Concept Of ‘Transfer’ In Light Of Section 2(47) Of The Income-tax Act, 1961

Advocate Sameer Bhatia has dealt with the interplay between sections 2(47) and 45 of the Income-tax Act, 1961 and the provisions of the Transfer of Property Act, 1882 and the Registration Act, 1908. He has also dealt with the controversial question whether a “transfer” is complete on the date of the agreement to sell or on the date of physical possession/registration of documents. All the relevant judgements as well as Circulars of the CBDT have been referred to by the Ld. Author

Introduction

Income Tax Act, 1961 provides a comprehensive machinery to deal with the computation of incomewhich in turn has principally been divided into five main heads. The expression `Transfer’ by itself is used at varied places in law amongst the computational heads and specifically been dealt with by the provisions of section 2(47). The expression `Transfer’ as is so defined by provisions of section 2(47) and as it stands today is the outcome of its substitution by the Taxation Laws (Amendment) Act, 1984 with effect from 01st April, 1985. Part E of Chapter IV of the Income Tax Act deals with the computational head `Capital Gains’ which by itself contains exhaustive propositions dealing with the expression denoted as `Transfer’ which is at various times the area of conflict between the department and the assessee. Section 45(1) inserted by the Finance Act, 1964 with effect from 01st April, 1964 provides the methodology of working out the capital gains arising from transfer of capital assets. Any profit or gain arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D,54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income tax under the head `Capital Gain’ and shall be deemed to be the income of the previous year in which the transfer took place.

The basic question that arises for consideration is whether section 45 of the Income Tax Act, 1961 can be read in isolation and seclusion to the provisions of ancillary laws regulating the very mechanism of transfers. Hon’ble Income Tax Appellate Tribunal Delhi `E’ Bench in the case of Smt. Madhu Gangwani vs. Assistant Commissioner of Income Tax, Circle – 30(1), New Delhi (2019) 179 ITD 673 / 111 taxmann.com 30 (Delhi – Trib) adjudicated in its wisdom the issue as to when the purported transfer takes place in context of the provisions of the Income Tax Act 1961,Transfer of Property Act of 1882 and the Registration Act of 1908.

Facts

The assessee filed her return of income on 14th September, 2010 for the previous year ending 31st March, 2010 declaring income of Rs.43,41,970/- which was further revised to Rs.41,72,080/-. The said return was picked up for assessment under section148 of the Income Tax Act. The reason attributable for action under section 148 was the information received from Additional Director of Income Tax Investigation that in the course of investigation of suspicious transaction report of Sh. Ranish Karki, it came to light that assessee had signed a sale agreement with RK for sale of property in New Delhi for a sum of Rs.3,25,00,000/-. In the course of investigation, it came to light that the assessee, Smt. Madhu Gangwani had 50% ownership in the impugned property and remaining 50% was held by i.e. Sh. Roop Chand. On 07th August, 2008, Sh. Roop Chand released the ownership of his 50% share in favour of assessee for Rs.29,00,000/- thereby making the assessee absolute and complete owner of the impugned property. The said property was transferred to Sh. Ranish Karkion 31st March, 2009for a consideration of Rs.3.25/- crores. The transfer of property was registered on 01stApril, 2009 through registered sale deed. The assessee did not project her income attributable to capital gains in the previous year ended 31st March, 2009but projected the same in previous year ended 31st March, 2010 and claimed deduction under section 54 of the Income Tax Act, 1961 amounting to Rs.2,17,12,940/-.

The assessee in the course of proceedings was confronted as to why the benefit of indexation should not be restricted to the land and building purchased during the financial year ended 31st March, 2006 as 50% share in the property has been purchased during the financial year 2008-09. The assessee furnished details as asked for in the course of proceedings initiated and agreed with the view of the department in so far as the issue touching upon the classification of long term and short term capital gain was concerned. The capital gain of 50% share in the property was treated as long term capital gain and remaining 50% was treated as short term capital gain, the computation of which was accordingly noted in the order by disregarding the computation made by the assessee in her return. It was further noticed from the calculation of short term capital gain that she deducted an amount of Rs.60,00,000/- under the head `Furniture & Fittings’ in support of which an agreement was filed with the department. On scrutiny, it was found that expenditure was related to the period prior to the acquisition of property which was divided into two parts i.e. 30 lakhs in 2006 and Rs.30 lakhs in 2008. Show cause notice was issued to the assessee on the pretext that expenditure incurred on furniture & fittings was not allowable as a deduction. The assessing officer accordingly in light of the circumstances made addition of Rs.30 lakhs apart from making some addition towards expenses incurred prior to the date of acquisition for which a sum of Rs.3,58,067/- was disallowed. The assessee contested the matter before the learned Commissioner (Appeals) but failing to find favour on the issue, ultimately knocked the doors of final authority on facts i.e. the tribunal. The principal argument of the assessee before the tribunal was reopening of assessment was bad in law as no transfer took place pertaining to the financial year ended 31st March, 2010 relevant to assessment year 2010-11 therefore the proceedings of re-assessment by itself is non-estand void ab-initio.

Findings/Reasoning of the Hon’ble Bench

The Hon’ble Bench took note of the provisions pertaining to sections2(47)(v)/ 45 of the Income Tax Act, 1961, section 53A of the Transfer of Property Act, 1882 and section 47 of the Registration Act of 1908 in order to adjudicate the dispute under reference. Section 45 of the Income Tax Act, 1961 undisputedly provides that any profit or gains arising from transfer of a capital asset save as otherwise provided in section 54 etc. be chargeable to income tax under the head `Capital Gains’ and shall be deemed to be the income of the previous year in which transfer took place. Section 2(47)(v) of the Income Tax Act which dealt with the expression transfer provided that any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act 1882. The Hon’ble Bench took note of the fact in view of the copy of registered agreement to sell filed by the assessee which was dated 16th January, 2009 and which fully corroborated the stance of the assessee to sell the impugned property subject to part payment and allowing of part possession to the buyer thereof. The said agreement was registered with the Sub-Registrar, thus thereby satisfying the conditions of section 2(47)(v) of the Income Tax Act when read in conjunction with the provisions of section 53A of the Transfer of Property Act, 1882.The remaining conditions attributable to completion of sale were satisfied by handing over the entire possession of the property subject to payment of remaining amount due in the event of execution of sale deed dated 31st March, 2009.The Hon’ble Bench was satisfied as to the credentials of transaction leading to the undisputed proposition that transfer took place in the financial year ended 31st March, 2009 which was however disputed by the revenue on the pretext that since the sale deed was executed on 31st March, 2009, it was registered on 01st April, 2009 therefore the transfer took place in the previous year ended 31st March, 2010 i.e. the year under appeal.

The Hon’ble Bench in further introspection of the matter took cognizance of the provisions of the Registration Act of 1908 in particular section 47 which undisputedly provided that a registered document shall operate from the time from which it would have commenced to operate if no registration therefore had been required or made and not from the time of registration. The form and substance of the provisions pertaining to section 47 of the Registration Act of 1908 undisputedly provided that a registered document will be operative in law from the date of its execution and not from the date of registration. It also took note of the pronouncement of the Hon’ble Supreme Court in CIT vs. Balbir Singh Maini ’s case (2017) 251 Taxman 202 / 398 ITR 531wherein it was observed that object of section 2(47)(vi)appears to be to bring within the tax net a de facto transfer of any immovable property.The expression "enabling the enjoyment of" takes color from the earlier expression "transferring", so that it was clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof, the maxim "noscitur a sociis" has been repeatedly applied by Supreme Court. A recent application of the maxim is contained in Coastal Paper Limited v. Commissioner of Central Excise, Visakhapatnam, (2015) 10 SCC 664 at 677, para 25. This maxim is best explained as birds of a feather flocking together. The maxim only means that a word is to be judged by the company it keeps. The idea was to bring within the tax net, transactions, where, though title may not be transferred in law, there was, in substance, a transfer of title in fact.’The Hon’ble Bench videPara No.5.2 of its pronouncement settled as under:-

`5.2Considering the facts of the case in the light of above discussion, it is clear that agreement to sell was executed and registered on 16.01.2009 whereby the part possession of the property in question have been handed over to the purchaser subjected to part payment. Therefore, transfer of capital asset completes in preceding A.Y. 2009-2010. This fact is further strengthened by the fact that registered sale deed was executed between the parties on 31.03.2009 whereby the entire terms and conditions are satisfied. The full sale consideration have been paid and possession of the property have been handed over to the purchaser. This fact is further strengthened by Section 47 of the Registration Act whereby it is provided that registered document shall operate from the date of its execution. In these circumstances, we hold that transfer of capital asset had taken place in preceding A.Y. 2009-2010. Therefore, capital gain tax would not be chargeable in assessment year under appeal i.e., 2010-2011. The initiation of re-assessment proceedings are illegal and beyond jurisdiction of A.O. We, therefore, set aside the Orders of the authorities below and delete the entire addition. In this view of the matter, there is no need to decide the other issues involved in the present appeal. Before parting with the Order, we would like to make it clear that since assessee has declared capital gain in the return of income filed for assessment year under appeal and paid self assessment taxes, therefore, assessee would not be entitled to retract from the statement so made in the return of income. In this view of the matter, we allow the appeal of assessee.’

The Hon’ble Bench in its wisdom and on the strength of documents produced settled that on a perusal of the facts, an agreement to sell was registered on 16th January, 2009wherein part possession of the property was handed over to the buyer subject to satisfaction of the part payment. This aspect by itself proves that transfer took place in the previous year ended 31st March, 2009 i.e. AY 2009-10. In furtherance, the sale deed was executed on 31st March, 2009 which in turn was registered on 01st April, 2009 by itself proves when read in conjunction with the provisions of section 47 of the Registration Act that a registered document operates from the date of its execution which in the present case falls on 31st March, 2009. Therefore, the transfer undisputedly fell for consideration touching upon the capital gains for the previous year ended 31st March, 2009 relevant to assessment year 2009-10 and not as contended by the department i.e. previous year ended 31st March, 2010 relevant to assessment year 2010-11. It was settled that in light of the facts, the reopening of assessment was wholly illegal and beyond jurisdiction of the assessing officer and was resultantly set-aside and the entire addition made was deleted.

Author’s analysis of the proposition

The courts including the various benches of Income Tax Appellate Tribunal have categorically settled from time to time that in the event of transfer, it is the date of agreement to sell which further translates into actual sale is important and not the date of physical possession/registration of documents. In yet another pronouncement of the Hon’ble Income Tax Appellate Tribunal Mumbai `G’ Bench titled Shankala Realtors Pvt Ltd vs. Income Tax Officer, Mumbai (2019) 179 ITD 835 / 111 taxmann.com 96 (Mumbai – Trib), it was settled that in case of transfer of immovable property, date of execution of registered document is relevant and not the date of delivery of possession or date of registration of document. The Hon’ble Bench in Shankala Relaltors case (supra) relied upon the pronouncement of the Hon’ble Supreme Court in Alapati Venkataramiah vs. CIT (1965) 57 ITR 185 (SC) reversing the decision of the Hon’ble Andhra Pradesh High Court in Commissioner of Income Tax vs. Alpati Venkataramiah(1962) 46 ITR 623 to settle that in the event the transfer materializes, the same would relate back to the date of execution of its registered documents and not the date of physical possession or date of registration of document. It was settled in the under-noted terms:-

`The question which arose was whether any sale or transfer took place before 1-4-1948. Up to that date, apart from the agreement to sell, three events had taken place. First, the assessee as managing agents had written on 11-3-1948,i.e.,before the agreement was signed, to the Government regarding loan. Secondly, on 17-3-1948, the possession of the land and the buildings and machinery had been given to the company. Thirdly, on 20-3-1948, the assessee had been credited with the price in the books of the company and he had also made appropriate entries in his own account books.

The agreement dated 17-3-1948, was urged to be an agreement to sell and not a sale deed. It that agreement dated 17-3-1948 was a conditional agreement to sell and before it could ripen into a contract between the company and the assessee, it had to be adopted by the company.

Even if the agreement was accepted by the company in 1949, the question still remained whether any sale or transfer of assets took place before April, 1948. Sale or transfer of an asset could take place, as it did in respect of the site, even before the agreement was accepted. The assets comprised of two items of immovable property, viz., plant and machinery and site and buildings. It was clear that title to those assets could not pass to the company till the conveyance was executed and registered. No such conveyance was executed before 1-4-1948. It was only on 22-11-1948, that a sale deed was executed and registered in respect of the site. Therefore, it was clear that the title to those assets did not pass to the company till after 1-4-1948, and consequently, no sale took place of these assets before 1-4-1948.

Before section 12B of the 1922 Act, can be attracted, title must pass to the company by any of the modes mentioned in section 12B, of the 1922 Acti.e.,sale, exchange or transfer. It is true that the word ‘transfer’ is used in addition to the word ‘sale’ but even so, in the context transfer must mean effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property.

The High Court has relied on the entries made in the account books of the assessee and the company on 20-3-1948, but the date of sale or transfer according to section 12B of the 1922 Act, is the date when the sale or transfer takes place, and it seems that the entries in the account books are irrelevant for the purpose of determining such a date.

In the result, it was held that the following assets were not sold or transferred before 1-4-1948:

(i)	Machinery.
(ii)	Electrical fittings.
(iii)	Buildings and site.

Therefore, no capital gains in respect of these items arose in the previous year ending 31-3-1948.

Stocks are expressly exempt from the definition of capital asset, and therefore it was held that no capital gain accrued in respect of their sale or transfer. This left furniture and goodwill. There was no doubt that possession of furniture was delivered on 17-3-1948, and as title to furniture can pass by delivery, capital gains, if any, accrued on that date. In the circumstances of the case, delivery must have been made with the intention of passing title. The position regarding goodwill was however different. It is an intangible asset and it ordinarily passes along with the transference of the whole business. It could not be said in the circumstances of instant case that the goodwill was transferred before 1-4-1948. Accordingly, it was held that only one asset, namely, furniture was transferred before 1-4-1948. In the result it was held that only such part of the sum, if any, as was attributable to the capital gain made by the transfer of furniture was assessable as capital gains.

The appeal was accordingly accepted.

It is also pertinent to take note of Para No.18 & 19 of the pronouncement of Hon’ble Supreme Court of India in CIT vs. Balbir Singh Maini ’s case (supra)wherein it was settled in the following terms by considering the impact of amendments made to the Registration & other Related Laws (Amendment) Act, 2001 and simultaneous amendments made to section 53A of the Transfer of Property Act and section 17 / 49 of the Indian Registration Act.

18.Section 53A, as is well known, was inserted by the Transfer of Property Amendment Act, 1929 to import into India the equitable doctrine of part performance. This Court has in Shrimant Shamrao Suryavanshiv. Pralhad Bhairoba Suryavanshi [2002] 3 SCC 676 stated as follows:

"16. But there are certain conditions which are required to be fulfilled if a transferee wants to defend or protect his possession under Section 53-A of the Act. The necessary conditions are:

(1)		there must be a contract to transfer for consideration of any immovable property;
(2)		the contract must be in writing, signed by the transferor, or by someone on his behalf;
(3)		the writing must be in such words from which the terms necessary to construe the transfer can be ascertained;
(4)		the transferee must in part-performance of the contract take possession of the property, or of any part thereof;
(5)		the transferee must have done some act in furtherance of the contract; and
(6)		the transferee must have performed or be willing to perform his part of the contract."

19.It is also well-settled by this Court that the protection provided under Section 53A is only a shield, and can only be resorted to as a right of defence. Rambhau Namdeo Gajrev.Narayan Bapuji Dhgotra[2004] 8 SCC 614 , para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words "the contract, though required to be registered, has not been registered, or" in Section 53A of the 1882 Act have been omitted. Simultaneously, Sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of 1882 Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument. Section 17(1A) and Section 49 of the Registration Act, 1908 Act, as amended, read thus:

"17(1A). The documents containing contracts to transfer for consideration, any immovable property for the purpose of Section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then they shall have no effect for the purposes of the said Section 53A."

"49. Effect of non-registration of documents required to be registered. No document required by Section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall—

(a)		affect any immovable property comprised therein, or
(b)		confer any power to adopt, or
(c)		be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:

Providedthat an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1887 (1 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument."

In light of the related amendments made to the relevant acts effecting validity of transfer, it is now beyond any iota of suspicion that until and unless an agreement is registered with the authorities concerned, it cannot materialize into a valid transfer and accordingly no cognizance can be taken of the provision embedded in section 53A of the Transfer of Property Act, 1882. Hon’ble Supreme Court in HarNarain (Dead) by Legal Heirs vs. Mam Chand (Dead) by Legal heirs, Civil appeals Nos.995-996 of 2003 settled in context of section 47 of the Indian Registration Act as under:-

9. Section 54of the Act, 1882, mandatorily requires that the sale of any immovable property of the value of hundred rupees and upward can be made only by a registered instrument.Section 47 of the Act, 1908, provides that registration of the document shall relate back to the date of the execution of the document. Thus, the aforesaid two provisions make it crystal clear that sale deed in question requires registration. Even if registration had been done subsequent to the filing of Suit, it related back to the date of execution of the sale deed, which was prior to institution of the Suit. A similar issue though in a case of right of pre-emption was considered by the Constitution Bench of this Court in Ram Saran Lall & Ors. v. Mst. Domini Kuer & Ors., AIR 1961 SC 1747, by the majority of 3:2, the Court came to the conclusion that as the mere execution of the sale deed could not make the same effective and registration thereof was necessary, it was of no consequence unless the registration was made. Thus, in spite of the fact that the Act, 1908, could relate back to the date of execution in view of provisions of Section 47of the Act, 1908, the sale could not be given effect to prior to registration. However, as the sale was not complete until the registration of instrument of sale is complete, it was not completed prior to the date of its registration. The court held:

"Section 47of the Registration Act does not, however, say when sale would be deemed to be complete. It only permits a document when registered, to operate from a certain date which may be earlier than the date when it was registered. The object of this section is to decide which of two or more registered instruments in respect of the same property is to have effect. The section applies to a document only after it has been registered. It has nothing to do with the completion of the registration and therefore, nothing to do with the completion of a sale when the instrument is one of sale. A sale which is admittedly not completed until the registration of the instrument of sale is completed, cannot be said to have been completed earlier because by virtue of Section 47the instrument by which it is effected, after it has been registered, commences to operate from an earlier date. Therefore, we do not think that the sale in this case can be said, in view of Section 47to have been completed on January 31, 1946." (Emphasis added).

10. This view has subsequently been followed and approved by this Court as is evident from the judgments in Hiralal Agrawal Etc. v. Rampadarath Singh &Ors. etc., AIR 1969 SC 244; S.K. Mohammad Rafiq (Dead) by LRs. V. Khalilul Rehmad &Anr. Etc., AIR 1972 SC 2162;Thakur Kishan Singh (Dead) v. Arvind Kumar, AIR 1995 SC 73; and Chandrika Singh (Dead) by LRs.V. Arvind Kumar Singh (Dead) by LRs. &Ors., AIR 2006 SCC 2199.

11. However, all these cases are related to right to pre-emption though the legal issue involved therein remained the same. In view of the above, we are of the considered opinion that in spite of the fact that the registration of the sale deed would relate back to the date of execution, the sale can not be termed as complete until its registration and it becomes effective only once it stands registered. Thus, the fiction created bySection 47of the Act, 1908, does not come into play before the actual registration of the document takes place.

In a recent pronouncement titled Seshasayee Steels Private Limited vs. Assistant Commissioner of Income Tax (2020) 187 DTR (SC) 241, the Supreme Court settled the conditions under which section 53A of the Transfer of Property Act 1882 was attracted. The Court opined that in order to attract the provisions of section 53A of the Transfer of Property Act, the transferee must, in part performance of the contract, have taken possession of the property or any part thereof and the transferee must also be willing to perform his part of the agreement in order to constitute a value element of sale/transfer. It is only if these two conditions, among others are satisfied, provisions of section 53A of the Transfer of Property Act can be enforced. Although, the matter before the Hon’ble Court was adjudicated in light of an agreement entered between the assessee and the builder wherein the assessee gave permission to the builder to start construction on its land.The agreement primarily falling in nature of a license to develop the impugned land into flats with the intention of further selling the same constituted possession or not for the purposes of section 2(47) of the Income Tax Act when read in conjunction with the provisions of section 53A of the Transfer of Property Act was delved into by the Hon’ble Court. The Hon’ble Court post consideration of the pronouncement of its own seat in CIT vs. Balbir Singh Maini (supra) observed in light of its discussion made via Para No.11, 16& 17as under:-

11.In order that the provisions of Section 53A of the T.P. Act be attracted, first and foremost, the transferee must, in part performance of the contract, have taken possession of the property or any part thereof. Secondly, the transferee must have performed or be willing to perform his part of the agreement. It is only if these two important conditions, among others, are satisfied that the provisions of Section 53A can be said to be attracted on the facts of a given case.

16.This Court inCommissioner of Income-taxv.Balbir Singh Maini[2018] 12 SCC 354 adverted to the provisions of this sub-Section in the following terms:

24. However, the High Court has held that Section 2(47)(vi) will not apply for the reason that there was no change in membership of the society, as contemplated. We are afraid that we cannot agree with the High Court on this score. Under Section 2(47)(vi), any transaction which has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. The High Court has not adverted to the expression "or in any other manner whatsoever" in sub-clause (vi), which would show that it is not necessary that the transaction refers to the membership of a cooperative society. We have, therefore, to see whether the impugned transaction can fall within this provision.

25. The object of Section 2(47)(vi) appears to be to bring within the tax net ade factotransfer of any immovable property. The expression "enabling the enjoyment of" takes color from the earlier expression "transferring", so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof. The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact.

17.Given the test stated in paragraph 25 of the aforesaid judgment, it is clear that the expression "enabling the enjoyment of" must take colour from the earlier expression "transferring", so that it can be stated on the facts of a case, that ade factotransfer of immovable property has, in fact, taken place making it clear that thede factoowner’s rights stand extinguished. It is clear that as on the date of the agreement to sell, the owner’s rights were completely intact both as to ownership and to possession evende facto,so that this Section equally, cannot be said to be attracted.

Conclusion

In furtherance, for the purpose of computing capital gains, the date of allotment of the impugned flat/property can well be taken as the base for the purpose of computing the period of holding prescribed under the Income Tax Act. The date of transfer in such cases would stand crystalized by taking the date of allotment as the date of acquisition for the purposes of computing capital gains. The pronouncement of the Hon’ble Punjab & Haryana High Court in Madhu Kaul vs. CIT (2014) 225 Taxman 86 & Vinod Kumar Jain vs. CIT (2012) 344 ITR 501 apart from the pronouncement of the Hon’ble ITAT Mumbai Bench in Anita D. Kanjani vs. ACIT (ITA No.2291/Mum/2015) further corroborates that for the purpose of computing the holding period, date of allotment letter will hold the field & not the date of handing over of the physical possession. The said stance has since been clarified by the CBDT in its Circular No.471 dated 15th October, 1986 in context of the investment made in self-financing scheme of the Delhi Development Authority which read as under:-

428. Capital gains from long-term capital asset – Investment in a flat under the self-financing scheme of the Delhi Development Authority – Whether to be treated as construction for the purposes of capital gains

1.Sections 54 and 54F provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer.

2.The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme (SFS) of the D.D.A. amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the SFS of the D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession.

3.The Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore,for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains.

Circular:No. 471 [F. No. 207/27/85-IT(A-II)], dated 15-10-1986.

What transpires from the discussion made above is that in the event of transfer of immovable property, the transaction would relate back to the date of execution of document provided it is coupled with registration of such document. However, the situation in a case where the agreement to sell is not registered and in furtherance of the transaction irrevocable power of attorney is executed in favour of third person, such attorney would relate back to the date of agreement in case it duly refers to the agreement so entered into between the parties concerned. Registration of document is all the more important particularly in light of the pronouncement of the Hon’ble Supreme Court in Commissioner of Income Tax vs. Balbir Singh Maini’s case (supra) post amendment to Registration & other ancillary laws w.e.f. 2001 but it cannot be ruled out that section 47 was never discussed by the court in its pronouncement. In the event, the agreement to sell is registered and time gap is apparent between the transactions effecting the interest of transferor & transferee, conditions of section 53A of the Transfer of Property Act read with provisions of section 17(1A) are satisfied, then the transfer would relate back to the date of execution of registered document and not the date of physical handing over of possession and/or registration of sale deed. Thus, the assessee can in light of the pronouncements of the Hon’ble ITAT in Madhu Gangwani’s case & Shankala Realtors Pvt Ltd (supra) contend that transfer be effected to have taken place at an anterior date rather than banking upon the date of physical possession and/or date of registration of conveyance deed.

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