CIT vs. Dr. Arvind S. Phake (Bombay High Court)

The High Court had to consider the following substantial questions of law in an appeal filed by the Department:

“(i) Whether on the facts and in the circumstances of the case and in law, the ITAT is correct in holding, the date of transfer as the date of handling over of physical possession of the property i.e. 01.03.2008 by the assessee, as against the date of Execution of Development Agreement alongwith irrevocable General Power of Attorney i.e. 13.09.2007?

(ii) Whether on the facts and in the circumstances of the case and in law, the ITAT is correct in ignoring the provisions of Section 2(47)(v) of the Income Tax Act, which indicates that the year of chargeability is the year in which the contract is executed even if the transfer of immovable property is not effective or complete under the general law?

(iii) Whether on the facts and in the circumstances of the case and in law, the ITAT has erred in ignoring the judgment of this Court in the case of Chaturbhuj Dwarkadas Kapadia v/s. CIT (2003) reported in 260 ITR 491 (Bom) wherein it is held that if the contract, read as a whole, indicates passing of or transferring of complete control over the property in favour of the developer, then the date of contract would be relevant to decide the year of chargeability?”

HELD by the High Court dismissing the appeal:

(i) The learned counsel appearing for the appellant Revenue relied upon a decision of High Court of Andhra Pradesh in the case of Potla Nageswara Rao v/s. Commissioner of Income Tax in Income Tax Appeal No.245 of 2014. He submitted that in the said decision, the law laid down by a Division Bench of this Court in the case of Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax has been distinguished. He also relied upon a decision of the Tribunal in the case of Jasbir Singh Sarkaria, In Re (2007) 294 ITR 0196. He pointed out that the said decision relies upon the decision of this Court in Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax (2003) 260 ITR 491 (Bom.). He would, therefore, submit that considering the terms and conditions incorporated in the development agreement, the date of transfer for the purposes of Income Tax Act ought to be taken as 13th September, 2017 when the agreement was executed.

(ii) What binds this Court is that the judgment of the Division Bench in the case of Chaturbhuj Dwarkadas Kapadia v/s. Commissioner of Income Tax (2003) 260 ITR 491 (Bom). The Division Bench held that the date of contract is relevant provided the terms of the contract indicate passing off or transferring of complete control over the property in favour of the developer. The Division Bench laid down the test for determining the date which should be taken into account for determining the relevant accounting year in which the liability accrues. In the present case, the Appellate Tribunal has taken into consideration various clauses in the development agreement. Sub clause (d) of clause (3) of the agreement provides that after full payment of consideration, the construction shall be undertaken by the developer. Admittedly, on the date of execution of the development agreement, the entire consideration was not received by the respondent assessee. The physical possession of the property subject matter of development agreement was parted with by the respondent assessee on 1st March, 2008. It was held that on that day, complete control over the property was passed on to the developer. After having perused the various clauses in the agreement and the aforesaid factual aspects, the Tribunal has taken 1st March, 2008 as the date of transfer. This finding is fully consistent with the law laid down by the Division Bench in the case of Chaturbhuj Dwarkadas Kapadia (supra). Therefore, no fault can be found with the impugned judgment of the Tribunal when it was held that the investment made in the sum of Rs.50,00,000/by the respondent assessee on 22nd August. 2008 was within the period specified under Section 54EC of the said Act.