Karnataka High Court

The Commissioner Of Income Tax vs Mr.Abdul Wahab on 19 January, 2021

Author: Alok Aradhe Rangaswamy

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     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 19TH DAY OF JANUARY 2021

                        PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                          AND

     THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

                 I.T.A. NO.249 OF 2015
BETWEEN:

1.     THE COMMISSIONER OF INCOME TAX
       BANGALORE.

2.     DY. COMMISSIONER OF INCOME TAX
       CENTRAL CIRCLE 1(3)
       BANGALORE.
                                           .... APPELLANTS
(BY MR. E.I. SANMATHI, ADVOCATE)

AND:

MR. ABDUL WAHAB
NO.292, 2ND CROSS
RAHAMATHNAGAR
BANGALORE
PAN: AAKPW2099P.
                                           ... RESPONDENT
(BY MR. B.S. BALACHANDRAN, ADVOCATE)
                           ---

      THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 19.12.2014 PASSED
IN ITA NO.527/BANG/2013 FOR THE ASSESSMENT YEAR 2006-07,
PRAYING TO:
      (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR
SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY
THE HON'BLE COURT AS DEEMED FIT.
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     (ii) SET ASIDE THE APPELLATE ORDER DATED 19.12.2014
PASSED BY THE ITAT, 'A' BENCH, BANGALORE, AS SOUGHT FOR,
IN   THE    RESPONDENT-ASSESSEE'S    CASE,    IN   APPEAL
PROCEEDINGS IN ITA NO.527/BANG/2013 FOR A.Y.2006-07.

     THIS I.T.A. COMING ON FOR HEARING,               THIS   DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                          JUDGMENT

This appeal under Section 260-A of the Income Tax

Act, 1961 (hereinafter referred to as 'the Act', for short) has

been filed by the revenue. The subject matter of the appeal

pertains to the Assessment Year 2006-07. The appeal was

admitted by a Bench of this Court vide order dated

24.08.2016 on the following substantial questions of law:

"Whether on facts and circumstances, the Tribunal was right in holding that there was no transfer of the property by the assessee and as such no capital gains arise even when the ingredients of Section 2(47) of the Income Tax Act, 1961, are clearly satisfied in the case of assessee?"

2. Facts leading to filing of this appeal briefly stated are

that a search was conducted under Section 132 of the Act in

the premises of one Prakash Shetty, partner of M/s. Gold

Finch Hotels Group and others at Bengaluru. During the

course of search, certain incriminating material were found

and it was also found that the assessee had sold certain

properties and had not paid capital gains. Thereupon,

proceedings under Section 153C of the Act read with Section

143(3) were initiated in the case of the assessee who is an

individual. The order of assessment was passed by the

Assessing Authority on 28.10.2011. The Assessing Authority

inter alia held that as per the seized material, the assessee

had entered into an agreement for sale as well as executed

irrevocable General Power of Attorney on 21.12.2005 in

favour of M/s. Trishul Developers for sale of land measuring

1.47,898.98 square feet situated in Veerasandra Village of

Sy.No.48 and 48/1 and has received total sale consideration

of Rs.7,90,68,395/- out of which, a sum of Rs.5,01,37,720/-

was paid by way of Cheque and Rs.2,97,27,675/- was paid

by way of cash to the assessee. It was further held that the

aforesaid fact was confirmed by Prakash Shetty namely

partner of M/s. Trishul Developers in the course of search.

As the assessee did not offer the sale consideration to tax,

therefore, the Assessing Authority made an addition of

Rs.7,57,65,395/-.

3. Thereupon, the assessee filed an appeal before the

Commissioner of Income Tax (Appeals), who by an order

dated 13.02.2013 dismissed the appeal preferred by the

assessee. The assessee thereupon filed an appeal before the

Income Tax Appellate Tribunal (hereinafter referred to as 'the

Tribunal' for short). The Tribunal, by an order dated

19.12.2014, inter alia, held that the permissive possession

given by the assessee to the holder of the agreement cannot

be considered as transfer and therefore, provisions of Section

2(47) of the Act cannot be invoked to the fact situation of the

case. In the aforesaid factual background, the revenue has

filed this appeal.

4. Learned counsel for the revenue submits that as per

Section 2(47) of the Act, the expression 'transfer' includes

extinguishmet of the rights. It is also submitted that Section

2(47)(ii) of the Act stipulates "any transaction involving

allowing of the possession of any immovable property to be

taken or retained in part performance of the contract of the

nature referred to Section 53A of the Transfer of Property Act

and further Section 2(47)(v) read with explanation (2)

stipulates transfer which includes part performance. It is

further submitted that in the instant case, the Assessing

Authority as well as the Commissioner of Income Tax

(Appeals) had satisfied themselves that all the conditions

pertaining to transfer were satisfied. Our attention was also

invited to Clauses 5, 7, 10 and 11 of the agreement and it

was also pointed out that on the same day, irrevocable

General Power of Attorney was executed by the assessee in

favour of the purchaser and as per clauses (k), (l), (m), (o),

(p), (q), (s), (u), (v) of the General Power of Attorney, the

assessee had transferred entire rights in the property. It is

also pointed out that in sum and substance, the assessee had

delivered the possession and had received the entire sale

consideration. It is also submitted that the Tribunal did not

take into account the incriminating material which was found

against the assessee during the course of search. It is

submitted that the finding recorded by the Tribunal that the

transaction in question does not amount to transfer within

the meaning of Section 2(47) of the Act, is perverse. In

support of aforesaid submission, reliance has been placed on

the decision in 'M/s. SESHASAYEE STEELS P. LTD. Vs.

ASSISTANT COMMISSIONER OF INCOME-TAX,

COMPANY CIRCLE-VI(2), CHENNAI' 421 ITR 0046 SC.

5. On the other hand, learned counsel for the assessee

submitted that the Tribunal has rightly held that there was

no transfer of property by the assessee and therefore, the

capital gains did not arise. It is further submitted that

transfer of possession of the property is one of the essential

ingredients of transfer under Section 2(47) of the Act. It is

further submitted that the assessee has neither received the

balance consideration of Rs.5,01,37,720/- nor has handed

over the possession of the property. Therefore, the

transaction in question has rightly been treated to be not a

transfer under Section 2(47) of the Act. It is also urged that

the property is still recorded in the name of the assessee in

the revenue records and a litigation is pending between the

assessee and the prospective purchaser in an appeal namely

RFA No.1758/2016 c/w RFA No.1610/2016 in which an

interim order has been passed restraining the parties not to

alter the nature of the property. It is submitted that the

Assessing Officer has merely relied on the declaration made

by the aforesaid Prakash Shetty and has not brought on

record any tangible material to demonstrate that the

assessee has received the cash. It is further submitted that

the order passed by the Tribunal does not call for any

interference.

6. We have considered the submissions made on both

sides and have perused the record. Before proceeding

further, it is apposite to take note of the relevant statutory

provisions. The relevant extract of Section 2(47) reads as

under:

"Section 2(47) 'transfer', in relation to a capital asset, includes:

xxxxx

(ii) the extinguishment of any rights therein; or xxxx

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or xxxx."

Thus, from perusal of Section 2(47) of the Act, it is

evident that for the purposes of the Act, the definition of

transfer is wide enough and it includes the sale, exchange or

relinquishment of the asset or extinguishment of any rights

therein. In the instant case, admittedly the assessee had

entered into an agreement for sale in respect of the land in

question and had executed an irrevocable General Power of

Attorney on 21.12.2005.

7. The relevant clauses of the irrevocable General

Power of Attorney executed by the assessee are reproduced

below for the purpose of reference:

"(k) to submit applications, affidavits, statements, returns to the Government of Karnataka and/or the Authorities under any state or central stature, to obtain necessary clearance, exemption, sanctions and permissions required under the Act.

           (l)        to enter into agreements for sale with
    regard       to    the   Schedule         property    or   any

portions/shares thereof or enter into any kind of agreement/s on such terms as my Attorney deems fit and to get the Agreement/s registered as well to cancel the said registration;

(m) to transfer and convey by way of sale, the Schedule property or any portions. Shares

thereof and execute necessary deeds of sale/conveyance in favour of the Attorney himself and any intending purchases/transferees and do everything necessary for completing the sale/conveyance/transfer of the same including execution of sale deed/s, presentation of the sale deed/s and admitting execution thereof as well as to sign and execute all forms, affidavits,applications/statements/declarations/for ms/returns

(n) to execute any deeds of ratification and rectifications with regards to any documents already executed pursuant to this Power of Attorney and to present such deeds of ratification and rectification and to admit execution thereof and to sign such forms, applications, statements, ratification and rectification etc., with regards thereto;

(o) to execute any release deeds, exchanges, gift deeds or such transfer documents as my attorney may deem fit with regards to the Schedule property including presentation of such deeds and admit execution of such deeds and to sign all such affidavits, applications., forms etc., required for the registration thereof and to complete all formalities of such documents.

(p) to receive my Attorney's name or his nominee's name the consideration for sale/transfer/conveyance, as also advances, earnest money/deposits, part payments and balance payments in regard to the

sale/conveyance/transfer of the Schedule property or portions/shares therein and issue receipts and acknowledgements therefore;

(q) to apply for and obtain clearances required for the registration of the Schedule property or any portions/shares thereof for and on my behalf and to pay such dues on my behalf as may be necessary for the purposes of obtaining such clearance certificate/s from the concerned authority.

(r) to apply for and obtain permission/no objection certificate under any of the provisions of the income Tax Act, 1961 and to appear before, file objection statements etc., to the Competent Authority or Appropriate Authority as the case may be under the provisions for obtaining the permission for the transfer of the Schedule property or any portion or portions thereof.

(s) to apply for and obtain transfer and registration of Katha in regard to the Schedule Property or any portion/s thereof to the names of

the Purchasers of the Schedule property or portions thereof.

(t) to apply for and obtain bifurcation of the katha after the building is constructed on the Schedule Property for assignment of individual Municipal Numbers to the Units.

(u) to take loans and financial facilities of any kind for putting up construction in the schedule property against the security of the Schedule property and the building to be constructed on the Schedule property at the entire risk and cost of my Attorney and without I being personally liable of the repayment of the amounts or any interest or charges thereof;

(v) to grant and terminate leases, tenancies, licenses, with regard to the Schedule property with or without constructed area with or without car parking space or any part thereof on such terms as my Attorney may deem fit, and do everything necessary for completing the leases/tenancies/licenses of the same including execution of deeds and documents pertaining to leases/tenancies/licenses and admitting execution thereof as well as to sign and execute all forms, affidavits applications/statements/declarations /forms/returns;

(w) to execute, sign such agreements, deeds necessary for the purpose of letting out, licensing or leasing the Schedule property or any part thereof with or without the constructed area and to receive deposits and rents in own name without I being responsible to repay the same or the lessee/tenant/license in this behalf......" Also, in the General power of Attorney documents, the appellant has stated that:-

"I here by authorize and empower my said Attorney to delegate all or any of the aforementioned powers granted to any other person and to cancel/revoke such delegated powers to others person."

8. Thus, from perusal of relevant clauses of the Power

of Attorney which was executed on the same day, it is

evident that all rights in the property including the

possession constructively infact has been handed over by the

assessee to the purchaser. Therefore, we have no hesitation

in holding that the aforesaid transaction is the same within

the meaning of Section 2(47) of the Act and the Assessing

Officer as well as the Commissioner of Income Tax (Appeals)

has rightly treated the same to be a transaction of sale.

However, the Tribunal, without taking into account the

incriminating material on record, merely on the basis of the

fact that the possession of the property under the agreement