M/S. SESHASAYEE STEELS P. LTD. versus ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI on 4 December 2019

196

SUPREME COURT REPORTS

[2019] 15 S.C.R.

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M/S. SESHASAYEE STEELS P. LTD.

v.

ASSISTANT COMMISSIONER OF INCOME TAX,

COMPANY CIRCLE VI(2), CHENNAI

B(Civil Appeal No. 9209 of 2019)

DECEMBER 04, 2019

[R. F. NARIMAN, ANIRUDDHA BOSE ANDV. RAMASUBRAMANIAN, JJ.]

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CTransfer of Property Act, 1882: s.53A – Applicability of –Essential ingredients – Held: In order that the provisions of s.53Abe attracted, the transferee must, in part performance of thecontract, have taken possession of the property or any part thereofand the transferee must have performed or be willing to performhis part of the agreement – In the instant case, as per agreement toDsell, assessee gave permission to the builder company to startconstruction on the land – This showed that a license was givenupon the land for the purpose of developing the land into flats andselling the same – Such license cannot be said to be ‘possession’within the meaning of s.53A, which is a legal concept, and whichEdenotes control over the land and not actual physical occupationof the land – That being the case, s.53A was not attracted to thefacts of this case – Income Tax Act, 1961 – s.2(47)(vi).

Income Tax Act, 1961: s.2(47)(vi) – Applicability of –Appellant assessee entered into an agreement to sell with a builderFcompany and granted permission to the builder company to startconstruction on the land – Pursuant to the agreement to sell, a Powerof Attorney was executed by which assessee appointed a directorof the Builder company to execute the necessary sale agreements inrespect of the schedule property after developing the same into flats– Subsequently, a memo of compromise was also entered into betweenGthem – Assessing officer treated entire sale consideration as a capitalgain and brought to tax – Challenged by appellant-assessee – Held:Under s.2(47)(vi), any transaction which has the effect oftransferring or enabling the enjoyment of any immovable propertywould come within its purview – The expression “enabling the H

enjoyment of” in s.2(47)(vi) must take colour from the earlierexpression “transferring”, so that it can be stated on the facts of acase, that a de facto transfer of immovable property has, in fact,taken place making it clear that the de facto owner’s rights standextinguished – In the instant case, as on the date of the agreementto sell, the owner’s rights were completely intact both as to ownershipand to possession even de facto, so that this Section equally, cannotbe said to be attracted – A perusal of the compromise deed howevershowed that the agreement to sell and the Power of Attorney wereconfirmed, and a sum of Rs.50 lakhs was reduced from the totalconsideration of Rs.6.10 crores – Clause 3 of the said compromisedeed confirmed that the appellant, received a sum of Rs.4.68 croresout of the agreed sale consideration and the balance Rs.1.05 crorestowards full and final settlement in respect of the Agreement enteredinto was then to be paid by 7 post-dated cheques – All the chequesmentioned in the compromise deed were, in fact, encashed – Thisbeing the case, assessee’s rights in the said immovable propertywere extinguished on the receipt of the last cheque, as also that thecompromise deed could be stated to be a transaction which had theeffect of transferring the immovable property in question – Thepigeonhole, therefore, that would support the orders under appealwould be s.2(47)(ii) and (vi) of the I.T. Act in the facts of this case.

Dismissing the appeal, the Court

Conclusion

Dismissing the appeal, the Court

HELD: 1. In order that the provisions of Section 53A ofthe T.P. Act be attracted, first and foremost, the transferee must,in part performance of the contract, have taken possession ofthe property or any part thereof. Secondly, the transferee musthave performed or be willing to perform his part of the agreement.A reading of agreement to sell dated 15.05.1998 showed thatthat both the parties were entitled to specific performance. Clause16 is crucial, and the expression used in Clause 16 is that theparty of the first part hereby gives ‘permission’ to the party ofthe second part to start construction on the land. Clause 16 would,therefore, lead to the position that a license was given to anotherupon the land for the purpose of developing the land into flatsand selling the same. Such license cannot be said to be‘possession’ within the meaning of Section 53A, which is a legalconcept, and which denotes control over the land and not actual AB

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Aphysical occupation of the land. This being the case, Section 53Aof the T.P. Act cannot possibly be attracted to the facts of thiscase for this reason alone. [Paras 11-14][204-D-H]

2. The expression “enabling the enjoyment of” in Section2(47)(vi) of the Income Tax Act must take colour from the earlierBexpression “transferring”, so that it can be stated on the facts ofa case, that a de facto transfer of immovable property has, in fact,taken place making it clear that the de facto owner’s rights standextinguished. It is clear that as on the date of the agreement tosell, the owner’s rights were completely intact both as toownership and to possession even de facto, so that this SectionCequally, cannot be said to be attracted. [Para 17][205-F-G]

3. A perusal of the compromise deed showed that theagreement to sell and the Power of Attorney are confirmed, anda sum of Rs.50 lakhs is reduced from the total consideration ofRs.6.10 crores. Clause 3 of the said compromise deed confirmsDthat the party of the first part, this is the appellant, has receiveda sum of Rs.4,68,25,644/- out of the agreed sale consideration.Clause 4 records that the balance Rs.1.05 crores towards fulland final settlement in respect of the Agreement entered intowould then be paid by 7 post-dated cheques. A finding of the ITATwas that all the cheques mentioned in the compromise deed have,Ein fact, been encashed. This being the case, the assessee’s rightsin the said immovable property were extinguished on the receiptof the last cheque, as also that the compromise deed could bestated to be a transaction which had the effect of transferring theimmovable property in question. The pigeonhole, therefore, thatwould support the orders under appeal would be Section 2(47)(ii)Fand (vi) of the I.T. Act in the facts of the instant case. [Paras 18-21][206-A-E]

Commissioner of Income Tax v. Balbir Singh Maini(2018) 12 SCC 354 : [2017] 10 SCR 1073 – relied on Case Law ReferenceG[2017] 10 SCR 1073reliedonPara 16

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9209of 2019.

From the Judgment and Order dated 25.01.2012 of the HighHCourt of Judicature at Madras in Tax Case (Appeal) No. 461 of 2011.

R. V. Easwar, Sr. Adv., Rubal Bansal, V. Ramasubramanian,P. Bala Senthil Kumar, Advs. for the Appellant.

K. Radhakrishnan, Sr. Adv., Ms. Seema Bengani, Ms. PurnimaBhat Kak, Prem Prakash, Anas Zaidi, Mrs. Anil Katiyar, Advs. theRespondent.

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

1. The appellant-assessee entered into an agreement to sell, on15.05.1998, with one Vijay Santhi Builders Limited for a total saleconsideration of Rs.5.5 crores.

2. The important clauses of the sale agreement are set outhereinbelow:

“1. The consideration for the sale of the property shall be Rs.5,50,000/- (Rupees Five Lakhs Fifty Thousand only) per ground.The total area of the property to be sold is around 100 groundsand the total sale consideration of Rs.5,50,00,000/-(Rupees FiveCrores Fifty Lakhs only) will be paid directly by the nominees/members on behalf of PARTY OF THE SECOND PART or bythe PARTY OF THE SECOND PART, whichever is earlier. Theproperty shall be free of all encumbrances at the time ofregistration.

2. It is agreed that the total extent of the property is 100 groundsapproximately including the areas allotted for road and otheramenities, plus the actual extent available for flats.

12. THE PARTY OF THE FIRST PART has already handedover to the PARTY OF THE SECOND PART Xerox copies ofall land documents of the schedule mentioned property for theirlegal counsel’s scrutiny and opinion. THE PARTY OF THESECOND PART have also satisfied themselves about the titledeeds. The PARTY OF THE FIRST PART agree to show theoriginal title deed which are kept with them to the nominees of thesecond part as and when required after fixing prior appointment.

14. Both the parties are entitled to specific performance of thisagreement.

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A16. THE PARTY OF THE FIRST PART hereby gives permissionto the PARTY OF THE SECOND PART to start advertising,selling, construction on the land herein mentioned. Advertisements,sales catalogues and leaflets shall be approved by the PARTYOF THE FIRST PART before publication or circulation.

SCHEDULE OF PROPERTY

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3. Pursuant to this agreement to sell, a Power of Attorney wasexecuted on 27.11.1998, by which, the assessee appointed one ChandanKumar, Director of M/s. Vijay Santhi Builders Ltd. to execute and joinin execution the necessary number of sale agreements and/or sale deedsEin respect of the schedule mentioned property after developing the sameinto flats. The Power of Attorney also enabled the Builder to presentbefore all the competent authorities such documents as were necessaryto enable development on the property and sale thereof to persons.

4. The appellant did not file any Return for Assessment Year 2004-F2005. Apparently, it was detected later by the Assessing Officer, thatthe agreement to Sell had been entered into and that, subsequently, aMemo of Compromise had also been entered into between the partiesdated 19.07.2003. Based on the discovery of this fact, Notice dated04.11.2008 issued under Section 148 of the Income Tax Act, 1961(hereinafter referred to as ‘I.T. Act’ for brevity) was served on theGappellant. Even in response to this notice, no Income Tax Return wasfiled. A notice dated 08.09.2009 was issued under Section 142(1) fixingthe case for hearing on 20.09.2009. Here again, the appellant did notturn-up, as a result of which, another notice was issued dated 23.10.2009,but this time again the assessee did not turn-up, so a third letter wasissued on 11.12.2009 fixing the case for hearing on 22.12.2009. InH

response to the aforesaid letter, the assessee, by letter dated 29.12.2009stated as follows: - “I refer to your letter dated 11.12.2009. I request you humbly andsincerely not to pass any order u/s 144 and to give me time forone month from today. I shall positively submit all necessarystatements and documents within 30 days of today to yoursatisfaction. I seek this time only because of my very seriousillness after an abdominal surgery.”

5. Since time bar was foremost in the mind of the AssessingOfficer, limitation falling on this transaction by 31.12.2009, a BestJudgment Assessment Order was then passed under Section 144 of theI.T. Act dated 31.12.2009. Vide this Order, the entire sale considerationwas treated as a capital gain and brought to tax.

6. An appeal was preferred against this Order. The Commissionerof Income Tax (Appeals) (hereinafter referred to as ‘CIT (A)’ for brevity)by Order dated 28.10.2010 examined the three documents in questionand ultimately dismissed the appeal. The Income Tax Appellate Tribunal(hereinafter referred to as ‘ITAT’ for brevity) by Order dated 24.06.2011agreed with the CIT(A) and found that on or about the date of theagreement to sell, the conditions mentioned in Section 2(47)(v) of theI.T. Act could not be stated to have been complied with, in that, the veryfact that the compromise deed was entered into on 19.07.2003 wouldshow that the obligations under the agreement to sell were not carriedout in their true letter and spirit. As a result of this, Section 53A of theTransfer of Property Act, 1882, (hereinafter referred to as ‘T.P. Act’ forbrevity) could not possibly be said to be attracted. What was then referredto was the Memo of Compromise dated 19.07.2003 under which variousamounts had to be paid by the Builder to the owner so that a completeextinguishment of the owner’s rights in the property would then takeplace. The last two payments under the compromise deed werecontingent upon M/s.Pioneer Homes also being paid off, which apparentlywas done, as the Appellate Tribunal held:

“Further on the specific query from the Bench as to whether allthe cheques as mentioned in the compromise deed have beenencashed, the answer to which was “Yes”. This further supportsthat the transfer took place during the assessment year 2004-05as the last cheque is dated 25.01.2004.”

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A7. The High Court, by the impugned judgment dated 25.01.2012,adverted to the concurrent findings of the authorities, and stated that thethree questions of law that were set out were all answered in favour ofthe Revenue and against the assessee.

8. Shri R. V. Easwar, learned senior counsel appearing on behalfBof the appellant, read to us in copious detail the three documents inquestion. His first argument was that Section 2(47)(v) of the I.T. Actwas attracted on the facts of this case, on a reading of the agreement tosell together with the Power of Attorney. The alternative argument wasthat, assuming that this argument fails, in any case, this case would fallwithin Section 2(47)(vi), as on this date, there could be said to be aCtransaction which has the effect of “enabling the enjoyment of anyimmovably property”. The third submission made before us was that, inany event, what is relevant to bringing to tax the capital gain in AssessmentYear 2004-2005 is whether the compromise deed of 19.07.2003, whenread, could be said to fall within any of the clauses under Section 2(47).According to the learned senior counsel, this could not be said to be theDcase, as a result of which, in any event, there would be no transfer of acapital asset within the meaning of Section 2(47), so far as thisAssessment Year is concerned.

9. Shri K. Radhkrishnan, learned senior counsel appearing for theRevenue, took us through the Assessment Order, Order of the CIT (A)Eand the ITAT as well as the High Court’s judgment, and supported thesejudgments stating that clearly Section 2(47)(v) could not be made out onthe facts of this case and, therefore, in any case, this appeal should bedismissed. No other point had been argued before the forums below,and need not therefore be entertained.

F10. Having heard learned counsel for both the parties, it isnecessary to first set out the statutory provisions:

Section 2(47) of the Income Tax Act, 1961:

2. In this Act, unless the context otherwise requires,- G…………………………………………………………………….

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(47) “transfer”, in relation to a capital asset, includes,-

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(v) any transaction involving the allowing of the possession of anyimmovable property to be taken or retained in part performanceof a contract of the nature referred to in section 53A of theTransfer of Property Act, 1882 1 (4 of 1882 ); or

(vi) any transaction (whether by way of becoming a member of,or acquiring shares in, a co-operative society, company or otherassociation of persons or by way of any agreement or anyarrangement or in any other manner whatsoever) which has theeffect of transferring, or enabling the enjoyment of, any immovableproperty.

Explanation 1.- For the purposes of sub- clauses (v) and (vi),“immovable property” shall have the same meaning as in clause(d) of section 269UA;]

Explanation 2. - For the removal of doubts, it is hereby clarifiedthat “transfer” includes and shall be deemed to have alwaysincluded disposing of or parting with an asset or any interest therein,or creating any interest in any asset in any manner whatsoever,directly or indirectly, absolutely or conditionally, voluntarily orinvoluntarily, by way of an agreement (whether entered into inIndia or outside India) or otherwise, notwithstanding that suchtransfer of rights has been characterised as being effected ordependent upon or flowing from the transfer of a share or sharesof a company registered or incorporated outside India;)

Section 53A of the Transfer of Property Act, 1882:

53A. Part performance.— Where any person contracts to transferfor consideration any immoveable property by writing signed byhim or on his behalf from which the terms necessary to constitutethe transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract,taken possession of the property or any part thereof, or thetransferee, being already in possession, continues in possession in A

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part performance of the contract and has done some act infurtherance of the contract, and the transferee has performed or is willing to performhis part of the contract, then, notwithstanding that where there is an instrument ofBtransfer, that the transfer has not been completed in the mannerprescribed therefor by the law for the time being in force, thetransferor or any person claiming under him shall be debarredfrom enforcing against the transferee and persons claiming underhim any right in respect of the property of which the transfereeChas taken or continued in possession, other than a right expresslyprovided by the terms of the contract:

Provided that nothing in this section shall affect the rightsof a transferee for consideration who has no notice of the contractor of the part performance thereof.

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

12. On a reading of the agreement to sell dated 15.05.1998, whatis clear is that both the parties are entitled to specific performance. (SeeClause 14)

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13. Clause 16 is crucial, and the expression used in Clause 16 isthat the party of the first part hereby gives ‘permission’ to the party ofthe second part to start construction on the land.

14. Clause 16 would, therefore, lead to the position that a licensewas given to another upon the land for the purpose of developing theGland into flats and selling the same. Such license cannot be said to be‘possession’ within the meaning of Section 53A, which is a legal concept,and which denotes control over the land and not actual physical occupationof the land. This being the case, Section 53A of the T.P. Act cannotpossibly be attracted to the facts of this case for this reason alone.

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15. We now turn to the argument of the learned senior counselappearing on behalf of the assessee based on Section 2(47)(vi) of theIncome Tax Act.

16. This Court in Commissioner of Income Tax v. Balbir SinghMaini (2018) 12 SCC 354 adverted to the provisions of this sub-Sectionin the following terms:

24. However, the High Court has held that Section 2(47)(vi) willnot apply for the reason that there was no change in membershipof the society, as contemplated. We are afraid that we cannotagree with the High Court on this score. Under Section 2(47)(vi),any transaction which has the effect of transferring or enablingthe enjoyment of any immovable property would come within itspurview. The High Court has not adverted to the expression “orin any other manner whatsoever” in sub-clause (vi), which wouldshow that it is not necessary that the transaction refers to themembership of a cooperative society. We have, therefore, to seewhether the impugned transaction can fall within this provision.

25. The object of Section 2(47)(vi) appears to be to bring withinthe tax net a de facto transfer of any immovable property. Theexpression “enabling the enjoyment of” takes color from the earlierexpression “transferring”, so that it is clear that any transactionwhich enables the enjoyment of immovable property must beenjoyment as a purported owner thereof. The idea is to bringwithin the tax net, transactions, where, though title may not betransferred 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 takecolour from the earlier expression “transferring”, so that it can be statedon the facts of a case, that a de facto transfer of immovable propertyhas, in fact, taken place making it clear that the de facto owner’s rightsstand extinguished. It is clear that as on the date of the agreement tosell, the owner’s rights were completely intact both as to ownership andto possession even de facto, so that this Section equally, cannot be saidto be attracted.

18. Coming to the third argument of the learned senior counsel onbehalf of the appellant, what has to be seen is the compromise deed and A

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Aas to which pigeonhole such deed can possibly be said to fall underSection 2(47) of the Income Tax Act. A perusal of the compromise deedshows that the agreement to sell and the Power of Attorney areconfirmed, and a sum of Rs.50 lakhs is reduced from the totalconsideration of Rs.6.10 crores. Clause 3 of the said compromise deedconfirms that the party of the first part, this is the appellant, has receivedBa sum of Rs.4,68,25,644/- out of the agreed sale consideration. Clause 4records that the balance Rs.1.05 crores towards full and final settlementin respect of the Agreement entered into would then be paid by 7 post-dated cheques. Clause 5 then states that the last two cheques will bepresented only upon due receipt of the discharge certificate from oneCM/s. Pioneer Homes.19. In this context, it is important to advert to a finding of theITAT, which was that all the cheques mentioned in the compromise deedhave, in fact, been encashed.

20. This being the case, it is clear that the assessee’s rights in theDsaid immovable property were extinguished on the receipt of the lastcheque, as also that the compromise deed could be stated to be atransaction which had the effect of transferring the immovable propertyin question.

21. The pigeonhole, therefore, that would support the orders underEappeal would be Section 2(47)(ii) and (vi) of the I.T. Act in the facts ofthe present case.

22. This being the case, we dismiss this appeal but for the reasonsstated by this judgment.

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Devika Gujral

Appeal dismissed.

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