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Ms. Rubab M. Kazerani v. Jt. CIT

Month-Year : Mar - 2005
Author/s : 91 ITD 429 (BCAJ)
Title : Ms. Rubab M. Kazerani v. Jt. CIT
Details :

A. S. 2(47) of the Income-tax Act, 1961 — Entering into an MOU with the builder and receiving total sale consideration — There was transfer of property in terms of S. 2(47)(v) & (vi) read with S. 53A of the Transfer of Property Act, 1882.

B. S. 45 of the Income-tax Act, 1961 — Capital gains will be taxable in the year in which transactions are entered into, even if transfer of immovable property is not effective or complete for want of registration under general law.

C. S. 55A of the Income-tax Act, 1961 — CIT or AO can assume power u/s.55A(a) only when, in his opinion, fair market value disclosed by assessee is less.

The assessee, with the intention of disposing of her property, executed a Memorandum of Understanding on 8-6-1995 with a builder, SA and accepted Rs.5.50 crores from SA as total sale consideration. In terms of the MOU, the assessee conferred upon SA irrevocable right to identify buyers for the property and to obtain clearance certificates, etc., and agreed that she would not claim reimbursement of any expenses incurred for the purpose of developing property and identifying buyers for the property and would have nothing to do with the profit earned or loss incurred by SA on identifying buyers of the property and receiving the sale consideration.

On 1-7-1998, an agreement to sell was executed by the assessee’s attorney for a total consideration of Rs.11.87 crores and the assessee was referred to as a vendor and SA was referred to as confirming party. In that way, SA received Rs.6.37 crores extra in the said sale. The assessee and SA did not file any statement u/s.269UC in the prescribed Form No. 37-I in relation to said MOU. Such statement was duly filed in respect of sale agreement dated 1-7-1998 and clearance from appropriate authority was also obtained and the subsequent agreement to sell was registered.

The assessee filed her return of income declaring long-term capital gain of Rs.2.69 crores arising out of sale consideration of Rs.5.50 crores. The Assessing Officer completed the assessment and accepted the long-term capital gains declared by the assessee. The assessee had disclosed fair market value of the property as on 1-4-1981 at Rs.1 crore on the basis of the report of a registered valuer.

The CIT, acting u/s.263, directed the Assessing Officer to re-examine the correct tax liability of the capital gains after making necessary enquiries regarding the fair market value of the property as on 1-4-1981, for which he may avail services of Department’s Valuation Cell. He further observed, inter alia, that the sale agreement dated 1-7-1998 drawn up with the buyer-society was registered with the registration authorities in April 1999 and, therefore, the taxability of charging of the long-term capital gain would be the year 2000-01 and not 1996-97; that the disproportionate sum of Rs.6.37 crores paid to SA was not commensurate with the services rendered by him and that the fair market value of the property, as shown by the assessee as on 1-4-1981 based on an approved valuer’s report at Rs.1 crore, was on the higher side keeping in view the appreciation in real estate prices.

Since there was a difference of opinion between the Members of the Tribunal, the matter was referred to the Third Member u/s.255(4).

The Third Member held as under :

(a) Capital gains were taxable in A.Y. 1996-97 and not in A.Y. 2000-01.

(b) Capital gains were to be computed only on the sale consideration of Rs.5.50 crores received by the assessee and not on any higher amount.

(c) Since, in the opinion of the CIT, the fair market value disclosed by the assessee of Rs.1 crore was on the higher side, reference to Departmental Valuation Officer u/s.55A(a) was not possible.

The Third Member noted as under :

(1) In order to attract S. 53A, there should be an agreement for consideration; it should be in writing; it should be signed by the transferor; it should pertain to transfer of immovable property; the transferee should have taken possession of the property and the transferee should be ready and wiling to perform his part of the contract.

(2) From the MOU it was clear that the assessee had entered into an agreement with SA to dispose of the said property for a total consideration of Rs.5.50 crores. The possession of the property was handed over to the builder SA and original documents were also given to him on that day, with an understanding that he will obtain all necessary clearance certificates under the Urban Land (Ceiling and Regulation) Act, 1976 and certificate u/s.269UC. This was a transaction by which the assessee transferred the property in question in the manner prescribed in sub-clauses (v) and (vi) introduced in S. 2(47) with effect from April 1988. The events which had taken place constituted transfer, which includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in S. 53A of the Transfer of Property Act, 1882 and any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property.

(3) Capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete for want of registration under the general law.

(4) In respect of the CIT’s observation that the amount received by SA was substantially more than what was received by the assessee, there was no material on record to show that either the MOU dated 8-6-1995 or the agreement dated 1-7-1998 was a sham transaction. Under the circumstances, unless it was held that those were sham transactions and that the assessee had received more than what was purported to have been received by way of MOU, it could not be said that SA, who received consideration more than the assessee after about three years for locating buyers and fulfilling necessary conditions to transfer, was a justifiable reason for invoking the jurisdiction u/s.263. The assessee should be assessed on the real income and not on the presumptive income. Just because the third party has earned more profit, it would not be justified to invoke jurisdiction u/s.263 in the eyes of law.

(5) In respect of reference to the DVO, provisions of S. 55A(a) would apply since the assessee had filed a valuation report. Clause (b) comes into play when the assessee has not furnished any valuation report in support of its claim. In terms of clause (a) of S. 55, the CIT or the Assessing Officer can assume powers when the value disclosed by the assessee is less than the fair market value. In this case, the CIT had mentioned that the value disclosed by the assessee, i.e. Rs.1 crore as on 1-4-1981 as per the valuation report furnished was on the higher side. Therefore, invoking jurisdiction u/s.263 on these facts was illegal.

In view of the above, the CIT’s order u/s.263 was cancelled.

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