Assessee entered into MOU on 05-08-1994 with M/s Radiant Builder for development of property. Subsequently, the assessee entered into another MOU with M/s Murali realtors on 26.12.1995 & 17.5.1996 and a Deed of confirmation was also executed on 13.11.1997. Thereafter the assessee also applied to the Income tax department seeking clearance u/s 269UL and the Income tax department also issued a certificate on 15.9.1998. Assessee had received advance amounts before execution of development agreement on basis of MOU. Between 2000 to 2005, the assessee purchased the tenancy rights of various tenants. There was delay in approval from municipal corporation due to which plans were revised subsequent to AY 2000- 01. Thus development work did not start in AY 2001-02. As per development agreement, possession was not given by assessee in AY 2001-02 but only licence to enter into property was given. Thus, assesse contented that ITO is incorrect in holding that transfer of property took place in the year relevant to AY 2001-02. Held on the basis of various case laws that the transfer of property did not take place on the date of execution of development agreement and accordingly the ITO is not justified in assessing the capital gain in AY 2001-02.
Dilip Anand Vazirani – Appellant – Versus - Income Tax Officer – Respondent
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM)
(Assessment Year : 2001-02)
Dilip Anand Vazirani
66/1512, Adarsh Nagar,
Bengal Chemicals, Worli,
Income Tax Officer-18(1(3),
Appellant by: Shri Vimal Punamiya
Respondent by: Shri Jeetendra Kumar
Date of Hearing : 5.11.2014
Date of Pronouncement : 14.11.2014
O R D E R
Per B.R.BASKARAN, Accountant Member:
The appeal filed by the assessee is directed against the order dated 29-03-2012 passed by Ld CIT(A)-29, Mumbai and it relates to the assessment year2001-02.
2. The issues urged before us is whether the Ld CIT(A) was justified in law in confirming that the capital gain is assessable in the assessment year 2001-02and if the answer to the above question is Yes, then, whether the computation of capital gain approved by Ld CIT(A) is correct in law.
3. The facts relating to the case are stated in brief. We shall first narrate the events as to how the assessee acquired the property. The father of the assessee named Shri Anand Vazirani was originally habitant of Pakistan and he owned certain land there. Pursuant to Indo-Pakistan partition, Shri Anand Vazirani migrated to India along with his family members during 1947 and left his property in Pakistan. In 1954, he applied for compensation and allotment of any evacuee’s property under the “The Displaced Persons (Claim and Rehabilitation)Act, 1954. The said application was not processed till 1989 and hence he wrote two letters to Settlement Commission. Thereafter, he filed a writ petition before Hon’ble High Court of Bombay and the High Court, vide its order dated22.11.1989, directed the Settlement Commission to allot property at 21 Bund Garden Road, Pune to set off the value payable to Mr. AnandVzirani. On 30-5-1990, the Central Government also directed the Maharashtra Government to allot property. Pending allotment, Shri Anand Vazirani passed away on 30-03-1992. Thereafter, the assessee herein pursued the matter by making several applications, petition etc to the Settlement Commission and the Government of Maharashtra. On 08-9-994 & 01.7.1995, the Settlement Commission passed orders against the assessee on the reasoning that the land value was higher than the compensation amount. Upon the writ petition filed by the assessee, Hon’ble High Court quashed the order of the Settlement Commission on24.4.1996. Again, the Settlement Commission dismissed the case. Again the assessee filed Writ petition before Hon’ble High Court in 1997 and the High Court, vide its order dated 13.8.1998, directed the Settlement Commission to allot property to the legal heirs of Shri Anand Vazirani on payment of differential amount as compensation. The Settlement Commission filed SLP before Hon’ble Supreme Court and on 19.4.1999, the said SLP was dismissed by the Apex Court. The review petition filed by the Settlement Commission was dismissed by the Hon’ble Supreme Court on 18.8.1999. The assessee paid the differential amount on 1.4.2000 & 4.4.2000. Finally, the Settlement Commission passed final order in favour of the legal heirs on 24.4.2000 and the possession letter wasgiven on 15.5.2000.
4. In the meantime, the assessee also took steps to sell the property and the events relating thereto are narrated here under. The assessee entered into a Memorandum of Understanding (MOU) on 05-08-1994 with M/s Radiant Builder for development of property. According to the assessee a right was created in the favour of him and other legal heirs in respect of the impugned property, by the order passed by Hon’ble High Court in 1989 and hence he entered into a MOU to develop the property. Subsequently, the assessee entered into anotherMOU with M/s Murali Realtors on 26.12.1995 & 17.5.1996 and a Deed of Confirmation was also executed on 13.11.1997. Thereafter the assessee also applied to the Income tax department seeking clearance u/s 269UL and theIncome tax department also issued a certificate on 15.9.1998. Thereafter, the assessee executed supplementary MOU on 29.3.2000 and the development agreement was executed on 25.9.2000 with M/s Murali Realtors. Thereafter, on10.2.2001 the assessee cancelled the MOU entered with M/s Radiant Builder earlier in 1994. Between 2000 to 2005, the assessee purchased the tenancy rights of various tenants. In 2005, the assessee received substantial payments from M/s Murli Realtors and the possession was handed over. Finally the assessee executed sale deed on 19.5.2007 in favour of M/s Murali Realtors. According to the assessee, since the substantial amount was received and the possession was also handed over by March 2005, the Capital gain was offered in the assessment year 2005-06. The legal heirs of Mr. Anand Vazirani were the assessee herein, his mother and his sister. The assessee’s mother died in between and his sister executed release deed in favour of the assessee. Accordingly the assessee herein became the full owner of the property.
5. The department carried out a survey operation in the hands of M/s Murli Realtors, wherein they noticed the development agreement dated 25-09-2000entered between the assessee herein and M/s Murli Realtors. In that agreement, the consideration was shown at Rs.8,60,00,000/-. Upon receipt of the said information, the assessing officer of the assessee reopened the assessment relating to the assessment year 2001-02, i.e., the year under consideration, by issuing notice u/s 148 of the Act. The assessing officer noticed that the Settlement Commission had given the letter of possession to the assessee on15.5.2000 and the development agreement was entered into between the assessee and M/s Murli Realtor on 25.9.2000. The assessing officer took the view that the assessee has transferred the property within the meaning of sec.2(47)(v) and 2(47)(vi) of the Act on 25.9.2000 and accordingly held that the capital gain arising on such transfer is assessable as Short term Capital gain in the assessment year 2001-02. The assessee submitted that he had offered the capital gain in the assessment year 2005-06, as the possession of the property was actually given in that year and major consideration was received in that year.
Further the sale deed was executed subsequently on 19.6.2007 confirming the said transfer. However, the said contentions did not find favour with the assessing officer. Accordingly, the assessing officer computed the Short termCapital gain as under and assessed the same in AY 2001-02.
Total Consideration 8,60,00,000
Less:- Amount paid to RBI 1,35,34,380*
Cash payment to tenants 1,14,50,000
Cheque payment to tenants 84,00,000
Paid to Radiant Builders 65,43,899
Short term capital gain 4,60,71,721
(* to the Settlement Commission towards differential price)
The assessee met the above said expenses out of the advance ofRs.4,56,67,167/- received from M/s Murli Realtors from time to time.
6. The LdCIT(A) also confirmed the view taken by the assessing officer.
Paragraph 5.3 of his order reads as under:-
“5.3 The sale of property has been effected by a development agreement dated 25.9.2000. The sale has to be concluded as complete on this date for the following reasons:-
(1) Development agreement has been signed on this date, consideration is quantified and possession has been given to the buyer.
(2) Part of the consideration amount has been received or deemed to have been received.
(3) There is part performance of the contract and as per provisions of section 2(47) r.w.s. 53A the transfer of property is regarded as complete once the possession is given and transferee is ready and willing to perform his part of the contract.”
Apparently, the tax authorities have applied the ratio laid down by Hon’ble jurisdictional Bombay High Court in the case of Chaturbhuj Dwarakadas Kapadiaof Bombay Vs. CIT (2003)(260 ITR 491). Aggrieved, the assessee has filed this appeal before us.
7. The Ld Counsel appearing for the assessee Mr.Vimal Punmiya submitted that the view taken by the tax authorities to assess the capital gain in assessment year 2001-02 is against the peculiar facts prevailing in the instant case and they have reached such a conclusion without properly appreciating the facts. He submitted that the tax authorities are under the impression that the possession of the property was given to the developer on the date of execution of development agreement and further the developer has also immediately started the activities. However, the fact remains that the assessee had given only the licence to the developer to enter the property. He further submitted that the advance received from the developer was fully used to pay the differential price to the Settlement commission, to purchase tenancy rights from the tenants, to relieve from the earlier MOU entered with M/s Radiant Builders etc. Further, the developer also did not start the development work in terms of the Development agreement. Further, there was delay in getting approval from municipal authorities and there was further delay, since the claims of the tenants need to settled. Accordingly, the Ld A.R submitted that the developer could not start the work in the year relevant to the assessment year 2001-02. Once all the hurdles were cleared, the assessee received major part of the consideration on his own account, only in the year relevant to the assessment year 2005-06 and accordingly the possession was also given to the developer during that year. Accordingly, the assessee offered the Capital gain in that year only. Subsequently, the conveyance deed was executed on 19.5.2007 in favour of the Developer M/s Murli Realtor. The Ld A.R submitted that the decision rendered by the Hon’ble Bombay High Court in the case of Chaturbhuj Dwarakadas Kapadia (supra) is not applicable to the facts prevailing in the instant case. He submitted that one of the conditions prescribed in the above said case was that the developer should be “willing to perform as per the contrat”. However, the developer did not perform as per the contract and hence the said condition was not satisfied. The Ld A.R submitted that, in the absence of any positive action from the side of developer to perform in terms of the contract during the financial year relevant to the assessment year 2001-02, the assessee was not sure that the developer would comply with the terms of the development agreement. Further, the assessee has not given possession to the developer, but gave only licence to enter into the property. Accordingly, he submitted that the tax authorities are not correct in law in assessing the capital gain in AY 2001-02. The Ld A.R also invited our attention to various clauses of the Development Agreement and also drew support from various Case laws to support his contentions.
8. On the contrary, the Ld D.R, Shri Jeetendra Kumar submitted that the assessee had received substantial amount by virtue of the development agreement, where as in the case laws relied upon by the assessee, the consideration paid to the owners of the property was not substantial. Further, by giving licence to enter the property, the assessee has given possession to the developer. Accordingly, the Ld D.R submitted that the provisions of sec. 2(47)(v)and 2(47)(vi) shall square apply to the impugned transaction and hence the Ld CIT(A) was justified in confirming the assessment of Capital gain in AY 2001-02.
To read the full judgment, please find the attached file: