the Tribunal warranting interference. In any case, according to him, the grievance raised in the Miscellaneous Petition, if allowed, would result in a review of the order of the Tribunal for which it was having no power.
5. We have perused the orders and heard the rival submissions. The issue adjudicated by this Tribunal was with regard to an addition made for long term capital gain. Contention of the assessee was that the consideration received on sale of asset stood invested in a specific asset mentioned under Section 54EC(1)(a) of the Act. Assessing Officer had referred the valuation to the District Valuation Officer, since assessee had objected to adopt the value fixed by Stamp Valuation Authority. The reason why this Tribunal held that clause (b) of Section 54EC(1) alone could be applied, is clear from its findings given at paras 12 and 13 of its order which are reproduced hereunder:—
'12. No doubt, it has been clearly mentioned by the Co-ordinate Bench that deeming provision of Sec.50C would not be applicable for construing the meaning of the term 'full value of consideration' vis-Ã -vis application of Sec.54F of the Act. Crux of the decision is that once the entire amount of consideration stood deployed, or invested in accordance with Sec.54F, then provision of Sec.50C could not be invoked. The same view was also taken by the Jaipur Bench in the case of Shri Prakash Karnawat v. ITO (supra). However, admittedly in the given case, entire capital gains were not invested by the assessee in the bonds. The total sale consideration received was Rs. 79 lakhs and the capital gains on such transaction after deducting indexed cost of acquisition, as per the assessee's own working out to Rs. 75,15,796/-. Assessee had invested only Rs. 75 lakhs in the SIDBI capital gain Bonds. Had the assessee invested whole amount of Rs. 75,15,796/- which was the capital gains arising out of the transaction, then may be, the full value of consideration could be taken as the amount specified in the conveyance deed, for the purpose of giving effect to the exemption under section 54EC of the Act. However, assessee here has endeavored to make an artificial split of a single transaction. The sale of 7.98 acres of land was effected through a single document and the sale consideration mentioned shown was Rs. 79 lakhs. In our opinion an artificial split of a single transaction for claiming a better benefit than what is lawfully available cannot be accepted or encouraged. The sale executed through a single conveyance deed can be considered only as one single transaction, not amenable to any such split. It was not a case of two separate transactions. Assessee had simply taken out 0.02 acres from 7.98 acres of land, and considered it as an independent sale.
Once, the entire capital gains was not invested in a long term specified asset , what has to be applied is clause (b) of Sec.54EC (1) of the Act. The said Sec.54EC(1) is reproduced hereunder:-
"54EC. Capital gain not to be charged on investment in certain bonds.— (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
| (a) | the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the original asset, the whole of such capital gain shall not be charged under section 45; | |
| (b) | if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged under section 45 : |
Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an assessee during any financial year does not exceed fifty lakh rupees."
13. Where a transaction calls for a computation specified under clause(b) above, then it is necessary to find out the quantum of capital gains that could be claimed as exempt. For working out such capital gains, section 50C of the Act, which is mandatory in nature cannot be ignored. Said Sec.50C requires substitution of the consideration mentioned in the deed with the value fixed by Stamp Valuation Authority for the purpose of stamp duty. In the given case, assessee had disputed the valuation and the matter was referred by Assessing Officer to DVO as provided under section 50C(2) of the Act. Once the DVO had given the report, Assessing Officer was bound to apply sub-clause (3) of Sec.50C for working out the capital gains. The said section stipulates that full value of consideration should be taken as the value adopted by Stamp Valuation Authority or the value fixed by the District Valuation Officer (DVO) whichever was lower. When the value fixed by the DVO exceeded the value fixed by the Stamp Valuation Authority, then value fixed by the Stamp Valuation Authority alone had to be considered. Here, the value fixed by the Stamp Valuation Authority was Rs. 3,61,84,512/- whereas the value fixed by DVO was Rs. 1,95,33,000/-. Assessing Officer, in our opinion, therefore, had proceeded in accordance with law, in considering the fair market value at Rs. 1,95,33,000/- . Nevertheless,, for working out the exemption under section 54EC available to the assessee, Assessing Officer was required to apply the proportion mentioned in sub clause (b) of Sec.54EC(1) of the Act, which has not been done. Therefore, we set aside the order of the authorities below and remit the issue of computation of long term capital gains tack to the file of the Assessing Officer, for computing such capital gains in accordance with Sec.54EC (1) (b) of the Act. Ordered accordingly.'
6. Assessee had endeavoured to make an artificial split of a single transaction and thereby to take advantage of clause (a) of Section 54EC(1) of the Act. When the law has laid out a particular course, it has to be followed in letter and spirit. Learned D.R. had during the course of hearing of the appeal taken an argument that assessee's case fell under clause (b) of Section 54EC(1) and not clause (a). This has been specifically mentioned by the Tribunal at para 9 of its order.
7. When an appeal is preferred before the Tribunal by any of the parties, the whole appeal is before the Tribunal. The Tribunal is supposed to pass appropriate order as it may deem fit in the appeal preferred by any of the parties. It is immaterial whether such order will benefit one or the other of the parties in the process it might be in favour of a party, who had not preferred the appeal but is a respondent therein, particularly, when the principle of law is laid down and on such legal principle the appellant may not entitled to any relief. There is nothing to prevent the Tribunal from passing appropriate order in such an appeal preferred by one of the parties even though it might amount to granting of relief to a party, who did not prefer any appeal. In case it is found that such order cannot be passed since no appeal has been preferred by the other party, in that event, the Tribunal has the power to remand the matter for a decision by the Tribunal in accordance with the law laid down. The Tribunal discharges judicial function. It dispenses justice. The principle on which justice is dispensed is founded on fair play and doing justice in the case. Therefore, while the Tribunal lays down a particular proposition of law, it cannot close its eyes and withdraw its selves without applying the principle or the ration laid down in the facts of the case. The Tribunal whenever sitting in appeal has to examine the case before it. It cannot avoid its responsibility when deciding the appeal in a manner, which will render the entire order passed by the Tribunal contradictory. It cannot leave the matter in a fluid state deciding the principle in favour one of the parties and passing an order in favour of the other against whom the principle has been laid down. The Tribunal is not supposed to pass an anomalous order. Neither can it create a confusing state and permit confusion to continue, nor can it pass an incongruous order. It has to decide the case irrespective of the fact as to whether it would amount to granting relief to the other party who did not prefer the appeal.
8. The above position directly evolve out of the decisions rendered by Hon'ble Calcutta High Court in the case of CCAP Ltd. v. CIT [2004] 270 ITR 248/141 Taxman 471, Hon'ble Andhra Pradesh High Court in Controller of Estate Duty v. Smt. K. Narasamma [1980] 125 ITR 196/4 Taxman 126and that of Hon'ble Apex Court in the case of CIT v. Assam Travels Shipping Service [1993] 199 ITR 1/67 Taxman 269. We are, therefore, of the view that the assessee here is seeking review of the order of the Tribunal and this Tribunal is having no such power to make a review. There was no mistake in the order of the Tribunal much less any mistake apparent on record. We thus do not find any merit in this Miscellaneous Petition moved by assessee.
9. In the result, Miscellaneous Petition filed by the assessee is dismissed.
IT: Where assessee-company was engaged in manufacture and export of granite monuments, trading receipt on account of export of granite would qualify for exemption under section 10B
■■■
[2013] 40 taxmann.com 49 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'B'
GTP Granites Ltd
v.
Assistant Commissioner of Income-tax*
N.S. SAINI, ACCOUNTANT MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER
IT Appeal No. 68 (MDS.) of 2013
[ASSESSMENT YEAR 2005-06]
[ASSESSMENT YEAR 2005-06]
MAY 6, 2013
Section 10B of the Income-tax Act, 1961 - Export Oriented Undertakings [Computation of deduction] - Assessment year 2005-06 - Assessee-company was engaged in manufacture and export of granite monuments and slabs - Assessing Officer held that trading receipt on account of outright purchase and export of granite was not eligible for exemption under section 10B - Whether profits from both, self manufactured as well as trading in goods are eligible for exemption under section 10B and, therefore, exemption under section 10B was to be allowed on trading receipts/profits - Held, yes [Para 9] [In favour of assessee]
CASE REVIEW
T. Two International (P.) Ltd. v. ITO [2010] 122 ITD 255/[2008] 26 SOT 583 (Mum.) (para 9) followed.
CASES REFERRED TO
T. Two International (P.) Ltd. v. ITO [2010] 122 ITD 255/[2008] 26 SOT 583 (Mum.) (para 5).
G. Baskar for the Appellant. Guru Bashyam for the Respondent.
ORDER
V. Durga Rao, Judicial Member - This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), Salem, dated November 22, 2012 for the assessment year 2005-06.
2. Grounds Nos. 1.1 and 1.2 have not been pressed at the time of hearing. Accordingly, the same are dismissed as not pressed.
3. The only ground that remains for our consideration is in respect of the deduction claimed under section 10B of the Income-tax Act, 1961 ("the Act" for short). The facts in brief are that the assessee is engaged in the manufacture and export of granite monuments and slabs. The assessee filed a return of income for the year under consideration by showing unabsorbed depreciation of Rs. 1,68,11,901 and Rs. 2,01,03,462 under section 115JB of the Act. The return was processed under section 143(1) of the Act. Thereafter the assessment was completed under section 143(3) of the Act on March 30, 2007. Subsequently, a notice under section 148 was issued and thereafter the assessment was completed. During the course of the assessment proceedings, the Assessing Officer considered the exemption under section 10B of the Act on trading profits and observed that the assessee-company has got two units and both are engaged in the business of exporting granites monumental slabs. The assessee-company claimed exemption under section 10B of the Act for unit II only which is being 100 per cent. export oriented undertaking. The Assessing Officer noticed from schedule 10 pertaining to the export sales and purchases for trading exports that the assessee-company had made outright purchase (trading) to the extent of Rs. 42,62,996 and exported (trading) the same at the cost of Rs.44,45,403 in unit II alone. As per section 10B to claim exemption the following conditions have to be fulfilled :
| (a) | the undertaking must be 100 per cent. export oriented undertaking, | |
| (b) | it should manufacture or produce any article or thing, and | |
| (c) | it should export that manufactured articles or things. |
4. The Assessing Officer further observed that it is clear from Explanation 4 of the above section that the term "manufacture or produce" is an inclusive one and includes the cutting and polishing of precious and semi-precious stones. It is also seen that the term "manufacture or produce" does not include the term "trading". Section 10B is applicable only to the products that are being manufactured or produced by the entity which are exported. Accordingly, he held that trading profits cannot be considered for the purpose of arriving at the export turnover, even if the products are exported and the realisation has been made in foreign exchange. Accordingly, the income claimed to be exempted in unit II has to be restricted only to the export of manufacturing of granite slabs.
5. The assessee carried the matter before the Commissioner of Income-tax (Appeals). Before the Commissioner of Income-tax (Appeals) the learned counsel for the assessee relied on the decision of the Tribunal in the case of T. Two International (P.) Ltd. v. ITO [2010] 122 ITD 255/[2008] 26 SOT 583 (Mum.) and submitted that the section 10A and section 10B are similar and the Mumbai Bench of the Tribunal in the above case has held that trading receipts are also eligible for deduction under section 10B of the Act. However, the Commissioner of Income-tax (Appeals) did not accept the contention of the assessee and observed that "the conditions of the establishment of 'Special Economic Zone Reinvestment Allowance Reserve Account' and utilisation are not available in section 10B". The decision cited by learned counsel for the assessee was not accepted.
6. The Commissioner of Income-tax (Appeals) further observed that a perusal of sub-section (2) of section 10B states that the "manufacture or production" is an essential ingredient for availing of exemption. The assessee has in its submission stated, that a reasonable interpretation would be able to see if the unit has started manufacturing or not. If that condition is satisfied nothing else should matter. The correct interpretation is that the exemption is allowed to manufactured goods and that is why manufacturing is a pre-condition. If the assessee's view is to be accepted then the assessee will set up a token production and will start trading freely and still claim exemption. Nothing can be farther from the legislative intent and reasonable interpretation. Thus observing, the Commissioner of Income-tax (Appeals) dismissed the appeal filed by the assessee.
7. On being aggrieved, the assessee carried the matter before the Tribunal. Learned counsel for the assessee submitted that sections 10A and 10B are pari materia and the Tribunal has already considered that when the assessee is manufacturing, even trading receipts are eligible for deduction under section 10B of the Act.
8. On the other hand, the learned Departmental representative submitted that sections 10A and 10B are different. Section 10B is with reference to 100 per cent. export oriented undertaking whereas section 10A related to Special Economic Zone and submitted that trading receipts are not eligible for deduction under section 10B of the Act.
9. We have heard both sides, perused the records and gone through the orders of the authorities below. The assessee is a manufacturer and exporter of granite monumental slabs. These facts are not disputed by the Revenue. During the course of the assessment proceedings, the Assessing Officer noticed that the assessee-company has purchased granites to the extent of Rs. 42,62,996 and the same was exported. The only question before us is whether the assessee is eligible for the deduction under section 10B in respect of trading profits or not. The Tribunal, Mumbai Bench in the case of T. Two International (P.) Ltd. (supra) has observed that to allow deduction under section 10A the material consideration is export of eligible goods and not whether those goods are manufactured or purchased by the assessee. Profits from both, the self-manufactured as well as trading in goods have been made eligible for deduction under section 10A of the Act. The above decision was rendered by the Mumbai Bench of the Tribunal in respect of deduction relating to section 10A of the Act. However, we are of the opinion that section 10A and section 10B are similar. The apprehension of the Commissioner of Income-tax (Appeals) is that if the trading receipt also is included in the eligibility under section 10B, the assessee will set up token production and start free trading. The facts in the present case are not supporting the view taken by the Commissioner of Income-tax (Appeals) . Therefore, the decision rendered in the case of T. Two International (P.) Ltd. (supra) even applies to section 10B. We therefore respectfully following the decision of the Tribunal and taking into consideration the facts of the present case, this ground of appeal raised by the assessee is allowed.
10. In the result, the appeal filed by the assessee is allowed.
USP *In favour of assesse.
IT: Where an irrevocable power of attorney was executed and registered by a housing society, leading to overall control of property in hands of developer, it constituted transfer under section 2(47)
■■■
[2013] 36 taxmann.com 503 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Smt. Binder Khokher
v.
Assistant Commissioner of Income-tax, Circle -5(1), Chandigarh*
T.R. SOOD, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
IT APPEAL NO. 738 (CHD.) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JULY 31, 2013
I. Section 2(47) of the Income-tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882 - Capital gains - Transfer [Immovable property] - Assessment year 2008-09 - Assessee was a member of a housing society which entered into a joint development agreement with two developers, whereby each member was entitled to monetary consideration and a flat in lieu of existing plot - An irrevocable power of attorney was also executed and registered in favour of developers - Whether, an irrevocable general power of attorney leading to overall control of property in hands of developer would constitute transfer under section 2(47)(v), even if developer did not have exclusive possession - Held, yes - Whether, non-registration of joint development agreement cannot be reason for non-applicability of section 2(47)(v) - Held, yes - Whether, where developers were vigorously pursuing issue of permission/sanction for executing agreement, requirement under section 53A of Transfer of Property Act, regarding willingness of transferee to perform contract, was also fulfilled - Held, yes - Whether, therefore capital gain tax had to be paid on total consideration arising on transfer, including consideration already received as well as consideration due and to be received later - Held, yes [Para 6] [In favour of revenue]
II. Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house [Investment in new residential house] - Assessment year 2008-09 -Whether, where assessee was a member of a housing society which had entered into an agreement with a developer, whereby members were to be given flats in lieu of their plot, deduction under section 54F could not be allowed when construction of such flat had not yet started as it could not be said that amount had been invested in a new residential house - Held, yes [Para 8] [In favour of revenue]
FACTS
| ■ | The assessee was a member of a housing society, which transferred 27.3 acres of land to two Developers 'T' and 'H' under a Joint Development Agreement, whereby each member having a plot of 500 sq.yd was entitled to monetary consideration of Rs. 80 lakhs and furnished flat measuring 2250 sqft. An irrevocable Power of Attorney was executed in favour of the developers. It was treated as a transfer under section 2(47) by revenue and estimated at Rs. 5000 per sqft. | |
| ■ | On appeal, assessee claimed that handing over of possession of property was conditional in order to enable the builder to obtain necessary permission from the Government agencies, and there was no transfer as per section 2(47). |
HELD
| ■ | Identical issue came up for consideration in the case of Charanjit Singh Atwal v. ITO IT Appeal No. 448 (Chd.) of 2011, dated 29-7-2013, where it was held that an irrevocable general power of attorney which leads to overall control of the property in the hands of the developer, even if that means no exclusive possession by the Developer, would constitute transfer. It can be said that it has to be construed as 'possession' in terms of clause (v) of section 2(47). [Para 6] | |
| ■ | A reading of the clauses of the irrevocable Special Power of Attorney and JDA clearly show that the developer was authorized to enter upon the property not only for the purpose of development but other purposes also. 'T' was authorized to amalgamate the project with any other project in the adjacent area or adjoining area as per the special Power of Attorney. If the possession was never given to the developer by the Society then how could the developer amalgamate the project with another project which may be acquired later in the adjoining area. [Para 6] | |
| ■ | The position contemplated by clause (v) of section 2(47) need not be exclusive possession. What is required is that the transferee by virtue of possession should be able to exercise control for overall intended purposes. In the present case, the assessee had not given only a license as claimed by the assessee, because of the powers of selling, amalgamating etc. mentioned in the JDA and irrevocable Special Power of Attorney. [Para 6] | |
| ■ | Also, it is not only the money which has been received by the assessee which is required to be taxed, but the consideration which has accrued to the assessee is also required to be taxed. [Para 6] | |
| ■ | Non-registration of agreement cannot lead to the conclusion that provision of section 2(47)(v) is not applicable as claimed by assessee. [Para 6] | |
| ■ | The combined reading of these clauses show that if any of the party could not perform its part of the obligation because of the unforeseen circumstances which included Government directions, Court orders, injunctions etc. such party would not be liable to other party. In view of Force Majeure clause which included Court injunction, it can not be said that 'T' was not willing to perform its obligation as required under section 53A of the Transfer of Property Act. In fact, The developers i.e. 'T'/'H' were pursuing the issue of permissions/sanctions vigorously. [Para 6] | |
| ■ | A plain reading of section 2(47)(vi) shows that any transaction by way of becoming a Member or acquiring shares in the Co-operative Society or shares in the company, which has the effect of transferring or enabling the enjoyment of any immovable property would be covered by the definition of transfer. In the present case, initially the members of the society were holding shares in the society for ownership of plot of 500 sq.yd or 1000 sq.yd. This membership was surrendered to the society vide resolution of the society passed in the Executive Committee on 4-1-2007, which was later ratified in the General Body Meeting of the Society on 25-1-2007, so that the society could enter into JDA. In the JDA, the Society agreed to transfer the land. Therefore, technically it can be said that the developer i.e. 'T'/'H' had purchased the membership of the members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of section 2(47) is applicable. [Para 6] | |
| ■ | It was contended that since the society had transferred the land through JDA on a pro-rata basis, therefore, only whatever money was received could be taxed and notional income i.e. the money to be received later, could not be taxed. Though there is no quarrel that it is a settled principle of law that notional income cannot be taxed but in case of capital gain, section 45, which is charging section and section 48, which is computation section, makes it absolutely clear that rigor of tax in case of capital gain would come into play on the transfer of capital asset and total consideration which is arising on such transfer, has to be taxed. Section 48 clearly talks about full consideration received or accruing as result of transfer. [Para 6] | |
| ■ | Therefore, capital gain tax has to be paid on the total consideration arising on transfer which would include the consideration which has been received as well as the consideration which has arisen and become due and may be received later on. [Para 6] | |
| ■ | It was also contended that the assessee had already terminated the agreement and had revoked the irrevocable power of attorney. [Para 6] | |
| ■ | A reading of the termination clause of the JDA shows that power of termination had been given in many circumstances to the developers. But the right to terminate with the owner i.e. the Society was available only in case of default in making the payment. There was no default on the part of developer in making the payment, therefore, the assessee had no right to terminate the contract. In any case, if the Society had some grievance it was duty bound to give a notice for appointment of an Arbitrator to the developer. In the absence of such notice, the termination would not stand scrutiny of law as such irrevocable Power of Attorney cannot be revoked. [Para 6] | |
| ■ | Therefore, following the decision in the case of Charanjit Singh Atwal (supra) this issue is decided against the assessee. However, it is found that in case of Charanjit Singh Atwal (supra) as well as other plot holders in the society, the flats had been valued at Rs. 4500 per sqft and since nature and specification of the flat remains same, there is no justification in valuing the flat Rs. 5000 per sqft. Accordingly, the principle issue of tax on capital gain is decided against the assessee, however, the Assessing Officer is directed to value the flat Rs. 4500 per sqft. [Para 6] |
CASE REVIEW
Charanjit Singh Atwal v. ITO [IT Appeal No. 448 (Chd.) of 2011, dated 29-7-2013] (Para 6) followed.
CASES REFERRED TO
Charanjit Singh Atwal v. ITO [IT Appeal No. 448 (Chd.) of 2011, dated 29-7-2013] (para 2) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 5).
N.K. Saini for the Respondent.
ORDER
T.R. Sood, Accountant Member - This appeal is directed against the order dated 4-6-2012 of the Ld. CIT(A), Chandigarh.
2. Since the issues raised in this appeal were covered by other group of cases and particularly the lead case in case of Shri Charanjit Singh Atwal v. ITO in IT Appeal No. 448/Chd/2011, dated 29-7-2013 and therefore, we proceeded to hear this appeal on ex-parte basis because the issues raised are covered by the case of Shri Charanjit Singh Atwal, ITA No. 448/Chd/2011 which has already been adjudicated by us.
3. In this appeal the assessee has raised the following grounds:
| "1 | That the Learned CIT(A) has erred in law and on facts in upholding reopening of proceedings U/s 147(3)/148 which were not valid as no copy of the reasons recorded were furnished to the appellant. | |
| 2 | That the learned CIT(A) has taxability of capital gain on notation consideration not received by the appellant is erroneous in law. Handing over of possession of property was conditional in order to enable the builder to obtain necessary permission from the Govt. Agencies. There is no transfer of property as envisaged u/s 2 (47) (vi) of the Income-tax Act 1961. | |
| 3. | That the learned CIT(A) has fallen in error in including the cost of flats on estimation basis which could not be ascertained as no construction or other activity has been commenced by the Developer and hence no capital gains could be levied on the cost of flats on the date of the agreement i.e. 27-04-2007. That, the Assessing Officer has fallen in error and has misconstrued the terms of the agreement dated 27-04-2007. | |
| 4. | That the learned CIT(A) has also not allowed deduction u/s 54 F which was eligible to the applicant since, he has included the cost of proposed flat in the sale consideration. " |
4. The Ld. DR for the revenue submitted that since the issue involved is same as in the case of lead case of Charanjit Singh Atwal (supra) and therefore same arguments may be adopted in this case.
5. Ground No. 1 - After considering the submissions of Ld. DR for the revenue and relevant material on record, we find that the facts of the case are that original return of income was processed u/s 143(1) of the Act and later on notice u/s 148 was issued. The issue regarding reopening the assessment has been adjudicated by the Ld. CIT(A) vide para 4.2 to 4.2.2. which is as under:
"4.2 I have considered the facts of the case. The ld. counsel of the assessee has himself mentioned from the 'reasons recorded' in his submissions and so he is not correct in saying that the appellant was not given the copy of reasons recorded.
4.2.1 The argument of the Ld. counsel of the assessee that notice u/s 148 had been issued to the Society also does not hold water since the appellant had been issued notice u/s 148 after recording proper reasons and it is none of the appellant's business to point out as to which other persons had been issued notice u/s 148.
4.2.2 There was information available with the Assessing Officer that the appellant, being a member of M/s Defense Services Co-operative House Building Society Ltd., Mohali (who had 27.3 acres of land in village Kansal and had entered into an agreement with TATA and HASH for sale of land), had received Rs. 32 Lacs as consideration and was liable to pay capital gain tax on sale of land. The appellant had declared Rs. 32 Lacs only as the sale consideration for the purposes of calculation of capital gain on sale of land in the return of income originally filed and the correct value of capital gain had not been declared. As the full value of consideration was at least Rs. 1,92,50,000.00/- (Rs. 80,00,000/- monetary consideration and Rs. 1,12,50,000/- as cost of furnished flat of 2250 sq.feet), the Assessing Officer formed his reasons to believe that some income had escaped assessment and so issued notice u/s 147 of the Act. It has been held by Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291 ITR 500) that at the stage of issue of notice u/s 148, the only question to be seen is whether there was relevant material, on the basis of which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at the stage of issue of notice u/s 148. It is so because the formation of belief is within the realm of the subjective satisfaction of the Assessing Officer. In view of this judgment of Hon'ble Supreme Court and by respectfully following the same, the action of the Assessing Officer of reopening the assessment is upheld. Ground of appeal No. 1 is dismissed."
Since original return was processed u/s 143(1) and the Revenue got information later on that Defence Services Co-op House Building Society Ltd. has transferred the land to developers to Tata Housing Development Company Ltd. and Hash Builders Pvt. Ltd. therefore, the Ld. CIT(A) has correctly adjudicated the issue in view of the decision of Hon'ble Supreme Court in case of Asstt. CIT v. Rajesh Jhaveri Stock Broker (P.) Ltd.[2007] 291 ITR 500/161 Taxman 316.
6. Grounds No. 2 & 3 - We have considered the submissions of the ld. DR for the revenue and carefully gone through the material available on record. The main issue is whether assessee is liable to capital gain tax in the year under consideration i.e assessment year 2007-08 in view of the Joint Development Agreement. The assessee is a member of Defence Services Co-op House Building Society Ltd. The Society has transferred 27.3 acres of land to the Developer i.e. M/s Tata Housing Development Company Ltd. and M/s Hash Builders Pvt Ltd. A Member having plot of 500 sqyd was entitled to monetary consideration of Rs. 80 lakhs and furnished flat measuring 2250 sqft which has been estimated by the Revenue at Rs. 5000 per sqft. We further find that identical issue came up for consideration in the case of Shri Charanjit Singh Atwal (supra) in ITA No. 448/Chd/2011 and others and it was held vide para 27 to 110 as under:
'27 We have considered the rival submissions and carefully gone through the written submissions filed by both the parties in the light of material on record, paper books and various judgments cited by the parties. The main issue is whether assessee is liable to capital gain tax in the year under consideration i.e assessment year 2007-08 in view of the JDA. For charging capital gains, the charging section is 45 and the relevant portion is as under:—
Section 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F 54G and 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.
28. The plain reading of the above provision would show that charging an item of income under the head 'Capital gains" require three ingredients i.e. ( i) there should be some profit. (ii) Such profit must be arising on ac count of transfer and (iii) there should be capital asset which has been transferred. There is no dispute that a capital asset was involved and there was some profit also i.e. why assessee has himself returned income under the head 'capital gains;. The dispute is mainly on account of transfer and that too whether the transfer could be covered under clauses (ii), ( v) & (vi) of section 2( 47) so as to bring into picture the whole of consideration arising on transfer of such assets. W e shall deal with each of the aspect in detail at appropriate time.
29. Apart from charging provisions u/s 45 another important provision is section 48 which deals with the mode of computation and relevant portion reads as under:—
48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing 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 cost of any improvement thereto: |
30 Again plain reading would show that capital gain would be computed by considering the full value of consideration whether received or accruing as a result of the transfer . Therefore, it is not only the consideration received which is relevant but the consideration which has accrued is also relevant.
31. The expression 'transfer' has been defined u/s 2(47) of the Act which reads as under:—
2(47) "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 asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or | |
| (iva) | the maturity or redemption of a zero coupon bond; or | |
| (v) | any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; 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 agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. |
Explanation.- For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;
Clauses (v) & (vi) to section 2(47) of the Act have been inserted by Finance Act, 1987 w.e.f. 1-4-1988. The purpose of this insertion has been explained by CBDT in Circular No. 495 dated 22-9-1987. The relevant part 11.1 and 11.2 of the circular reads as under:–
"11.1 The existing definition of the word " transfer " in section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member or acquiring shares in a co-operative society, company, or as way of any agreement or any arrangement whereby such any building which is either being constructed or which is to be constructed. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multi-storeyed constructions in big cites. The definition also does not cover cases where possession is allowed to be taken or retained in part performance of a contract, of the nature referred to in section 53A of Transfer of Property Act, 1882. New sub-clauses (v) & (vi) have been inserted in section2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above.
11.2 The newly inserted sub-clause (vi) of section 2(47) has brought in to the ambit of transfer", the practice of enjoyment of property rights through what is commonly known as Power of Attorney arrangements. The practice in such cases is adopted normally where transfer of ownership is legally not permitted. A person holding the power of attorney is authorized the powers of owner, including that of making construction. The legal ownership in such cases continues to be with the transferor."
32. Before insertion of the clause (v) & (vi) to section 2( 47) of the Act, the position of law was that unless and until a sale deed was executed for transfer of immovable property, the same could not be construed as transfer for the purpose of charging capital gain tax. This was particularly so in the light of various judgments particularly the judgment of Hon'ble Apex Court in the case of Alapati Venkatramian vCIT (57 ITR 185) (SC). In this case it was held that in the context of transfer for the purpose of capital gain tax, what is meant by transfer is the effective conveyance of the capital asset by a transfer or to the transferee. Delivery of possession and agreement to sell by itself could not constitute conveyance of the immovable property. In the meantime apart from this decision a practice came into vogue by which certain properties were being transferred without executing the proper sale deeds. This was being done because there was restriction on sale of properties in various towns e.g. in case of lease hold plots and flats in Delhi if the same were to be transferred, permission was required to be taken from the Government/DDA and transferor was required to pay 50% of the market value - cost (i.e. unearned increase) to the Government. To avoid such payments and/or also to avoid the payment of stamp duty or cumbersome procedure of obtaining permission, some properties were being sold by way of sale agreement and also execution of General Power Of Attorney and possession was given on receipt of full consideration without executing the proper sale deeds etc. which as mentioned earlier was not even permissible in some cases. These transactions are popularly called "power of attorney" transactions. To avoid these and to stop the leakage of Revenue, the Parliament has inserted clauses (v) & (vi) to section 2(47) so as such type of transactions are also be brought in to taxation net. However, interpretations of these clauses has led to lot of litigation and the main point of litigation was that at what point of time the possession can be said to have been given. In the present case, the Revenue has mainly relied on two decisions namely (i) Chaturbhuj Dwarkadas Kapadia vCIT 260 ITR 491 (Bom.) and; (ii) Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria 294 ITR 196.
33. In the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra), the facts before the Hon'ble Bombay High Court were that assessee who was an individual had 44/192 undivided share in an immovable property in Greater Bombay which consisted of various lands and buildings. By Agreement dated August 18, 1994, the assessee agreed to sell to Floreat Investment Ltd. (herein referred to 'Floreat') his share of immovable property for a total consideration of Rs. 1,85,63,220/- with right to said Floreat to develop the property in accordance with the rules/regulations framed by local authorities. For this purpose, the assessee also agreed to execute a limited power of attorney authorizing Floreat to deal with the property and also obtain permissions and approvals from various authorities. Under clause 11 of the agreement, it was provided that after Floreat was given an irrevocable license to enter upon the assessee's share of property and after Floret investment have obtained all necessary approvals, the Floret was entitled to demolish various buildings for settling the claims of the tenants. Under clause 14 of the agreement, the assessee was entitled to receive proportionate rent till the payment of last instalments and till that time assessee was bound to pay all outgoings. Under clause 20 of the Agreement, it was agreed that sale shall be completed by execution of conveyance, however, till the matter was adjudicated by the Hon'ble High Court, no conveyance was executed. Pursuant to this agreement, Floreat obtained various permissions namely (i) clearance from CRZ Authority dated February 7, 1996; (ii) letter from ULC for redevelopment of property dated April 26, 1995. Other permissions were also obtained during the financial year ending March 31, 1996 relevant to assessment year 1996-97. By March, 31, 1996, Floreat had paid almost the entire consideration expect for a small sum of Rs. 9,98,000/-. However, the commencement certificate permitting construction of the building was issued on November 15, 1996. The power of attorney was executed on March 12, 1999. The question arose whether liability of the assessee for capital gain arose in the assessment year 1996-97 or 1999-2000. The observation of the Court has been summarized in head note as under:-
"Clauses (v) and (vi) were introduced in section 2( 47) of the Income-tax Act, 1961, with effect from April 1, 1988. They provide that "transfer " includes ( i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, and ( ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. Under section 2( 47)(v ) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature refer red to in section 53A of the Transfer of Property Act would come within the ambit of section 2(47)(v). In order to attract section 53A, the following conditions need to be fulfilled. There should be a contract for consideration ; it should be in writing ; it should be signed by the transfer or ; it should pertain to transfer of immovable property ; the transferee should have taken possession of the property ; lastly , the transferee should be ready and willing to per form his part of the contract. Even arrangements confirming privileges of ownership without transfer of title could fall under section 2(47)(v). Section 2(47)(v) was introduced in the Act from the assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Assessees used to enter into agreements for developing properties with builders and under the arrangement with the builders, they used to confer privileges of owners hip without executing conveyance and to plug that loophole, section 2(47)(v) came to be introduced in the Act.
| ** | ** | ** |
Held, that section 2( 47) (v) read with section 45 indicates that capital gains was taxable in the year in which such trans actions were enter ed into even if the transfer of immovable property is not effective or complete under the general law. In this case, the test had not been applied by the Department. No reason had been given why that test had not been applied, particularly when the agreement in question, read as a whole, showed that it was a development agreement. Once under clause 8 of the agreement a limited power of attorney was intended to be given to the developer to deal with the property, then the date of the contract, viz., August 18, 1994, would be the relevant date to decide the date of transfer under section 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter would not arise……"
34. The Hon'ble Court referred to clauses (v) & ( vi) of section 2(47) and made the following observations at page 499 of the report:
".... The above two clauses were introduced with effect from April 1, 1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property (see section 269UA(d)). Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law (see Kanga and Palkhivala's Law and Practice of Income-tax-VIII edition, page 766) . This test is important to decide the year of chargeability of the capital gains."
35 The above observations were made on the basis of opinion expressed by Ld. author in the commentary - "The Law and Practice of Income-tax by Kanga and Palkhivala Eighth Edition at page 766.
Relevant observations read as under:
"Cls. (v) and (vi) of s. 2(47), inserted by the Finance Act 1987, with effect from 1st April, 1988, provide that "transfer" includes (a) any transaction which involves the allowing of the possession of an immovable property (s. 269UA(d)) to be taken or retained in part performance of a contract of the nature referred to in s.53A of the transfer of Property Act 1882, and (b) any transaction entered into in any manner which has the effect of transferring, or enabling the enjoyment of, any immovable property (s. 269UA(d)). Therefore in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under general law."
36. From the above , it is clear that Court was of the view that in case any transaction covered by clause (v) and (vi) to section 2 ( 47) the liability for capital gain would arise on the date when such transactions are entered into. In the judgment at some other places, the similar observations have been made. However, despite this observation the case was decided in favour of the assessee. The reason for the same have been given in the judgment itself. Firstly it is observed that provision of section 2(47)(v) of the Act were not invoked by the Revenue itself. This becomes clear from the following para:
"It was argued on behalf of the assessee that there was no effective transfer till grant of irrevocable licence. In this connection, the judgment of the Hon'ble Supreme Court were cited on behalf of the assessee, but all those judgment were prior to introduction of the concept of deemed transfer u/s 2(47)(v). In this matter, the agreement in question is a development agreement. Such development agreements do not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. That the aim of these professional contractors was only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements. That such agreements are only a mode of remunerating the builder for his services of constructing the building (see Gurudev Developers v. Kurla Konkan Niwas Co-operative Housing Society [2003] 3 Mah LJ 131). It is precisely for this reason that the Legislature has introduced section 2(47)(v) read with section 45 which indicates that capital gains is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law. In this case that test has not been applied by the Department. No reason has been given why that test has not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement. There is a difference between the contract on the one hand and the performance on the other hand. In this case, the Tribunal as well as the Department have come to the conclusion that the transfer took place during the accounting year ending March 31,1996, as substantial payments were effected during that year and substantial permissions were obtained. In such cases of development agreements, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is in view of section 2 (47)(v) of the Act."
Secondly, it is mentioned in the order of the Court that law was not very clear on this point and since the assessee has admitted and paid capital gain in the Assessment year 1999-2000, therefore, tax was held to be chargeable in Assessment year 1999-2000.
Thirdly certain shortcomings were also noted in the order of the Tribunal where certain documents were mentioned to have been executed before March 31, 1996 e.g. the following observation of the Tribunal was not found correct as something is done on Ist April, 1997 then the same cannot fall in the year ending 31-3-1996.
"From the dates it is evident that from the very next day, i.e., April 1, 1997, from the end of the financial year ending on March 31, 1996, the builder was using the well water against payment of relevant charges to the assessee."
37. Thus it is very clear that in cases where an arrangement had been entered into by an assessee in terms of clause (v) of Section 2(47) which has effect of handing over the possession then the transfer is said to have been taken place on the date of entering into such arrangement.
38. We do not find any force in the contention of the Ld. Counsel for the assessee that judgment has to be read in the context of the decision made in such judgment. In fact, it is well settled that doctrine of precedent which means what needs to be followed later on particularly by subordinate Tribunals and Courts is the ratio of a particular judgment given by the higher Court or Forum . Further , there is no force in the contention that decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra) does not show that the date of agreement itself constitute the transfer. Again there is no force even in the contention that in that case it was ultimately decided that capital gain taxes is chargeable in Assessment year 1999-2000 because of the reasons given in above noted paras particularly because the Revenue itself never invoked the provisions of section 2(47)(v) of the Act and held it to be tax able in Assessment year 1996-97. No doubt in that case ultimately it was held that capital gain was in assessment year 1999-2000 but Court had made it very clear that this is first time that law is being laid down and guidelines are being issued which means that there was a confusion earlier. Clauses (v) & (vi) to section 2(47) were introduced in the year only in 1998. Perhaps Court took a lenient view because of these reasons and held that capital gain was taxable in Assessment year 1999-2000. It is quite clear that ratio of the above decision is that in case of any arrangements or transactions whereby the other party becomes entitled to enjoy the property then that date of such transaction itself needs to be construed as the date of transfer.
39. The second relevant decision cited by the Revenue is by Authority for Advance Ruling (AAR) New Delhi in the case of Jasbir Singh Sarkaria (supra). In that case the assessee was co-owner of agricultural land measuring about 27.7 acres and his share was 4/9. The co-owner decided to develop the land by constructing residential complex through developer and entered into a Collaboration agreement on 8-6-2005 with M/s Santur Developer Pvt Ltd. New Delhi (herein after called 'Developer'). According to the terms of agreement, the Developer should obtain a letter of intent from the concerned Government department and obtain other permissions and sanctions for developing the land at its own risk and cost. The Developer was to take 84% of the built up area and balance 16% would belong to assessee and other co-owner. The consideration for the agreement was taken as the built up area to be handed over to the owners free of cost. The owners were entitled to visit the site in order to review the progress of the project. It w as clarified by clause 18 that owners hip would remain exclusively with the owner still it vests with both the parties as per their respectives hare s on the completion of the project. The other clauses and the steps in the agreement were that a sum of Rs. 1 crore towards payment of earnest money at the time of entering into agreement; a special power of attorney was to be executed in favour of the Developer to enable to deal with the Statutory authorities etc . for obtaining necessary approvals/sanctions; letter of intent was to be obtained not later than March 8, 2006 and in case of a failure to do so, the agreement shall stand terminated. Letter of intent is basically a license granted by the Director of Town Planting to Developer of land for the purpose of constructing residential flats subject to payment of certain charges and compliance of other conditions. It was further stated in the agreement that on fulfilment of the requirement in the letter of intent, owners will have to execute irrevocable general power of attorney in favour of the Developer authorizing the Developer to took and sell the dwelling units out of developer's share and collect the money for the same. However, finally sale deeds could be executed only after the owner received their share of constructed area. Three months later, a supplementary agreement was entered on September 15, 2005 between the assessee and other co-owners and Developers through which it was agreed that owner s will s ell their 16% share in the built up area to the Developer or its nominee for consideration of Rs. 42 crores. A sum of Rs. 2 crores was received. This collaboration agreement and balance of Rs. 40 crores was payable by the Developer to the owners in six instalments from March 06, 2008. The instalments could be extended subject to payment of interest and further subject to maximum extension of three months. There were various other clauses which are not relevant for our purposes. The question arose whether capital gain accrue/arise to the assessee during the financial year 2006-07 relevant to assessment year 2007-08 or during financial year 2007-08 relevant to assessment year 2008-09.
40. On the above, the Hon'ble Authority after referring to the provisions of section 45 and observed as under:-
".... The section can be analysed thus :
| (a) | transfer of a capital asset effected in the previous year, | |
| (b) | resultant profits or gains from such transfer, | |
| (c) | those profits or gains would constitute the income of the assessee/ transferor | |
| (d) | such income shall be deemed to be the income of the same previous year in which the transfer had taken place. |
Two aspects may be noted at this juncture. Firstly, the expression used is "arising" which is not to be equated with the expression "received". Both these expressions and in addition thereto, the expression "accrue" are used in the Income-tax Act, either collectively or separately according to the context and nature of the charging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place.
The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading text books. The following statement of law in Sampath Iyengar's
Commentary (10th Edition- Revised by Shri S. Rajaratnam) brings out the correct legal position :
"Section 45 enacts that the capital gains shall by fiction 'be deemed to be the income of the previous year in which the transfer took place'. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer.
....In the words of section 45, the capital gains arising from the transfer 'shall be the income of the previous year in which the transfer took place'. So, the payments of consideration stipulated to be paid in future would have to be attributed, by statutory mandate, to the year of transfer, even as payments made prior to the year of transfer."
41. Thereafter , the Authority referred to section 2(47) and objects of the introduction of clauses (v) & (vi) and also referred to paras 11.1 & 11.2 of the Board Circular No. 495 (which we have already discussed earlier). The Hon'ble Authority has discussed various implications of clause ( v) of section 2( 47) and also implication of section 53A of the Transfer of Property Act as well as observations of Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v CIT (supra). The Authority observed that to understand this provision properly meaning of 'possession' has to be understood properly and went on to discuss the meaning of term 'possession, and how the same is to be understood in the context of clause (v). These are very important observations and have been discussed in most elucidated fashion. These observations will answer many of the questions raised before us and, therefore, we are extracting these observations as under:-
"Meaning of "possession" and how should it be understood in the context of clause (v)
The next question is, in what sense we have to understand the term "possession" in the context of clause (v) of section 2(47). Should it only mean the right to exclusive possession- which the transferee can maintain in his own right to the exclusion of everyone including the transferor from whom he derived the possession ? Such a criterion will be satisfied only after the entire sale consideration is paid and the transferor has forfeited his right to exercise acts of possession over the land or to resume possession. In our view, there is no warrant to place such a restricted interpretation on the word "possession" occurring in clause (v) of section 2(47). Possession is an abstract concept. It has different shades of meaning. It is variously described as "a polymorphous term having different meanings in different contexts" (per R. S. Sarkaria J. in Superintendent and Remembrance of Legal Affairs, W. B. v. Anil Kumar Bhunja [1979] 4 SCC 274 and as a word of "open texture" (see Salmond on Jurisprudence, paragraph 51, Twelfth Edition, Indian reprint). Salmond observed : "to look for a definition that will summarize the meanings of the term "possession" in ordinary language, in all areas of law and in all legal systems, is to ask for the impossible". In the above case of Anil Kumar Bhunja [1979] 4 SCC 274, Sarkaria J. speaking for a three-Judge Bench also referred to the comments of Dias and Hughes in their book on Jurisprudence that "if a topic ever suffered too much theorizing it is that of 'possession'". Much of the difficulty is caused by the fact that possession is not a pure legal concept, as pointed out by Salmond. The learned judge then explained the connotation of the expression "possession" by referring to the well known treatises on jurisprudence (page 278) :
"'Possession', implies a right and a fact : the right to enjoy annexed to the right to property and the fact of the real intention. It involves power of control and intent to control, (see Dias and Hughes)
| 14** | ** | ** |
15. While recognizing that 'possession' is not a purely legal concept but also a matter of fact, Salmond (12th Ed., 52) describes possession, in fact, as a relationship between a person and a thing. According to the learned author, the test for determining 'whether a person is in possession of anything is whether he is in general control of it'."
In Salmond's Jurisprudence, at paragraph 54, we find an illuminating discussion on "immediate" and "mediate possession". The learned author states "in law one person may possess a thing for and on account of some one else. In such a case the latter is in possession by the agency of him who so holds the thing on his behalf. The possession thus held by one man through another may be termed mediate, while that which is acquired or retained directly or personally may be distinguished as 'immediate or direct'." Salmond makes reference to three types of mediate possession. In all cases of "mediate possession", two persons are in possession of the same thing at the same time. An allied concept of concurrent possession has also been explained in paragraph 55 of Salmond's Jurisprudence in the following words :
"It was a maxim of the civil law that two persons could not be in possession of the same thing at the same time. As a general proposition this is true : for exclusiveness is of the essence of possession. Two adverse claims of exclusive use cannot both be effectually realized at the same time. Claims, however, which are not adverse, and which are not, therefore, mutually destructive, admit of concurrent realization. Hence, there are several possible cases of duplicate possession.
1. Mediate and immediate possession co-exist in respect of the same thing as already explained.
2. Two or more persons may possess the same thing in common, just as they may owe it in common …."
On a fair and reasonable interpretation and on adopting the principle of purposive construction, it must be held that possession contemplated by clause (v) need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property and to make use of it for the intended purpose, the mere fact that the owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of agreement does not introduce any incompatibility. The concurrent possession of the owner who can exercise possessory rights to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled. Clause (v) of section 2(47) will have its full play even in such a situation. There is no warrant to postpone the operation of clause (v) and the resultant accrual of capital gain to a point of time when the concurrent possession will become exclusive possession of developer/transferee after he pays full consideration.
Further, if "possession" referred to in clause (v) is to be understood as exclusive possession of the transferee/developer, then, the very purpose of the amendment expanding the definition of transfer for the purpose of capital gains may be defeated. The reason is this: the owner of the property can very well contend, as is being contended in the present case, that the developer will have such exclusive possession in his own right only after the entire amount is paid to the owner to the last pie. There is then a possibility of staggering the last instalment of a small amount to a distant date, may be, when the entire building complex gets ready. Even if some amount, say 10 per cent., remains to be paid and the developer/transferee fails to pay, leading to a dispute between the parties, the right to exclusive and indefeasible possession may be in jeopardy. In this state of affairs, the transaction within the meaning of clause (v) cannot be said to have been effected and the liability to pay capital gains may be indefinitely postponed. True, it may not be profitable for the developer to allow this situation to linger for long as the process of transfer of flats to the prospective purchasers will get delayed. At the same time, the other side of the picture cannot be over-looked. There is a possibility of the owner with the connivance of the transferee postponing the payment of capital gains tax on the ostensible ground that the entire consideration has not been received and some balance is left. The mischief sought to be remedied, will then perpetuate. We are, therefore of the view that possession given to the developers need not ripen itself into exclusive possession on payment of all the instalments in entirety for the purpose of determining the date of transfer.
While on the point of possession, we would like to clarify one more aspect. What is spoken to in clause (v) of section 2(47) is the "transaction" which involves allowing the possession to be taken. By means of such transaction, a transferee like a developer is allowed to undertake development work on the land by assuming general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. The actual date of taking physical possession or the instances of possessory acts exercised is not very relevant. The ascertainment of such date, if called for, leads to complicated inquiries, which may frustrate the objective of the legislative provision. It is enough if the transferee has, by virtue of that transaction, a right to enter upon and exercise acts of possession effectively pursuant to the covenants in the contract. That tantamounts to legal possession. We are referring to this aspect because the authorized representative has submitted when he appeared before us in the last week of May, 2007, that even by that date the development work could not be commenced for want of certain approvals, and therefore, the developer was "not willing to take possession of the land". Such an unsubstantiated statement which is not found in the original application or even written submissions filed earlier need not be probed into especially when it is not his case that the developer was not allowed to take possession in terms of the agreement."
42. After the above discussion, the Authority discussed the facts of the case before it. It was observed that paragraph 18 of the Collaboration Agreement provides that on issuance of letter of intent, the owners will allow and permit the Developer to enter upon and survey the land, erect site/sales office, carry out the site development work and do activities for advancing & sale promotion, construction etc. The Authority further observed that if this clause is read in isolation this would suggest on passing of possession but according to Authority the other factors are to be considered. Clause 15 provided that on fulfilment of the requirements laid down in the letter of intent which is provisional license, the owners should execute an irrevocable general power of attorney in favour of the developer allowing inter alia to book and sell the dwelling unit failing under their share. This was possible only after deposit of requisite charges etc. and perhaps there was litigation regarding ownership of land which has also to be withdrawn. The Authority has discussed the significance of general power of attorney and the terms of the general power of attorney at para 33 and the relevant portion of the same is as under:-
"A copy of the irrevocable GPA executed in terms of paragraph 15 of the agreement has been furnished by the applicant. It authorizes the developer : (i) to enter upon and survey the land, prepare the layout plan, apply for renewal/extension of licence, submit the building plans for sanction of the appropriate authority and to carry out the work of development of a multi-storied residential complex, (ii) to manage and control, look after and supervise the property in any manner as the attorney deems fit and proper, (iii) to obtain water, sewage disposal and electricity connections. The developer is also authorized to borrow money for meeting the cost of construction on the security and mortgage of land falling to the developer's share. The other clauses in the GPA are not relevant for our purpose. The GPA unequivocally grants to the developer a bundle of possessory rights. The acts of management, control and supervision of property are explicitly mentioned. It is fairly clear that the GPA is not a mere licence to enter the land for doing some preliminary acts in relation to the development work. The power of control of the land which is an incidence of possession as explained supra has been conferred on the developer under this GPA. The developer armed with the GPA cannot be regarded merely as a licensee or an agent subject to the control of the owners. His possession cannot be characterized as precarious or tentative in nature. The fact that the agreement describes the GPA as irrevocable and an express declaration to that effect is found in the GPA itself is not without significance. Having regard to the second and supplemental agreement by virtue of which the entire developed property including the owners' share has been agreed to be sold to the developer or his nominees for valuable money consideration, the developer has a vital stake in the entire property. As far as the quality of possession is concerned, he is on a higher pedestal than a developer who apportions built up area with the owner. Even if he is an agent in one sense in the course of developing the land, that agency is coupled with interest. For these reasons, the prefix "irrevocable" is deliberately chosen. As discussed earlier, the owner's limited right to enter the land and oversee the development work is not incompatible with the developer's right of control over the land which he derives from the GPA. Exclusive possession, as already pointed out, is not necessary for the purpose of satisfying the ingredients of clause (v) of section 2(47). We are therefore, of the view that the irrevocable GPA executed by the owners in favour of the developer must be regarded as a transaction in the eye of law which allows possession to be taken in part performance of the contract for transfer of the property in question…….."
43. Thus, the above clearly shows that irrevocable general power of attorney which leads to over all control of the property in the hands of the Developer, even if that means no exclusive possession by the Developer would constitute transfer. It can be said that it has to be construed as 'possession' in terms of clause (v) of section 2(47) of the Act.
44. A question may arise that why the transfer was not held to be taken place in Assessment year 2006-07 when first agreement was entered into on June 8, 2005. The supplementary agreement was also entered into on Sept 15, 2005 both of which fall in Financial Year 2005-06 relevant to Assessment year 2006-07. Then why transfer was not construed in Assessment year 2006-07 it was because the first agreement itself contained a condition that "letter of intent" should be procured not later than March 8, 2006. In case of failure to do so the agreement shall stand terminated. Therefore, obtaining the "letter of intent" was the crucial factor. It has been explained in the decision that the "letter of intent" basically is a license issued by the Director of Town and Country Planning, Haryana which gives permission for construction of the flats. The other crucial point was execution of irrevocable of GPA which was executed on May 8, 2006 which according to the Ld. authority depicts the intention of the handing over of the possession. Therefore, it becomes very clear that it is not necessary that transfer would take place on the signing of development agreement but the same has to be inferred only when the possession has been handed over by the transferor to the developer which can be inferred from the documents e.g. Power of Attorney. After above discussion Hon'ble authority has summarized the decision in para 41 which is as under:
"The following is the summary of conclusions:
| 1. | Where the agreement for transfer of immovable property by itself does not provide for immediate transfer of possession, the date of entering into the agreement cannot be considered to be the date of transfer within the meaning of clause (v) of section 2 (47) of the Income-tax Act. | |
| 2. | To attract clause (v) of section 2(47), it is not necessary that the entire sale consideration up to the last instalment should be received by the owner. | |
| 3. | In the instant case, having regard to the terms of the two agreements and the irrevocable GPA executed pursuant to the agreement, the execution of the GPA shall be regarded as the "transaction involving the allowing of the possession" of land to be taken in part performance of the contract and therefore, the transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date of execution of such GPA. The irrevocable GPA was executed on May 8, 2006, i.e., during the previous year relevant to the assessment year 2007-08 and the capital gains must be held to have arisen during that year. Incidentally, it may be mentioned that during the said year, i.e., financial year 2006-07, a final license was granted and the applicant/owners received nearly 2/3rds of the consideration. " |
45. Legal position has been discussed in above noted paras and now let us discuss the facts of the case in the light of above noted legal position.
46 Undisputed facts of the case are that the assessee is a Member of Punjabi Co-op House Building Society Ltd. which had 96 members (Number of members were stated as 95 during arguments but clause 13 of the JDA refers to number of members as 96). The Society was owning 21.2 acres of land in village Kansal Distt. Mohali adjacent to Chandigarh. There were two types of members firstly the members who were owning plot of 500 sqyd and secondly the members who are holding plot of 1000 sqyd. Somewhere in 2006 it was decided to develop a Group Housing commercial project and do development as per the applicable municipal building bye-laws in force and accordingly a bid was invited through advertisement in the Tribune dated 31-5-2006. HASH a developer, approached the Society with proposal for development of the property. Since Hash did not have sufficient means to develop the property, Hash had approached THDC for development of the property by constructing the building and/or structures to be used for interalia residential, public use and commercial purposes. This proposal was discussed by the Society in its Executive Committee meeting on 4-1-2007. Minutes of the meeting are placed at page 58 to 65 of the paper book. In the Executive committee it was decided to appoint Hash who was acting alongwith the joint developer THDC as joint developer on the terms and conditions to be mentioned in the JDA. It was further resolved that member owing plot of 500 sqyd would receive a consideration of Rs. 82,50,000/- each to be paid in four instalments by Hash directly in favour of the members and one flat with super area of 2250 sqft to be constructed by THDC. The members who held the plot of 1000sqyd were to receive a consideration of Rs. 1,65,00,000/- and two flats consisting of 2250sqft to be constructed by the THDC. It was further resolved to enter into a JDA with THDC/HASH. It was also resolved to execute irrevocable Power of attorney by the Society in favour of THDC for this purpose. This resolution was ultimately ratified in the General Body meeting held by the Society on 25-2-2007. Pursuant to the above resolution, tripartite JDA was executed (copy of the same is available at page 15 to 54 of first paper book). Through recitation clause it has been mentioned that owner is in possession of land measuring about 21.2 acres of land which has come in the purview of Nagar Panchayat, Naya Gaon vide Notification issued on 18-10-2006 duly substituted by another notification dated 21-11-2006 and that no part of land of the property falls under Forest Area under the Punjab Land Preservation Act. It has been further recited that the Society has agreed to accept the proposals of Hash and further executed this agreement with THDC/HASH. Hash was responsible to make payment to the owner as described earlier and the flats were to be provided by THDC. In case of Hash fails to make the payment, THDC agreed to make the payments. Copy of the resolution of the Executive Committee of the Society dated 4-1-2007 as well as resolution of the General Body Meeting of the Society dated 25-2-2007 were made part of JDA by way of annexure. The Society agreed to execute an irrevocable Special Power of Attorney in favour of THDC and all other necessary documents, at the request of the developers.
47. In clause 1 of JDA various expressions have been defined. Clause 2 describes the project as under:
"2.1 The owner hereby irrevocably and unequivocally grants and assigns in perpetuity all its rights to develop, construct, mortgage, lease, license, sell and transfer the property along with any and all the construction, premises, hereditaments, easements, trees thereon in favour of THDC for the purpose of development, construction, mortgage, sale, transfer, lease, license and or exploitation for full utilization of the Property (Rights) and to execute all the documents necessary to carry out, facilitate and enforce the Rights in the Property including to execute Lease Agreement, License Agreements, Construction Contracts, Supplier Contracts, Agreement for sale, Conveyance, Mortgage Deeds, finance documents and all documents and agreements necessary to create and register the mortgage, conveyance, lease deeds, license agreement, Power of Attorney, affidavits, declaration, indemnities and all such other documents, letters as may be necessary to carry out, facilitate and enforce the Rights and to register the same with the revenue/Competent authority and to appear on our behalf before all authorities, statutory or otherwise, and before any Court of law (the 'Development Rights'). The owner hereby hands over the original title deeds of the Property as mentioned in the list Annexed hereto and marked as Annexure IV and physical, vacant possession of the property has been handed over to THDC simultaneous to the execution and registration of this agreement to develop the same as set out herein.
It is hereby agreed and confirmed that what is stated in the recitals hereinabove, shall be deemed to be declarations and representations on the part of the Owner as if the same were set out herein verbatim and forming an integral part of the agreement.
2.2 The Project shall comprise of development/construction of the Property into the premises as permissible under Punjab Municipal Building Bye-laws/Punjab Urban Development Authority or any other Competent Authority by the Developer at their own cost and expense. The Project shall be developed as may be sanctioned by the concerned local authority i.e. Department of Local Bodies, Punjab/Punjab Urban Planning and Development Authority (PUDA) or any other Competent Authority.
2.3 The owner hereby irrevocably and unequivocally grants and assigns all its Development Rights in the property to THDC to develop the property and undertake the project at its own costs, efforts and expenses whereupon the Developer shall be entitled to apply for and obtain necessary sanctions, licenses and permissions from all the concerned authorities for the commencement, development and completion of the project on the property."
48 Clause 3 describes the obligations of the developers & Society for getting the plans, etc. sanctioned from competent authority/applications to be signed by owner for plans, drawings etc., construction. Clause 4 deals with consideration clauses 5 to 8 deals various aspects of project and obligations of Society and Developer. Clause 9 talks about ownership and rights and read as under:
"9 Transfer of ownership/Rights
9.1 The owner shall simultaneously on receipt of Payment as set out in Clause 4.1 above, execute an irrevocable Special Power of Attorney to THDC for development of the property authorizing THDC to do all lawful acts, deeds, matters and things pertaining to the development of the property for the project along with interalia right to mortgage the property and/or premises, sell, lease, license the premises and receive/collect monies in it's name in respect of the same and approach interact, communicate with the Competent authorities and for doing all acts, deeds, matters and things to be done or incurred by THDC in that behalf as also to sign all letters, applications, agreements and register the same if necessary, documents, Court proceedings, affidavits and such other papers containing true facts and correct particulars as made from time to time be required in this behalf.
9.2 The owner shall execute in favour of THDC the sale deed is in accordance with the provisions of clause 4.1( ii) to Clause 4.1(iv) of this Agreement and execute all other necessary documents and papers to complete the aforesaid transaction.
9.3 That all the original title deeds pertaining to property as mentioned in Annexure IV has been handed over to THDC by the owner at the time of signing of this Agreement and in furtherance of the common interest of the Parties for the development of the Project and except the Sale Transaction made by the Owner in favour of THDC as et out in Clause 4.1 above. THDC hereby undertake and assure the owner that they shall use the title deeds only for the purpose of furtherance of the Project in the manner that it does not adversely effect the Owner/Allottee in any manner whatsoever."
49. Clause 10 describes the consent given by the Society to THDC for raising finance for development and completion of project. Clause 11 talks about formation of maintenance Society for the project after its completion. Clause 13 talks about transfer of rights which reads as under:
"13 Transfer of Rights
The owner herein i.e. The Punjabi Co-op House Building Society Ltd. along with all its ninety six (96) members have given their express, free and clear consent in writing in the form of an Affidavit/No Objection Certificate/Consent Letter whereby the Developers have been allowed to develop the property in accordance with the Project and that THDC shall be entitled to transfer the rights obtained under this agreement to any third party and to get the development/construction work completed on such terms and conditions as THDC may deem fit so long as it does not adversely effect the Owner in terms of their right to receive Entire consideration as mentioned in this agreement subject to all other conditions mentioned therein as well. The owner shall at all times provide full support to the Developers herein."
50. Other clauses provide for termination, General provisions, Disclaimer, Partial Invalidity, Arbitration, Notices and Force Majeure & Jurisdiction.
51. In addition to above an irrevocable Special Power of Attorney has also been executed by the Society in favour of the developers i.e. THDC. (Copy of which is available at pages 40 to 52 of the paper book in case of Society in ITA No. 556 of 2012 as discussed earlier in para 25 (complete copy of Supplementary Power of Attorney was not available in the paper book of the assessee, therefore, reference was made to the paper book in case of the Society) .
52. The first major contention of the Ld. counsel of the assessee is that the possession was not given by the Society because according to him as per clause 2.1 of the JDA the possession of the property was to be handed over simultaneously to the execution and registration of JDA and since the JDA was not registered, therefore, the possession was not given. We can not accept this contention because in "Power of Attorney" transactions , it is not necessary to register the JDA if a Special Power of Attorney has been given and same is registered. Secondly clause 9.3 of the JDA as reproduced above clearly show that original title deed which have been mentioned along with the possession in para 2.1 which according to the ld. counsel of the assessee were to be handed over simultaneously to execution and registration of the JDA, is not correct because clause 9.3 clearly mention that original title deed of the property have been handed over to the THDC at the time of signing of this agreement because clause 9.3 there is no mention about registration of JDA.
53. Special Power of Attorney which has been executed on 26.2.2007 and has been registered also. The irrevocable Special Power of Attorney has been executed as provided in clause 6.7 of the JDA which reads as under:
"6.7 The Owner shall execute an irrevocable Special Power of Attorney granting its complete Development Rights in the Property in favour of THDC interalia including the right to raise finance by mortgaging the property and register the charge with the Competent Authority and execute registered sale deeds) as set out in Clause 4.1 (ii), (iii), (iv) and (v) and the Owner confirms, undertakes, declares and binds itself not to revoke the same for any reason whatsoever out of its own will and discretion without obtaining a specific prior written consent of THDC or any of its duly constituted attorneys."
Through this Power of Attorney various powers have been given like to assign, file, amend etc. various plans, designs to represent before various authorities, to appoint architect, Lawyers. Some of the specific clauses relevant, are extracted below:
(j) To negotiate and agree to any/or to enter into agreement(s) to construct/sell and to under take construction/sale of the Premises on the Property or any portion thereof with/to such persons(s) or body and for such consideration and upon such terms and conditions as the Attorney deem fit.
(n) To enter upon the Property either alone or with others for the purpose of development, Coordination, execution, implementation of the Project and commercialization of the Property/Premises.
(t) To amalgamate the Property with any other contiguous, adjacent and adjoining land sand properties wherein development and/or other right, benefits and interests are acquired and/or proposed to be acquired and developed or proposed to be developed by THDC and/or their associate and/or group concerns/s and/or utilize the FSI, FAR, DR and TDR of the contiguous, adjacent and adjoining lands for the purpose of constructing buildings and/or structures thereon and/or on the Property or utilize such lands and properties for making provision of parking spaces thereon, and/or may utilize the same for any other lawful purpose, as THDC and/or their associate and/or group concerns may in their sold, absolute and unfettered discretion think fit.
(w) To hand over the possession of the Property or any part or portion thereof to the authorities to whom the same is required to be handed over or otherwise and to execute and deliver any undertakings , declarations, affidavits, bonds, deeds , documents, etc. as may be required by the authorities concerned for vesting such a part or portion in such authority and to admit execution thereof before the concerned Competent Authority and get the same registered with the concerned sub-registrar.
(y) Reasonable opportunity of hearing shall be given to mortgage, encumber or create a charge on the Property or any part or portion thereof and execute the necessary security documents in favour of any bank /financial institution to raise funds for the construction/development of the Property and for the said purpose to deposit title deeds ( if required) in respect of the Property in favour of such bank /financial institution, execute the necessary documents and register the charge created on the Property if so required in the revenue records and/or desired by the Attorney.
(aa) To sell, transfer, lease, license the Premises that may be constructed on the Property on ownership basis, lease, license and/or in any other manner for such price as the Attorneys may deem fit and proper. To collect and receive from the purchased, transferees, lessees, licensees of the Premises, monies /price and/or consideration and/or maintenance charges and to sign and execute and/or give proper and lawful discharge for the receipts.
(bb) To execute from time to time all the writing, agreement, deeds etc. in respect of the premises which may be constructed on the Property and also to execute and sign conveyance, transfer or surrender in respect of the Property or any part thereof.
(cc) To sign, execute and register the conveyances or assignments and/or Power of Attorney's and/or other documents and/or agreements and/or any other writings in respect of the Property in part or full and/or the Premises constructed thereon or any part thereof in favour of any person as the Attorneys may determine including in favour of any individual and/or legal entitles and/or Co-operative Society and/or Limited Company and/or any other entity that may be formed for such purpose.
(dd) To issue letter of lien/NOC's and to sign documents on behalf of the Owner as required by the prospective buyers/lending instructions to create a charge on the allotted premises.
(gg) To look after and maintain the Property and the Premises constructed thereon till its transfer in favour of the Co- operative Society or Limited Company or any other Organisation.
54. It is pertinent to note that power/authorization which have been given by the Society to the developer, were in fact were required to be given in terms of various clauses of the JDA. Clause 6.7 reproduced above itself shows that the Society was required to give powers to raise finance to mortgage the property and even the registration of charge was also required to be given. Further through clause 6.15 it was agreed that documents of original title deeds of the property would be handed over to the developer i.e. THDC/HASH so that same can be used in furtherance of development of the Project as well as security for the money paid by the owner. Through clause 6.24 it was agreed that developer THDC/HASH was always permitted by owner to amalgamate the property with any other contiguous, adjacent and adjoining land and the properties wherein developmental and or other rights, benefits and interest were acquired by the developer or would be acquired in future. This clearly shows that the Society was under obligation in terms of agreement itself to allow the developer to amalgamate the project. Towards the end of clause 6.24 it has been clearly stated that in the event of termination of JDA, provision of clause 6 would be surviving which clearly shows that developer continues to be in possession for the purpose of development, mortgage etc. even after termination. Clause 8 which describes the obligation and undertaking of the THDC/HASH and provides specifically that all environmental clearance shall be obtained by THDC/HASH out of its own sources. Thus it was clearly understood by the parties that requisite environmental clearances had to be obtained before start of the project. Clause 10 again casts specific obligation on the owner Society to give consent to THDC/HASH to raise finance for the development and completion of the project on the Security of the property by way of mortgaging the property. Thus whatever power/authorization have been given through irrevocable Special Power of Attorney are emanating from the terms and conditions agreed to among the parties from the JDA.
55. The combined reading of the above clauses of the Irrevocable Special Power of Attorney and JDA clearly show that the developer was authorized to enter upon the property for not only for the purpose of development but other purposes also. THDC was authorized to amalgamate the project with any other project in the adjacent area or adjoining area as per clause (t) of the Special Power of Attorney. If the possession was never given to the developer by the Society then how the developer could amalgamate the project with another project which may be acquired latter in the adjoining area. Through clause (w) THDC was authorized to hand over the possession of property or portion thereof to the authority to whom the same is required. In large Housing Society Projects sometimes Municipal authorities takes some portion of land for the purpose of roads, parks or other general utility purposes like installation of electricity transformers and before sanctioning the plans the developer is required to undertake that such portions of land would be given for such a common purpose. If possession was not given then how THDC was authorized to hand over such land or portions thereof which have not been identified in the JDA out of the total land. Similarly through clause (y) THDC has been authorized to mortgage, encumbrance or create charge on the property in favour of any bank or financial institution for raising the funds for the project. In the absence of possession such powers cannot be given. Clause (aa) clearly authorized the THDC to sell, transfer, lease, license the premises which were to be constructed on ownership basis and further to receive moneys against such sale etc. and to issue final receipt. Nowhere it is mentioned in this clause that such sale deeds were to be singed by the Society as confirming party. In the absence of possession it is just not possible for the developer to sell and transfer the premises which were to be constructed. This is further clarified by clause (bb) and (cc) which gives the power of execution of conveyance and other documents involving in respect of the premises to be constructed without any interference of the Society being made confirming party. All these clauses clearly show that the possession was given by the Society and/or its members to THDC/HASH on the execution of irrevocable Power of Attorney. Through these clauses of JDA and irrevocable Power of Attorney the developer was able to completely control the property and make use of it not only for the purpose of development but also for the purpose of amalgamation, sale, mortgage etc. When the above clauses are compared on touch stone of the discussion on possession in paras 26 to 28 in the case of Jasbir Singh Sarkaria(supra) which we have reproduced above, it becomes clear that the possession has been given.
56. In that discussion, it has been clearly mentioned that the position contemplated by clause (v) of section 2(47) of the Act need not to be exclusive possession. What is required is that the transferee by virtue of possession should be able to exercise control from overall intended purposes. We do not think in the present case the assessee has given only a license as claimed by ld. counsel of the assessee because of the powers of selling, amalgamating etc. mentioned in the JDA and irrevocable Special Power of Attorney. The issue has been discussed in he judgment of Jasbir Singh Sarkaria (supra) in further discussion which has been made in para 33 regarding Power of Attorney (which has been reproduced earlier). In that case the powers were given to enter upon and survey the land, prepare lay out plans, submit building plan f or sanction with the appropriate authorities to control, manage and look after and supervise the property, to obtain water and sewerage, disposal and electricity connection. In that case the developer was authorized to mortgage the property to obtain money for meeting the cost of construction on security and mortgage of land falling only to the developer 's share. In that case it was held that GPA was not a license to enter upon for doing some preliminary acts in relation to development of work but the power to control the land has also been confirmed. It has also been noted that the agreement described the Power of Attorney as irrevocable and extra declaration to that effect in the Power of Attorney is not without significance. In case before us, many more powers have been given to THDC in addition to powers which have been described in that judgment and Power of Attorney has been described as irrevocable in clause 6.7 of JDA. Therefore, it is clear that the assessee's plea that the possession was to be given only at the time of registration of the JDA, is not correct. Once irrevocable power was given then it cannot be said that the possession was not given. The issue regarding revocation of irrevocable Power of Attorney and cancellation of the JDA would be discussed later on while dealing with that contention.
57. We find force in the submissions of the ld. DR for the revenue that interpretation of clause (v) to section 2(47) should be made in the light of Heydon's Rule. There is no force in the objection of the ld. counsel of the assessee that this clause should be interpreted on general rules of interpretation particularly in the light of the fact that no reason has been given for the same. Heydon's Rule has been applied by the Indian Courts many times. The Rule was applied and initiated in Heydon's case (1584) 3 Co. Rep 7a. This Rule was upheld by the Constitution Bench of Hon'ble Apex Court in case of Bengal Immunity Co. Ltd. v State of Bihar [1955] 2 SCR 603 for consideration of Article 286 of the Constitution. It has been held in case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin and another, 176 ITR 1 that for understanding amendment in the Act, perhaps Heydon's Rule is best rule for interpretation of such amendment. We find that without mentioning this rule Ld. Authority For Advance Ruling has discussed this issue in para 27 of the judgment which we have extracted above. It has been held that if 'possession' refer red to in clause (v) is to be understood as exclusive basis of the transferee then very purpose of the amendment or enlargement of the definition of transfer would get defeated. We are reproducing following head note of the Hon'ble Apex Court in case of Dr. Baliram Waman Hiray v. Mr. Justice B. Lentin and another (supra) :
"The following principles enunciated in Heydon"s case (1584) 3 Co. Rep 7a and firmly established, are still in full force and effect: "that for the sure and true interpretation of all statutes in generals (be they penal or beneficial, restrictive or enlarging of the common law), four things are to be discerned and considered: (1) what was the common law before the making of the Act; (2) what was the mischief and defect for which the common law did not provide; (3) what remedy Parliament has resolved and appointed to cure the disease of the common wealth and (4) the true reason of the remedy. And then, the office of all the judges is always to make such construction as shall suppress the evasions for the continuance of the mischief and pro private commando and to add force and life to the cure and remedy according to the true intent of the makers of the Act pro bono public." There is now the further addition that regard must be had not only to the existing law but also to prior legislation and to the judicial interpretation thereof."
58. Going by the Heydon's Rule of interpretation if we analyze the purpose of clause (v) of Section 2(47) then it would emerge that law before making the amendment was that capital gain could be charged only if a transfer has been effected and transfer was interpreted by various Courts including the decision of Hon'ble Supreme Court in case of Alapati Venkatramian v CIT, 57 ITR 185 (SC) that proper conveyance of the property has been made under the common law. The mischief was with regard to transfer in the sense that there was common practice that properties were being transferred in such a manner that transferee could enjoy the benefit of the property without execution of the conveyance deed. Thirdly we need to examine the remedy which was insertion of clause (v) and (vi) so that cases of giving possession of the property, were also covered by the definition of transfer. Fourthly, true reason for this amendment was to plug a loop hole in the law. Therefore, considering the purpose of insertion of clause (v) and (vi) of section 2(47) and various clauses of Power of Attorney and JDA it becomes absolutely clear that the Society has handed over the possession of the property to THDC/HASH.
59. Second important contention on behalf of the assessee is that JDA was executed on 25.2.2007 and if possession was given then how the assessee was having possession in terms of later sale deeds executed on 2.3.2007 and 25.4.2007. The Society has executed two sale deeds for conveyance of parts of the total land. First sale deed has been executed on 2.3.2007 for 3.08 acres and recitation clause ( A) reads as under:
Clause (A) - The vendor is the absolute owner and in possession of land total measuring 169 kanal 7 marlas equivalent to approx. 21.2 acres in Village Kansal, Tehsil Mohali and more particularly described in Schedule A hereunder written and delineated in green colour boundary line in the Shizra Plan issued by the Patwari dated 23.2.2007."
60. According to the Ld. counsel of the assessee if Society had already given the possession then the Society would not have/had possession on 2.3.2007 of the land. At face value this argument looks attractive but when examined in terms of possession which has been explained in case of Jasbir Singh Sarkaria (supra), actual reality will come forward. In this judgment concept of concurrent possession has also been discussed and following extract of paragraph 55 of Salmond's Jurisprudence has been extracted which reads as under:
"It was a maxim of the civil law that two persons could not be in possession of the same thing at the same time. As a general proposition this is true: for exclusiveness is of the essence of possession. Two adverse claims of exclusive use cannot both be effectually realized at the same time. Claims, however, which are not adverse, and which are not, therefore, mutually destructive, admit of concurrent realization. Hence there are several possible cases of duplicate possession.
| 1 | Mediate and immediate possession Cross-objections-exist in respect of the same thing as already explained. | |
| 2 | Two or more persons may possess the same thing in common; just as they may owe it in common. |
The concurrent possession of the owner who can exercise possession right to a limited extent and for a limited purpose and that of the buyer/developer who has a general control and custody of the land can very well be reconciled."
61. In further discussion in para 26 to 28 of the above decision it has been held that it is not necessary in terms of clause (v) that the developer should have exclusive possession. The concurrent possession of the owner is possible which gives rights to a limited extent for a limited purpose. Thus it is very much possible to hold concurrent possession. Mere recitation in the sale deed to the effect that the Society was owner of and in possession of land measuring 21.2 acres, does not show that the Society was having actual possession. What the Society was having is only ownership right and the possession was only concurrent as the possessary right. Further it is a standard clause in the conveyance deed and it does not prove or indicate anything except that a portion of land measuring 3.08 acres, has been sold/conveyed to the developer. In the light of this position, this contention is rejected.
62. We find no force in the next contention of the Ld. counsel of the assessee that possession if at all was given should be held to be only a license as defined in Section 52 of Indian Easement Act because clearly as per Section 52 of this Act, where one person grants to another or many other persons to do something upon immoveable property which in the absence of such right would be unlawful.
63. Here in case before us, the right has not been given for the purpose of doing something but all the possible rights in property including right to sell, right to amalgam ate the project with another project in the adjoining area which m ay be acquired later, right to mortgage etc. clearly show that rights given by the Society are much more larger than what is covered in the term "license".
64. Fourth contention is that the money received at the time of execution of JDA can be termed as advance and whatever money has been received has already been shown as capital gain. We find no force in this submission because Section 45 which has been extracted above clearly provide for taxing of profits and gains arising from the transfer. We have already discussed the implication of Section 45 r.w.s. 48 while discussing the legal position. We had also discussed this issue in the light of the decision in case of Jasbir Singh Sarkaria (supra) and pointed out that when Section 45 is read along with Section 48 it becomes clear that whole of the consideration which is received or accrued is to be taxed once capital asset is transferred in a particular year.
65. We would like to discuss this aspect of the issue in little more detail and try to understand why the whole of the consideration is required to be taxed. At the cost of repetition let us again reproduce the observations of the Ld. authority in case of Jasbir Singh Sarkaria (supra) which we have earlier extracted at para 40 and the relevant portion is as under:
"40. On the above, the Hon'ble Authority after referring to the provisions of section 45 and observed as under:
".... The section can be analysed thus :
| (a) | transfer of a capital asset effected in the previous year, | |
| (b) | resultant profits or gains from such transfer, | |
| (c) | those profits or gains would constitute the income of the assessee/ transferor | |
| (d) | such income shall be deemed to be the income of the same previous year in which the transfer had taken place. |
Two aspects may be noted at this juncture. Firstly, the expression used is "arising" which is not to be equated with the expression "received". Both these expressions and in addition thereto, the expression "accrue" are used in the Income-tax Act either collectively or separately according to the context and nature of the charging provision. The second point which deserves notice is that by a deeming provision, the profits or gains that have arisen would be treated as the income of the previous year in which the transfer took place. That means, the income on account of arisal of capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place.
The effect and ambit of the deeming provision contained in section 45 has been considered in decided cases and leading text books. The following statement of law in Sampath Iyengar's Commentary (10th Edition- Revised by Shri S. Rajaratnam) brings out the correct legal position :
"Section 45 enacts that the capital gains shall by fiction 'be deemed to be the income of the previous year in which the transfer took place'. Since this is a statutory fiction, the actual year in which the sale price was received, whether it was one year, two years, three years, four years etc. previous to the previous year of transfer, is beside the point. The entirety of the sum or sums received in any earlier year or years would be regarded as the capital gains arising in the previous year of transfer.
. . . . In the words of section 45, the capital gains arising from the transfer 'shall be the income of the previous year in which the transfer took place'. So, the payments of consideration stipulated to be paid in future would have to be attributed, by statutory mandate, to the year of transfer, even as payments made prior to the year of transfer."
66. The above clearly shows that it is because of expression used in Section 45 that is "arising" which cannot be equated with "receipt". In this respect the ld. authority has quoted a very old decision of Hon'ble Madras High Court in case of T.V. Sundaram Iyengaar and Sons Ltd.v. CIT, 37 ITR 26 (Mad). At para 13 of the said decision is extracted in the following manner:
"13. In T.V. Sundaram Iyengar and Sons Ltd. v. CIT [1959] 37 ITR 26, a Division Bench of the Madras High Court while construing section 12 B of the Indian Income-tax Act, 1922 clarified the import of the expression "arise" as follows
" Section 12B does not require that profits should have been actually received. It is sufficient if they have arisen. Throughout the Income-tax Act the words "accrue" and "arise" are used in contradistinction to the word "receive" and indicate a right to receive. This was explained by Fry L.J., in Colquhoun v. Brooks. The learned Judge observed:
' I think, therefore, that the words "arise or accruing" are general words descriptive of a right to receive profits.'
See also CIT v. Anamallais Timber Trust Ltd. To attract the operation of section 12B it is therefore sufficient if the profits arose. They need not have been actually received."
14. Thus the criterion of right to receive the profits/gains was applied in that case.
15. The legal position does not therefore admit of any doubt that the actual receipt of the entire sale consideration during the year of "transfer" is not necessary for the purpose of computing capital gains."
Further the expression arising has been defined in the Advanced Law Lexicon by P. Ramanatha Aiyer edited by Y.V. Chandrachud, Former Chief Justice of India:
"The words "Arising or accruing" describe a right to receive profits, and that there must be a debt owed by somebody. Ld. Commissioner of Income-tax, West Bengal-II, Calcutta V. Hindustan Housing and Land Development Trust Ltd. AIR 1986 S.C 1805, 1807."
The expression "accrual of income" has been defined in the same
Lexicon as under:
"Accrual of income. E.D Jassoon & C. Ltd. v. Ld. Commissioner of Income-tax, AIR 1954 S.C 470 quoted - Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. Bhogilal v. Income-tax Ld. Commissioner, AIR 1956 Bom 411, 414 (Income-tax Act (11 of 1992) Ss. 16(1) and (3))"
67. The combined reading of these two definitions show that it (i.e. accrual) is not equal to the receipt of income. In fact it is a stage before the point of time when the income becomes receivable. In other words, once the vested rights come to a person then it can be said that such right or income has accrued to such person. The concept of accrual or arousal of income has also been discussed by the ld. author S. Rajaratnam in the commentary of Law of Income-tax by Sampath Iyengar XIth Edition by discussing the meaning of "accrued and arise" at page 1300 it has been observe as under:
"(1) Important principles.- (a) Meaning - 'Accrue' means 'to arise or spring as a natural growth or result', to come by way of increase'. 'Arising' means 'coming into existence or notice or presenting itself'. 'Accrue' connotes growth or accumulation with a tangible shape so as to be receivable. In a secondary sense, the two words together mean 'to become a present and enforceable right' and 'to become a present right of demand'. In the Act, the two words are used synonymously with each other to denote the same idea or ideas very similar, and the difference lies only in this that one is more appropriate than the other, when applied, to a particular case. It will indeed be difficult to distinguish between the two words, but it is clear that both the words are used in contradistinction to the word 'receive' and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which is more or less inchoate and which is something less than a receipt. An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual."
68. Therefore, it is not only the money which has been received by the assessee which is required to be taxed but the consideration which has accrued to the assessee is also required to be taxed. In view of this, this contention is rejected.
69. The fifth contention made by the Ld. Counsel for the assessee was that since section 53A of the Transfer of Property Act itself has undergone amendment w.e.f. 24-9-2001 by which the agreement referred to in that section is required to be registered and therefore, now in section 2(47)(v) only the amended provisions can be read. We find no force in this contention. It is well known that section 53A of the Transfer of Property Act was passed on equitable doctrine so as to protect the taking over or retention of the possession by the transferee. It was not a source by which title of immovable property could be acquired. Section 53A of TP Act read as under:-
53A. Part performance.- Where any person contracts 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 performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, [***]where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor 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 property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract"
70. A plain reading of the above provision shows that it provides a safety measure or a shield in the hands of the transferee to protect the possession of any property which has been given by the transferor as lawful possession under a particular agreement of sale. This position of law was incorporated in the definition of 'transfer' by insertion of clauses (v) & (vi) in section 2(47) of the Act. It is important to note that clause (v) uses the expression "contract of the nature referred to in section 53A of T .P. Act, therefore, clearly the idea is that an agreement which provides some defense in the hands of transferee was incorporated under the definition of 'transfer' in the Income-tax Act. Now originally section 53A of T.P. Act provided that even if "the contract though required to be registered has not been registered", which means the right of defending the possession was available even if the contract was not registered but by Amendment Act 48 of 2001, the expression "though required to be registered has not been registered", has been omitted which means for the purpose of possession u/s 53A of T.P. Act, a person has to prove that possession has been given under a registered agreement. In other words, now u/s 53A of T.P. Act, the agreement referred is required to be registered. This requirement cannot be read in clause (v) of section 2(47) because that refers only to the contract of the nature of section 53A of T.P. Act without going into the controversy whether such agreement is required to be registered or not. The Ld. Counsel for the assessee had referred to the decision of Hon'ble Supreme Court in the case of Surana Steels v Dy. CIT237 ITR 777 (SC) for the proposition that when a section of a particular statute is introduced into another Act it must be read in the same sense as it bore in the original Act. The careful perusal of that judgment would show that situation is applicable only when a particular provision of an Act has been incorporated in the later Act. In that case a question arose that for the purpose of MAT provision what is the meaning of past losses or unabsorbed depreciation. It was found that in explanation to section 115J clause (iv) , the following ex press ion was used:-"
(iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (i) of section 205 of the Companies Act, 1956 (1 of 1956) are applicable.
71. The Hon'ble Apex Court referred to the Principles of Statutory Interpretation by Shri G.P. Singh and extracted following piece:
" Section 115J, Explanation clause ( iv), is a piece of legislation by incorporation. Dealing with the subject, Justice G .P. Singh states in Principles of Statutory Interpretation (7th edition, 1999) .
Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later. When an earlier Act or certain of its provisions are incorporated by reference into a later Act, the provisions so incorporated become part and parcel of the later Act as if they had been "bodily transposed into it". The effect of incorporation is admirably stated by LORD ESHER, M.R. : "If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those Sections into the new Act as if they had been actually written in it with the pen, or printed in it.(p.233)
Even though only particular Sections of an earlier Act are incorporated into later, in construing the incorporated Sections it may be at times necessary and permissible to refer to other parts of the earlier statute which are not incorporated. As was stated by LORD BLACKBURN: "When a single Section of an Act of Parliament is introduced into another Act, I think it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the Sections meant, though those other Sections are not incorporated in the new Act. ( p.244)
72. On the basis of above observation, it was held that meaning of past losses or unabsorbed depreciation has to be taken same as was defined in the Companies Act. In this case it is clear that provision itself refers to clause (b) of sub-section (1) of section 205 of Company's Act 1956 and therefore, same meaning was given to past losses or unabsorbed depreciation as is given under the Companies Act, 1956.
73. In case of clause (v) to section 2(47), clearly the expression used is "contract of the nature referred to in section 53A of T .P. Act", which means it is not a case of incorporation of one piece of legislation into another piece of legislation. If that was the intention of the Parliament, obviously clause (v) would contain the expression "contract as defined under section 53A of Transfer of Property Act, 1882". Further, it is settled position of law that any interpretation which could render a particular provision redundant should be avoided. If the contention of the Ld. counsel was to be accepted, obviously the provisions of clause (v) of section 2(47) of the Act would become redundant in the sense that registration of agreement would again be made compulsory but since properties were being sold in the market on "power of attorney" basis through unregistered agreements which would make this provision redundant. This position we have already discussed earlier while discussing the Heydon's Rule in the interpretations of this clause. Further the issue of interpretation of clause (v) and amendment to section 53A of the Transfer of Property Act came for consideration before the Mumbai Bench of the Tribunal in the case of Suresh Chander Aggarwal v. ITO 48 SOT 2010. The Tribunal discussed this issue at page 7 and after quoting the provisions of section 2(47) and also section 53A before and after amendment as wall as para Nos. 11.1 to 11.2 of the Board's Circular No. 495 dated 22.9.1987 observed as under:-
"The above clearly shows that there was certain situation where properties were being transferred without registration of transfer instruments and people were escaping tax liabilities on transfer of such properties because the same could not be brought in the definition of "transfer" particularly in many States of the country properties were being held by various people as leased properties which were allotted by the various Govt. Departments and transfers of such lease were not permissible. People were transferring such properties by executing agreement to sell and general power of attorney as well as Will and receiving full consideration, but since the agreement to sell was not registered and though full consideration was received and even possession was given, still the same transactions could not be subjected to tax because the same could not covered by the definition of "transfer". To bring such transactions within the tax net, this amendment was made. It has to be appreciated that clause (v) in section 2(47) does not lift the definition of part performance from section 53A of the Transfer of Property Act, 1882. Rather, it defines any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. This means such transfer is hot required to be exactly similar to the one defined u/s.53A of the Transfer of Property Act, otherwise Legislature would have simply stated that transfer would include transactions defined in sec. 53A of the Transfer of Property Act. But the Legislature in its wisdom has used the words "of a contract, of the nature referred in section 53A". Therefore, it is only the nature which has to be seen. As discussed above, the purpose of insertion of clause (v) was to tax those transactions where properties were being transferred by way of giving possession and receiving full consideration. Therefore, in our humble opinion, in the case of a transfer where possession has been given and full consideration has been received, then such transaction needs to be construed as "transfer". Therefore, the amendment made in section 53A by which the requirement of registration has been indirectly brought on the statute need not be applied while construing the meaning of "transfer" with reference to the Income-tax Act.
8. The above situation further becomes clear if we refer to the celebrated decision of Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd. (supra). In that case, the assessee was owner of four flats in a building called "Silver Arch"/on Nepean Sea Road, Bombay. Out of these four flats, two were purchased directly from the Builders, Malabar Industries Pvt. Ltd., and two were purchased by its sister concerns which were later purchased by the assessee. The possession of the flats was taken after full payment of consideration. The flats were let out. The assessee contended that the rental income from these flats was assessable as "income from other sources" because the assessee was not the legal owner because the title of the property had not been conveyed to the Co-operative Society which was formed by the purchasers of the flats. The Hon'ble Court noted that section 27 had been amended vide clause 3(a) wherein when a person was allowed to take possession of the building in part performance of the nature referred to in section 53A, such person shall be deemed to be the owner. It was further observed that for all practicable purposes the assessee was the owner and possibly there cannot be two owners of same property at the same time. In fact, the amendments to section 27 were made later on but were taken into cognizance on the basis of above principle and ultimately it was held as under:
"Hence, though under the common law "owner" means a person who has got valid title legally conveyed to him after comply with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in the context section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted."
Thus, from the above, it is clear that it is not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person has got a valid legally conveyed after complying with the requirements of the law.
9. Similarly, in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC), the assessee had purchased for the use of its staff seven low income group houses from a Housing Board. The payment had been made and in turn possession of the houses was taken over by the assessee. The actual conveyance deed was not executed. The assessee claimed depreciation which was denied by the department. After great discussion, it was observed that for all practicable purposes and for the purpose of Income-tax Act, the assessee shall be construed as owner of the property. In fact, it was held as under: -
"Held, reversing the judgment of the High Court, that the finding of fact arrived at in the case at hand was that though a document of title was not executed by the Housing Board in favour of the assessee, the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. The assessee was entitled to depreciation in respect of the seven houses in respect of which the assessee had not obtained a deed of conveyance from the vendor although it had taken possession and made part payment of the consideration".
Thus, from the above two decisions, it becomes absolutely clear that for the purpose of the Income-tax Act the ground reality has to be recognized and if all the ingredients of transfer have been completed, then such transfer has to be recognized. Merely because the particular instrument of transfer has not been registered will not alter the situation. This position is further strengthened by the fact that Legislature itself has inserted clause (v) to section 2(47) and while referring to the provisions of section 53A, reference has been made by stating that contracts in the nature of section 53A should also be covered by the definition of "transfer". Therefore, in our humble view, the amendment to sec. 53A of the Transfer of Property Act, whereby the requirement of the documents not being registered has been omitted, will not alter the situation for holding the transaction to be a transfer u/s.2(47)(v) if all other ingredients have been satisfied."
74. Thus , it is clear that non-registration of agreement cannot lead to the conclusion that provision of section 2( 47) (v) is not applicable. Similar view has been taken by ITAT Cochin Bench of the Tribunal in case of G. Sreenivasan v. Dy. CIT 28 Txmann.com 200 (Coch.) and ITAT Pune Bench in the case of Mahesh Nemichandra Ganeshwade v ITO 21 Taxmann.com 136 (Pune). In view of this legal position, this contention is rejected.
75. The next contention was that the decision of Hon'ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia (supra) is not applicable particularly because ultimately in that case it was held that capital gain tax should be charged in Assessment year 1999-2000 whereas agreement was executed in August, 1994.
76. We have already discussed the implications of the decision in case of Chaturbhuj Dwarkadas Kapadia (supra) in paras 33 to 38. We had also examined why in that case capital gain was not held to be chargeable in Assessment year 1995-96.There is no need to repeat the same and in view of the said observations, we reject this contention.
77. The next contention is that it is necessary for invoking of section 2( 47)( v) of the Act to comply with the provisions of section 53A of the Transfer of Property Act to the extent that there should be willingness on the part of the transferee to perform his part of the contract.
78. In this aspect we have no quarrel with the proposition that for invoking section 53A of T .P. Act read with clause (v) of section 2 ( 4 7) , the transferee has to perform or is willing to perform his part of t he contract. In this respect as referred to by Ld. Counsel for the assessee, the comments of the Ld. Author in the commentary by Mulla - Dinshan Frederick Mulla vide para 16 are clear and shows that this requirement has to be absolute and unconditional. Some observations have been made in the case of General Glass Company Pvt Ltd. v. Dy. CIT (supra). In that case it was held that willingness to perform for the purpose of section 53A is something m ore than a statement of intent and it is unqualified and unconditional willingness on the part of the transferee to perform his obligation. In that case the transferee has agreed to make certain payments in instalments in consideration of the development agreement but such payments were not made. Later on, the agreement was modified and more time was given to the transferee for payment of such instalments. However, the instalments were not paid even under the modified terms and that is why it was ultimately held that such agreement cannot be construed as transfer.
79. The second decision referred to by Ld. Counsel for the assessee is K. Radika v Dy. CIT (supra). In this case, similar observations were made, though it is not pointed out in what respect the transferee has failed to perform his part but it has been observed that the facts of the case shows that transferee has not performed his part of the contract.
80. The third judgment relied upon by the Ld. Counsel for the assessee is in the case of Dy. CIT v Tej Singh (supra). In that case land was acquired by the Government and the matter went for litigation. During the pendency of litigation, the assessee entered into a Development agreement with a Developer for the purpose of development of the property, however, it was clarified in the agreement that there is litigation in respect of acquisition of property and the developer has to take clearance from the government in the matter of denotification of the land. It was held that since the land was under compulsory acquisition and no compensation has been received, therefore, there could not be any capital gain tax u/s 2( 47) (iii) which deals with the compulsory acquisition. It was further observed that assessee could not have given possession unless and until the land was denotified. Since facts of the case are different than the case in hand and therefore, same are not relevant for our purpose.
81. Now coming to the facts, firstly it was contended that Developer i.e transferee has not obtained various permissions which were required to be taken by the Developer as per clauses 3.1, 7.9, 8.4 and 8.6 of the JDA. This is not correct as pointed out by the Ld. CIT DR that assessee had already got the municipal plan sanctioned but in the meantime PIL was filed before the Hon'ble Punjab & Haryana High Court against the implementation of the project. Initially, the construction was banned by the Hon'ble High Court. However, later on it was observed in the CWP No. 20425 of 2010 and as clarified by the order of the Hon'ble Supreme Court that refusal of sanction under the Environment (Protection) Act, the society have sought a review of the order because the findings arrived were ex.parte. No order in the matter has been passed by the competent authority perhaps because of the order of High Court. In the interim order passed in the PIL it has been clarified by the Hon'ble Supreme Court vide order dated 31.1.2012 permitting the concerned authority under the different statutes governing the matter to their respective jurisdiction to be decided in accordance with law. Thus, it becomes clear that developer i.e. THDC has applied for various permissions before the relevant authorities and in some cases permission were declined on ex parte basis and in some cases the same were declined in view of the High Court order banning the construction. After the clarification of the order of the High Court by Hon'ble Supreme Court by order dated 31.1.2012, the authorities have already been permitted to examine the issue on merits under various laws. Further in the JDA there is a clause 26 which deals with the Force Majeure clauses. The clause 26 (i) to (v) reads as under:-
FORCE MAJEURE
| (i) | None of the parties shall be liable to the other Party or be deemed to be in breach of this Agreement by reasons of any delay in performing or any failure to perform, any of its own obigations in relation to the Agreement, if the delay or failure is due to any Event of Force Mejeure. Event of Force Majeure is any event caused beyond the parties reasonable control. The following shall be regarded as issues beyond the Parties reasonable control. | |
| (ii) | For the purposes of this Clause, an Event of Force Majeure shall mea n events of war, war like conditions , blockades, embargoes, insurrection, Governmental directions, riots, strikes , acts of terrorism , civil commotion, lock - outs, sabotage , plagues or other epidemics, acts of God including fire, floods, volcanic eruptions , typhoons , hurricanes , storms, tidal waves , earthquake , landslides , lightning, explosion s and other natural cal amities, prolonged failure of energy, court orders/injunctions, charge of laws, action and/or order by statutory and/or Government authority, third party actions affecting the development of the Project, acquisition/requisition of the Property or any part thereof by the government or any other statutory authority and such circumstances affecting the development of the project (Event of Force Majeure). | |
| (iii ) | Any Party claiming restriction on the performance of any of its obligations under this agreement due to the happening or arising of an Event of Force Majeure hereof shall notify the other Party of the happening or arising and the ending of ceasing of such event or circumstance with three (3) days of determining that an Event of Force Majeure has occurred. In the event any Party anticipates the happening of an Event of Force Majeure, such Party shall promptly notify the other party. | |
| (iv) | The Party claiming Event of Force Majeure conditions shall, in all instances and to the extent it is capable of doing so , use its best efforts to remove or remedy the cause thereof and minimize the economic damage arising thereof. | |
| (v) | Either Party may terminate this Agreement after giving the other Party a prior notice of fifteen (15) days in writing of the Event of Force Majeure continues for period of ninety (90) days. In the event of termination of this Agreement all obligations of the Parties until such date shall be fulfilled. |
82. The combined reading of these clauses show that if any of the party could not perform its part of the obligation because of the unforeseen circumstances which included Government directions, Court orders , injunctions etc . such party would not be liable to other party. In view of Force Majeure clause which included Court Injunction it can not be said that THDC is not willing to perform its obligation. In fact Develpers i.e. THDC/HASH were perusing the issue of permissions/sanctions vigorously. These aspects become further clear if the judgment of the Hon'ble Punjab & Haryana High Court in CWP No. 20425 of 2010 vide order dated March 26, 2012 is perused. Paras 3, 4, 22, 25 & 26 of the judgment read as under:-
3. The broad contours of the present proceeding having been outlined, we may now proceed to take note of the specific contentions of the contesting parties as made before us. However, before we do so, it may be appropriate to mention the somewhat conflicting stand of the parties with regard to the present stage of the applications filed under the provisions of the Environment (Protection) Act as well as the Wild Life (Protection) Act. While the petitioner , who is supported by the respondent No.6-Chandigarh Administration, asserts that necessary sanction/permission under both the Acts have been refused by orders passed by the competent authorities, the promoters of the project contend to the contrary. The facts, as unfolded before us, indicate that against the refusal of sanction under the Environment (Protection) Act, the respondents have sought a review of the order on the ground that the findings arrived at, which have formed the basis of the refusal, are ex-parte. No order in the review matter has been passed by the competent authority, perhaps, because of the interim order passed in the PIL which has been clarified by the Hon'ble Supreme Court by order dated 31.1.2012 permitting the concerned authority under the different statutes governing the matter to exercise their respective jurisdictions in accordance with law. Insofar as the Wild Life ( Protection) Act is concerned, it appears that the rejection has been made by the Chief Wild Life Warden who, the respondents claim, is merely a recommending authority and is required to forward his recommendation to the Central Government. As the rejection under the Wild Life (Protection) Act has been made by an authority not competent to do, the promoters of the project have sought a review of the order which is still pending for the same reason(s) as noticed above.
4. On these facts we are of the view that it would be prudent on our part to take the view that the issue with regard to clearance/sanction under the two enactments i.e. Environment (Protection) Act and Wild Life (Protection) Act is presently pending and as the promoters of the project have submitted themselves to the jurisdiction of the authorities under the said enactments we should refrain from addressing ourselves on any of the issues connected with either of the two statutory enactments as any such exercise, even though may be unintended, may have the effect of fettering the jurisdiction of statutory a uthorities functioning under the two relevant statutes .
22. Insofar as the provisions of the Environment (Protection) Act and the Wild Life (Protection) Act are concerned, it need not be emphasised that every project attracting the provisions of the Periphery Control Act and/or the provisions of the 1995 Act must satisfy the ecological concerns of the area in the light of the provisions of the two statues in question. As already held by us, a public trust has been bestowed on the authorities by provisions of the said Acts which cast on such authorities a duty to interdict any project or activity which even remotely seems to create an imbalance in the pristine ecology and environment of the area on which the city of Chandigarh is situated or for that matter in the immediate vicinity thereof. As already observed, necessary clearances under the aforesaid two enactments, insofar as the respondents are concerned, are presently pending before the concerned authorities and, therefor e, it would be highly incorrect on our part to enter into any further discussion on the afores aid aspect of the case.
25. We also hasten to emphasise that a more rigorous regulated development in what are now the remnants of the periphery and the areas adjoining to it is the need of the hour for which the stakeholder s i.e. the Administration of Chandigarh, the States of Punjab and Haryana as also the authorities under the Environment (Protection) Act and the Wild Life Protection Act have to demonstrate the need to engage themselves intensively and not acquire a placid approach indicating an eloquent acquiescence to the violation of the 1995 Act, Periphery Control Act and the Periphery Policy.
26. We thus conclude on the aforesaid note by holding and observing that the provisions of the Periphery Control Act and the 1995 Act are complementary to each other and the provisions of the two statutes would apply to the housing project in question. The respondents , therefore, will have to comply with all the requirements spelt out by both the aforesaid statutes. As the requirement of clearances under the Wild Life (Protection) Act and Environment (Protection) Act is not a contentious issue, and as we have already held that the process of grant of such clearances is pending before the appropriate authorities under the respective Acts, the same will now have to be brought to its logical conclusion keeping in mind our observations and directions contained hereinabove.
83 The combined reading of the above paras in the order of Hon'ble High Court clearly shows that Developer THDC/ HASH i.e. transferee have made their sincere efforts for obtaining the necessary permissions/sanctions which were required under the JDA. However, some of the sanctions could not be taken in time because of the litigation by way of PIL but since none of the party was liable to the other party in view of the clause 26 dealing with FORCE MAJEURE it cannot be said that Developer was not willing to perform his part of contract. In any case no specific evidence has been shown us to prove that THDC/HASH were declining to perform particular obligation provided in JD A. In view of this discussion, it cannot be said that transferee i.e. Developer THDC/HASH is not willing to perform his part of contract.
84 Secondly, it was contended that payments have not been made as per the JDA. However, again this is not correct. As per clause 4(iv) of the JDA, the instalment for Rs. 31,92,75,000/- was required to be paid. The clause 4(iv) read as under:-
"(iv) Payment being Rs. 31,92,75,000/- (Rupees One Crore ninety two lacs seventy five thousand only) calculated @ Rs. 24,75,000/- (Rs. Twenty Four lacs seventy five thousand only) per plot holder of 500 Sq. yards and (Rs. 49,50,000/- (Rs . Forty nine lacs fifty thousand only) as per plot holder of 1000 square yards to be made to the Owner and/or the respective members of the Owner (as the case may be) within six (6) months from the date of execution of this agreement or within two (2) months from the date of approval of the plans/Design and Drawings and grant of the final licence to develop where upon the construction can commence, whichever is later, against which the Owner shall execute a registered sale deed for land of equivalent value being 6.36 acres out of the Property as demarcated in green colour (also hatched in green colour) in the Demarcation Plan annexed hereto as Annexure V and bearing Khasra Nos. 123/15, 123/6, 123/7 (balance part), 123/3 (part), 123//4//1, 123///4//1/2, 123//4/2, 123/5/1, 123//5/2, 123//5/3, 112/24/24 (part)"
85. The careful reading of the said clause of the JDA would show this payment was required to be made within a period of six months from the date of execution of this agreement or within two months from the date of approval of plan/sanction and drawing grant of final license to develop where upon the construction can commence, whichever is later. Thus, this instalment was dependent on two contingencies first the expiration of a period of six months from the date of agreement or alternatively on the expiration of a period of two months from the date of approval of plans/designs drawing etc. leading to grant of final licenses which can lead to commencement of construction, whichever is later. The matter was taken up by way of PIL by certain citizens and Administration of the Union Territory before the Hon'ble High Court which initially stayed the sanction of such plan etc. This led to situation where construction could not be commenced and hence payment was not required to be made in view of the pending litigation. The clauses of force majeure came into operation and therefore, it cannot be said that the developer is not willing to perform its part of the contract. In any case there is no default on the part of the developer as payment was not yet due as per clause 4(i)(iv) of JDA.
86. This position was informed to the Society by letter dated 4-2-2011 by HASH Builder, copy of which has been filed at pages 23 & 24 of the paper book dealing with the additional evidence. Through this letter it has been clearly stated that since permission is pending from the Ministry of Environment and Forest Department and therefore constructions could not commence. These permissions were pending because of the PIL filed by Shri Aalok Jagga before the Hon'ble Punjab & Haryana High Court. All these facts clearly shows that in view of clause 4.1( iv) read with clause 26(v) of the JDA, HASH Builder were not required to make the payment and it cannot be said that they were not willing to perform their part of the contract on this aspect. Therefore, this contention is rejected.
87. Seventh contention is that revenue wrongly held that even clause (vi) of Section 2(47) is applicable. We find no force in this contention. Clause (vi) to Section 2(47) reads as under:
"any transaction (whether by way of becoming a member of, or accruing shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property".
88. The plain reading of the provision shows that any transaction by way of becoming a Member or acquiring shares in the Co-operative Society or shares in the company which has the effect of transferring or enabling the enjoyment of any immoveable property would be covered by the definition of transfer. In the case before us, initially the Members of the Society were holding shares in the Society for ownership of plot of 500 sqyd or 1000 sqyd. This membership was surrendered to the Society vide resolution of the Society passed in the Executive Committee on 4.1.2007 which was later ratified in the General Body Meeting of the Society on 25.1.2007, so that the society could enter into JDA. In the JDA the Society has agreed to transfer the land. Therefore, technically it can be said that the developer i.e. THDC/HASH has purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable.
89. Eighth contention is that since the Society has transferred the land through JDA on a pro-rata basis, therefore, only whatever money is received against which sale deeds have also been executed, can be taxed and notional income i.e. the money to be received later, can not be taxed. In this regard reliance was placed on certain Supreme Court decisions and other cases for the proposition that notional income cannot be taxed. There is no need to discuss the cases relied on by the ld. counsel of the assessee because it is settled position of law that no notional income can be taxed. Though there is no quarrel that it is a settled principle of law that notional income can not be taxed but in case of capital gain, Section 45 which is charging Section and Section 48 which is computation section, makes it absolutely clear that rigor of tax in case of capital gain would come into play on the transfer of capital asset and total consideration which is arising on such transfer, has to be taxed. Section 48 clearly talks about full consideration received or accruing as result of transfer. This aspect we have already discussed in detail at paras 64 to 68.
90. Second aspect of this contention was that if consideration which has not been received was to be taxed then the assessee would be deprived for claiming exemption u/s 54 and 54EC. As observed above as per Section 45 r.w.s 48 whole of the consideration, received or accrued has to be taxed. Every person is supposed to know the law and if the transaction is structured in such away for the transfer of capital asset that some of the consideration would be received later then such person is supposed to know the consequences of the denial of such benefits. However, if the section is interpreted in the manner suggested by the ld. counsel of the assessee then no person would pay capital gain tax on transfer of a property. This will be clear from a simple example. Let us assume if "A" sells the property to "B" for a consideration of Rs. 100 crores and receive only a consideration of 1.00 crore and it is mentioned in the transfer instrument that balance of consideration would be paid after 20 years then no tax can be levied on such balance consideration of Rs. 99.00 crores which has not been received as per the contention of the ld. counsel of the assessee. But in that case no taxes can be levied even after 20 years because no transfer can be said to have taken place after 20 years and Revenue cannot do any thing because capital gain can be charged u/s 45 only on transfer of capital asset. We do not think that this kind of interpretation can be made while interpreting Section 45 r.w.s. 48 by invoking the rule that there can not be any tax on notional receipt. Generally speaking it is only the real income which can be taxed but this has to be understood subject to limitations. Commenting on these limitations, the Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income-tax by Sampat Iyengar's Volume 1, (11th Edition) has observed at page 343 as under:-
"5. Reservations on real income theory. - Whether accrual of income has taken place or not, must be judged on the principle of the real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialized or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the self-serving statement of the assessee. What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view or real income taking the probability or improbability of realization in a realistic manner, but once accrual takes place, on the conduct of the parties subsequent to the year of closing, an income which has been accrued cannot be made "no income'."
91. The above position can be understood by examining some of the provisions of the Act which would show that concept of notional income can not be extended if specific provision is available in the Act. For example in case of income from house property, the income has to be determined as per section 23. Section 22 of the Income-tax Act, provides that it is the annual value of the property which can be taxed under the head "income from house property". Sector 23 prescribes the method for determining the annual value. Section 23(1)(a) reads as under:-
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be -
| (a) | the sum for which the property might reasonably be expected to let from year to year; or | |
| (b) | where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or………. |
92. On this aspect the settled position of the law is that the annual value has to be determined even if the property is not let out. This position has been discussed by the Ld. author Chaturvedi & Pithisaria's in Commentary of Income-tax Law (fifth edition) Volume 1 in this respect at pages 1275 & 1276 observed as under:
"Annual value- determination of - Section 23(1)(a) provides that for the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. The word used is 'might' and not 'can' or 'is'. It is thus a notional income to be gathered from what a hypothetical tenant would pay which is to be objectively ascertained on a reasonable basis irrespective of the fact whether the property is let out or not [Sultan Bros. Pr. Ltd. v. CIT, [1964] 51 ITR 353 (SC);Jamnadas Prabhudas v. CIT, [1951]20 ITR 160(Bom); D.M. Vakil v. CIT, [1946] 14 ITR 298, 302(Bom); CIT v. Biman Behari Shaw, Shebait,[1968] 68 ITR 815 (Cal); Sri Sri Radha Govinda Jew v. CIT, [1972] 84 ITR 150, 156 (Cal); CIT v. Ganga Properties Ltd.,[1970] 77 ITR 637, 647 (Cal); Liquidator, Mahmudabad Properties Ltd. v. CIT, [1972] 83 ITR 470 (Cal), affirmed, [1980] 124 ITR 31 (SC); CITv. Zorostrian Building Society Ltd., [1976] 102 ITR 499 (Bom); C.J. George v. CIT, [1973] 92 ITR 137 (Ker); D.C. Anand & Sons v. CIT,(1981) 131 ITR 77 (Del). Also see, CIT v. Parbutty Churn Law, [1965] 57 ITR 609, 619 (Cal); In the matter of Krishna Lal Seal, AIR 1932 Cal 836; Lalla Mal Samgham Lal v. CIT, [1936] 4 ITR 250 (Lah); New Delhi Municipal Committee v. Nand Kumar Bussi, [1977] Tax LR 2130 (Del)]"
93. Similar view has been expressed by Shri N.A. Palkhivala in his commentary on the Law land Practice of Income-tax, Volume 2 (Eighth edition) by Kanga and Palkhivala's observation at pages 22 & 23. Again even Shri S. Rajaratnam in the Commentary of Law of Income-tax by Sampat Iyengar's Volume 2, (11th edition) expressed identical views in his commentary at page 2738.
94. In all the leading commentaries cited above, it has been observed that annual value is to be computed whether property has been let out or not. This means that notional value of the property has to be charged to the Income-tax under the head "income from house property". From the above, it becomes clear that though there is no real income from letting out of the property, still the notional annual value is subjected to tax under the head "income from house property". However, we may mention that u/s 23(1)(c) of the Act if the property is let out and then remained vacant for some part of the year or for whole of the year then vacancy allowance can be claimed. Here, it is important to note that if property is not let out, then notional income becomes chargeable to the tax because of provisions of sections 22 and 23 (1) (a) of the Act. Similarly, under the Mat provisions, it is basically the notional income which is being subjected to charge under the head "income from business and profession". A businessman may have income of Rs. 100/- but because of higher depreciation allowable under the Income-tax Act or some other weighted deductions say for example in case of expenditure on scientific research, the tax able income as per the provisions of the Act may be zero but still because of the Mat provisions, tax has to be charged on book profits. Similarly in the case of presumptive tax provisions e.g. u/s 44AD if a person is civil contractor and does not maintain books of account and his turnover is less than Rs. 60 lakhs then the profit would be presumed to be 8% of turnover even if he has suffered a loss. Another example of Section 2(22)(e) can be taken. Under this provision a loan or advance given by certain companies to a substantial share holder is to be treated as deemed dividend. Such loan under the normal accounting principle or on commercial principles cannot be regarded as income but because of this specific provision regarding deemed dividend such amount has to be treated as income of the person receiving such loans.
95. The above position of law makes it absolutely clear that theory of real income is subject to the provisions of the Act and whenever any specific provisions of the Act is there for charging of a particular item of income, then the same has to be charged accordingly. It may be sometimes hard to the assessee's but again it has been held in numerous decisions that Fiscal statues have to be interpreted on the basis of language used and there is no scope for equity or intent. Ld. Author Shri S. Rajaratnam in the Commentary of Law of Income-tax by Sampat Iyengar's Volume 1, page 236 in this regard has observed as under:-3
"Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind. Considerations of hardship, injustice or anomalies do not play any useful role in construing taxing statutes unless there be some real ambiguity. Thus, any benevolent construction in favour of the assessee has been held to be uncalled for.
96. Therefore, it can be said that generally speaking notional income could not be subjected to tax but whenever there is a specific provision, the same has to be taxed. Now, in case of capital gain, section 45 read with section 48 very clearly provides that it is the profit " arising" from the transfer of a capital asset which would be subjected to charge of capital gain tax and section 48 clearly provides for taking the total consideration into account while computing the capital gains. This aspect we have already discussed in detail at para Nos. 64 to 68 from which it becomes clear that it is the whole consideration whether received or accrued, which has to be taxed under the capital gain once transfer of the capital asset takes place. Accordingly, there is no force in this part of the contention.
97. Now let us examine the issue of taxability of flat on the basis of above principles. Relevant portion of clause 4 of the JDA which deals with consideration are as under:
"4. Consideration
4.1 It is specifically understood and agreed amongst the Parties that THDC shall use its expertise and its Brand name and/or any other brand name at its discretion to develop the Property into the Premises as per applicable building bye-laws of the Competent Authority and the Owner shall have no objection to the same in whatsoever manner. In consideration of the Owner granting and assigning, its Development Rights in the Property, irrevocably and in perpetuity, to THDC to develop the Property and for transfer of the Property upon the surrender of allotment rights of 500 sq. yards and/or 1000 sq. yards (as the case may be) by its members to the Owner, vide resolution dated 04-01-2007 and 25-02-2007 (copy attached as per Annexure I & II), HASH is committed to pay to the Owner and/or the respective members of the Owner (as the case may be) a total amount of Rs. 106,42,50,000/- (Rupees One Hundred Six Crores Forty Two Lacs Fifty Thousands Only) calculated @ Rs. 82,50,000/- (Rupees Eighty Two Lacs Fifty Thousands Only) payable to 65 members having plot of 500 sq. yards each, Rs. 1,65,00,000/-(Rupees One Crore Sixty Five Lacs Only) payable to 30 members having plot of 1000 sq. yards each and Rs. 3,30,00,000/- (Rupees Three Crores Thirty Lacs Only) payable to the Owner for the 4 plots of 500 sq. yards each, which shall tantamount to the full and final payment to the Owner and/or the respective members of the Owner (as the case may be) in a manner set out herein below ('Payment'). Further, the transfer, sale and conveyance of 21.2 acres of land of the Property shall be made by the Owner in favour of THDC pro rata to the Payment received by the Owner and/or the respective members of the Owner (as the case may be) from HASH by executing sale deeds and registering the same. It is expressly provided that as resolved by the Owner, the total amount payable by HASH to the Owner and/or the respective members of the Owner (as the case may be) for assignment of the Development Rights and for transfer and sale of 21.2 acres of land of the Property shall be Rs. 106,42,50,000/- (Rupees One Hundred Six Crores Forty Two Lacs Fifty Thousand only) and one hundred and twenty nine (129) flats consisting of Super Area of 2250 Sq. feet ('Flats'); one flat each for sixty five members having a plot of 500 sq. yards, two flats for the (thirty) 30 members having a plot of 1000 sq. yards and 4 flats to the Owner for the 4 plots of 500 sq. yards each as per list annexed with this Agreement as Schedule B ('Sale Transaction')
It is expressly agreed between the Developers that HASH shall be responsible for making all payments to the Owner and/or the respective members of the Owner (as the case may be) as per the negotiated and agreed terms between the Owner and HASH, HASH expressly undertakes to make timely payments of the Payment to the Owner and/or the respective members of the Owner (as the case may be) as under:
4.2 As resolved by the Owner, THDC either by itself or along with HASH shall allot the Flats in the name of members of the Owner as per list annexed with this Agreement as Schedule B attached herein (hereinafter referred to as the 'Allottees'). The specifications of the flats would be provided by the Developers to the Owner and more particularly described in the Schedule C attached herein (hereinafter referred to as the 'Specifications'). The Allotment letters shall be issued to the Allottees (members of the Owner) within forty-five (45) days from the date of sanction of the building plans/Design and Drawing and on obtaining final license/permission for the development of the Project from the Competent Authority. Thereafter, the possession of the flats shall be handed over to the Allottees within thirty(30) months form the date of issuance of the Allotment Letter.
It is expressly provided that the Payment to be made by HASH to the Owner and/or to the respective members of the Owner (as the case may be) and the Flats to be allotted to the Allottees as set out in this Clause 4.2 shall hereinafter be collectively referred to as the 'Entire Consideration'
98 From this clause it becomes absolutely clear that each Member having 500 sqyd of plot was entitled to receive one furnished flat measuring 2250sqft and Members having 1000sqyd flat were entitled to receive two furnished flats. Thus upon execution of the JDA vested right came to such Members to receive such flats. Once this vested right arises out of the above contract it can easily be said that this right has also accrued to the assessee. Clause 4.2 makes it absolutely clear that developer i.e. THDC/HASH was to allot the letters of allotment within 45 days from final sanction from the competent authority and such flats were part of entire consideration. Merely because such allotment letter has not been given because of sanctions/permissions could not be obtained because of Public Interest Litigation before the Hon'ble Punjab & Haryana High Court, it cannot be said that such right has not accrued. Though it may be hard on the assessee but it is well settled that taxation and equity are strangers. Further commenting on this aspect Shri Rajarathnam in his commentary has observed at page 5164 as under:
"It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is overdue."
99. These comments and the other detailed discussion on this aspect clearly show that capital gain tax has to be paid on the total consideration arising on transfer which would include the consideration which has been received as well as the consideration which has arosen and become due and may be received later on. In view of this discussion this contention is rejected.
100. Ninth contention is that the assessee has already terminated the agreement and has revoked the Power of Attorney. We find no force in this submissions.
101. In this regard ld. counsel of the assessee has relied on the decision of Mumbai Bench of the Tribunal in case of Chemosyn Ltd. v ACIT(supra). In that case the assessee-Company was owner of two plots bearing 256 & 257 in Gundabali Andheri Mumbai. The assessee-company entered into a development agreement with Dipiti Builders for the development rights for a consideration of Rs. 16.11 crores. Dipiti Builders had also agreed to construct 18000 sqft carpet area for the benefit of assessee on plot No. 256. In the return of income total consideration was shown only at Rs. 16.11 crores. It was explained that before Dipiti Builders could start the development /construction work, entire property comprising of plot nos. 256 & 257 was sold to a third party M/s Financial Technology Ltd. by a tripartite conveyance deed executed on 5-7-2007 for Rs. 29.11 crores and therefore, additional consideration of Rs. 13 crores has been offered to tax in Assessment year 2008-09. This explanation was rejected by the Assessing Officer because according to him it was a case of transfer u/s 2(47)(v) and total consideration has to be charged in the year of transfer. The Tribunal after considering the provisions of sections 45 & 48 posed a question to itself that what should be the consideration in the case before the Bench. The case law relied on by the Department was rejected because same was relevant to accrual of interest. The Bench followed the decision of Kalptaru Construction Oversees Pvt Ltd. 13 SOT 194. In that case the assessee had agreed to sell to its subsidiary equity shares for a consideration of Rs. 1.25 crores which was finally settled at Rs. 1.00 crore and the Tribunal held that the consideration of Rs. 1.00 crore has to be accepted.
102. From the above decision it is not clear whether in case of Kalaptaru Construction Oversees Pvt Ltd. (supra) which has been followed in above case, was concerning capital gain or not? Secondly it is not clear that whether the amended consideration i.e. settlement for Rs. 1.00 crore was made in the same year or not? As observed earlier while discussing the issue of notional income that provisions of section 45 r.w.s. 48, are absolutely clear and there is no ambiguity that once a capital asset is transferred then whole of the consideration received or accruing has to be considered for the purpose of taxation in the year in which the transfer has taken place. We further find that in the JDA there is a clause for termination of the agreement. Relevant clause 14 reads as under:
"Termination
"14(i) Save and except the provision of clause 26, THDC shall at all times have the right to terminate this Agreement in the event there is any material breach of the representations, warranties, undertakings, declarations, covenants and/or obligations given by the Owner under this Agreement after giving thirty (30) days written notice for rectification of such breach. In the event the Agreement is termination by THDC, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC.
(ii) In the event all the requisite Government and statutory approvals, authorizations, consents, licenses, approvals of all the plans/designs and Drawings as may be required for the development of this Property in relation to the Project and to undertake the Project are not granted within nine (9) months of the submission of the final plans/Designs and Drawings to the Competent Authority for approval then THDC may as its sole discretion either decide that it does not desire to undertake and complete the Project and hence terminate this Agreement after giving thirty (30) days written notice in this regard or decide to wait for any further times deemed fit by THDC for the grant of the aforesaid approvals and licenses. In the event the Agreement is terminated by THDC, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC.
(iii) In the event THDC is unable to develop the Property due to refusal/non-grant of approvals, consents, permission, licenses or revocation of the same by the appropriate statutory authority, then THDC may at its sale discretion terminate this Agreement. In the event the Agreement is terminated by THDC, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall refund to THDC the Adjustable Advance/Earnest Money mentioned in clause 4.1(i) above within one month of such termination. In the event of failure of the Owner to refund the said amount, the Owner hereby agrees to execute a registered sale deed for land of equivalent value in favour of THDC.
(iv) The owner shall have the right to terminate the Agreement only in the event of default by the Developers for making the Payment in accordance with the terms of this Agreement and the allotment of Flats within the time period as mentioned in this Agreement after giving Thirty (30) days written notice for rectification of such breach or any further time as may be desired by the Owner. In the event the Agreement is terminated by Owner, all the lands registered in the name of THDC as per the terms of this Agreement upto the date of the termination shall remain with THDC and the balance lands to be transferred to THDC as per the terms of this Agreement shall not be transferred by the Owner in favour of THDC. Upon the termination, the Owner shall forfeit the Adjustable Advance/Earnest Money mentioned in clause 4(i)."
103. The reading of the above clause would show that power of termination has been given in many circumstances to THDC vide clauses 14(i), (ii) and (iii). The power for termination by the owner has been mentioned in clause 14(iv) only. Reading of this clause would show that right to terminate with the owner i.e. the Society was available only in case of default in making the payment. The issue regarding default for making payment has already been discussed by us in Paras 84 to 86 above while discussing the issue of willingness on the part of the transferee to perform its part of the contract We have already held that there was no default on the part of developer i.e. THDC/HASH in making the payment, therefore, the assessee had no right to terminate the contract. In any case we further find that clause 20 of the JDA refers to Arbitration and it is clearly provided that all the disputes under it should be referred to the arbitration. Therefore, if the Society had some grievance it was duty bound to give a notice for appointment of an Arbitrator to the developer. In the absence of such notice the termination will not stand scrutiny of law. Here it is also pertinent to note that though it was stated that irrevocable Power of Attorney has been revoked and some documents have been filed before us for revocation but clause 6.7 of the JDA which we have reproduced earlier clearly provides that such Power of Attorney cannot be revoked. We reproduce clause 6.7 again which is as under:
"6.7 The Owner shall execute an irrevocable special Power of Attorney granting its complete Development Rights in the Property in favour of THDC interalia including the right to raise finance by mortgaging the property and register the charge with the Competent Authority and execute registered sale deeds) as set out in Clause 4.1 (ii), (iii), (iv) and (v) and the Owner confirms, undertakes, declares and binds itself not to revoke the same for any reason whatsoever out of its own will and discretion without obtaining a specific prior written consent of THDC or any of its duly constituted attorneys."
104. The above clearly shows that this Power of Attorney could not be revoked for any reason without obtaining specific prior written consent of THDC/HASH. No document showing the consent of THDC for revocation of this irrevocable Power of Attorney has been produced before us. We fail to understand that in the absence of such document how the assessee can claim that this Power of Attorney has been revoked. As discussed earlier while considering the legal position, we would again recall the words of Hon'ble Authority for Advance Ruling in case of Jasbir Singh Sarkaria (supra) wherein at para 33 of the decision while discussing the issue in respect of Power of Attorney, it was highlighted that execution of irrevocable Power of Attorney is of significant nature and the words " irrevocable" are very important. The expression "irrevocable" itself shows that normally such attorney cannot be revoked. Therefore, no cognizance can be taken in respect of revocation of the irrevocable Power of Attorney. In the absence of specific consent as provided in clause 6.7 of the JDA from THDC.
105. We may also note that CIT D.R has pointed out that total consideration was to be determined as under:
| | (i) | Consideration in cash (Rs. 82,50,000 x 129 plots) | Rs. 106,42,50,000/- |
| (ii) | Consideration in kind (Rs. 101,25,000/- x 129 plots) | Rs. 130,61,25,000/- | |
| Total | Rs. 237,03,75,000/- |
Average cost of consideration Rs. 11.18 crores per acre
(Total consideration of Rs. 237.03 crores divided by 21.2 acres of land)
It is claimed on behalf of the assessee that JDA has been cancelled and the developer has been allowed to retain the property which has also been conveyed to developer through two sale deeds. If that is so then what would happen to the balance consideration because in such situation the assessee has received consideration of only about Rs. 5 crores per acre because the assessee has registered land measuring 3.08 acres for Rs. 15.48 crores through first conveyance deed, whereas consideration as per original agreement was Rs. 11.18 crores per acre as shown above. The difference is because of non-receipt of consideration in kind and the assessee has not shown any evidence that it has made the claim for receipt of balance consideration. This leads to the conclusion that there was no cancellation of the JDA.
106. Some arguments were made by both the parties that if the contract is finally stand abandoned then what would happen. The contention on behalf of the assessee is that if the contract is abandoned then the assessee would have paid tax in the year of transfer and would be left with no recourse for relief. The contention on behalf of the Department was that the assessee could always file revised return or make a petition u/s 264 and some relief was possible in case of the assessee. However, if revenue fails to tax the total consideration in the year of transfer then same cannot be subjected to tax in any other year. We find that this question was seriously considered by the Ld. Authority for Advance Ruling in case of Jasbir Singh Kataria (supra) which has been relied on by both the parties for various aspects. In that case it was observed at para 39 as under:
"We have to advert to one aspect which has caused some concern to us. What will happen if during the year following the one in which the deemed transfer took place, the proposed venture collapses for reasons such as refusal of permissions, the developer facing financial crunch etc. By that time, the owner would have received only a part of the agreed consideration, but he is obliged to file the return showing the entire capital gain based on the full sale price whether or not received during the year of deemed transfer. In such an eventuality, hardship may be caused to the owner who would have paid full tax. No doubt, such a situation could be avoided if the contention of the applicant is accepted. On deep consideration, however, we find that the construction of the relevant provision should not be controlled by giving undue importance to such hypothetical situations. Normally, the owner executes a Power of Attorney or does similar act to left the transferee take possession only after the basic permissions are granted and he is satisfied about the ability of transferee/developer to fulfil the contract. In spite of that, if such rate situations take place, the owner/transferor will not be without remedy. He can file a revised return and make out a case for exclusion or reduction of income. However, if the time-limit for filing a revised return expires, the difficulty will arise. It is for Parliament or the Central Government to provide a remedy to the assessee in such cases. Moreover, the other side of the picture as depicted in paragraph 27 (supra) should also be kept in view."
Here the comments of Shri Rajaratnam quoted at para 5164 above are also relevant again:
""It is hard on the owners when required to pay tax, when handing over the possession for purposes of construction without being able to enjoy the construction, which is yet to commerce or in the process of construction being put up by the developer, but the solution lies in statutory clarification in such cases. In view of the increasing scale of such development agreements to solve the housing problem in the cities, a statutory clarification or circular is overdue."
We may mention here that no doubt sometimes an assessee may be put in a difficult situation and as mentioned by Hon'ble Authority in case of Jasbir Singh Sarkaria (supra) as well as Ld. Author Shri Rajaratnam it is for the Legislature to take corrective steps. However, it may not be out of place that if considering the difficulty the interpretation given by the ld. counsel of the assessee is accepted then the Revenue may not be able to tax such assessees when these difficulties are removed. For example in the present case if tomorrow when all permissions are obtained and construction is completed and if no taxes are held to be payable then later on also the assessee may not be subjected to any tax under the head "capital gain" because then it can be easily contended on behalf of the assessee that the transfer has already taken place on the date when irrevocable Power of Attorney was executed. In that situation the Revenue will have no remedy.
107. The above clearly shows that such hypothetical consideration cannot be considered for giving true meaning to a particular provision. It has also been observed that in some genuine cases the difficulties may arise but it was for the Parliament or the Government to provide remedy in such cases and judicial forums cannot do anything. Therefore, in view of the provisions of Section 45 r.w.s. 48 we are of the opinion that subsequent events, if at all any will not make any difference because total consideration received or accrued has to be assessed in the year of transfer. We may also note that it was stated that irrevocable Power of Attorney has been revoked but the word "irrevocable" itself shows that in the eyes of law special Power of Attorney could not have been revoked. In view of this analysis, we are of the opinion that either the JDA has not been cancelled or in any case the same cannot be considered for determining the taxation of capital gain. Accordingly this contention is rejected.
108. The next contention of the assessee is that even if the whole consideration has to be taxed then value of the flats cannot be taken at Rs . 4,500/- per sq. feet. It is also pointed out that in view of the agreement between the HASH & THDC consideration has been shown at Rs. 2,000/- per sq. feet for 126 flats whereas it is Rs . 4,500/- per sq. feet for three flats. We find no force in these submissions. The assessee has filed along with the written submissions copy of the addendum of agreement between THDC and HASH by Joint Developer (at pages 265 & 266) and this issue is discussed in clause 5 which is as under:-
"5. Clauses 4.1, 4.2, 4.3 and 4.4 on the page Nos. 18 and 19 of the Agreement shall stand amended, modified and substituted by the following:-
4.1 It is expressly agreed and understood by and between the Par ties hereto
| (a) | in the ratio of 72,28 between THDC and HASH in case Gross Sales Proceeds does not exceed Rs. 1272 crores; | |
| (b) | in the ratio of 70: 30 between THDC and HASH in case Gross Sales Proceeds is equal to Rs. 1272 crores; | |
| (c) | in addition (b), in the ratio of 60: 40 between THDC and HASH in respect of gross sales Proceeds in excess of Rs. 1272 crores. |
"It is agreed that the minimum guaranteed amount from the Gross Sales Proceeds for THDC and HASH is Rs. 890.40 crores and Rs. 225.76 crores respectively. The minimum guaranteed amount of Rs. 225.76 crores to HASH includes Rs. 58.88 crores that shall be expended by THDC towards construction of 126 flats equivalent to 2,83,500 sq. ft,, which flats are to be allotted in the names of the members of the Society or otherwise, as the case may be, calculated as Rs . 2000 per s q. ft. for the area 2,83,500 sq. ft. and the 72% share of 3 flats of 2250 Sq. ft. to be purchased by HASH @ R s, 4500/- per sq. ft. Should the application of the ratio stipulated in (a) above result in HASH being entitled to a sum greater than the minimum guaranteed amount and THDC being entitled to a sum less than the minimum guaranteed amount, THDC shall-be entitled to the entitlement of HASH which is in excess of its minimum, guaranteed amount until THDC achieves its minimum guaranteed amount.-The same is illustrated in Annexure I hereto."
109. The above clearly shows that HASH was entitled to total proceeds of Rs. 225.76 crores out of total proceeds of the project which were agreed to be shared by THDC and HASH but the portion of HASH includes a sum of Rs. 58.88 crores which was required to be spent towards construction of 126 flats equivalent to 283500 square feet area which were to be allotted to the members of the society. Thus, it is clear that figure of Rs. 2,000/- per s q. feet represents only the cost of constructions to be incurred by THDC which was debited to the account of HASH. Further, HASH has agreed to purchase three Flats @ 4,500/- per square feet. Some news reports were quoted before us in one of the cases to show that various brokers had issued various advertisements for sale of these flats and these flats were ultimately to be sold at Rs. 7,000/- to Rs. 10,000/- per square feet. This also becomes clear from the addendum of agreement in terms of total proceeds of 1272 crores. In any case if the cost of construction is Rs. 2,000/-, then cost of land which has been paid to the society is also to be added to the cost of the flat because this portion of consideration in any case was received or to be received later by the society in cash. Considering the present market value of the flats in and around Chandigarh area which is Rs. 4,000/- to 12,000/- per square feet we are of the opinion that value of the flat at R s. 4,500/- per s quare feet is absolutely fair. In any case M/s HASH has agreed to purchase the flats at this rate from M/s THDC. It may be noted as pointed out by the ld. DR for the revenue some of the News report clippings filed by various assessees clearly shows that flats were booked in the "Tata Camleot" (this was the name which was given to the Project which was to be developed on the land of two societies) in the Pre Launch offer in the range of Rs. 7500 to 8000 per sqft. It is a common knowledge that rates in Pre Launch offer are lower than the rates when bookings open for the Public. Considering these facts we are of the opinion that Assessing Officer has estimated the value of the flats on most reasonable basis. In view of these observations this contention is rejected.
110. The Ld. Counsel for the assessee had made some submissions on the issue of deduction u/s 54F. He has pointed out that this issue has been rejected wrongly by CIT(A). However, carefully perusal of the grounds of appeal show that no ground in respect of deduction u/s 54F has been raised before us and, therefore, we decline to adjudicate this issue and all the arguments made in this behalf are rejected. Though reference was made to ground No. 2.3 in this regard. The perusal of grounds No. 2.3 would show that reference has been made only to Section 54 and Section 54EC. Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house and in case before us, the assessee has transferred the plot. Therefore, it cannot be said that deduction u/s 54F and 54 is same. Since no ground has been raised for deduction u/s 54F, we reject this contention.'
Following the above, we decide this issue against the assessee. However, at the same time we find that in case of Shri Charanjit Singh Atwal(supra) as well as other plot holders in Punjabi Co-op Housing Building Society Ltd. the flat has been valued at Rs. 4500 per sqft and since nature and specification of the flat remains same, we do not find any justification in valuing the flat Rs. 5000 per sqft. Accordingly we decide the principle issue of tax on capital gain against the assessee. however, the Assessing Officer is directed to value the flat Rs. 4500 per sqft.
7. Ground No. 4 - After hearing the ld. DR for the revenue and relevant material we find this issue has been adjudicated by Ld. CIT (Appeals) vide para 6.13 to 6.14, which are as under:—
'6.13 The Ld. Counsel for the appellant has also argued that the appellant is entitled to deduction u/s 54F to the extent of investment in the new asset, as reinvestment in flat. For the sake of convenience, provisions of section 54 F of the Act are reproduced below:
"54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
(1) Subject to the provisions of sub-section (4), where, in the case of an appellant being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the appellant has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
| (a) | if the cost of the asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; | |
| (b) | if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45; |
Provided that nothing contained in this sub-section shall apply where—
| (a) | the appellant— |
| (i) | owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or | |
| (ii) | purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or | |
| (iii) | constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and |
| (b) | the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". |
Explanation - For the purposes of this section, "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
6.14 Sub-section (1) of section 54 Fallows exemption of long term capital gains from tax, if the net consideration on transfer of long term capital asset is invested in the purchase of a new residential house within a period of one year before or two years after or in construction of a new residential house within a period of 3 years from the date of the transfer of the long term capital asset. In the instant case, the construction of the flat, which the appellant is to be given, has not yet started and so it cannot be said that the amount has been invested in a new residential house for allowing benefit u/s 54F of the Act. Hence, the appellant is not eligible for deduction u/s 54F.'
8. After considering the submissions of Ld. DR for the revenue and relevant material on record, we find Ld. CIT(A) has adjudicated the issue correctly and has given the reason for rejection of deduction under section 54/54 F. Therefore, we find nothing wrong with the order of Ld. CIT(A) and confirm the same. Hence this ground is rejected.
9. In the result, appeal of the assessee is partly allowed.
CST & VAT : Word 'order' includes 'provisional assessment order/provisional refund order' and, therefore, even delayed grant of provisional refund under Gujarat VAT Act, 2003 is entitled to interest at rate of 6 per cent per annum under section 38(2) ibid
■■■
[2013] 40 taxmann.com 280 (Gujarat)
HIGH COURT OF GUJARAT
State of Gujarat
v.
Mukti Exports (P.) Ltd.*
M.R. SHAH AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 835 OF 2013
CIVIL APPLICATION NO. 582 OF 2013†
CIVIL APPLICATION NO. 582 OF 2013†
OCTOBER 24, 2013
Section 38 of the Gujarat Value Added Tax Act, 2003 - Interest - On delayed refunds - Year 2006-07 - Assessee, a dealer engaged in trading of iron and steel, was provisionally assessed to VAT for year 2006-07 on 31-12-2007 - Department granted provisional refund of Rs. 2,74,253 on 10-1-2008 - Ultimately, on finalization on 26-7-2010, refund was determined at Rs. 3,62,892 and balance amount of Rs. 88,639 was refunded with interest at rate of 6 per cent per annum on Rs. 88,639; no interest was granted on refund of Rs. 2,74,253 granted on 10-1-2008 - Assessee argued that it was entitled to interest under Section 38(2) on amount of Rs. 2,74,253 since 1-4-2007 to 10-1-2008 - HELD : section 38(2) provides for interest at 6 per cent per annum on refund in pursuance of any order other than an order of audit assessment and such interest is granted since date immediately following date of closer of accounting year to which said amount of refund relates till date of payment of amount of such a refund - On plain reading of sub-section (2) of section 38, 'order' includes provisional assessment order/provisional refund order - Hence, assessee was entitled to interest under section 38(2) since 1-4-2007 to 10-1-2008 [Paras 4.1 to 4.5] [In favour of assessee]
CASE REVIEW
Gurudevdatta Vksss Maryadit v. State of Maharashtra AIR 2001 SC 1980 (para 4.5) distinguished.
CASES REFERRED TO
Gurudevdatta VKsss Maryadit v. State of Maharashtra AIR 2001 SC 1980 (para 3.1)
Jaymin Gandhi for the Appellant.
JUDGMENT
M.R. Shah, J. - Present Tax Appeal has been preferred by the appellant-State of Gujarat through the Commissioner of Commercial Taxes, Ahmedabad against the impugned judgment and order dated 22.1.2013 passed by the learned Gujarat Value Added Tax Tribunal in Second Appeal No.139 of 2011, by which, the learned Tribunal has allowed the said appeal preferred by the respondent herein holding that the respondent -dealer shall be entitled to interest on provisionally granted refund of Rs.2,74,253/- at the rate of 6% p.a under Section 38(2) of the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as the "Act"), subject to conditions that if the dealer has utilized carried forward tax credit while filing its return for the next period and reduced its tax liability, in that case, its claim for interest on such refund would not be allowable.
2. The facts leading to the present Tax Appeal in nutshell are as under:
2.1 That the opponent herein is registered dealer under the Act and is engaged in the business trading of iron and steel. That the opponent dealer was provisionally assessed on 31.12.2007 under Section 32 of the Act, for the period 2006-07. The Assessing Officer granted provisional refund amounting to Rs. 2,74,253/- on 10.1.2008. That thereafter, on 26.7.2010 the Deputy Commissioner of Commercial Taxes Unit-6, Ahmedabad passed Audit Assessment order under Section 34 of the Act. Thus, the dealer was entitled to total refund of Rs.3,62,892/-, out of which Rs. 2,74,253/- was already refunded on 10.1.2008 while passing the provisional assessment order. Therefore, the Deputy Commissioner of Commercial Taxes passed an order to refund the balance amount of Rs.88,639/-, however paid the interest at the rate of 6% p.a i.e. Rs. 17,285/- on the refund of Rs.88,639/-only. That being aggrieved and dissatisfied with the Audit Assessment Order passed by the Deputy Commissioner of Commercial Taxes in so far as not granting any interest on the provisionally refund i.e. Rs.2,74,253/-, the respondent-dealer preferred First Appeal before the Joint Commissioner of Commercial Taxes (Appeals) Ahmedabad and the First Appellate Authority dismissed the said appeal.
2.2 Being aggrieved and dissatisfied with the order passed by the First Appellate Authority, the appellant preferred Second Appeal No. 139 of 2011 before the Tribunal and by impugned judgment and order the learned Tribunal has allowed the said appeal holding that dealer shall be entitled to interest on provisionally granted refund of Rs. 2,74,253/- for the period 1.4.2007 to 10.1.2008 @ 6% p.a under Section 38(2) of the Act.
2.3 Being aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal, the Appellant -State of Gujarat has preferred present appeal.
3. Shri Gandhi, learned Assistant Government Pleader has vehemently submitted that the learned Tribunal has materially erred in holding that the dealer shall be entitled to the interest on provisionally granted refund of Rs. 2,74,253/-. It is submitted that learned Tribunal has misinterpreted Section 38(2) of the Act. It is submitted that interest as provided under Section 38(2) of the Act shall not be payable on provisional refund. It is submitted that considering Section 38(2) of the Act the dealer is not entitled to interest on the provisional refund available on provisional assessment. It is further submitted by Shri Gandhi, learned Assistant Government Pleader that Section 38 does not speak of "interest on provisional refund".
3.1 Shri Gandhi, learned Assistant Government Pleader for the appellant has heavily relied upon the decision of the Hon'ble Supreme Court in the case ofGurudevdatta Vksss Maryadit v. State of Maharashtra AIR 2001 SC 1980 in support of his submission that where language of a particular provision is clear, categorical and unequivocal, no outside aid is required or is permissible for interpreting the proviso. It is submitted that in the present case on plain reading of Section 38 of the Act, it does not provide any interest on provisional refund while passing order of provisional assessment and therefore, the learned Tribunal has materially erred in holding that dealer shall be entitled to the interest under Section 38(2) of the Act on the amount of provisional refund.
3.2 Making above submissions and relying upon the above decision, it is requested to admit/allow the present appeal.
4. Heard Shri Gandhi, learned Assistant Government Pleader appearing on behalf of the appellant and perused the impugned judgment and order passed by the learned Tribunal. The short question which is posed for consideration of this Court whether a dealer in whose favour provisional assessment order is passed and consequently provisional refund is granted, the dealer shall be entitled to interest on the said provision refund as available under sub-section (2) of Section 38 of the Act or not ?
4.1 Section 38 of the Gujarat Value Added Tax Act, 2003 reads as under:
"38. Interest on refund:— (1) Where refund of any amount of tax becomes due to the dealer by virtue of an order of assessment under Section 34, he shall subject to the provision of this Section be entitled to receive in addition to the amount of tax, simple interest at the rate of 6% per annum on the said amount of tax from the date immediately following the date of the closure of the accounting year to which the said amount of tax relates till date of payment on amount of said refund. Provided that where the dealer has paid any amount of tax after the closure of the accounting year and such amount is required to be refunded, no interest shall be payable for the period from the date of closure of such accounting year to the date of payment of such amount.
(2) A registered dealer entitled to refund in pursuance of any order other than referred to under subsection (1) or in pursuance of any order by any Court, shall subject to rules, be entitled to receive, in addition to the refund, simple interest at the rate of 6% p.a on the amount of such refund from the date immediately following the date of closer of the accounting year to which the said amount of refund relates till the date of payment of amount of such a refund. The interest shall be calculated on the amount of refund due after deducting therefrom any tax, interest, penalty or any other dues under this Act, or under the Central Act. If, as a result of any order passed under the Act, the amount of such refund is enhanced or reduced, such interest shall be enhanced or reduced accordingly.
(3) Where the realization of any amount remains stayed by the order of any Court or authority and such order is subsequently vacated, interest shall be payable also for any period during which such order remained in operation."
4.2 Sub-section (1) of Section 38 of the Act provides that where refund of any amount of tax becomes due to the dealer by virtue of an order of assessment under Section 34 (audit assessment), he shall be entitled to receive in addition to the amount of tax, simple interest at the rate of 6% per annum on the said amount of tax from the date immediately following the date of the closure of the accounting year to which the said amount of tax relates till date of payment on amount of said refund. However, the same shall be subject to the proviso to sub-section (1) of Section 38.
4.3 Sub-section (2) of Section 38 provides that a registered dealer shall be entitled to refund in pursuance of any order other than referred to under sub-section (1) (audit assessment) or in pursuance of any order by any Court, be entitled to receive in addition to refund, simple interest at the rate of 6% p.a on the amount of such refund from the date immediately following the date of closer of the accounting year to which the said amount of refund relates till the date of payment of amount of such a refund. It further provides that interest shall be calculated on the amount of refund due after deducting therefrom any tax, interest, penalty or any other dues under this Act, or under the Central Act, if as a result of any order passed under the Act, the amount of such refund is enhanced or reduced, such interest shall be enhanced or reduced accordingly.
4.4 Thus, on plain reading of sub-section (2) of Section 38 a registered dealer shall be entitled to received simple interest at the rate of 6% p.a. on the amount of such refund in pursuance of any order other than the audit assessment order or in pursuance of any order by any Court. Thus, on plain reading of sub-section (2) of Section 38 "order" includes provisional assessment order/provisional refund order. Under the circumstances, as such learned Tribunal has not committed any error and/or illegality in holding that the dealer shall be entitled to interest at the rate of 6% p.a on the provisional refund i.e. Rs.2,74,253/-.
4.5 Now, so far as reliance placed upon the decision of the Hon'ble Supreme Court in the case of Gurudevdatta Vksss Maryadit (supra) is concerned, as such there cannot be any dispute with respect to proposition of law laid down by the Hon'ble Supreme Court in the said decision. However, on facts the said decision shall not be of any assistance to the appellant. Provision of Section 38(2) is very clear and it specifically provides that a dealer shall be entitled to receive simple interest at the rate of 6% p.a on the amount of refund in pursuance of any order other than referred to in Section 38(1) or in pursuance of any order by any Court and as observed hereinabove "order" referred to in Section 38(2) shall include order or provisional refund.
5. The impugned order passed by the learned Tribunal is on correct interpretation of law. We are in complete agreement with the view taken by the learned Tribunal that dealer shall be entitled interest as provided under sub-section (2) of Section 38 of the Act on the amount of provisional refund also. We see no reason to interfere with the impugned order passed by the learned Tribunal. No question much less any substantial question of law arise in the present appeal. Hence, present appeal deserves to be dismissed and is accordingly dismissed.
VINEET †Arising out of order of Gujarat VAT Tribunal in Second Appeal No. 139 of 2011, dated 22-1-2013.
SECTION 253/INCOME-TAX ACT
[2007] 158 TAXMAN 120 (KAR.)
HIGH COURT OF KARNATAKA
Rajakamal Polymers (P.) Ltd.*
v.
Commissioner of Income-tax
R. GURURAJAN AND N. ANANDA, JJ.
IT APPEAL NO. 266 OF 2001
SEPTEMBER 25, 2006
Section 253 of the Income-tax Act, 1961 - Appellate Tribunal - Appeals to - Whether where Commissioner (Appeals) had chosen to reject appeal filed by assessee against assessment and penalty orders on ground of limitation, said orders would fall within section 253(6)(d) and only a sum of Rs. 500 would be payable as court fee in terms of said section for each appeal for purpose of maintaining appeals against order of Commissioner (Appeals), before Tribunal - Held, yes
FACTS
The assessee filed the appeals against the assessment and penalty orders, along with an application, seeking to condone delay before the Comm-issioner (Appeals). The Commissioner (Appeals) rejected the said appeals on the ground of delay. On second appeal, the Registrar noticed that there was deficit court fee payable on the appeals and demanded court fee at the rate of Rs. 10,000 for each one of the appeals in the light of the quantum involved in terms of the order of the assessing authority. The assessee raised an objection with respect to the said payment. The Tribunal, however accepted the Registrar's objection and granted one month's time for paying the deficit court fee.
On appeal :
HELD
A careful reading of the section 253(6) would show the scale of fees mentioned in the light of assessment at the hands of the assessing authority in terms of the money payable by the assessee. Section 253(6)(a ) provides that if the total income, as computed by the Assessing Officer, is one hundred thousand rupees court fee payable is five hundred rupees. Section 253(6)(b) provides that in the case of appeal involving more than one hundred thousand rupees, but not more than two hundred thousand rupees,court fee payable is one thousand five hundred rupees. Section 253(6)(c) would provide that in the case of appeal involving more than two hundred thousand rupees, court fee payable is one per cent of assessed income, subject to a maximum of ten thousand rupees. Section 253(6)(d ) provides that in the event the subject-matter of the appeal relates to any matter, other than those specified in clauses (a),( b) & (c ), court fee payable is five hundred rupees. [Para 7]
In the instant case, it was seen that the Commissioner (Appeals) had chosen to reject the appeal on the ground of limitation. Such an order would fall within clause (d) of section 253(6). Hence, only a sum of Rs. 500 was payable in terms of section 253(6)(d). Unfortunately, the Tribunal, without even looking into the basic requirement of court fee, had chosen to blindly accept the objection of the Registrar. In the circumstances, the assessee was justified in complaining that order of the Tribunal ran counter to section 253(6)(d). On the facts and given circumstances, it was deemed proper to hold that the assessee was liable to pay court fee at the rate of Rs. 500 for each one of the appeals for the purpose of maintaining appeals before the Tribunal. [Para 8]
S.M. Shyambhog for the Appellant. E.R. Indrakumar for the Respondent.
JUDGMENT
R. Gururajan, J. - Rajakamal Polymers Private Limited is before us aggrieved by the order of Income-tax Appellate Tribunal, Bangalore Bench dated 28-6-2001 passed in ITA Nos. 598 to 602 (Bang.)/2000.
2. The appellant-assessee suffered various orders at the hands of Assessing Officer under sections 271(1)(c), 143 and 154 of Income-tax Act, 1961 ('the Act'). Aggrieved by the same, assessee filed appeals. There was a delay in the matter. An application was filed seeking to condone delay before the Commissioner. The Commissioner rejected the appeals on the ground of delay. Thereafter second appeals were filed. The Registrar noticed that there is a deficit Court fee payable on the appeals. According to the Registrar, appellant-assessee has to pay court fee at the rate of Rs. 10,000 for each one of the appeal in the light of the quantum involved in terms of the order of assessing authority. The appellant objected for the said payment. Hence matter was listed before the Tribunal. The Tribunal, by a detailed order, has chosen to reject the contention of appellant in the matter of Court fee. The Tribunal however granted one month's time for paying the deficit Court fee for the purpose of consideration of the case on merits. Aggrieved by the order of the Tribunal, appellant is before us in this appeal.
3. The following three questions of law are framed by this Court in terms of order dated 15-1-2002 :
"1. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that for purpose of section 253(6) of the Income-tax Act, "income" includes loss?
2. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that since loss determined by the Assessing Officer is above rupees Ten Lakh and as such the fees payable to the Income-tax Appellate Tribunal per appeal is Rs. 10,000 as per section 253(6)(c) of the Income-tax Act and not Rs. 500 as per section 253(6)(a) of the Income-tax Act?
3. Whether on the facts and in the circumstances of the case whether loss cases would be covered by section 256(6)(d) of the Income-tax Act, 1961 and as such appeal fees is payable only Rs. 500 for each appeal?"
4. Heard Sri Shyambhog, learned counsel for appellant and Sri Indrakumar, learned counsel for revenue. Perused the material on record.
5. Admitted facts would reveal of several adverse orders at the hands of assessing authority. Appeals were filed along with delay application. Delay was not considered in each one of the appeals. Appeals stood rejected only on the ground of delay. When those orders were challenged before the Tribunal, Registrar has chosen to demand a sum of Rs. 10,000 in the light of the order of assessing authority. The Tribunal has accepted Registrar's objection in terms of the impugned order.
6. Section 253(6) of the Act would read as under:—
"(6) An appeal to the Appellate Tribunal shall be in the prescribed form and shall be verified in the prescribed manner and shall, in the case of an appeal made, on or after the 1st day of October, 1998, irrespective of the date of initiation of the assessment proceedings relating thereto, be accompanied by a fee of,—
(a )whether the total income of the assessee as computed by the Assessing Officer, in the case to which the appeal relates, is one hundred thousand rupees or less, five hundred rupees,
(b)where the total income of the assessee, computed as aforesaid in the case to which the appeal relates is more than one hundred thousand rupees but not more than two hundred thousand rupees, one thousand five hundred rupees,
(c)where the total income of the assessee computed as aforesaid in the case to which the appeal relates is more than two hundred thousand rupees, one per cent of the assessed income, subject to a maximum of ten thousand rupees,
(d)where the subject-matter of an appeal relates to any matter other than those specified in clauses (a), (b) and (c ), five hundred rupees:—
Provided that no such fee shall be payable in the case of an appeal referred to in sub-section (2) or a memorandum of cross objections referred to in sub-section (4)."
7. A careful reading of the said section would show the scale of fees is mentioned in the light of assessment at the hands of assessing authority in terms of the money payable by the assessee. Section 253(6)(a) of the Act would provide that if the total income as computed by the Assessing Officer is one hundred thousand rupees, court fee payable is five hundred rupees. Section 253(6)(b) would provide that in the case of appeal involving more than one hundred thousand rupees but not more than two hundred thousand rupees, court fee payable is one thousand five hundred rupees. Section 253(6)(c) would provide that in the case of appeal involving more than two hundred thousand rupees, court fee payable is one per cent of assessed income subject to a maximum of ten thousand rupees. Section 253(6)(d) would provide that in the event of subject-matter of the appeal relate to any matter other than those specified in clauses (a), (b) and (c ) court fee payable is five hundred rupees.
8. In the case on hand, it is seen that the appellate Commissioner has chosen to reject the appeal on the ground of limitation. In our view, such an order would fall within clause (d) of section 253(6) of the Act. Hence, only a sum of Rs. 500 is payable in terms of section 253(6)(d) of the Act. Unfortunately, the Tribunal, without even looking into the basic requirement of court fee, has chosen to blindly accept the objection of the Registrar. In the circumstances, we are satisfied that the appellant is justified in complaining that order of the Tribunal runs counter to section 253(6)(d) of the Act. We accept the submission of appellant-assessee. On the facts and given circumstances, we deem it proper to hold that appellant is liable to pay court fee at the rate of Rs. 500 of each one of the appeals for the purpose of maintaining appeals before the Tribunal. The appellant has made over the court fee of Rs. 12,000. Since the appellant is only liable to pay a sum of Rs. 2,500 as court fee, Registrar is directed to refund the balance sum of Rs. 9,500 to the appellant within one month from today. On failure, appellant is entitled for interest at the rate of 10 per cent p.a. for delayed payment from the date of delay till the date of payment.
9. We also see that at the time of admission of the appeal, this Court has chosen to direct the appellant to provide bank guarantee for consideration of his case by the Tribunal. We are told that the Tribunal has now chosen to condone the delay and remanded the matter back to the appellate Commissioner. In that view of the matter, the Tribunal is directed to return the bank guarantee furnished by the appellant if not already returned in the light of disposal of the appeals by the Tribunal itself.
10. In the result, we accept this appeal. Questions of law Nos. (1) and (2) are not answered. In the light of our discussion, question of law No. (3) is answered in favour of the appellant-assessee. Ordered accordingly. No costs.
IT-I: For availing exemption under section 11, income derived from property held under trust has to be considered irrespective of fact that some of income so derived is also exempt under section 10
IT-I: In terms of clause (iia) of proviso to section 13(1)(d), mere accretion of existing holding of shares by way of bonus shares or acceptance of donation in kind or any asset not conforming to provisions of section 11(5) will not make trust lose tax exemption if trust/institution converts asset not conforming to section 11(5) into permissible investment within one year from end of financial year in which such bonus shares or other assets are received
IT-I: Violation of section 13(1)(d) and section 13(2)(h) would disqualify exemption of income from investment in non-conforming of section 11(5) but not entire income of trust if other income of trust otherwise fulfils condition for exemption
IT-II: Sections 11 and 13 do not operate as overriding effect to section 10 and, thus, once conditions of section 10 are satisfied, benefit of exemption of income cannot be denied by invoking provisions of sections 11 to 13
IT: Education grant given to Indian students for studying abroad fulfils conditions of application of money in order to claim exemption under section 11
■■■
[2014] 44 taxmann.com 447 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'J'
Jamsetji Tara Trust
v.
Joint Director of Income-tax (Exemption) Range -II*
VIJAY PAL RAO, JUDICIAL MEMBER
AND NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER
AND NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER
IT APPEAL NO. 7006 (MUM.) OF 2013
[ASSESSMENT YEAR 2010-11]
[ASSESSMENT YEAR 2010-11]
MARCH 26, 2014
I. Section 11, read with section 10, of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under (Applicability of section 10) - Assessment year 2010-11 - Whether for availing exemption under section 11, income derived from property held under trust has to be considered irrespective of fact that some of income so derived is also exempt under section 10 - Held, yes
I. Section 13, read with section 11, of the Income-tax Act, 1961 - Charitable or religious trust - Denial of exemption (Sub-section (1)(d)) - Whether in terms of clause (iia) of proviso to section 13(1)(d), mere accretion of existing holding of shares by way of bonus shares or acceptance of donation in kind or any asset not conforming to provisions of section 11(5) will not make trust lose tax exemption if trust/institution converts asset not conforming to section 11(5) into permissible investment within one year from end of financial year in which such bonus shares or other assets are received - Held, yes - Whether violation of section 13(1)(d) and section 13(2)(h) would disqualify exemption of income from investment in non conforming of section 11(5) but not entire income of trust if other income of trust otherwise fulfils condition for exemption - Held, yes [Partly in favour of assessee]
II. Section 10, read with sections 11 and 13, of the Income-tax Act, 1961 - Incomes not included in total income (Overriding effect of sections 11 and 13) - Assessment year 2010-11 - Whether sections 11 and 13 do not operate as overriding effect to section 10 and, thus, once conditions of section 10 are satisfied, benefit of exemption of income can not be denied by invoking provisions of sections 11 to 13 - Held, yes [Para 9.7] [In favour of assessee]
III. Section 11 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under (Application of income) - Assessment year 2010-11 - Whether educational grant given to Indian students for studying abroad fulfils conditions of application of money in order to claim exemption under section 11 - Held, yes [Para 10.7] [In favour of assessee]
Circulars and Notifications : Circular No. 621, dated 19-12-1991
FACTS-I
| ■ | The assessee was a charitable trust. During the financial year relevant to assessment year under consideration, the assessee earned the income in form of dividend, interest and capital gain on sale of shares. | |
| ■ | The dividend income on shares and units as well as long-term capital gain on sale of shares claimed by the assessee as exempt under sections 10(34), 10(35) and 10(38). The rest of the income was claimed as exempt under section 11. | |
| ■ | The Assessing Officer noted that the assessee sold shares of TCS and reinvested by way of acquisition of 8 per cent cumulative redeemable preference shares of Tata Sons Ltd. | |
| ■ | The assessee had received corpus donation from Tata Sons Ltd. in the shape of shares of TCS. In the assessment years 2003-04 to 2005-06, face value of shares were converted from Rs. 10 to Rs. 1 and assessee further got bonus shares as well. Thus the Assessing Officer found that the assessee was in receipt of profit on sale of shares of TCS which was shown directly in the balance sheet without routing through the income and expenditure account. | |
| ■ | The assessee also received dividend income of TCS shares and dividend income on shares of Tata Sons Ltd. | |
| ■ | The Assessing Officer found that the sale proceeds of shares of TCS had been reinvested in the Tata Sons Ltd. which was not public sector company and, therefore, the investment of accumulated fund was not in conformity of section 11(5). Thus, the Assessing Officer opined that the assessee was hit by the provisions of section 13(1)(d)(i) as well as section 13(2)(h) in terms of its investment in shares of Tata Sons Ltd. and by provisions of section 13(1)(d)(iii) in terms of shares of TCS and Tata Sons Ltd. held by the assessee. | |
| ■ | Accordingly, the Assessing Officer held that the assessee was hit by the provisions of section 13(1)(d)(i) in terms of investment in shares of Tata Sons Ltd. and by provisions of section 13(1)(d)(iii) in terms of shares of TCS and Tata Sons Ltd. held by it and exemption under sections 11 and 12 would not be allowable in respect of any income of the assessee's trust. | |
| ■ | The Commissioner (Appeals) concurred with the view taken by the Assessing Officer. |
On second appeal:
HELD-I
| ■ | The income of the charitable/religious trust or institution is exempt under section 11 subject to the fulfilment of conditions stipulated under sections 11 and 13. There are two testes to be qualified by the trust or institution to avail the exemption under section 11. These two tests are broadly categorized as application of income, source of income and the conditions and manner of application of income as enumerated under section 11 (5). Whereas the condition of source of income are provided under section 13 and particularly under sub-sections 1 and 2 of section 13. | |
| ■ | The instant case is concerned only with the conditions prescribed in clause (d) of sub-section (1) and clause (h) of sub-section (2) of section 13. Both these tests are to be qualified for exemption under section 11. Firstly, it is necessary to deal with the issue of application of income in conformity with the provisions of section 11. [Para 6] | |
| ■ | As per section 11(1), the income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income of the trust/institution to extent such income is applied for charitable/religious purpose in India, and in case such income is accumulated or set apart for application to such purpose in India to the extent such accumulation is not in excess of 15 per cent of the total income from such property. | |
| ■ | Thus if the income derived from the property held under trust is applied to the extent of 85 per cent for charitable/religious purpose in India, such income is exempt. This condition of application of 85 per cent of income is relaxed to the extent that if the same is applied in the immediate subsequent year and the assessee's trust exercise such option in writing before the expiry of time allowed under section 139(1) for furnishing the return of income then it would be deemed to be income applied to such purpose during the previous year in which the income was derived. Sub-section 2 of section 11 further relaxes the condition of application or deemed application of 85 per cent of income during the relevant previous year if such income is accumulated or set apart either in whole or in part for application to such purpose in India subject to the condition provided under this sub-section 2. [Para 6.1] | |
| ■ | Thus the trust would not lose exemption even 85 per cent of the income applied or deemed applied during the year if the whole or part of such income is accumulated or set apart for application of such purpose in India by giving notice in writing to the Assessing Officer and the money so accumulated or set apart is invested or deposited in the form or mode specified in sub-section (5) of section 11. [Para 6.2] | |
| ■ | The assessee undisputedly has not complied with the condition of application of 85 per cent of the income during the year as well as the investment/deposit of accumulation of the shortfall in terms of sub-sections (2) and (5) of section 11. [Para 6.3] | |
| ■ | For the purpose of application of income in terms of section 11(1) and (2), the entire income of the trust has to be considered including the dividend and long term capital gain claimed as exempt under section 10. It is pertinent to mention that for availing the exemption under section 11, the income derived from the property held under trust has to be considered irrespective of the fact that some of the income so derived is also exempt under section 10, therefore, 85 per cent of the entire income without exclusion of dividend and long-term capital gain on shares has to be applied for such purpose in India for availing deduction under section 11. | |
| ■ | As it is clear from the details given above that out of total income of Rs. 714.42 crore, the assessee trust has applied during the year only Rs 164.59 crore. The balance has been invested in the shares of Tata Sons Ltd. which is not in conformity with section 11(5). The assessee submitted that it had exercised option under clause 2 of the Explanation and the income applied for such purpose in next year shall be deemed to have applied in previous year. The assessee referred the letter dated 13-9-2010 whereby it exercised its option under clause 2 of the Explanation to section 11 (1)(a). It is pertinent to note that while computing the application of the income the assessee has excluded dividend and long term capital gain as well as short term capital gain and shown the income at Rs. 25.78 crore. Whereas the total income of the assessee including capital gain and dividend income is Rs. 714.42 crore, to meet the requirement of 85 per cent of the income of Rs. 714.42 crore, the assessee was required to apply or deemed to have been applied the income to the extent of Rs. 607.43 crore. As per the details, the assessee has applied Rs. 164.93 crore during the year and nothing has been brought in record to show that the shortfall of more than 446 crore has been applied in the immediate following year. | |
| ■ | Therefore, apparently the assessee trust has not applied the shortfall of more than 446 crores in the immediate next year in terms of the Explanation to section 11(1). Because the assessee has already applied the entire balance amount in the shares of Tata Sons Ltd., therefore, the question of application of shortfall in the immediate next year does not arise. [Para 6.3.1] | |
| ■ | Coming to the issue of condition of source of income in terms of section 13, the Assessing Officer has disallowed the exemption on two violations, viz., violation of section 13(1)(d)(iii) and section 13(2)(h). So far as the conditions required to be fulfilled under section 13(1)(d)(iii) are concerned any income from the shares in a company other than public sector company or shares prescribed or form of investment under clause (xii) of sub-section 5 of section 11 is not exempt under section 11. [Para 7] | |
| ■ | In the case of the assessee the dividend income, long term capital gain and short term capital again derived from the shares of TCS held by the assessee in contravention of section 13(1)(d)(iii). The shares of TCS were received by the assessee in the year 2001-02 and there is no dispute that holding of these shares by assessee is beyond the permitted limit of time period prescribed under section 13(1)(d). The assessee however has argued that the bonus shares received by the assessee on 19-6-2009 are not held by the assessee beyond the limit permitted by the proviso to section 13(1)(d). | |
| ■ | This contention of the assessee is not acceptable simply on the reason that the time period permitted under proviso to section 13(1)(d) is to exit from non-permissible investment/holding of shares and convert the same into permissible investment. Clause (iia) of proviso has been inserted by the Finance Act, 1991 to secure that mere accretion of the existing holding of shares by way of bonus shares or acceptance of donation in kind or any asset not conforming to the provisions of section 11(5) will not make the fund or trust or institution lose tax exemption if the trust/institution converts the asset not conforming to section 11(5) into permissible investment within one year from the end of the Financial Year in which such bonus shares or other assets are received. [Para 7.1] | |
| ■ | Thus it is clear that clause (iia) of the proviso to section 13(1)(d) was inserted with a view that holding of the asset not conforming to the provisions of section 11(5) would not make the trust or institution lose tax exemption is such assets were disposed off or converted into permissible investment within one year form the end of the Financial year in which such assets were received. Due to certain anomalies and hardship arising out of the requirement of the proviso to section 13(1)(d) clause (iia) was further amended vide Finance Act, 1992 whereby the period of disinvestment allowed up to 31st March, 1993 or within one year form the end of the Financial Year in which the such assets were received whichever is later. [Para 7.2] | |
| ■ | In the case in hand, though the assessee held the bonus shares of TCS for the duration which is within the time limit prescribed under clause (iia) of the proviso to section 13(1)(d) the assessee converted the assets being bonus shares of TCS into the preferential share of Tata Sons Ltd. which is not a conversion into the asset/investment permissible under section 11(5). Therefore, clause (iia) of proviso to section 13(1)(d) would not rescue the assessee from the mischief of section 13(1)(d) (iii). The intent behind the insertion of clause (iia) of the proviso is to exit form non-permissible investment, and to convert into permissible investment and not to just change one non-permissible investment to another non permissible investment. If it is permitted it will defeat the very purpose of object of the said clause of the proviso. [Para 7.3] | |
| ■ | The next question arises is, violation of provisions of section 13(2)(h). [Para 8] | |
| ■ | The Assessing Officer held that investment in shares of Tata Sons Ltd is in contravention of clause (h) of sub-section 2 of section 13 because Tata Sons Ltd., is a concern in which the person referred in sub-section 3 has substantial interest. The assessee's stand taken before the authorities below is that violation of section 13(2)(h) would not render the entire income of the trust lose exemption under section 11. As far as the violation of clause (h) of section 13(2) is concerned it is found that the author of the assessee trust and its relative definitely have a substantial interest in the Tata Sons Ltd, therefore, the investment in the shares of Tata Sons Ltd is clear violation of clause (h) of section 13(2). The violation of section 13(1)(d) and section 13(2)(h) would disqualify exemption of income from the investment in non-conforming of section 11(5) but not the entire income of trust if the other income of the trust otherwise fulfils the condition for exemption. [Para 8.1] | |
| ■ | In view of above, it is held that the breach of section 13(1)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment and not the entire income would be subjected to the maximum marginal rate of tax under section 164(2). Thus the exemption under section 11 is available to the assessee only on the income to the extent the same is derived in conformity of section 11 and applied during the year for such purpose of charitable trust. [Para 8.4] |
FACTS-II
| ■ | The assessee claimed that dividend income on shares and unit and long-term capital gain on sale of shares were exempt under sections 10(34), 10(35) and 10(38) respectively. | |
| ■ | The Assessing Officer denied the exemption on the ground that section 11 exclusively deals with the income derived from the property held under trust and not section under sections 10(34), 10(35) and 10(38). | |
| ■ | According to Assessing Officer, the assessee could not claim the alternative claim for exemption under sections 10(34), 10(35) and 10(38) because these sections did not deal with income derived from the property held under the trust. | |
| ■ | The Commissioner (Appeals) concurred with the view of the Assessing Officer. | |
| ■ | On second appeal: |
HELD-II
| ■ | The exemption under section 10 is income specific irrespective of the status/class of person. Whereas the exemption under section 11 is person specific though on the income derived from the property held under the trust. Further the exemption under section 11 is subject to the application of income and modes or form of deposit and investment. [Para 9.6] | |
| ■ | The exemption under section 11 is available on the income of the public charitable /religious trust or institution which is otherwise taxable in the hands of other persons. Thus the income which is exempt under section 10 cannot be brought to tax by virtue of sections 11 and 13 of the Act because no such precondition is provided either under sections 10 or 11 to 13. Therefore, sections 11 to 13 would not operate as overriding affect to the section 10. The language of these provisions does not suggest that either section 10 is subjected to the provisions of sections 11 to 13 or section 11 to 13 has any overriding affect over section 10. Therefore, the benefit of section 10 cannot be denied by invoking the provisions of sections 11 to 13. Once the conditions of section 10 are satisfied then no other condition can be fastened for denying the claim under section 10. [Para 9.7] | |
| ■ | In view of the above it is held that the dividend income on shares and mutual funds and long term capital gain on sale of shares an exempt under sections 10(34), 10(35) and 10(38) respectively and cannot be brought to tax by applying section 11 and 13. [Para 9.8] |
FACTS-III
| ■ | The assessee gave grants to various Indian students/persons to pursue their education/higher education in various universities aboard. | |
| ■ | The Assessing Officer was of the view that the application of income as well as charitable purpose, both should be in India and execution of charitable purpose may be inside or outside India. | |
| ■ | The Assessing Officer thus held that the amount spent by the assessee for education grant to the students was not application of its income for charitable purpose in India and, accordingly, disallowed the exemption under section 11. | |
| ■ | Commissioner (Appeals) confirmed the action of the Assessing Officer. | |
| ■ | On second appeal: |
HELD-III
| ■ | The assessee paid the grant in India and for the purpose of education of Indian students/persons, thus the charitable purpose of the grant is education of Indian persons. The application of income of the assessee completes at the point when the assessee released the grant which took place in India. The application of income took place in India and for the purpose of education of Indian students/persons. Therefore, for taking education by beneficiary from abroad would not amount to application of income of the assessee outside India. [Para 10.5] | |
| ■ | In view of above, it is held that the education grant given to the Indian students in India for education/higher education abroad fulfils the conditions of application of money for such purpose in India. [Para 10.7] |
CASES REFERRED TO
Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1979] 2 Taxman 501 (SC) (para 4.2),Gurdayal Berlia Charitable Trust v. Fifth ITO [1990] 34 ITD 489 (Bom.) (para 4.2), K.P. Varghesev. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) (para 5), DIT (Exemption) v. Sheth Mafatlal Gagalbhai foundation Trust [2001] 249 ITR 533/114 Taxman 19 (Bom.) (para 8.3), CIT v. Divine Light Mission [2005] 278 ITR 659/146 Taxman 653 (Delhi) (para 9.3), CIT v. Seethakathi Trust[2007] 295 ITR 520 (Mad.) (para 9.3), Brahmin Educational Society v. Asstt. CIT [1997] 227 ITR 317/[1997] 89 Taxman 434 (Ker) (para 9.3), CIT v. Rao Bahadur Calavala Cunnan Chetty Charities[1982] 135 ITR 485 (Mad.) (para 9.3), Bar Council of Uttar Pradesh v. CIT [1983] 143 ITR 584/12 Taxman 209 (All.) (para 9.3), CIT v. Bar Council of Maharashtra [1981] 130 ITR 28/6 Taxman 1 (SC) (para 9.3), His holiness Silasri Kasivasi Muthukumaraswami Thambiran v. Agricultural ITO[1978] 113 ITR 889 (Mad.) (para 9.7), DIT (Exemption) v. National Association of Software and Services Companies [2012] 345 ITR 362/208 Taxman 178/21 taxmann.com 213 (Delhi) (para 10.1),Bharata Kalajali v. ITO [1989] 30 ITD 161 (Mad.) (para 10.3) and CEO Clubs India v. DIT (Exemption) [2012] 53 SOT 488/25 taxmann.com 217 (Mum.) (para 10.3).
S.E. Dastoor for the Appellant. S.D. Srivastava for the Respondent.
ORDER
Vijay Pal Rao, Judicial Member - This appeal by the assessee is directed against the order dated 7.11.2013 of CIT(A) for the A.Y. 2010-11. The assessee has raised following grounds in this appeal:—
| 1. | On the facts and circumstance of the case and in law, the CIT(A) erred in denying the exemption under Section 11 on the ground that the assessee is hit by the provisions of Section 13(1)(d) and 13 (2)(h) of the Act. | |
| 2. | On the facts and circumstance of the case and in law, the learned CIT(A) also erred in denying the exemptions under Sections 10(34), 10(35) and 10(38) of the Act on the grounds that the assessee is a Trust and its income is to be computed only under the provisions of Sections 11 to 13. | |
| 3. | On the facts and circumstance of the case and in law, the learned CIT(A) erred in holding that education grants given to Indian students in India in Indian Rupees for studies abroad is not spent or utilised for charity in India since the grant has been utilised for studies abroad. | |
| 4. | On the facts and circumstance of the case and in law, the learned CIT(A) erred in denying deduction of the income applied to the objects of the Trust to charitable purposes in India and administrative expenses. | |
| 5. | On the facts and circumstances of the case and in law, the learned CIT(A) erred in not giving credit for TDS. | |
| 6. | Without prejudice to the above, the learned CIT(A) erred in holding that the maximum marginal rate of tax applies to the entire income and in denying the applicability of the rates of tax applicable to short term and long term capital gains. |
2. Ground No. 1 is regarding denial of exemption u/s 11 of the Income-tax Act.
2.1 The assessee is a charitable trust. During the Financial year relevant to Assessment year under consideration, the assessee has earned the following income:—
| Assessment year 2010-2011 | |||
| Revised Computation | |||
| Income | Under Section 10 | ||
| | Rs. crore | ||
| Dividend on shares | 148.00 | ||
| Dividend on units | 0.08 | ||
| Long term Capital gains | 296.04 | ||
| Total | 444.12 | ||
| Under section 11 | |||
| Interest on bonds | 0.45 | ||
| Interest on General | 28.73 | ||
| Brokerage & Incentive | 0.24 | ||
| Royalty | 0.02 | ||
| Short term capital gains | 241.07 | ||
| Total | 270.51 | ||
2.2 The dividend income on shares and units as well as long term capital gain on sale of shares claimed by the assessee as exempt u/s 10(34), 10(35) and 10(38) of the Income-tax Act. The rest of the income was claimed as exempt under section 11 of the income-tax Act. During the assessment proceedings the AO noted that the assessee sold 10,000,000 shares of TCS for Rs. 537,10,53,576/- and reinvested by way of acquisition of 8% cumulative redeemable preference shares of Tata Sons Ltd. of the value of Rs. 545,00,00,000/-. The assesseee has also deposited in short term deposit with bank of Rs. 63,60,000,00/-. AO noted that on 14.06.2001 the assessee received Corpus donation from Tata Sons Ltd of Rs. 1,52„50,000/- in the shape of 15,25,000 shares of Orchid Print India Ltd. (later known as TCS) of Rs. 10 each, total amounting to Rs. 1,52,50,000/-. In the assessment year 2003-04 to 2005-06, face value of shares were converted from Rs. 10 to Rs. 1 and assessee further got bonus shares as well. Thus the AO found that the assessee is in receipt of profit on sale of shares of TCS of Rs. 536,90,53,755/- which was shown directly in the balance sheet without routing through the income and expenditure account. The assessee has also received Rs. 5,48,62,380/- as dividend income on TCS shares and Rs. 142,51,36,643/- as dividend income on shares of Tata Sons Ltd apart from the dividend of Rs. 7,53,160/- from the units. The AO found that the sale proceeds of shares of TCS has been reinvested in the Tata Sons Ltd which is not public sector company and, therefore, the investment of accumulated fund is not in conformity of section 11(5) of the Act. Thus the AO observed that the assessee is hit by the provisions of section 13(1)(d)(i) as well as section 13(2)(h) in terms of its investment in shares of Tata Sons Ltd and by provisions of section 13(1)(d)(iii) in terms of shares of TCS and Tata Sons Ltd held by the assessee. Accordingly a notice u/s 142(1) was issue to the assessee. The assessee responded to the notice by its reply and explanation. After considering the reply the AO held that benefit of section 11(1A) is not available to assessee because investment in shares of Tata sons Ltd as per section 11(1) and further the investment in shares of Tata Sons Ltd is not held as Corpus fund. The AO was also of the view that as per the proviso to section 13(1)(d) exempt assets from disqualification must be held by the trust as its Corpus as on 1.06.1973. Shares of TCS are held by assessee only from the A.Y. 2001-02, hence the assesseee does not fulfil the conditions of holding of TCS shares in terms of the proviso to section 13(1)(d). Accordingly the AO held that the assessee is hit by the provisions of section 13(1)(d)(i) in terms of investment in shares of Tata Sons Ltd and by provisions of section 13(1)(d)(iii) in terms of shares of TCS and Tata Sons Ltd held by it and exemption u/s 11 and 12 will not be allowable in respect of any income of the assessee's trust.
3. On appeal, CIT(A) appeal concurred with the view taken by the AO.
4. before us, Shri S.E. Dastoor, the ld. Senior Counsel of the assessee, has submitted that during the year the assesseee applied its income for charitable purpose to the extent of Rs. 160.93 crore out of Rs. 270.51 crore excluding the income exempt u/s 10(34), 10(35) and 10(38) of income-tax Act. He has further submitted that the assessee has also exercised the option allowed as per clause 2 of Explanation to section 11(1)(a) of Income-tax Act and requested the AO to treat such amount as may be determined as income deemed to have been applied to the objects and purpose of this trust. Ld. Senior Counsel referred the Explanation to section 11(1) and submitted that the shortfall in 85% of the income applied for the objects and purpose is made in the subsequent financial year and, therefore, there is no violation of section 11(1) so far as the application of income is concerned.
4.1 As regards the disqualification u/s 13(1)(d), the ld. Senior Counsel has submitted that only short term capital gain on sale of bonus shares of TCS has to be tested under the provisions of section 13(1)(d) because the long term capital gain and dividend on the shares of TCS and mutual funds are exempt u/s 10 of the Income-tax Act. Ld. Senior Counsel referred the proviso to clause (iii) of section 13(1)(d) and submitted that the short term capital gain arising from the bonus share of TCS falls under the exclusion clause (iia) of the said proviso and, therefore, it is not hit by the mischief of section 13(1)(d) of the Income-tax Act. The bonus shares were issued on 19.06.2009 were not held by the assessee beyond expiry of one year from the end of the previous year in which they were acquired. Thus the ld. Senior Counsel submitted that none of the income is taxable by virtue of section 13(1)(d) of the Income-tax Act as there is no breach so far as capital gain on bonus shares held by the assessee and as regard the long term capital gains and dividend income the same is exempt u/s 10 of Income-tax Act.
4.2 As regards the violation of section 13(2)(h) of the Act, the ld. Senior Counsel reiterated the contention of the assessee raised before the authorities below and submitted that shares of Tata Sons Ltd which it has acquired does not have any voting right and is much below 5% of the capital of the company, hence it is not hit by the provisions of section 13(2)(h) in view of Explanation 3 to section 13(2)(h). Alternatively the ld. Senior Counsel has submitted that the if it is held that the investment with Tata Sons Ltd., is hit by the provisions of section 13(2)(h) then only the income arising from such investment is disqualified from the exemption u/s 11 of the Act and not the entire income of the assessee. In support of his contention he has relied upon the decision of Hon'ble Supreme Court in the case of AddL CIT. v. Surat Art Siik Cioth Manufacturers Association [1979] 2 Taxman 501. The ld. Counsel has also referred the decision of this Tribunal in the case of Tata Education Trust and Tata Social Welfare Trust dated 26-02-2008 and submitted the Tribunal has held that the entire income of the assessee would not attract the disqualification for the purpose of section 11 but only the income derived from the investment falling under the prohibited category would be chargeable to tax. He has pointed out that the Tribunal while deciding the issue has followed the earlier decision of the Tribunal in the case of Gurudayal Berlia Charitable Trust v. Fifth ITO [1990] 34 ITD 489 (Bom.). Hence the ld. Senior Counsel has submitted that the only income from the non-permitted asset would be subjected to tax.
5. On the other hand, ld. DR has submitted that the assessee has not complied with the conditions enumerated u/s 11(5) of the Income-tax Act for application of income so far as investment made in the preferential shares of Tata Sons Ltd. Further Holding of shares of TCS is also in violation of section 13(1)(d) of the Income-tax Act, therefore, the assessee is not entitled for deduction u/s 11 of the Income-tax Act on the entire income. The ld. DR has further submitted that the benefit of the proviso to section 13(1)(d) is not available to the bonus shares of the TCS as claimed by the assessee because clause (iia) does not talk about the bonus shares whereas the clause (ii) of the said provisions mentions bonus shares. Thus the ld. DR has submitted that the situation of the bonus shares has been specifically covered under clause II of the proviso and, therefore, clause (iia) has no scope of bouns shares. The ld. DR has stressed the point that there is no acquisition of bonus shares and, therefore, it would be deemed to have acquired on the date of original shares for the purpose of proviso to section 13(1)(d). Even otherwise, clause (iia) of the proviso to section 13(1)(d) deals with the asset held up to 31.03.1993 and not thereafter. He has referred the circular No. 596 dated 15.03.1991 reported in (181 ITR statutes 115) as well as the Circular No.621 dated 19.12.1991 reported in (195 ITR Statutes 154) and submitted that the proviso was inserted to remove the mischief arose due to amendment in section 13(1)(d) by the Finance Act 1983. Therefore, the clause (iia) to the proviso was inserted retrospectively w.e.f 1.4.1983 so that the charitable/religious trust or institution could disinvest such investment contrary to section 11(5) of the Income-tax Act on or before 31.3.1992 which was extended by Finance Act 1992 upto 31st March 1993. Hence the ld. DR has emphasized that the relaxation was given to the existing investment in contravention of section 11(5) of the Income-tax Act, up to 31st March, 1993 and not subsequent to that. Even otherwise, the assessee after disposal of the bonus shares again reinvested in the shares of Tata Sons Ltd which is in contravention of section 11(5), therefore, the benefit of the proviso is not available to the assessee. The ld. DR has argued that the interpretation of provisions should not conflict with the intent of the legislature and the object of the provisions as a whole. In support of his contentions he has relied upon the decision of Hon'ble Supreme Court in the case of K.P. Varghese. v. ITO [1981] 131 ITR 597/7 Taxman 13. He has also relied upon the orders of authorities below.
6. We have considered the rival submissions as well as relevant material on record. The income of the charitable/religious trust or institution is exempt u/s 11 of the Income-tax Act subject to the fulfilment of conditions stipulated u/ss 11 and 13 of the Act. There are two testes to be qualified by the trust or institution to avail the exemption u/s 11 of the Act. These two tests are broadly categorized as application of income and source of income the conditions and manner of application of income as enumerated u/s 11 (5) of the Act. Whereas the condition of source of income are provided under section 13 and particularly under sub-sections 1 and 2 of section 13 of Income-tax Act. We are concerned only with the conditions prescribed in clause (d) of sub-section (1) and clause (h) of sub-section (2) of section 13. Both these tests are to be qualified for exemption u/s 11. First we will deal with the issue of application of income in conformity with the provisions of section 11 of the Act. For ready reference we quote section 11(1) as under:—
Section 11(1)
"(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
| (a) | income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty- five per cent of the income from such property; | |
| (b) | income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty five per cent of the income from such property; | |
| (c) | income derived from property held under trust— |
| (i) | created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and | |
| (ii) | for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: | |
| Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; |
| (d) | income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution; |
Explanation. — For the purpose of clause (a) and (b)—
(1) In computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income;
(2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount —
| (i) | for the reason that the whole or any part of the income has not been received during that year, or | |
| (ii) | for any other reason, |
then —
| (a) | in the case referred to in sub-clause (i), so much of the income applied to such purposes in India during the previous year in which the income is received or during the previous year immediately following as does not exceed the said amount, and | |
| (b) | in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, |
may, at the option of the person in receipt of the income (such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income) be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes, in the case referred to in sub-clause (i), during the previous year in which the income is received or during the previous year immediately following, as the case may be, and, in the case referred to in sub-clause (ii), during the previous year immediately following the previous year in which the income was derived."
6.1 As per section 11(1), the income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income of the trust/institution to extent such income is applied for charitable/religious purpose in India, and in case such income is accumulated or set apart for application to such purpose in India to the extent such accumulation is not in excess of 15% of the total income from such property. Thus if the income derived from the property held under trust is applied to the extent of 85% for charitable/religious purpose in India, such income is exempt. This condition of application of 85% of income is relaxed to the extent that if the same is applied in the immediate subsequent year and the assessee's trust exercise such option in writing before the expiry of time allowed u/s 139(1) of Income-tax Act for furnishing the return of income then it would be deemed to be income applied to such purpose during the previous year in which the income was derived. Sub-section 2 of section 11 further relaxes the condition of application or deemed application of 85% of income during the relevant previous year if such income is accumulated or set apart either in whole or in part for application to such purpose in India subject to the condition provided under this sub section 2 which reads as under:—
"(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:—
| (a) | such person specifies, by notice in writing given to the Assessing Officer in the prescribed" manner", the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; | |
| (b) | the money so accumulated" or set apart is invested or deposited in the forms or modes specified in sub-section (5): |
Provided that in computing the period of ten years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded:
Provided further that in respect of any income accumulated or set apart on or after the 1st day of April, 2001, the provisions of this sub-section shall have effect as if for the words "ten years' at both the places where they occur, the words five years" had been substituted.
Explanation. — Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) orsulr clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.'
6.2 Thus the trust would not lose exemption even 85% of the income applied or deemed applied during the year if the whole or part of such income is accumulated or set apart for application of such purpose in India by giving notice in writing to the AO and the money so accumulated or set apart is invested or deposited in the form or mode specified in sub section (5) of section 11. The mode of investment and deposit under sub section (5) as under:—
Section 11(5)
"(5) If The forms and modes of investing or depositing the money referred to in clause (b) of sub- section (2) shall be the following, namely—
| (i) | investment in savings certificates as defined in clause (c) of section 2 of the Government Savings Certificates Act, 1959 3 (46 of 1959 ), and any other securities or certificates issued by the Central Government under the Small Savings Schemes of that Government; | |
| (ii) | deposit in any account with the Post Office Savings Bank; | |
| (iii) | deposit in any account with a scheduled bank or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). | |
| | Explanation.— In this clause," scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); | |
| (iv) | investment in units of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963 ); | |
| (v) | investment in any security for money created and issued by the Central Government or a State Government; | |
| (vi) | investment in debentures issued by, or on behalf of, any company or corporation both the principle whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a State Government; | |
| (vii) | investment or deposit in any public sector company; | |
| | provided that where an investment or deposit in any public section company has been made and such public sector company ceases to be a public section company — |
| (A) | such investment made in the shares of such company shall be deemed to be an investment made under this clause for a period of three years from the date on which such public sector company ceases to be a public sector company. | |
| (B) | such other investment or deposit shall be deemed to be an investment or deposit becomes repayable by such company; |
| (viii) | deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long- term finance for industrial development in India and which is approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36. | |
| (ix) | deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long- term finance for construction or purchase of houses in India for residential purposes and which is approved by the Central Government for the purposes of clause (viii) of sub- section (1) of section 36; | |
| (x) | investment in immovable property | |
| | Explanation.—" Immovable property" does not include any machinery or plant (other than machinery or plant installed in a building for the convenient occupation of the building) even though attached to, or permanently fastened to, anything attached to the earth;" |
6.3 The assessee before us undisputedly has not complied with the condition of application of 85% of the income during the year as well as the investment/deposit of accumulation of the shortfall in terms of sub section (2) and (5) of section 11. This fact is apparent from the details of the income and application claimed as under:—
| Details of income | ||
| Less application of income | ||
| Expenses on the objects of the trust | 160.93 | |
| Administrative expenses | 2.73 | |
| Contribution to PTA fund | 0.93 | 164.59 |
6.3.1 For the purpose of application of income in terms of sections 11 (1) and (2), the entire income of the trust has to be considered including the dividend and long term capital gain claimed as exempt u/s 10. It is pertinent to mention that for availing the exemption u/s 11, the income derived from the property held under trust has to be considered irrespective of the fact that some of the income so derived is also exempt u/s 10, therefore, 85% of the entire income without exclusion of dividend and long term capital gain on shares has to be applied for such purpose in India for availing deduction u/s 11. As it is clear from the details given above that out of total income of Rs. 714.42 crores, the assessee trust has applied during the year only Rs 164.59 crores. The balance has been invested in the shares of Tata Sons Ltd which is not in conformity with section 11(5) of the Income-tax Act. The Ld. Senior Counsel submitted that the assessee had exercised option under clause 2 of the Explanation and the income applied for such purpose in next year shall be deemed to have applied in previous year. He has referred the letter dated 13.09.2010 whereby the assessee exercised its option under clause 2 of the Explanation to section 11 (1)(a) of the Income-tax Act. It is pertinent to note that while computing the application of the income the assessee has excluded dividend and long term capital gain as well as short term capital gain and shown the income at Rs. 25.78 crore. Whereas the total income of the assessee including capital gain and dividend income is Rs. 714.42 crore. To meet the requirement of 85% of the income of Rs. 714.42 crore, the assessee was required to apply or deemed to have been applied the income to the extent of Rs. 607.43 crore. As per the details, the assessee has applied Rs. 164.93 crore during the year and nothing has been brought before us to show that the shortfall of more than 446 crore has been applied in the immediate following year. Therefore, apparently the assessee trust has not applied the shortfall of more than 446 crore in the immediate next year in terms of the Explanation to section 11(1) of the Act. Because the assessee has already applied the entire balance amount in the shares of Tata Sons Ltd., therefore, the question of application of shortfall in the immediate next year does not arise.
7. Now we turn to the issue of condition of source of income in terms of section 13 of the Income-tax Act. The AO has disallowed the exemption on two violations viz. violation of section 13(1)(d)(iii) and section 13(2)(h). So far as the conditions required to be fulfilled u/s 13(1)(d)(iii) are concerned any income from the shares in a company other than public sector company or shares prescribed or form of investment under clause (xii) of sub section 5 of section 11 is not exempt u/s 11 of the Act. Section 13(1)(d) reads as under:—
"13(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof—
| (a) to (c)** | ** | ** |
(d) If in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year—
| (i) | any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub- section (5) of section 11; or | |
| (ii) | any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub- section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983 ; or | |
| (iii) | any shares in a company [not being a Government company as defined in section 617 of the Companies Act, 19563 (1 of 1956), or a corporation established by or under a Central,. State or Provincial Act are held by the trust or institution after the 30th day of November, 1983: | |
| Provided that nothing in this clause shall apply in relation to— | ||
| (i) | any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973 4" |
7.1 In the case of the assessee the dividend income, long term capital gain and short term capital again derived from the shares of TCS held by the assessee in contravention of section 13(1)(d)(iii). The shares of TCS were received by the assessee in the year 2001-02 and there is no dispute that holding of these shares by assessee is beyond the permitted limit of time period prescribed u/s 13(1)(d). The Ld. Senior Counsel however has argued that the bonus shares received by the assessee on 19.06.2009 are not held by the assessee beyond the limit permitted by the proviso to section 13(1)(d) of the Act. This contention of the Ld. Senior Counsel is not acceptable simply on the reason that the time period permitted under proviso to section 13(1)(d) is to exit from non permissible investment/holding of shares and convert the same into permissible investment. Clause (iia) of proviso has been inserted by the Finance Act 1991 to secure that mere accretion of the existing holding of shares by way of bonus shares or acceptance of donation in kind or any asset not conforming to the provisions of section 11(5) will not make the fund or trust or institution lose tax exemption if the trust/institution covert the asset not conforming to section 11(5) into permissible investment within one year from the end of the Financial Year in which such bonus shares or other assets are received or on 31.3.1992 whichever is later. The explanatory note on the provision as issued by the CBDT vide Circular no. 621 dated 19.12.1991 reported in 195 ITR (st) 154 is relevant on this point. Para 15.2 of the said Circular reads as under:—
"Further a new clause (iia) has been inserted in the proviso in clause (d) of sub section (1) of section 13 to secure that mere accretion to the existing holding of shares by way of bonus shares or acceptance of donations in kind or any asset not conforming to the provision of section 11(5) will not make the fund or trust or institution lose tax exemption. The trusts or institutions will, however, be' required to dispose or convert the assets not conforming to the requirement of section 11(5) into permissible investment within one year from the end of the financial year in which such bonus shares or other assets are received or 31-3-1992, whichever is later."
7.2 Thus it is clear that clause (iia) of the proviso to section 13(1)(d) was inserted with a view that holding of the asset not conforming to the provisions of section 11(5) would not make the trust or institution lose tax exemption is such assets were disposed off or converted into permissible investment within one year from the end of the Financial year in which such assets were received. Due to certain anomalies and hardship arising out of the requirement of the proviso to section 13(1)(d) clause (iia) was further amended vide Finance Act 1992 whereby the period of disinvestment allowed upto 31st March 1993 or within one year form the end of the Financial Year in which the such assets were received whichever is later.
7.3 In the case in hand, though the assessee held the bonus shares of TCS for the duration which is within the time limit prescribed under clause (iia) of the proviso to section 13(1)(d) the assessee converted the assets being bonus shares of TCS into the preferential share of Tata sons Ltd. which is not a conversion into the asset/investment permissible u/s 11(5) of the Act. Therefore, clause (iia) of proviso to section 13(1)(d) would not rescue the assessee from the mischief of section 13(1)(d) (iii) of the Income-tax Act. The intent behind the insertion of clause (iia) of the proviso is to exit form non permissible investment, and to convert into permissible investment and not to just change one non permissible investment to another non permissible investment. If it is permitted it will defeat the very purpose of object of the said clause of the proviso.
8. The next question arises is, violation of provisions of section 13(2)(h) which reads as under:—
"(h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to in sub- section (3) has a substantial interest."
8.1 The AO held that investment in shares of Tata Sons Ltd is in contravention of clause (h) of sub section 2 of section 13 because Tata Sons Ltd., is a concern in which the person referred in sub section 3 has substantial interest. Ld. Senior Counsel though reiterated the assessee's stand taken before the authorities below however he has contended that violation of section 13(2)(h) would not render the entire income of the trust lose exemption u/s 11. In support of his contention he has relied upon the decision of the Tribunal in the case of Tata Education Trust and Tata Social Welfare Trust (supra). As far as the violation of clause (h) of section 13(2) is concerned we find that the author of the assessee trust and its relative definitely have a substantial interest in the Tata Sons Ltd, therefore, the investment in the shares of Tata Sons Ltd is clear violation of clause (h) of section 13(2). We have given our serious thought on the issue and are of the view that violation of section 13(1)(d) and section 13(2)(h) would disqualify exemption of income from the investment in non conforming of section 11(5) but not the entire income of trust if the other income of the trust otherwise fulfil the condition for exemption. The Coordinate bench of this Tribunal in the case of Tata Education Trust and Tata Social Welfare Trust (supra) has decided a similar issue in para 13 as under:—
"13 We have heard the parties. The assessee is a public charitable trust. During the previous year relevant to the assessment year under appeal, the assessee derived its income from interest and dividend. Since the assessee continued to hold the shares of Tata Sons Ltd. beyond the permitted date prescribed for disinvestment u/s 13(1)(d), the exemption wad denied by the AO and the entire income of the assessee was brought to tax except the dividend income received on shares of Tata Sons Ltd. On appeal, the ld. CIT(A) has held, following his appellate order dated 20.06.2000 for AY 1996-97, that the entire income of the assessee would not attract disqualification for the purpose of section 11 but only the income derived form the investments falling in prohibited category would be chargeable to tax. In his appellate order for A. Y. 1996-97, the ld. CIT(A) has followed the decision of this Tribunal in Guru Dayal Berlia Charitable Trust, 34 ITD 489 in which it has been held that only the relevant income derived from impermissible investment would be subjected to tax and the non-fulfilment of the condition stipulated in section 13(1)(d)(iii) would not deprive a trust of its exemption from tax in respect of other income which has already been granted to it in earlier years. The order of the ld. CIT(A) is in conformity with the order of this Tribunal referred to by him in his appellate order for AY 1996-97. In this view of the matter, his order is confirmed. Appeal filed by the Department is dismissed."
8.2 We further note that while deciding the similar issue the Tribunal in the case of Gurdayal Berlia Charitable Trust (supra) has reproduced the relevant part of the explanatory note on the Finance Act 1984 vide Circular no. 387 in para 6 of the said order which reads as under:—
"6. Being aggrieved by the orders of the CIT(A), the assessee has come up in appeal before the Tribunal. The learned counsel for the assessee reiterated the submissions, which were made before the IT authorities and strongly urged that they should have accepted the assessee's contention that it would lose exemption under S. 11 of the Act in respect of the dividend income only. He was fair enough to state that it is not in dispute that by virtue of the provisions of S. 11 (5) of the Act, the assessee would lose exemption under S. 11 of the Act, as it is holding 12,000 preference shares of the National Rayon Corporation Ltd. However, he hastened to state that the assessee would lose exemption under S. 11 of the Act in respect of the dividend income received on the said shares and not in respect of other income earned by it. In other words the learned counsel for the assessee wanted to impress upon us that just ca se the assessee was not in a position to dispose of the shares of National Rayon Corporation Ltd., it should not lose exemption contemplated under S. 11 of the Act in respect of other income earned by it. In this connection it invited our attention to Circular No. 387 containing explanatory notes on the Finance Act, 1984, more particularly paragraph 28.6 which reads as under.
28.6 It may be noted that new sub-s. (1A) inserted in s. 161 of the IT Act, which provides for taxation of the entire income received by trusts at the maximum marginal rate is applicable only in the case of private trusts having profits and gains of business. So far as the public charitable and religious trusts are concerned, their business profits are not exempt from tax, except in the cases falling under cl. (a) or cl. (b) of s. 11(4A) of the IT Act. As the maximum marginal rate of tax under the new proviso to s. 164(2) applies to the whole or a part of the relevant income of a charitable or religious trust which forfeits exemption by virtue of the provisions of the IT Act in regard to investment pattern or use of the trust property for the benefit of the settlor, etc., contained in s. 13(1)(c) and (d) of that Act, the said rate will not apply to the business profits of such trust which are otherwise chargeable to tax. In other words, where such a trust contravenes the provisions of s. 13(1)(c) or (d) of the Act, the' maximum marginal rate of income tax will apply only to that art of the income which has_forfeited_exemption under the said provisions".
8.3 After considering the explanatory note the Tribunal decided the issue by holding that the provision of section 164(2) along with the proviso thereto would come into operation and only such income would be brought to tax at the maximum marginal rate which could not be treated as exemption by virtue of non fulfilment of conditions of investment in specified securities as prescribed u/s 11(5). The Hon'ble Jurisdictional High Court in the case of DIT (Exemption) v. Sheth Mafatlal Gagalbhai foundation Trust [2001] 249 ITR 533/114 Taxman 19 (Bom.) as held in para 6 as under: —
'Section 164 of the Income-tax Act does not create a charge on the income of a discretionary trust. The word "charge" in Section 164 means "levy". Section 164(2) refers to the relevant income which is derived from property held under trust wholly for charitable or religious purposes. If such income consists of severable portions, exempt as well as taxable, the portion which is exempt is to be left out and the portion which is not exempt is charged to tax as if it is the income of the association of persons. Therefore, a proviso was inserted by the Finance Act of 1984 with effect from April 1,1985, under which in cases where the whole or any part of the relevant income is not exempt under Section 11 or Section 12 because of the contravention of Section 13(1)(d), then tax shall be charged on such income or part thereof, as the case may be, at the maximum marginal rate. In other words, only the non-exempt income portion would fall in the net of tax as if it was the income of the association of persons. On the other hand, Section 11(5) lays down various modes or forms in which a trust is required to deploy its funds. Section 13(1) lays down cases in which Section 11 shall not apply. Under Section 13(1)(d)(iii), it has been laid down that any share in a company, not being a Government company, held by the trust after November 30,1983, shall result in forfeiture of exemption. By virtue of proviso (iia) it has been laid down that any asset which does not form part of permissible investment under Section 11(5) shall be disposed of within one year from the end of the previous year in which such asset is acquired or by March 31, 1993, whichever is later. In the present case, the assessee was required to dispose of the shares under the said proviso by March 31, 1995 (see the judgment of this court in I.T.A. No. 81 of 1999, decided on September 14, 2000 - Director of Income-tax (Exemptions) v.Shardaben Bhaqubhai Mafatlal Public Charitable Trust [2001] 247 ITR 1). The shares have not been disposed of even during the assessment year in question. Now, under Section 164(2) it is, inter alia, laid down that in the case of relevant income which is derived from property held under trust for charitable purposes, which is of the nature referred to in Section 11 (4A), tax shall be charged on so much of the relevant income as is not exempt under Section 11. Section 164(2) was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987. However, the Legislature inserted a proviso by the Finance Act, 1984, with effect from April 1,1985. By the said proviso, it is, inter alia, laid down that where the whole or part of the relevant income is not exempt by virtue of Section 13(1)(d), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate, The phrase "relevant income or part of the relevant income" is required to be read in contradistinction to the phrase "whole income" under Section 16 1(1 A). This is only by way of comparison. Under Section 161(1A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, then tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases show that the Legislature has clearly indicated its mind in the proviso to Section 164(2) when it categorically refers to forfeiture of exemption for breach of Section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation of ours is also supported by Circular No. 387, dated July 6, 1984 (see [1985] 152 ITR (St.) 1). Vide the said circular, it has been laid down in para. 28.6 that, where a trust contravenes Section 13(1)(d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provision and not to the entire income. We may also add that in law, there is a vital difference between eligibility for exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. It is interesting to note that although the Legislature withdrew Section 164(2) by the Direct Tax Laws (Amendment) Act, 1987, which provision was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, the Legislature did not touch the proviso to Section 164(2) which has been on the statute book right from April 1, 1985. The said proviso was inserted by the Finance Act, 1984, The proviso specifically refers to violation of Section 13(1)(d) and its consequences. In the circumstances, we find merit in the contention of the assessee that in the present case, the maximum marginal rate of tax will apply only to the dividend income from shares in Mafatlal Industries Limited and not to the entire income. Therefore, income other than dividend income shall be taxed at the normal rate of taxation under the Act.'
8.4 Following the above decision we hold that the breach of section 13(1)(d) and 13(2)(h) would lead to forfeiture of exemption of income derived from such investment and not the entire income would be subjected to the maximum marginal rate of tax u/s 164(2). Thus the exemption u/s 11 is available to the assessee only on the income to the extent the same is derived in conformity of section 11 and applied during the year for such purpose of charitable trust.
9. Ground No.2 is regarding denial of exemption u/s 10(34), 10(35) and 10(38).
9.1 The assessee claimed that dividend income on shares and unit and long term capital gain on sale of shares are exempt u/s 10(34), 10(35) and 10(38) respectively. The AO denied the exemption on the ground that the income derived from the property held by the trust and not any other person, section 11 exclusively deals with the income derived from the property held under trust and not section u/s 10(34), 10(35) and 10(38). Hence the AO held that there is a violation u/s 13 and as a result of the same exemption u/s 11 is denied. The assessee cannot claim the alternative claim for exemption u/s 10(34), 10(35) and 10(38) because these sections do not deal with income derived from the property held under the trust. If the income of the trust which is not held exempt u/ss 11, 12 and 13 is allowed to exempt under other sub-sections of section 10 it will lead to open ground for trust to exercise long term securities income and dividend income and claimed exemption of the same under other sub-sections of section 10 of Income-tax Act.
9.2 On appeal, CIT(A) concur with the view of AO.
9.3 Before us, the ld. Senior Counsel has submitted that any income by way of dividend referred to in section 115O of the Income-tax Act is exempt from tax u/s 10(34) of the Income-tax Act. Since the dividend is already subjected to tax at the hand of the distributing company u/s 115O and, therefore, it cannot be taxed twice. Once the income is exempt u/s 10 it would not required to be qualified u/s 11 of the Act. In support of his contention he has relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. Divine Light Mission [2005] 278 ITR 659/146 Taxman 653 and submitted that the Hon'ble High Court dealt with an identical issue regarding agricultural income exempt u/s 10(5) of the Income-tax Act held that this income is not required to be considered at all even for the purpose of section 11 of the Income-tax Act. Thus the ld. Senior Counsel has submitted that if exemption is available u/s 10 then section 11 is irrelevant. He has relied upon the following decisions:—
| (i) | CIT. v. Seethakathl Trust [2007] 295 ITR 520 (Mad.). | |
| (ii) | Brahmin Educational Society v. Asstt. CIT [1997] 227 ITR 317/[1996] 89 Taxman 434 (Ker.) | |
| (iii) | CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad.) | |
| (iv) | Bar Council of Uttar Pradesh v. CIT [1983] 143 ITR 584/12 Taxman 209 (All.) | |
| (v) | CIT. v. Bar Council of Maharashtra [1981] 130 ITR 28/6 Taxman 1 (SC). |
9.4 The ld. Senior Counsel referred the observations of these decisions and submitted that once the income is exempt u/ss 10, same cannot be said to be taxed u/s 11 to 13. He has further contended that if the exemption is available to the assessee under two provisions of the Act, then the assessee is entitled to exemption under the provision which is more beneficial.
9.5 On the other hand, ld. DR has submitted that as per section 11 of the Act, the income from the property held under trust is covered under this section and not u/s 10 of the Income-tax Act. He has contended that both these sections are part of chapter III and, therefore, section 11 being specific provision for exemption of income from the property held under trust would override general provisions. He has emphasized that the provisions under same chapter should be considered harmoniously while dealing with special mischief. Sections 11, 12 and 13 are strings of provisions and if the case is covered by these special provisions then general law would not apply. He has put forth the logic that section 13 dehors the applicability of section 11 and in the same manner it would also dehors the applicability of section 10 if there is a violation of section 13 of the Act.
9.6 We have considered the rival submissions as well as relevant provisions of law. The exemption u/s 10 is income specific irrespective of the status/class of person. Whereas the exemption under section 11 is person specific though on the income derived from the property held under the trust. Further the exemption u/s 11 is subject to the application of income and modes or form of deposit and investment. The Hon'ble High Court in the case of Divine Light Mission (supra) while dealing with an identical issue has held in para 9 as under:—
"So far as question No.4 of paragraph No. 3 with regard to agricultural income is concerned, section 10(5) of the Act specifically points out that agricultural income shall not be included in computing the total income of a previous year and hence the question is required to be answered in favour of the assessee and against the Revenue. This income is not required to be considered at all even for the purpose of section 11 of the Act."
9.7 While deciding the question that the agricultural income was income from the property held under the trust can be denied exemption u/s 11 of the Income-tax Act. the Hon'ble High Court has held that the agricultural income shall not be included in the computation of total income of previous year in view of section 10(5) of the Act. Therefore, this income is not required to be considered for the purpose of section 11 of the Act. In the case of his holiness Silasri Kasivasi Muthukumaraswami Thambiran v.Agricultural ITO [1978] 113 ITR 889 (Mad.) the Hon'ble High Court of Madra has held that the agricultural income derived by charitable or religious trust is exempt u/s 10 could not be said to be brought to tax u/ss 11 to 13. Similar view has been taken in the series of decisions as relied upon by the ld. Senior Counsel when the question involved was the allowability of exemption u/s 10, (22), (23) Vs. sections 11 and 13. In our view the exemption u/s 11 is available on the income of the public charitable /religious trust or institution which is otherwise taxable in the hands of other persons. Thus the income which is exempt u/s 10 cannot be brought to tax by virtue of sections 11 and 13 of the Act because no such pre condition is provided either u/s 10 or 11 to 13 of Income-tax Act. Therefore, section 11 to 13 would not operate as overriding affect to the section 10 of the Act. The language of these provisions does not suggest that either section 10 is subjected to the provisions of sections 11 to 13 or sections 11 to 13 has any overriding affect over section 10. Therefore, the benefit of section 10 cannot be denied by invoking the provisions of sections 11 to 13 of the Act. Once the conditions of section 10 are satisfied then no other condition can be fastened for denying the claim under section 10 of the Act.
9.8 In view of the above discussion and following the various decisions (supra) we hold that the dividend income on shares and mutual funds and long term capital gain on sale of shares an exempt u/s 10(34) 10(35) and 10(38) respectively and cannot be brought to tax by applying sections 11 and 13 of the Act.
10. Ground No. 3 is regarding education grant given to Indian students for studying abroad.
10.1 The assessee has given grants to various Indian students/persons to pursue their education/higher education in various universities abroad. The AO noted that the grant is released by the assessee only after obtaining the first semester results of their education outside India from each scholar. The AO was of the view that the application of income as well as charitable purpose, both should be in India and execution of charitable purpose may be inside or outside India. The AO relied upon the decision of Hon'ble Delhi High Court in the case of DIT (Exemption) v. National Association of Software and Services Companies [2012] 345 ITR 362/208 Taxman 178/21 taxmann.com 213 (Delhi) and held that the amount of Rs. 1,53,50,000/- spent by the assessee for education grant to the students is not application of its income for charitable purpose in India and accordingly disallowed the exemption u/s 11.
10.2 On appeal CIT(A) confirmed the action of the AO.
10.3 Before us, the ld. Senior Counsel has submitted that it is sufficient if the income is applied within India and to that extent the income will be exempt u/s 11(1)(a). The ld. Senior Counsel has submitted that the decision relied upon by the AO in the case of National Association of Software and Services Companies (supra) is not applicable in the facts of the present case as in the case of the assessee the grant was given to the Indian students and in Indian Rupees, though the students have used the said grant for higher education abroad. The assessee has applied the money for charitable purpose in Indian and the final execution of the purpose may be outside India but the same will not affect the conditions satisfied by the assessee. the ld. Senior Counsel has relied upon the decision the Chennai Bench of this Tribunal in the case of Bharata Kalanali v. ITO [1989] 30 ITD 161 (Mad.). He has also relied upon the decision of this Tribunal in the case of CEO Clubs India v. DIT (Exemption) [2012] 53 SOT 488/25 taxmann.com 217 (Mum).
10.4 On the other hand, the ld. DR has submitted that the activity of the assessee does not end with the selection of candidates for assistance and disbursing amount to him but necessarily involves monitoring of the progress of the scholar's education outside Indian and completion of education outside India subject to the performance of the students, the financial assistance is granted and continued. Even only those students were selected who have already started their education outside India. Therefore, the trust is not merely handing over the grant for education of the scholars but is actively monitoring the education of scholars abroad. The assessee has not applied its income for charitable purpose in India. Merely making payment in India is not sufficient but the charitable purpose should also happen within Indian territory. He has relied upon the decision of Hon'ble Delhi High Court in the case of National Association of Software & Services Companies (supra).
10.5 We have considered the rival submissions and perused the relevant material. The assessee has given grant to 97 scholars studying in various institutions and universities outside Indian and the total amount of grant is Rs. 1,53,50,000/-. The assessee paid the grant in India and for the purpose of education of Indian students/persons, thus the charitable purpose of the grant is education of Indian persons. The application of income of the assessee completes at the point when the assessee released the grant which took place in India. The decision relied upon by the revenue is not applicable in the facts of the present case as the application of income took place in India and for the purpose of education of Indian students/persons. Therefore, for taking education by beneficiary from abroad would not amount to application of income of the assessee outside India. In the case of Bharata Kalanji(supra) the Chennai Bench of this Tribunal while deciding a question arising from the payment of Rs. 1.55 lakh made to a travel corporation of Indian for sending a troop on tour. The AO treated the expenditure as application of income of the trust for charitable purpose. However CIT revised the assessment and was of the opinion that this expenditure was prohibited and was not applied for purpose of trust in India and, therefore, not eligible for exemption u/s 11. The main object of the trust was to advance, propagate, increase and promotion of Indian classical and Folk arts and Indian music etc. The trust was invited by the Government of Nigeria to give certain dance performance abroad. Accordingly the trust send a troop and paid a sum of Rs. 1.55 lakh being the passage money to the Travel Corporation of India. The Tribunal held in para 6 as under:—
"6. The crucial question is only whether the conditions in section 11 are complied with. That section states that the income derived from property held under trust wholly for charitable purposes shall not be included in the total income to the extent to which such income is applied to such purposes in India. The question is whether this section requires the application of money in India or the carrying out of the purposes in India or both. The contention of the revenue is that apart from the money being spent in India even the purpose must be carried out in India. The section itself contradicts this contention. Section 11(1)(c)( ii) provides that income applied to such purposes outside India is exempt in the case of trust created before 1-4-1952 subject to the approval of the Board. This underlines the principle that Governments do not forego their revenue in favour of charges paid outside their countries and hence the relevant consideration is whether the situs of the application of the money and not the place in which the objects of the trust may become effective. It may be pertinent to refer to section 1 of 16 which exempts scholarships granted to meet the cost of education where also the CBDT itself does not consider scholarship granted for education abroad as money spent outside India. Similarly in the present case of such a wide object of propagation of art it would be difficult to confine it to the shores of the land. We are of the considered opinion that the expression "applied to such purposes in India" refers only to the situs of the expenditure and not" to the place 'where the "purposes" are carried out. The fact that the troupe gave the performance abroad is therefore no disqualification for treating he amount actually spent in India as application of the amount for charitable purposes. The Commissioner also referred to collections made for performances given as an activity for profit. We find that such performances do not constitute activities for profit as the collections are in the nature of donations received for the purposes of the trust. Hence this objection also cannot be sustained, It follows that the exemption granted by the Income-tax Officer was not erroneous and did not require to be reviewed by the Commissioner. Hence his order u/s 263 is cancelled. The appeal is allowed."
10.6 Similarly in the case of CEO Clubs India (supra), coordinate bench of this Tribunal has held in para 11 as under:—
"The other objection of the DIT was that the activities of the Assessee were not confined to India and therefore registration cannot be granted. The basis for these observations is that conferences were to be held outside India. We are of the view that holding of conferences abroad would not make the activities of the Assessee being carried out outside India. The benefits of such conference will ultimate go to Assessee and its members. It cannot be said that the activities of the Assessee were carried on outside India."
10.7 Following the above decisions of Tribunal, we hold that the education grant given to the Indian students in India for education/higher education abroad fulfills the conditions of application of money for such purpose in India.
11. Ground No. 4 is regarding denial of deduction of income applied to the objects of the trust in India and administrative expenses.
11.1 We have heard the ld. AR as well as ld. DR and considered the relevant material on record. The CIT(A) has decided this issue in para 7 as under:—
"Ground No. 5 of appeal becomes infructuous In the context of ground No. l, 2, 3 & 4 of appeal being dismissed because the claims of the appellant are in relation to 'computation of application of income' in the context of section 11 of the LT. Act, on which having failed for exemption u/s 11 of the LT. Act, the A. O. has computed the income in commercial manner. There is no disallowance made by the A.O. In computation of income In the" assessment order under the head 'administrative expenses' of Rs.3,65,81,515/- as taken in ground No. 5 of appeal. Therefore, ground No. 5 of appeal is also dismissed"
11.2 As it is clear that the AO denied the exemption u/s 11 and computed the income in commercial manner. CIT(A) has recorded that the AO has not made any disallowance on account of administrative expenses. However we note that the AO has computed the total income by taking the income from various sources and has not allowed any deduction. In view of our finding on the question of exemption u/s 11, this issue is set aside to the AO to reconsider the claim in the light of our finding on other issues.
12. Ground No. 5 is regarding TDS credit.
12.1 We have heard the ld. AR as well as ld. DR and considered the relevant material on record. At the outset we note that the CIT(A) has considered this issue in para 8 as under: —
"The A.O. is directed to verify and allow claim of TDS if any, u/s. 154 of the I. T. Act as an alternative remedy available with the appellant. Therefore, to that extent ground No. 6 survives for direction as given, but treated as dimissed for statistical purposes"
12.2 As it is evident from the finding of CIT(A) that the AO was directed to verify and allow the claim of TDS, therefore, no grievance arises from the impugned order of CIT(A). However the AO is directed to consider and decide the claim of TDS credit.
13. Ground No. 6 is regarding maximum marginal rate of tax applied to the entire income.
13.1 While denying the exemption u/s 11, the AO has applied the maximum marginal rate of tax on the entire income as per section 164(2).
13.2 On appeal, CIT(A) has confirmed the action of AO.
13.3 Before us, the Ld. Senior Counsel has submitted that the rate of tax on the short term capital gain arising from sale of shares shall be the rate prescribed under the Act u/s IMA and not the maximum marginal rate.
13.4 On the other hand, the Ld DR has relied upon the orders of authorities below and submitted that in the case of the assessee the provisions of section 164(2) are applicable and, therefore, the maximum marginal rate will be applied on the taxable income of the assessee and not separate rate on separate nature of income.
13.5 Having considered the rival submissions as well as relevant material on record. We note that the rate of tax on short term capital gain arising from sale of equity shares is provided u/s IMA as 15%. However relevant income which is derived from the property held under trust wholly for charitable or religious purpose is charged to tax as per the provisions of section 164(2) which reads as under:—
"(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2,1 for which is of the nature referred to in sub-section (4A) of section 11,1 tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons:
Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate."
13.6 Section 164(2) does not prescribe the rate of tax but it mandates the maximum marginal rate as prescribed under the provision of Act. Section 111A is a special provision for rate of tax chargeable on such income which reads as under:—
'111A Tax on short-term capital gains in certain cases.— (1) Where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a short term capital asset, being an equity share in a company or a unit of any equity oriented fund and—
| (a) | the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (NO.2) Act, 2004 comes into force; and | |
| (b) | such transaction is chargeable to securities transaction tax under that that chapter, the tax payable by the assessee on the total income shall be the aggregate of— |
| (i) | the amount of income tax calculated on such short-term capital gains at the rate of fifteen per cent; and | |
| (ii) | the amount of income tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee: |
Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income tax, then, such income as so reduced falls short of the maximum amount which is not chargeable income tax and the tax on the balance of such short term capital gains shall be computed at the rage of fifteen per cent.
2. Where the gross total income of an assessee includes any short-term capital gains referred to in sub-section (1), the deduction under Chapter Vl-A shall be allowed from the gross total income as reduced by such capital gains.
3. Where the total income of an assessee includes any short-term capital gains referred to in sub-section(1), the rebate under section 88 shall be allowed from the income tax on the total income as reduced by such capital gains.
Explanation — for the purpose of this section, the expression "equity oriented fund" shall have the meaning assigned to it in the Explanation to clause (38) of section 10.'
13.7 When the short term capital gain arising from the sale of shares subjected to STT is chargeable to tax at 15% then the maximum marginal rate on such income cannot exceed the maximum rate of tax provided under the Act. Accordingly, we are of the view that the short term capital gain on sale of shares already subjected to STT, is chargeable to tax at maximum marginal rate which cannot exceed the rate provided u/s IMA of the income Tax Act. Accordingly this issue is decided in favour of the assessee.
14. In the result appeal of the assessee is partly allowed.
SUNIL*Partly in favour of assessee.
Regards,
Pawan Singla , LLB
M. No. 9825829075Financial Accounting and Ratio Analysis
J.V. GURURAJ
Financial Accounting is now a days a very deep rooted subject. It has only two wheels – Debit and Credit. The whole system of accounting is completely rested on these two wheels. It has got such a scope these days that even it is impossible to imagine our economy without the use of financial accounting. From Petty Pan Shop to a billionaire company needs accounting. The accountants do play a vital role in maintaining and reporting the accounting system. A Ratio is a statistical Yard stick to measure relationship between two accounting figures. It is used mainly to analyse trend and static of business. It is very useful for the investors, suppliers, creditors. It is used as a mirror to reflect financial status of a particular company or group of company, firms, business houses. The manager or owner of the company use the tool to rectify or diversity or fine tune their transactions in accordance with ratio pointing analysis. The investor will think of investing or disinvesting in the company based on the positions revealed by ratio analysis. The suppliers will know the position of turn over trend and the creditors will know the profit ability to get their return.
Classification of Ratios : The Classification of ratio is based on the statement from which the ratios are calculated. There are three categories:
I) Balance Sheet Ratio : Balance Sheet is the product of accounting system – extracting all debits and all Credits naming as Assets and Liabilities accordingly. Balance Sheet always reveals the true figures which will be final and moves further to next continuation. The Manager or owner or investor or creditors etc. will use ratios of the followings to analyse whether the company is potential or not.
a) Working Capital Ratio or current ratio : Simple formula is current assets divided by current Liabilities eg : 100/50 = 2 : 1 double assets to single liability. Bankers always prefer this.
b) Liquid Ratio or Quick Ratio or Acid Test Ratio : The formula is : Quick current assets / Quick current Liabilities 100/100 = 1 : 1 equal assets and equal quick liabilities Quick Current Assets are : Cash bills receivables, debtors , quick current liabilities are : Short Term Creditors , Hand Loans, Usls etc. usually proprietors prefers this.
c) Return on proprietory fund Ratio : This shows return on proprietors capital . The formula is Net Profit after tax x 100/ proprietors capital = NP 100 X 100 /102 =98.03 return usually investors or proprietors prefers.
d) Proprietor fund ratio : This ratio actually shows how much proprietory fund has earning capacity over fixed assets.
Formula : Fixed Assets / Proprietary Fund = 100/100 = 1: 1
II) The second Category of ratio is Profit and Loss account : The financial accounting before extracting Balance Sheet will first extract Mfg. trg. Profit and Loss A/c. All the debits in Profit & Loss are sucked out by all credits and final by products is Net Profit. In trading and Manufacturing account we know exact T.O., Sales, purchases stock , G.P. There are five main types of ratios based on Profit and Loss .
a) Gross Profit Ratio : Usually Gross Profit constitutes the difference between cost of goods brought in and the cost at which they are sold. The suppliers of the goods will first see the G.P. Ratio to get their money back. Formula is G.P. x 100 / Sales TO. If G.P. is 10000/- and sales is 100000 then 10000 x 100/100000 = 10%.
b) Net Profit Ratio : Net Profit is out come of G.P. - Expenses. All indirect expenses are deducted or debited in accounting system. The more percentage of N.P. shows healthy earning capacity of the company. The Bankers or the investors mainly attracted by this. The formula is NP x 100/10 . If TO is 5000000 N P is 5,00,000 = 5,00,000 x 100/50,00,000 = 10%.
c) Expenses Ratio : The Selling expenses can be controlled by analyzing P & L by this method. It is very useful for the managers of the company to curb unnecessary expenditure. The formula is Expenses x 100 / Total Sales.
If Sales is 1,00,000 and expenses is 1000 :
1000 x 100 / 100000 = 1%.
d) Inventory to Ratio : It is computed by dividing the cost of sales by average inventory of the period. A low ratio indicates slow moving of inventory. Formula : Avg. Inventory / cost of sales . If inventory is 20 cost of sale is 100 = 20 / 100 = 1 : 50 or 20%.
e) Operating Ratio : This indicates relation between operating profit and sales. It is worked out by dividing operating profits by net sales. We can Judge the managerial capability. The high percentage proves the efficient management.
III. The Third category of ratio is Balance Sheet and Profit and Loss Statement Ratio : It is calculated by referring both Balance Sheet and Profit and Loss.
a) Return on total resources Ratio : This ratio is an indicator of the earning capacity of the total resources employed in the business. Total resources not only includes share capital but also includes fixed liabilities i.e. borrowed money, reserves un distributed profits etc. It is calculated as : Total resources x NP /Capital employed. If total resources is 100, NP 80, Capital is 100 = 100 x 80 / 100 = 80% NP to total resources.
b) Return on Capital Ratio : This is calculated in the same way as ( a) is calculated. Here Capital can include of a proprietory level where there are no reserves made obligatory. Any how while calculating this ratio we should see capital employed and share capital, P. Shares, borrowed liabilities, reserves. The formula is : Capital employed = NP x 100 / Capital employed.
c) Turn Over of Fixed assets ratio : This ratio expresses the number of times fixed assets are being Turn Over in a stated period. It is calculated as : Fixed assets ratio = Sales / Net Fixed assets ( Less Depreciation).
For eg: Sales is 100 net fixed asset is 80 = 100 / 80 = 1.25 : 1 The ratio shows how well the fixed assets are being used in the business. The lower the ratio shows that fixed assets are inefficiently used in business.
d) Turn Over of Debtors Ratio : This ratio measures the accounts receivables in terms of number of days of credit sales during a particular period . This ratio is calculated as :
Debtors Turn Over ratio = Net credit sales / Average Debtors
The ratios can be calculated in various forms like:
Pure ratios: which are arrived at by simple division of one number by another i.e. current assets to current liabilities.
Rate: which is the ratio between two numerical factors. it is expressed over a period of time i.e. stock turnover is three times a year
Percentage: which is a special type rate expressing the relation in hundredth. i.e. GP is 25% of sales
In conclusion we can say that the accounting system creates life of business; the ratios check up the health of business. To get best advantages, the ratios should be rightly used. If wrongly used ratios may create havoc and financial crisis in the company or business houses. Very much care is needed in applying ratios to different purposes especially in bigger investments, lending decisions from banks, fore warning of sickness of the company etc.
Article written by- J.V. GURURAJ ,Accounts & Tax consultant, Ph 9849291424 , Email-gururaj.jv@gmail.com
__._,_.___
No comments:
Post a Comment