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C. S. Atwal vs. CIT (Punjab & Haryana High Court)

SECTION(S): , , ,
DATE: July 22, 2015 (Date of pronouncement)
DATE: July 28, 2015 (Date of publication)
AY: 2007-08
FILE: Click here to download the file in pdf format
S. 2(47)(v)/(vi): Entire law on whether the entering into a joint development agreement with an irrevocable power of attorney in favour of the developer results in a "transfer" for purposes of capital gains explained

Against the judgement of the ITAT Chandigarh Bench in Charanjit Singh Atwal vs. Income-tax Officer /[2013] 144 ITD 528, the High Court had to consider the following issues relating to the taxability of capital gains pursuant to a Joint development assessment (JDA) with a developer coupled with an irrevocable general power of attorney:

(i) The scope and legislative intent of Section 2(47)(ii), (v) and (vi) of the Act;

(ii) The essential ingredients for applicability of Section 53A of 1882 Act;

(iii) The meaning to be assigned to the term “possession”?

(iv) Whether in the facts and circumstances, any taxable capital gains arises from the transaction entered by the assessee?

HELD by the High Court revering the Tribunal:

(i) Clause (vi) of Section 2(47) of the Act, as explained by CBDT in its circular No.495 dated 23.9.1987, makes it clear that it was intended to cover those cases of transfer of ownership where the prospective buyer becomes owner of the property by becoming a member of a company, cooperative society etc. In the present case, JDA was executed between the society and the developers and there was no transaction involving the developer becoming member of a cooperative society/company etc. in terms of Section 2(47) (vi) of the Act. The surrender of right to obtain plot by the members was for facilitating the society to enter into the JDA with the developers. There was no change in the membership of the society as contemplated under Section 2 (47)(vi) of the Act. Equally Clause (ii) of Section 2(47) of the Act has no applicability in as much as there was no extinguishment of any rights of the assessee in the capital asset at the time of execution of JDA in the absence of any registered conveyance deed in favour of the transferee in view of judgments in Alapati Venkataramiah vs. CIT, (1965) 57 ITR 185 (SC) and Additional CIT vs. Mercury General Corporation (P) Limited, (1982) 133 ITR 525 (Delhi);

(ii) Section 53A of 1882 Act has been bodily transposed into Section 2(47)(v) of the Act and the effect of it would be that Section 53A of 1882 Act shall be taken to be an integral part of Section 2 (47)(v) of the Act. In other words, the legal requirements of Section 53A of 1882 Act are required to be fulfilled so as to attract the provisions of Section 2(47)(v) of the Act. Section 53-A of Act is clear to the effect that the person claiming benefit under it, must have “taken possession of the property”. This can happen, if the transferee was delivered physical possession of the property. It can also happen when a symbolical delivery of possession was effected, such as by attornment of the existing lease over such property. Where the contemplated transfer relates to an undivided share, Section 53-A takes a different colour. The reason is that, there cannot be delivery of possession of property by a co-owner, of an undivided property, or the corresponding taking possession of such property by the transferee;

(iii) The concept of possession to be defined is an enormous task to be precisely elaborated. “Possession” is a word of open texture. It is an abstract notion. It implies a right to enjoy which is attached to the right to property. It is not purely a legal concept but is a matter of fact. The issue of ownership depends on rule of law whereas possession is a question dependent upon fact without reference to law. To put it differently, ownership is strictly a legal concept and possession is both a legal and a non-legal or pre-legal concept. The test for determining whether any person is in possession of anything is to see whether it is under his general control. He should be actually holding, using and enjoying it, without interference on the part of others. It would have to be ascertained in each case independently whether a transferee has been delivered possession in furtherance of the contract in order to fall under Section 53A of the 1882 Act and thus amenable to tax by virtue of Section 2(47)(v) read with Section 45 of the Act;

(iv) On facts, perusal of the JDA dated 25.2.2007 read with sale deeds dated 2.3.007 and 25.4.2007 in respect of 3.08 acres and 4.62 acres respectively would reveal that the parties had agreed for pro-rata transfer of land. No possession had been given by the transferor to the transferee of the entire land in part performance of JDA dated 25.2.2007 so as to fall within the domain of Section 53A of 1882 Act. The possession delivered, if at all, was as a licencee for the development of the property and not in the capacity of a transferee. Further Section 53A of 1882 Act, by incorporation, stood embodied in section 2(47)(v) of the Act and all the essential ingredients of Section 53A of 1882 Act were required to be fulfilled. In the absence of registration of JDA dated 25.2.2007 having been executed after 24.9.2001, the agreement does not fall under Section 53A of 1882 Act and consequently Section 2(47)(v) of the Act does not apply;

(v) Viewed from another angle, it cannot be said that any income chargeable to capital gains tax in respect of remaining land had accrued or arisen to the assessee in the facts of the case. In Commissioner of Income Tax, Bombay City vs. Messrs Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) it was observed that income tax is a levy on income and where no income results either under accrual system or on the basis of receipt, no income tax is exigible. In CIT vs. Excel Industries Limited (2013) 358 ITR 295 (SC) held that income tax cannot be levied on hypothetical income. Income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability, the income is not hypothetical and it has really accrued to the assessee. (Chaturbhuj Dwarkadas Kapadia vs. Commissioner of Income Tax, (2003) 260 ITR 491 (Bom), CIT vs. K.Jeelani Basha, (2002) 256 ITR 282 (Mad), Commissioner of Income Tax vs. G.Saroja, (2008) 301 ITR 124 (Mad), Suraj Lamp & Industries (P) Ltd v. State of Haryana ( 2012) 340 ITR. 1(SC) referred)

3 comments on “C. S. Atwal vs. CIT (Punjab & Haryana High Court)
  1. vswami says:


    On the first blush, perforce, one is obliged to remind self of another land mark judgment of the SC in re, Podar Cement Ltd.’s case, of which not even a reference is seen to have been made in the instant case though. That was a case in which the issue pertained to rights of a taxpayer in possession and enjoyment of a property, being ‘units’ of a ‘Flats’ building complex,but with admittedly no ‘legal ownership’.
    Property law and Tax law experts , if so minded, may, if not for any other purpose except in an earnest quest of enlightenment, and of wider vision of the implications of case law in general, will find it worthwhile to make an independent study of the referred SC judgment,- with the aid of a critique of it has been attempted in the published article on a couple of websites- Taxguru and Lci.

  2. vswami says:

    To share further thoughts:
    Apropos of the previous comment, have since given a quick reading of the 76 pages judgment as downloaded, simply to satisfy one’s own overwhelming curiosity to know, also to try and form an independent opinion, as to what really is, or could be anticipated to be, in store for anyone directly or indirectly concerned with the implications of the special law on Flats /apartments in force in several states. One of them being Punjab and Haryana of immediate relevance herein. As is known, that is a state which, if not mistaken, has special law, more or less structured on similar lines; as say, Maharashtra and Karnataka governing ‘apartments’.
    Now, looking back and refreshing memory on the SC judgment in Podar Cement case, as read together with the published articles (critique) made a mention of in my previous comment, am left with an indelible impression that quite many of the observations as set out in the analytical study ventured therein are seen to be of equal relevance and hence require an in-depth study. Pending such an attempt, by any expert at large if so inspired and strongly inclined, me wish to tentatively pinpoint that , on a hurried comparison, there is found to be a common thread passing through both the judgments – that is, in the referred SC case and the P&H HC judgment in CS Atwal’s case. To be precise, in both the cases the tax related issue, albeit primarily related to / interconnected with the above referred state special law, the implications thereof , except for an oblique reference, have not been dealt with by both parties, hence not gone into by the HC. The only saving grace, as viewed, is, even so, the opinion of the HC on the point(s) of law in assessee’s favour, , as is imagined, would have been no different, in essence- to put it rather crudely, an instance akin to that of an unsuccessful operation but yet patient survived, so to say.
    Over to the Experts at large, truly equipped and in active practice, for further deliberation, and enlightenment, in appropriate light and with proper focus.

  3. vswami says:

    A factual correction: The on apartments in Haryana is of 1983 and in Punjab is of 1995.Both are similarly framed and structured.

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