Income Tax

Summary of Question- Effect of Notice U/S 132(3) of I.Tax Act

Question – Whether Income Tax Department is authorized under section 132 (3) of the Income Tax Act to direct a Bank to remit the credit balance of a customer of the Bank  to the I. Tax Department and whether the Bank is under statutory obligation to remit the money to I.Tax Department in response to an order under section 132(3) of the I.Tax Act and whether the Bank will get discharge by remitting the money to the I.Tax Department in response to the order under section 132(3) of the I.Tax Act.

Answer- No.

Rationale-

  1.  A Division Bench of the Hon’ble Kerala High Court in the case reported in 1976 (104) ITR 347  observed and held that monies deposited in a Bank are impracticable to seize ; in such cases, action can be taken under section 132(3) of  the I.Tax Act ( which provides for a prohibitory order). For clarity’s sake, contents of section 132(3) are quoted below:

 

“The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing, for reasons other than those mentioned in the second proviso to sub-section (1), serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section.”  

  

1.1. Is clear from the said section 132(3) that if it is not practicable to seize money then the concerned I tax authority shall only order that the money shall not be removed or parted with without prior permission of the I. Tax authority .  In other words, it can be said that the  provision in section  132 (3)  gives authority to the I.Tax Deptt. to issue  only a prohibitory order on the Bank not to deal with the monies deposited by a Bank’s customer  except with the prior permission of the authority ; it is beyond the scope of section 132(3) to order the Bank to remit the customer’s money to the I.Tax Department.

 

2.  In a Division Bench case of the  Hon’ble Bombay High Court, decided on 16.4.2008. (Shahin Iqbal Ghaniwale Vs Commissioner Of Income Tax; Director Of Income Tax; Assistant Director Of Income Tax; Assistant Commissioner Of Income Tax & Amrawati District Central Co-Op Bank Limited), the argument on behalf of the petitioner was that  respondent- I. Tax authorities had no business to issue direction to the respondent Bank to convert the amount of Rs. 5 lakhs in the form of demand draft in favour of the Department.  The I. Tax authorities defended the action of the Department - both on the count of necessity and desirability and also because the officials of the Income Tax Department  had authority to convert the amount from the bank account of the petitioner which was attached in terms of order under section 132 of the Act.

2.1.  The Hon’ble Court did not upheld the action of the I Tax Department of the said conversion of the deposit with the bank in the form of draft as aforesaid. The Hon’ble Court consequently ordered  the Department to transfer the said amount of the draft to the petitioner with fixed deposit  interest. 

3.  There is another  Division  Bench decision of  the Hon’ble  Patna High Court in the case reported in (1991)189 ITR 549.   In this case, in pursuance of an authorization under Section 132(1) of the Income Tax Act,  the Assistant Director of Inspection, directed the branch  manager of the bank to debit the fixed deposit account of the petitioner and  prepare a draft for the balance amount along with interest payable in P. D. Account of the Commissioner of Income Tax, Patna. The branch manager was further informed that the formalities of making seizure of account would be completed at the time of execution of the warrant. Thereafter , the Assistant Director of Inspection seized the draft dated  May 19, 1988, in P. D. Account of the Commissioner of Income Tax, Patna, for a sum of Rs. 5,06,874 prepared in pursuance of the aforesaid direction. The Hon’ble Court observed  as quoted below:-

“…..It is no doubt well-settled that an amount in credit with the banker is always liable to attachment. An action in that behalf can be taken under Sub-section (3) of Section 132 of the Act. That provision contemplates a prohibitory order not to deal with the monies deposited by the petitioner except with the prior permission of the authority. Such an order would have been undoubtedly justified but the bank, in my opinion, could not have been directed under Section 132(3) of the Act to convert the amount deposited by the petitioner by preparing a draft in favour of the Commissioner of Income Tax. No provision of law was brought to our notice to support this action….”

4.   So far as the law relating to banking is concerned, when a customer pays in money on deposit, the money paid in cannot be considered as a fund  held by the banker in trust for the customer. It is merely a loan to the banker and the customer is entitled to only the repayment of an equivalent sum with applicable interest at the time which the agreement between the two parties specifies. As pointed out by Lord Cottenham L.C. in Foley v. Hill  [1843 ] All ER R16 ( which a legal authority in Indian Law also):

" Money, when paid into a bank, ceases altogether to be the money of the customer ; it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into the bankers, is money known by the customer to be placed there for the purpose of being under the control of the banker ; It is then the banker's money ; he is known to deal with it as his own; he makes what profit on it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places, or the principal and a small rate of interest, according to the custom of bankers in other places..... He is guilty of no breach of trust in employing it, he is not answerable to the customer if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of the customer, but he is, of course, answerable for the amount because he has contracted, having received that money, to repay to the customer, when demanded, a sum equivalent to that paid into his hands. That has been the subject of discussion in various cases, and that has been established to be the relative situation of banker and customer. That being established to be the relative situation of  banker and customer, the banker is not an agent or factor, but he is a debtor.”

5. The  legal position  is , therefore,  that once  a customer deposits money in his account in a bank , the money, after such deposit, becomes the money of the bank as a debtor ; Bank is only obliged to honour the cheque / mandate issued by the customer in the matter of  withdrawal from the account as per the contract of deposit ; the money,  after its deposit  in  Bank, ceases to the customer’s money and the money so deposited  cannot be  earmarked  rather it merges in the Bank’s money and it cannot be ascertained  as to what money was actually deposited by the customer. As such, the money deposited  in Bank  is not practicable to be seized under section 132  of the I. Tax Act. But the I. Tax authority is empowered , under section 132 (3),  to issue prohibitory order on the Bank so that such money  is not withdrawn by the customer through cheque or any other mode of mandate of the customer. .

6. In case of  deposit of money in a Bank by a customer, there accrues a contractual obligation on the Bank to make payment as per the mandate of the customer in terms of the contract of deposit, and the Bank gets absolute & full discharge by making payment on the basis of the customer’s mandate. But this contractual obligation is curtailed if there is order of  a court or authority of law. Income Tax Authority is one authority who can curtail this obligation by issuing prohibitory order on  the Bank, under section 132(3) of the I .Tax Act,  not to allow a particular account holder to withdraw money from his account, and then it becomes  statutorily incumbent on the Bank to comply  such prohibitory order of the I. Tax Authority. But the Bank cannot get discharge if  it  makes  payment to the Income Tax Authority in response to order under section 132(3) as the   I . Tax Authority is not legally authorized to demand payment from a  Bank’s  customer’s  account under section 132 (3) of the I. Tax Act. However, if there is mandate of the customer to make payment to the I. Tax Deptt. , the Bank will get full indemnity on making   payment to the  I. Tax authority even though the demand for money is made under section 132 (3) of the I. Tax Act.

7.  In this connection, one question may arise whether there is any provision in the I. Tax Act under  which a bank can be ordered  to make payment from  its customer’s account without the customer’s mandate . Answer is that there is section  226(3) of the I. Tax Act under which  an I .Tax authority can demand payment from an account of the customer,  for which no mandate of the customer is required as the order  under section 226 (3) of the I Tax Act is in the nature garnishee order, compliance of which gives the Bank  full discharge from its ( Bank’s)  liability to  its customer even though there is no mandate by the customer for the purpose of   debit of the customer’s  account  to make  payment to the I. Tax Department. 

 

Summary of Question- Effect of Notice u/s 133(6) of I. Tax Act 

Question- Even if no proceeding is pending under the I.Tax Act against a person and information with regard to that person, who happens to be a Bank’s customer, is sought by issuing notice to the Bank  under section 133(6), whether the Bank is under statutory obligation to comply the Notice &  furnish information (which information lies  with the Bank) to the I. Tax Dept.     

Answer- Yes.

Rationale-

1.  A  Division Bench Judgment of  the Hon’ble Kerala High Court   in the case reported in 2003 (182) CTR 517 KER is very much relevant. In this  appeal, scope and ambit of section 133(6) of the IT Act, 1961  as amended by the Finance Act, 1995, arose for consideration. The appellant’s submission was that the power u/s 133(6) can be exercised only for gathering information in relation to any point or matter relevant to any proceedings under the Act. It was further submitted that if the said sub-section is understood as giving a wide power it will affect the secrecy of their customers' account. The appellant’s case was that in order to invoke the provisions of section 133(6) of the Act, some proceedings under the Act must be pending against the person with respect to whom the details are called for but no such details are furnished in the notice.

1.1. In the said appeal, the Hon’ble court referred to - (i) section 133(6) and (ii) the Circular No.717 dated 14th August, 1995 issued by CBDT which are quoted below:-

(i) Section 133 (6)-   "(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing officer, the Dy. Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Dy. Commissioner (Appeals), the joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, any inquiry or proceeding under this Act :

Provided that the powers referred to in cl. (6), may also be exercised by the Director-General, the Chief Commissioner, the Director and the Commissioner:

Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any Income Tax Authority below the rank of Director or the Commissioner without the prior approval of the Director or , as the case may be, the Commissioner."

(ii) Circular 717  “41.1. The Income-tax Department has taken steps to improve information-gathering and its processing to be in line with its plans of computerisation. Allotment of permanent account numbers is being done with the help of computers. Quoting of such numbers in high value transactions may be made a statutory requirement.

41.2. At present the provisions of sub-section (6) of section 133 empower the income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or a restraint on the capability of the Department to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act.

41.3. With a view to having a clear legal sanction, the existing provisions to call for information have been amended. Now the income- tax authorities have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any person. The Assessing Officer would, however, continue to have the power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an Iincome-Tax    Authority below the rank of Director or commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner”

 

1.2. The said Hon’ble Division Bench based its decision on the judgment of the  Supreme  Court given in the case reported in AIR 2003 Supreme Court 2096 in which it has been held as under:-

“ It is clear from the mere reading of the said provision that it is not necessary that any inquiry should have commenced with the issuance of notice or otherwise before section 133(6) could have been invoked. It is with the view to collect information that power is given under section 133(6) to issue notice, inter alia, requiring a banking company to furnish information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceeding under the Act is pending, the only safeguard being that before this power can be invoked the approval of the Director or the Commissioner, as the case may be, has to be obtained.”

1.3. The Division Bench finally dismissed the appeal making the following observation:-

  “It is clear that it is not a condition for the issuance of a notice under section 133(6) of the Act that any proceedings under the Act against the person with respect to whom the information is called for should be pending. The Supreme Court has clearly stated that the only limitation is that before issuing a notice requiring a banking company to furnish information in respect of such points or matters as may be useful or relevant is to get the prior approval of the Director or the Commissioner, as the case may be.”

 

2.  In this connection, it is also relevant to quote here the following observation of the Hon’ble Kerala High Court in the case reported in 2010 (232) CTR 30 KER:

“…….. it is not necessary that any inquiry should have commenced with the issuance of notice or otherwise before Section 133(6) could have been invoked. It is with the view to collect information that power is given under Section 133(6) to issue notice, inter alia, requiring banking company to furnish information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceeding under the Act is pending, the only safeguard being that before this power can be invoked the approval of the Director or the Commissioner, as the case may be, has to be obtained ”

3. 3. The legal position is , therefore,  summarized as under :

(i) Even if  no proceeding is pending  under the I.Tax Act against a Bank’s constituent in respect of whose account, information has been required by the I.Tax  or even if the information has not been sought with regard to any specific constituent of the Bank  but the notice is under section 133(6) of the I .Tax Act , the only point to be ensured by the Bank is that there is prior approval of the Director or the Commissioner for the same.

 (ii) Failure to furnish particulars sought under section 133 is punishable under section 272A(2) of the I. Tax Act with a penalty of Rs. 100/- for every day during which the failure continues. 

 (v) Bank cannot refuse to furnish information on the ground that the information required is general information i.e, not with regard to any specific person / account, if there is notice as per the provisions of the section 133(6) of the I.Tax Act.   

 

Summary of Question – Effect  of Notice u/s 226(3) of I. Tax Act 

Question – If a Bank receives Notice under section 226(3) of Income  Act to make payment of a Fixed Deposit Receipt of a customer of the Bank but the fixed deposit is to mature on some date in future, whether the Bank can make payment of the Fixed Deposit before maturity to remit the money of the Fixed Deposit to the Income Tax Department.   

Answer- Yes.     

Rationale-

The Hon’ble  Karnataka  High Court in the case  of reported in [2000]  241 ITR 178 (Karnataka)   held  that  I.Tax  Department  has  the jurisdiction  to attach  the fixed Deposit  and  the  bank is under obligation to make  payment  of the amount   even before the maturity  of the fixed deposit  receipt. In this connection, the Hon’ble Court observed as under -

“It may be observed that according to the instructions which are issued by the Reserve Bank from time to time if a depositor wants to encash the fixed deposit receipt  before its maturity, the bank  is bound to refund the amount with lesser interest as is permissible looking to the time involved. The position of contracts entered into by an assessee with other companies or partners, where there is no such express or implicit contract for payment before the maturity date, the position stand on a different footing………..” 

 

Summary of Question- Write Off of Loan

Question- Whether Write Off of Loan is subject to Income Tax.

Answer- Yes.

Rationale-

 

1.  In a case before a Division Bench of the Hon’ble Madras  High Court reported in [2016] 384 ITR 530 (Mad), one  issue was  whether  the Income Tax Appellate Tribunal ought to have seen that the waiver of principal amount would constitute income falling under Section 28(iv) of the Income Tax Act being the benefit arising for the business?

2.  Short fact of the case was that the Assessee filed a Return of income admitting a loss. The  Assessing Officer found that the he (assessee)  was indebted to the Bank.  Loan amount was waived by bank under one time settlement scheme. 

2.1 The Assessing Officer was of the view that since the assessee accepted the One Time Settlement Scheme, they should have shown the entire interest waived by the bank as income under Section 41(1) on accrual basis during the relevant assessment year. The Assessing Officer found that the total amount waived was Rs. 10.50 Crores and that as per the assessees accounts, the total interest and principal waived worked out to Rs. 9,29,32,594/-, which left a difference of Rs. 1,20,67,406/-. Therefore, this difference was directed to be treated as income under Section 28(iv).

2.2. On the issue of addition of income  under Section 28(iv), the first Appellate Authority followed a decision of  in the case Iskraemeco Regent Limited, and held that Section 28(iv) has no application to cases involving waiver of principal amounts of loan

2.3. The High Court observed and held as quoted below:

“ Therefore,  it is not the actual receipt of money, but the receipt of a benefit or perquisite, which has a monetary value, whether such benefit or perquisite is convertible into money or not, which is what is covered by Section 28(iv). Say for instance, a gift voucher is issued, enabling the holder of the voucher to have dinner in a restaurant, it is a benefit of perquisite, which has a monetary value. If the holder of the voucher is entitled to transfer it to someone else for a monetary consideration, it becomes a perquisite convertible into money. But, irrespective of whether it is convertible into money or not, it should have a monetary value so as to attract Section 28(iv). A monetary transaction, in the true sense of the term, can also have a value. Any number of instances where a monetary transaction confers a benefit or perquisite that would have a value, can be conceived of. There may be cases where an incentive is granted by the supplier, waiving a portion of the sale price or granting a rebate or discount of a portion of the price to be paid, when the payments scheduled over a period of time, are made promptly. It is needless to point out that in such cases, the prompt payment of money itself brings forth a benefit in the form of an incentive or a rebate or a discount in the price of the product. We do not know why it should not happen in the case of waiver of a part of the loan. Therefore, the finding recorded in paragraph 27.1 of the decision in Iskraemeco Regent Limited that Section 28(iv) has no application to any transaction, which involves money, is a sweeping statement and may not stand in the light of the express language of Section 28(iv). In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from "the business" of the assessee. But, it certainly arises from "business". ………………..”

“Therefore, it is clear that the moment the asset is put to use, then the interest paid in respect of the capital borrowed for acquiring the asset, could be allowed as deduction. When the loan amount borrowed for acquiring an asset gets wiped off by repayment, two entries are made in the books of account, one in the profit and loss account where payments are entered and another in the balance sheet where the amount of unrepaid loan is reflected on the side of the liability. But, when a portion of the loan is reduced, not by repayment, but by the lender writing it off (either under a one time settlement scheme or otherwise), only one entry gets into the books, as a natural entry. A double entry system of accounting will not permit of one entry. Therefore, when a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as Capital Reserves, is increased to the extent of waiver. Alternatively, the amount representing the waived portion of the loan is shown as a capital receipt in the profit and loss account itself. ……”

 

Summary of Question- Agricultural Land. 

Question- Can a Land be treated as Agricultural land even if situated within the City Limits but being used for Agriculture.       

Answer- Yes.

Rationale-

1. A Division Bench decision of the Hon’ble Madras High Court in the case reported in 1976 (103)  ITR  366  observed & held as under:

“The test as to whether the land is capable of being used for agriculture has to be understood in the sense of the quality or nature of the land, or its being fit for cultivation, as it is. The classification of the land in the revenue records of the State Government would throw some light on the problem. The situation within the municipal limits or the application of a town planning scheme to the area would not be conclusive. The proposition urged for the revenue that there can be no agricultural land within the city limits is too wide to be accepted. The application of the town planning scheme is only to regulate building activity and does not by itself convert what is already an agricultural land into non-agricultural property unless the owner has taken steps to convert the land into building plots or factory sites.”

2. Hon’ble Supreme Court in the case reported in AIR 2018 SC 3540   observed and held as quoted below:

 “The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the SARFAESI Act does or does not apply. Whether a parcel of land is agricultural must be deduced as a matter of fact from the nature of the land, the use to which it was being put on the date of the creation of the security interest and the purpose for which it was set apart.”

 

Summary of Question- Capital Gains on Auction Sale  of Mortgaged Property.

Question – Whether Capital Gain Tax is levied if a person mortgages his property (i) as a borrower to secure a loan or (ii) as a guarantor  to secure a loan and he has interest in the loan, and the mortgaged property is sold by the creditor.  

Answer- Yes.

Rationale-

1. In the case of reported in AIR 2002 SC 388, short facts  were that the assessee who carried on abkari business mortgaged to the Excise Department of the State of Andhra Pradesh immovable property belonging to him. He did so to provide security for the amounts of "kits" which were due by him to the State. The State sold the immovable property by public auction, without the intervention of the court, to realise its dues. A sum of Rs. 5,62,980 was realised at the auction. Thereout, the State deducted the amount of Rs. 1,29,020 due to it towards "kits" and interest and paid over the balance to the assessee.

1.1. Observation and Finding of the Court

"We are of the view that the Tribunal and the High Court were in error. What was sold by the State at the auction was the immovable property that belonged to the assessee. The price that was realised therefore belonged to the assessee. From out of that price, the State deducted its dues towards "kits" and interest due from the assessee and paid over the balance to him. The capital gain that the assessee made was on the immovable property that belonged to him. Therefore, it is on the full price realised (less admitted deductions) that the capital gain and the tax thereon has to be computed."


2. The said decision of Hon’ble Supreme Court has been relied upon by the  ITAT, Chennai Bench in the case of The Income Tax Officer  Vs. B. Kailasam , decided on 06.03.2018.
 

2.1. Observation and finding of ITAT :
 

“With regard to the issue of income from long term capital gain, the Assessing Officer noticed that the assessee sold the property at 17A, Karpagambal Nagar, Mylapore for a consideration of ` 1,75,00,000/-, which was not admitted by the assessee in the return of income. When the details were called for, it was the submission of the assessee that the assessee has mortgaged the property owned by him at Karpagambal Nagar, Chennai for the loan granted by Indian Overseas Bank (IOB) to Min Bimbangal Productions Pvt. Ltd. [MBPPL] around the year 2001-02. As it was only as additional collateral security extended by the assessee, the assessee did not receive any consideration at that time of the mortgage of the property with IOB. Since the MBPPL failed to repay the loan availed from IOB, the IOB issued notice for disposal of the property for recovery of the loan extended to MBPPL and subsequently the property was sold and the entire consideration was recovered by the bank. The contention of the assessee that the assessee has not received a pie from the transfer and the entire sale proceeds realized on transfer of the mortgaged asset has been appropriated towards discharge of mortgage was not accepted by the Assessing Officer since, when, the property belonging to the assessee is sold in discharge of the mortgage created by the assessee himself, then irrespective of the amount actually received by the assessee, the capital gain has to be computed on the full price realized [less admissible deduction] on transfer of the asset. Accordingly, the Assessing Officer worked out the income from capital gain and brought to tax.”
 
“The assessee has pledged his property to IOB as a collateral security to loan availed by MBPPL. No lay man can execute a deed of mortgage of his property against the loan availed by a third party, a private limited company, until and unless the individual has substantial interest over the said company. Even though MBPPL is a registered company, this company is owned partly by the assessee as observed by the ld. CIT(A). Thus, it is clear that the assessee availed loan from the IOB under the banner of MBPPL by mortgaging assessee's own property and MBPPL (partly owned by the assessee) failed to repay the loan, the bank sold the property and the entire consideration was recovered by the bank. Thus, it cannot be held that the assessee has not received any consideration directly or indirectly, which were liable to tax.”
 

Summary of Question- Capital gains in case of GPA and JDA in favour of builder

Question – Whether a registered GPA (General Power of Attorney)  and JDA(Joint development agreement)  in favour of a builder can  be construed as  transfer of  land within meaning of section 2(47)(v) of the I. Tax Act for attracting Capital Gains.

Answer – Yes,  but  in certain situation.

Rationale-

1. In the case of  M/s. Tamilnadu Brick Industries Vs. ITO (I.T.A.No.744/Chny/2017 decided by IIAT, Chennai  on 11.05.2018), short facts were:

(i) The assessee was engaged in the business of brick manufacture and filed its return on 19.07.3013 for  total  income of ₹.44,04,628/-. The return of income  was processed under section 143(1) of the Income Tax Act. Subsequently, the case of the assessee was selected for scrutiny. After scrutiny , the Assessing Officer completed the assessment under section 143(3) of the Act by determining the total income of the assessee at ₹.511,60,00,657/- after making addition of long term capital gains of ₹.511,02,41,400/-.

(ia)  As the assessee who was engaged in the business of brick manufacture till 1986  was not functioning due to stoppage of brick manufacture because  the available land was fully exploited, the firm’s   35 acres of land  was subjected  of joint development agreement [JDA] with M/s. Brigade Enterprises Ltd. during the year 2012-13 to develop residential flats . In this transaction, the assessee has received interest free refundable deposit of ₹.10 crores. The Assessing Officer applied  the provisions of section 2(47)(v) of the Act  since the assessee had agreed to transfer/sell its 60% of total land of 35.55 acres to M/s. Brigade Enterprises Ltd. for a consideration which would be equivalent to 40% of total constructed area . Hence, the Assessing Officer requested the assessee to explain the applicability of section 2(47(v) of the Act as per the JDA.  In turn, the AR of the assessee contended before the Assessing Officer that the provisions of section 2(47)(v) of the Act would not be applicable as actual transfer of property as per section 53A of the Transfer of Property Act had not been taken place and it was a mere agreement to develop the property without transferring ownership till development. The Assessing Officer did not accept the assessee’s claim of non-applicability of section 2(47(v) of the Act and observed that the capital gain will be charged to tax as there was a transfer under the provisions of section 2(47)(v) of the Act. The value of the property was determined as on the date of execution of JDA by adopting the guideline value at ₹.5,500 per sq.ft. One acre is 43560 sq. ft. and accordingly, the area available was worked out at 15,48,558 sq. ft. for 35.55 acres. The guideline value for 15,48,558 sq. ft. at the rate of ₹.5,500 per sq. ft. was worked out at ₹.851,70,69,000/-. Accordingly, the Assessing Officer computed the capital gains on the deemed sale of 60% of the total area at ₹.511,02,41,400/- and added the same to the total income under the head “long term capital gains”.

 (ii) The assessee moved  in appeal before the ld. CIT(A). After considering the details as was furnished before the Assessing Officer and  the written submissions, the ld. CIT(A) confirmed the addition made towards long term capital gains.

(iii) Being  aggrieved, the assessee  moved to  ITAT contending , inter alia, that the ld. CIT(A) was not correct in confirming the taxation Long Term Capital Gains on the presumption of deemed transfer of 60% of the land in favour of the developer as per the scheme of Memorandum of Agreement and Joint Development Agreement executed on the application of section 2(47)(v) of the Act .

2. Hon’ble  ITAT referring  to various judgments observed and held, inter alia,  as under:

“6.13.…………….………………………………………………………………………………………………………………………………………………………….In this case, transfer took place because land is given possession to the developer and in consideration of land owner agreeing to give 60% undivided share in the land, the developer agreed to construct and deliver 40% of the super built up area, therefore the transferor is liable for capital gain tax. There is vesting of rights by the land owner to the developer to possess the land and bring such land under its control to do certain developmental activities in terms of the contract. The essence of section 53A of the Transfer of Property Act is that there is a transfer as soon as the possession is vested. The law treats the same as deemed sale. The ITAT, Hyderabad in the case of Ravinder Singh Arora, ITA No.58 & 355 (Hyd) of 2011 dated 20.07.20 12 vide para 26 and in the case of Shri. Suresh Kumar D. Shah, ITA No.s420 to 425/Hyd/2011 dated 16. 12.2011 vide para 31 held that the fact of legal ownership continued with the owners to be transferred to the developer at a future distant date does not affect the applicability of Section 2(47)(v) of the Act. The contention of the assessee that the ownership never shifts to the builder is also not correct because when the ultimate sale takes place in favour of the final buyers, the signatories to the sale deed are both the owner and the developer. The developer possesses inherent title or right over the property till JDA subsists. Further after the completion of project, if final buyer is not available, the developer definitely is the owner for his share of super structure along with the undivided share in the land even if no instrument is registered formally transferring the ownership in favour of the developer. Part Performance comes into operation only to take care of situation like this.”

“6.16……………………………………………………………………The rights of the parties have been determined in clear terms both in JDA and the GPA-2 in comparison to MOU. The MOU is mere understanding which got formalized in JDA and GPA. Therefore, the ld. CIT(A) was of the view that the date of transfer must be taken as on 17.09.2012 instead of 31.01.2012.”

“7.2.4 . Under the above facts and circumstances, the execution of MOU and JDA coupled with two registered GPAs in favour of the developer, we conclude and held that the transfer of the schedule property was taken place on 17.09.2012 in terms of provisions of section 2(47)(v) of the Act and to this extent, the order of the ld. CIT(A) stands sustained.”