Interesting issue in Capital gains : Possession of property provided to transferee in the year 1991 & Sale deed executed in the year 2009

short overview : Where transferee had taken possession in the year 1991 and had continued to be in possession of the property, hence, transfer was complete in the year 1991 in view of clause (v) of section 2(47) and AO was not justified in taxing the capital gain in the year 2009, where sale deed was executed.

Assessee was engaged in consignment sale of products on commission basis. As per AIR Information, assessee had executed one transaction of sale of one immovable property and AO noted that this transaction had not been reflected in the return of income. Assessee submitted that he had purchased a vacant plot in the year 1987 through a General Power of Attorney (GPA) from the original allottee on which assessee had constructed the ground floor and sold the house on 3-8-1991 under a registered “Agreement to Sell” along with the possession of property. However, as per AO, there was no proof of valid sale on 3-8-1991 and held that transaction attracted LTCG on the sale of property and was taxable under section 50C. CIT(A) confirmed the action of AO.

it is held that Transferee had taken possession in the year 1991 and had continued to be in possession of the property and hence, transfer was complete in the year 1991 in view of clause (v) of section 2(47). It was also evident that AO had made a direct inquiry from the buyer and she had also confirmed having bought this property from assessee in the year 1991. Allegation of AO that property was sold in the year 2009, when assessee had executed the sale deed also ignore the fact that assessee executed sale deed in capacity of General Power of Attorney holder and not as an owner. Sale of the property by assessee had taken place in the year 1991 and AO was not justified in taxing the capital gain arising on execution of sale deed in year 2009.

Decision: In assessee’s favour.

IN THE ITAT, DELHI

R.K. PANDA, A.M. AND SUDHANSHU SRIVASTAVA, J.M.

Vinod Kumar Chugh v. ITO

ITA No. 2595/Del/2015

18 March, 2019

Assessee by: Ved Jain, Adv.

Department by: Raghunath, Senior Departmental Representative

Sudhanshu Srivastava, J.M.

This is an appeal filed by the assessee against order dt. 20-1-2015 passed by the learned Commissioner(Appeals)-17, New Delhi [Commissioner(Appeals)] for assessment year (assessment year) 2010-11. The only grievance in this appeal is the addition of Rs. 78,40,062 made by the assessing officer and confirmed by the learned Commissioner(Appeals) on account of the capital gain.

2. The brief facts leading to the present appeal are that the assessee, during the year under consideration, was engaged in consignment sales of products of M/s Haldia Petro Chemicals Ltd. on commission basis. The assessee filed his return of income for the assessment year under consideration declaring an income of Rs. 18,94,797. As per the AIR Information, the assessee had executed one transaction of sale of one immovable property at A- 34, Sector 30, Noida for Rs. 83,70,000 on 23-6-2009 and the assessing officer (AO) noted that this transaction had not been reflected in the return of income. The assessee was asked to explain the same. It was submitted by the assessee before the assessing officer that he had purchased the a vacant plot in the year 1987 through a General Power of Attorney (GPA) from the original allottee Lilavati Kapur for Rs. 1,35,000 on which the assessee had constructed the ground floor and sold the house on 3-8-1991 to Smt. Santosh Sareen for a consideration of Rs. 4,55,000 under a registered “Agreement to Sell” along with the possession of property. However, as per the assessing officer, there was no proof of valid sale on 3-8-1991. Therefore, the assessing officer proceeded to hold that the transaction in the assessment year under consideration attracted Long Term Capital Gains (LTCG) on the sale of property and was taxable under section 50C of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The LTCG was computed at Rs. 78,40,062 after allowing the benefit of indexation to the assessee.

2.1 The learned Commissioner(Appeals) confirmed the action of the assessing officer.

2.2 Now, the assessee has approached the ITAT and has raised the following grounds of appeal:

“1.(A) On the facts and in the circumstances of the case the learned Commissioner(Appeals) has grossly erred in confirming the addition of Rs. 78,40,062 made by the assessing officer under the head Long Term Capital Gain on sale of property No. A/34, Sector-30, Noida.

(B) That the learned Commissioner(Appeals) and assessing officer has failed to appreciate the factual position, of having sold the property A-34, Sector-30, Noida on 3-8-1991 having received the consideration, having handed over the physical possession and confirmation by the purchaser of the said property at various occasions for having purchased , taken over possession residing in the said property, having obtained permission from Noida Authority and also having sold the property in assessment year 2011-12.

(C) It is highly unjustified and against equity to hold that the date of transfer under section 2(47) for working out the capital gain is 23-6-2009 and not 3-8-1991.

(D) It is denied that the Agreement to Sell dt. 3-8-1991 was not a property registered document. The document was registered vide document no-87 volume no-679 book no- 740 pages 41 to 50.

2. To the above extend of above objection the order passed under section 143(3) by the assessing officer & further confirmation by the learned Commissioner(Appeals) is bad in law.

3. That ‘A’ prays that the addition be deleted in full to meet both ends of justice.

4. That appellant prays that he be allowed to adduce, deduce, alter, amend, withdraw or rectify any grounds of appeal during or before the final hearing.”

3. It was contended by the learned authorised representative (AR) that the addition made by the assessing officer was unsustainable in law and also on facts. The learned authorised representative submitted that the assessee had purchased a plot bearing no. A-34, Sector-30, Noida in 1987 from Smt. Lilawati Kapur as per the agreement to sell dt. 22-6-1987 (placed at Paper Book pages 56-58). It was further submitted that the assessee had also obtained GPA (placed at Paper Book pages 47-55) from Smt. Lilawati Kapur, who was the original allottee in the records of Noida authority. The learned authorised representative submitted that the assessee constructed the ground floor on the said plot and, thereafter, sold the property to Smt. Santosh Sareen on 3-8-1991 for Rs. 4,55,000, vide agreement to sell dt. 3-8-1991 (placed at Paper Book pages 6-12). It was submitted that the sale deed could not be executed at the time when the assessee had purchased the plot from Smt. Lilawati Kapur in 1987 and also when the assessee had sold the property to Smt. Santosh Sareen in 1991, as the plot was on leasehold.

The learned authorised representative further submitted that subsequently in 2009, the Noida authority accorder the approval for transfer and consequent to such approval for transfer, Smt. Santosh Sareen, the buyer, approached the assessee to get the Sale Deed executed in her favour on the basis of the General Power of Attorney held by the assessee from the original allottee Smt. Lilawati Kapur.

Thus, the sale deed executed on 23-6-2009 in favour of Smt. Santosh Sareen was in the capacity of the GPA Holder and, thus, it was not appropriate for the assessing officer to consider the sale of this property in the hands of the assessee in 2009.

3.1 The learned authorised representative further submitted that during the course of assessment proceedings, the assessee requested the assessing officer to issue notice under section 133(6) of the Act to Smt. Santosh Sareen, and the address of the party was also provided by the assessee to the assessing officer.

It was submitted that in response to the notice issued by the assessing officer under section 133 (6) of the Act, Smt. Santosh Sareen had filed a reply dt. 12-3-2013 (placed at Paper Book page 66), whereby she confirmed that she had purchased the property and had taken the possession of the property on 3-8-1991. It was further submitted that along with the said reply, Smt. Santosh Sareen had also filed the Acknowledgment of ITR along with the computation of income in respect of assessment year 2010-11 (Paper Book pages 110 – 111) and had also furnished copy of her bank statement, her post office saving account, her demat account, her PAN allotment letter, wherein also the address of Smt. Santosh Sareen has been mentioned as A-34, Sector-30, Noida (Paper Book pages 113-123). It was submitted by the learned authorised representative that a perusal of the computation of income of Smt. Santosh Sareen for assessment year 2010-11 would show that during the year under consideration, Smt. Santosh Sareen has further sold the property, and in the computation of income under the head ‘capital gains’, she has also shown the acquisition of the property to have taken place in 1991 only, and has further shown the payment of freehold duty during the year under consideration. It was further submitted that Smt. Santosh Sareen has, thereafter, again filed a reply on 18-3-2013 before the assessing officer whereby she has also submitted the bank statements available with her along with her PAN details.

3.2 It was further submitted by the learned authorised representative that the fact that the possession of the property was already handed over to Smt. Santosh Sareen in 1991 also corroborates the fact that the transfer of the property had already taken place in the year 1991, and not in the year in which the sale deed has been executed by the assessee as the GPA-Holder. The learned authorised representative invited our attention to the sale deed executed on 23-6-2009 (placed at Paper Book page 15) whereby the seller is Smt. Lilawati Kapur, the original owner, and the assessee has executed the sale deed as her general power of attorney holder. On the basis of this it was contended that even if it is assumed that sale has taken place on 23-6-2009, still the assessee cannot be considered as a seller so as to charge capital gain in his hand on the basis of this sale deed. It was submitted that the fact that the assessee or Smt. Santosh Sareen could not produce their bank statements or ITRs for the year 1991 cannot be the basis for an drawing adverse inference especially considering the fact that the said records being almost 20 years old were difficult to be traced.

3.3 It was further submitted that the agreement to sell was executed by the assessee in the year 1991 itself and the sale deed was executed in the year 2009 only for the reason that the Smt. Santosh Sareen had to further sell the property and for that purpose she wanted to convert the leasehold property into freehold property.

3.4 As regards the application of section 50C of the Act by the assessing officer, which has been upheld by the learned Commissioner(Appeals), it was submitted by the learned authorised representative that the provisions of the said section were introduced in the Act by Finance Act, 2002 with effect from 1-4-2003. Since, in the case of assessee, the property was transferred in the year 1991, the provisions of the said section will also not be applicable. As regards the adverse observations made by the assessing officer in the assessment order as well as the in the remand report and the by the learned Commissioner(Appeals), it was submitted by the learned authorised representative that the said observations are contrary to the facts prevailing in assessee’s case. The learned authorised representative contended that the findings of the assessing officer as well as the learned Commissioner(Appeals) were based on incorrect facts and findings and, thus, were liable to be reversed.

4. In reply, the learned Senior Departmental Representative (Sr. DR) supported the orders passed by the authorities below. It was contended that the Sale Deed having been executed by the assessee during the year under consideration, the assessing officer was justified in considering the transfer in this year and computing capital gain tax accordingly. The learned Senior Departmental Representative placed reliance on the order passed by the Authorities below. It was contended that both the assessing officer and the learned Commissioner(Appeals) has examined the issue and the facts in detail and, therefore, no interference was called for on the issue.

5. We have considered the rival submissions and have also perused the material on record. On going through the records, we note that the assessee has purchased a plot bearing no. A-34, Sector-30, Noida from Smt. Lilawati Kapur in terms of the agreement to sell dt. 22-6-1987. The assessee also obtained a General Power of Attorney in his favour from Smt. Lilawati Kapur. The assessee, thereafter, constructed a house having only the ground floor thereon. Thereafter, the assessee sold the property to Smt. Santosh Sareen through an agreement to sell dt. 3-8-1991 for a sum of Rs. 4,55,000 which was received by cheque. In the year under consideration, Smt. Santosh Sareen obtained approval for the transfer of the above plot from the Noida Authority in her favour and asked the assessee to execute a proper Sale Deed in her favour, being the General Power of Attorney holder of Smt. Lilawati Kapur, the original owner. The assessee, accordingly, executed the Sale Deed in his capacity as the General Power of Attorney holder as is evident from the Sale Deed (placed at Paper Book Pages 13-45) executed on 23-6-2009. The assessing officer has assumed this as sale by the assessee during the year and has taxed the capital gain in the assessee’s hand. From the facts, it is clear that the assessee had purchased the property through an agreement to sell in 1987 and had sold the same again through an agreement to sell in 1991.

The assessee had given possession to the buyer in the year 1987.

The buyer had also confirmed the same in response to the enquiry conducted by the assessing officer. The buyer has also filed evidences to support that she was in possession all along from the year 1991. The assessing officer has not brought any material to the contrary to rebut the evidences submitted by the assessee and by the buyer Smt. Santosh Sareen. The contention of the assessee is supported by the definition of transfer in section 2(47) clause (v) of the Act whereby ‘transfer’ in relation to capital assets includes 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. As per section 53A of the Transfer of Property Act, as applicable in the year 1991, an agreement to sell need not be registered if the transferee has, in part performance of the contract, taken possession of the property and continues in possession of the same. In the present case, the transferee has taken possession in the year 1991 and has continued to be in possession of the property and hence, transfer was complete in the year 1991 in view of clause (v) of section 2(47) of the Income Tax Act.

5.1 We also note that in the sale deed the total consideration has been stated at Rs. 4,50,000 and the details of the cheque and mode of payment is stated in this sale deed at internal page 8 Paper Book page 24. This fact supports the case of the assessee that the assessee had sold this property way back in the year 1991. In view of these facts, the assessing officer and the learned Commissioner(Appeals), both, were not justified in drawing an adverse inference merely on the ground that the assessee had failed to produce the bank statement for the year 1991. From the assessment order, it is also evident that the assessing officer has made a direct inquiry from the buyer Smt. Santosh Sareen and she also has confirmed having bought this property from the assessee in the year 1991.

5.2 The allegation of the assessing officer that the property has been sold in the year 2009, when the assessee has executed the sale deed also ignores the fact that the sale deed has been executed by the assessee in the capacity of General Power of Attorney holder and not as an owner. This fact is evident from the sale deed itself which is between Smt. Lilawati Kapur, the original owner as the seller and Smt. Santosh Sareen as the buyer.

5.3 In view of the above facts, we hold that the sale of this property by the assessee has taken place in the year 1991 and the assessing officer was not justified in taxing the capital gain arising on the sale of this property in the year under consideration. As regards invoking the provision of section 50Cof the Act, the same will come to be attracted only when sale has taken place during the year. As we have held that the sale by the assessee stood completed in the year 1991, there is no question of invoking the provision of section 50C. Accordingly, the addition made by the assessing officer of Rs. 78,40,062 as long term capital gains is directed to be deleted.

6. In the final result the appeal of the assessee is allowed.

Order pronounced in the open court on 18-3-2019.