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| DATE: | July 6, 2014 (Date of publication) |
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| Click here to download the judgement (sanjeev_lal_54_transfer.pdf) |
S. 2(47)/ 54: If an agreement to sell is entered into within the prescribed period, there is a transfer of some rights in favour of the vendee. Fact that sale deed could not be executed within the time limit owing to supervening problem is not a bar for s. 54 exemption
Consequences of execution of the agreement to sell are very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immoveable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. A right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27.12.2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated. As held in Oxford University Press vs. CIT [(2001) 3 SCC 359] a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax and one can very well interpret the provisions of Section 54 read with Section 2(47) of the Act, i.e. definition of “transfer”, which would enable the appellants to get the benefit under Section 54 of the Act.
The view the apex court has in its soulful wisdom taken sounds well reasoned and logical; more so quite sensible being based on a pragmatic judicious approach, unmistakably founded on principles of natural justice, instead of allowing to be tied down simplistically by the ‘letter’ of the law.
Points to be specially noted and stressed:
1. Section 54 no doubt lays down 1-2 (3?) year time limit for compliance with its requirements, so as to claim and have the CGT exemption allowed. However, by strictly construing the provision and laying emphasis only on the factor of prescribed time limit, on a stand alone basis, the Revenue has sought to veto/deny the assessee’s claim .
On the facts of the given case, the apex court has, nonetheless, on the grounds of the reasoning lucidly given, ruled the issue in assessee’s favour. In doing so, the well known time honored sound principle / rule of judicial interpretation – namely, “purposive interpretation” has been adopted and followed.
Incidentally, the lately enunciated yet another rule- come to be known as “Updating Construction”, – which in a manner of intelligent viewing, is nothing but an extension of the “purposive approach” rule, – though not raised hence not dealt with, should also, in one’s own perspective, go to strongly support the view the court has taken.
2. in the instant case, the subject matter of transfer is an exclusively owned house property, already in shape, and in physical occupation and enjoyment; as opposed/distinct from flats or apartments not so exclusively owned, more so if one under construction at the relevant point in time. The reasoning of the court, therefore, should be of avail, that too with greater force, in the latter mentioned instance; that is, in case of a flat or apartment. also if that be under -construction stage.
To briefly dilate the point in mind : The customary delays in completion, registration, and handover of physical possession of flats/apartments by promoters, as come to be commonly experienced and sharply focused on, have led to grave prospects of ‘purchasers’ failing to satisfy the rigid time limits (of 1- 2 years) for claiming and being allowed the CGT exemption under the different schemes; albeit for no fault of them, and beyond their control. Hence, in an open appeal to the FM, his attention has been sought to be drawn to the dire need crying for proactive steps but yet to be heard to bring about a relaxation of such time limits having regard to the surrounding realities.
In the hope and belief that the underlying points have been satisfactorily brought out, it is now left open to enlightened and experienced tax experts to further explore those in-depth, to the end of reaching a righteous conclusion ; besides being of proper guidance to clientele .
Add-on:
In the SC case, of course, the issue came to be raised and litigated wprt the time lag between transfer of an ‘old asset’ and utilization of its proceeds in purchase of a ‘new’ asset, founded mainly on the impugned delay transfer /its registration of the old asset. On the flip side, however, like issue could arise also in situations in which delay is in ‘purchase’ of a new asset. In short, in a manner of speaking, the weapon for fighting / battle of wits could prove to be a double-edged’ one ! Invited to accord intuitive thoughts thereto, for finding a foolproof or near foolproof solution.
Fact is, the transfer of property laws is indeed substantial that need always to be applied, as Substantial Act .
IT laws are not substantial in character at all; but some administrative laws relating to collection of revenue essentially; and sec 54 is to ensure that after indexation need to be reinvested in some other property as a regressive tax measure , just not to allow that extra moneys move about to cause inflation is the essential principle; that means sec 54 is not a revenue generating law; that means Income tax becomes active revenue generator only when the seller himself on his own pays tax at 20% or 30% depending upon the number of years the property was in his (the seller’s) possession, that means again the very principle of regressive economic measure is defeated in principle, so IT Act behaves with clothing just as a revenue collecting measure only. What great purpose other than that the IT did is anybody’s guess!
By collecting tax revenue how IT Act is sensibly managing the regressive economic measure is million $ question.
Again before the purposive rule of construction and interpretation, the IT Act is indeed clearly a causality.
IT laws are essentially arbitrary in nature when authorities go gung ho with their arbitrary behavior.
Natural justice is equity that the assessee must get necessarily, is lost, if one looks at IT Act holistically.
Natural justice is a holistic constitutional right of every citizen under fundamental rights which have to be protected by state under its fundamental duties as the duties of government or public servants too is a fundamental right of citizens;
The court correctly observed. once a property is agreed to be sold the vendee gets right on the property; and he could get enforced by law of specific performance; and that means vendee is still holds the right over the property and when so the said property cannot be resold to another by the vendor; and it means right of the vendee still subsists in clear terms, till he waives.
when so IT Act cannot steal into the right of the vendee under any means just to get revenue or falsely projecting itself as a great savior of economy as such under so called ‘regressive measure as such.
In fact IT Act and revenue authorities behave like the legendary Scylla and Charybdis!
So hon court rightly said registration of document cannot be the basic criterion to decide the issue as such, that could mean even oral agreement too is valid if the possession is with vendee is the principle of purposive interpretation.
Purpose is the vendee still holds the property and vendor cannot retract at a later date is the clear construction. as possession is the vital element not the great impotent registered document by citing builders flats do not get transferred in time is a correct analogy by the hon court.
Many a time builders sell same properties to multiple buyers if the buyer is not in possession of property is well known fact and there are plenty of such cases are there in court or the other!
My client entered into an agreement with the prospective buyer in Oct 2012 for which he had collected some advance. Subsequently he registered the property in favour of the vendee in Jan 2013. Can we take a stand that transfer As per Sec 2(47) read with the recent judgement by Hon. Supreme Court in Sanjay Lal case, is complete in Oct 2012.