S. 2(47)(vi): A Power of Attorney which does not enable enjoyment of property does not result in a "transfer". CBDT Circular No.495 dated 22.9.1987 reads more into s. 2(47)(vi) than warranted
(i) There is no transfer to or enabling enjoyment of property in favour of the assessee in any manner and therefore, sub-clause (vi) of Section 2(47) of the Income Tax Act does not get attracted. Clause 21 of the power of attorney, which has been already referred to supra, clearly reveals that no consideration was received from the power agent for appointing him as power of attorney. It also emphasised therein that the property right has not been handed over to the power agent. We are, therefore, unable to accept the plea of the Revenue that there was an element of transfer or enabling enjoyment in favour of the assessee. The letter of the land owner subsequently issued does not come to the aid of the Department. It is the duty of the power of attorney holder to deliver the amount received for the purpose of transfer of property. Therefore, no fault could be found on the part of the assessee. Assuming that he had delivered certain sum to the land owner, it is but the lawful duty of the power of attorney to deliver payment to the land owner. The sale to Dr.Meera Bai is also for the same value. Hence, nothing turns on the letter of the erstwhile owner, in favour of the Department.
(ii) We, therefore, now proceed to analyse the meaning behind circular No.495 dated 22.9.1987. The interpretation of the circular as put forward by the Revenue, we are not in agreement. The provisions of sub-clause (vi) of Section 2(47) of the Income Tax Act make it clear that the transaction, which has the effect of transferring or enabling the enjoyment of immovable property alone would come within the ambit of transfer. The circular reads something more into the provision. We are not inclined to accept such an interpretation. The circular also states that the legal ownership would continue with the transferor; but the property rights if it is transferred by way of power of attorney would come within the ambit of sub-clause (vi) of Section 2(47) of the Income Tax Act. Assuming we accept the intention behind the circular, then there should be an element of transfer or enabling enjoyment of property right as stated in paragraph 11.2 of the circular by the power of attorney holder.
(iii) We find no such recital in the power of attorney as extracted by the Tribunal and referred to by us. On the contrary, the terms of the power of attorney clearly show that property rights has not been transferred to the power of attorney holder and there is also no provision for enabling enjoyment. It is not the case of the Department that the power of attorney is sham. If they accept the power of attorney is valid, then the plea of capital gains at the hands of the assessee has no legs to stand.
S. 2(47)(v): Execution of a Power of Attorney in favour of the builder constitutes part performance u/s 53A of TOP Act and a "transfer" for capital gains
(i) On a reading of the above provision itself, it is clear that possession of the property has been handed over to the builder immediately on receipt of the first installment of the payment from the builder. As per clause (3), the total consideration is mentioned as Rs.8,83,50,400/- and Rs.3,00,00,000/- was to be paid as advance on the date of the agreement. The balance amounts were to be paid in instalments. These provisions categorically indicate the existence of an agreement by which the substantial portion of sale consideration is paid and possession of the property is handed over to the builder.
(ii) It is argued on behalf of the respondent that this is not a sale agreement at all. It is an agreement between owner of the land and the builder. It is argued that Clause (1) itself would show that if the project is not viable the property has to be returned back and the assessee will return all the money till then received. That apart, when a power of attorney is executed, the factum of sale arises only when the property is sold by the builder in favour of third parties. Only at that stage, that is when the sale deeds are executed, transfer as defined under Section 2(47) takes place.
(iii) On going through the materials on record and the documents made available, we do not think that the Tribunal has correctly appreciated the question on hand. When transfer is defined under the Income Tax Act and it includes a transaction involving possession to be handed over in part performance of a contract in the nature referred to in Section 53A of Transfer of Property Act, it amounts to transfer. Section 53A clearly explains the concept of part performance of a contract of sale of immovable property. If a buyer is put in possession of a property in part performance of the obligations under the agreement on the buyer paying a substantial portion of the sale consideration, the contract of sale is treated to be in part performance. Perusal of the agreement in the case clearly indicates such a contract of part performance. The assessee cannot take a contention that the builder is not the buyer. In fact, the terms and conditions of the agreement clearly indicates that the intention of the parties is to sell the property as such to the buyer, or their nominees and a power of attorney is given to enable the buyer to sell the undivided share of land in favour of purchasers of apartments to be constructed by the buyer of the land. The execution of the sale deed is deferred as at the time when the possession of the property is transferred to the builder, there is no purchaser for the property. In other words, the builder himself has crept into the shoes of the purchaser of the property and the registered instruments were created subsequently and the idea of keeping alive the agreement and execution of power of attorney in favour of the builder is only for the purpose of avoiding duplication of registered instruments and payment of stamp duty. In this case, the assessee themselves executes the sale deed after several years on the request of the builder. Therefore, in principle, the actual transfer takes place between the assessee and the builder and it is thereafter the builder transfers possession to the purchaser of the apartments.
(iv) In the said circumstances, we are of the opinion, capital gains is to be computed at the time when the transfer takes place which has to be during the assessment year when a substantial portion of the amount was received by the assessee, that is when Rs.3.81 crores was received by the assessee during the assessment year 2004-05. Hence the said question is to be answered in favour of the department.
S. 14A/ Rule 8D: Interest expenditure attributable to a taxable business cannot be disallowed. Expenditure on creating assets which do not belong to the assessee is revenue expenditure
(i) Once it was duly established that no borrowed funds on which interest was paid had been invested for earning tax free income, no disallowance was permissible under Section 14A. The Tribunal has observed that under Rule 8D(2)(ii), a proportionate disallownace out of interest expenditure would be made in respect of interest expenditure which is not directly attributable to any particular income or receipt. Since the entire interest expenditure, in the present case, was attributable to business in which the resultant income was assessable to tax, a disallowance could not be made.
(ii) The true test is whether the expenditure which has been incurred by the assessee is for the purpose of obtaining a commercial advantage in the capital field. In the present case, it is clearly evident that the power transmission lines which were laid by the assessee were, upon erection, to constitute the exclusive property of UPPCL. UPPCL was the only consumer of the electricity generated by the assessee.. The assessee incurred the expenditure to facilitate its own business. The fixed capital of the assessee was untouched and there was no capital accretion for the assessee (Empire Jute Co Ltd 124 ITR 1 (SC), L H Sugar Factory and Oil Mills 125 ITR 293 (SC), Gujarat Mineral Development Corp 249 ITR 787 (SC) & Coats Viyella India 253 ITR 667 (Mad) referred).
S. 271(1)(c): Penalty initiated without specifying whether it is for concealment or for furnishing inaccurate particulars it invalid
(i) It is incumbent upon the Assessing Officer to state whether penalty was being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income had been furnished by the assessee. There are two different charges i.e. the concealment of particulars of income or furnishing of inaccurate particulars of income. The penalty can be imposed for a specific charge. Furnishing of inaccurate particulars means when the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are incorrect. Concealment of particulars of income means when the assessee has concealed the income and has not shown the income in its return or in its books of accounts;
(ii) In the case of furnishing inaccurate particulars of income, the onus is on the Revenue to, prove that the assessee had furnished the inaccurate particulars, while in the case of concealment of particulars of income, where the Explanation (1) is applicable, the onus is on the assessee to prove that he has not concealed the particulars of income;
(iii) The AO failed to discharge his onus as he was not sure at the initiation of penalty u/s 271(1)(c) for which specific charge penalty has been initiated by the Assessing Officer. Even while levying the penalty also, the Assessing Officer simply relied on the explanation to Section 271(1)(c) even though he levied the penalty for furnishing the inaccurate particulars of income. This is apparent from the provisions of Section 271(1)(c) that explanation of Section 271(1)(c) is not applicable in case inaccurate particulars are furnished. Therefore the basis of levy of penalty itself is not correct (New Sorathia Engineering Co (2006) 282 ITR 642 (Guj) followed)
S. 271(1)(c): No penalty can be levied for a bona fide "wrong" claim which is not a "false" claim
The addition by way of disallowing the depreciation claimed has rightly been made in the quantum proceedings which fact has been accepted by the assessee by filing a revised return and not agitating the issue further. Considering the explanation offered by the assessee in the penalty proceedings, it is seen that repeatedly it is claimed that the return was finalized on the basis of figures appearing in the Sale Deed. This fact has not been disputed by the department and is found to be supported from the assessment order itself. In the aforementioned peculiar facts and circumstances, considering the fact that even after the said addition the assessee was allowed business loss to be carried forward to the extent of Rs.2.96 crore odd, we have no hesitation in following the judicial precedent relied upon to hold that the explanation offered is bonafide and deserves to be allowed. It is seen that at best the claim of the assessee can be called a wrong claim and by no stretch of imagination on the facts as they stand can it be called a false claim. We have taken into consideration the order of the coordinate bench relied upon in the case of Vasudev Pahwa vs. ACIT (cites supra) and the principle laid down by the Apex Court in the case of CIT vs. Reliance Petro Products Limited (2010) 322 ITR 158 (SC) which was subsequently followed by the Apex Court in the case of Price Water House Coopers Pvt. Ltd. vs. CIT (2012) 25 Taxmann.com 400 (SC).
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