(i) The first issue that was raised before us for our consideration is whether possession has been given by the assessee to the developer or not. In this regard, it is noted by us that as has been rightly noted by Ld. CIT(A) also that clause 3, clause 6 and clause 14 of the Development Agreement clearly laid down that the possession shall be given to the developer only upon fulfillment of certain conditions i.e. sanctioning of scheme by Slum Rehabilitation Authority and obtaining the ‘letter of intent’ and other requisite permissions from the Competent Authorities. It has also been clarified in clause 14 that owner (assessee) shall always be deemed to be in physical and exclusive possession of the said property until the issuance of Annexure -II by SRA. It is an admitted fact on record that even till date no permission or scheme has been granted by the SRA in respect in the impugned land. Thus, there could not have been any question of parting with the physical possession by the assessee with the developer. Even otherwise, no material has been brought on record by the AO or by Ld. CIT-DR before us indicating any contradiction in the factually findings recorded by Ld. CIT(A). In other words, nothing has been brought on record to show that physical possession was given by the assessee to the developer.
(ii) Without prejudice to the above, even otherwise, physical possession is held by the slum dwellers. Under these circumstances, apparently there was nothing to show that assessee could have given physical possession to the developer. Under these circumstances, even the very applicability of provisions of section 2(47)(v) becomes doubtful on such type of transaction having such a peculiar features. Thus, taking support from the judgment of Hon’ble Supreme Court in the case of Ajay Kumar Shah Jagati v. CIT (SC) (supra), CIT vs. Geetadevi Pasari (Bom) (supra) and CIT vs. Dr. T.K. Dayalu, (Karnatka) (supra), we find that no transfer of the impugned land had taken place during the year under consideration, even under the provisions of section 2(47)(v).
(iii) The other important aspect that cannot be ignored here is that the AO had held this transaction to be a case of transfer by erroneously presuming that development agreement was ‘registered’ with the concerned authorities. The correct fact has been noted by Ld CIT(A) that impugned document was not ‘registered’ with the registrar under the Registration Act, 1908. This factual finding has not been negated or controverted by Ld. CIT-DR before us. Thus, decision taken by the AO was under a mistaken belief of a fact which did not actually exist. Thus, on this very ground, the whole action of Ld. AO in treating impugned transaction as a case of ‘transfer’ becomes seriously doubtful.
(iv) But another legal issue has been raised before us by Ld CIT-DR i.e. whether there is any legal requirement of registration of the document for invoking the provisions of section 2(47)(v) since it only talks about contract of the nature as referred to in section 53A of the Transfer of property Act, and therefore it is not mandatory that whole of the section 53A needs to be complied with while applying the provisions of section 2(47)(v). It was further submitted that if we analyse the object of bringing on the statute the provisions of section 2(47)(v), it would be noted that the purpose was to tax capital gains arising in those cases where the properties were actually transferred by way of agreement to sale but these were not registered and therefore few assessees even after transferring their properties were not paying the taxes and thus for the purpose of stopping revenue leakage in such cases, clause (v) was introduced in section 2(47). It was further submitted that applying ‘Haydon’s mischief rule’ of interpretation, the interpretation of sections 2(47)(v) was to be done only by reading to the extent as was necessary so as to achieve the object of the legislation. Reliance has been placed by Ld. CITDR for this proposition on the judgment of Mumbai Bench of the Tribunal in the case of Suresh Chandra Agarwal v. ITO 15 taxman 115 (Mum).
(v) On the other hand, Ld. Counsel of the assessee also analysed before us the position of law in detail on this issue and relying upon the recent judgment of Hon’ble Punjab and Haryana High Court in the case of C.S. Atwal v. CIT (supra) as well as judgment of Mumbai Bench of the Tribunal in the case of Dr. Devendra H. Dave Udgith (supra), it was submitted that a provision of the Act cannot be broken into pieces and interpretation cannot be done in such a manner which allows choosing some pieces and leaving the other. It was submitted that the “Doctrine of Legislation by Incorporation” suggest that provisions of section 17(1A) of Registration Act, 1908, have to be necessarily read into section 53A of Transfer of Property Act and thereafter these provisions should then be read into section 2(47)(v) of the Income Tax Act, 1961 so as to make complete reading of the law. It was stressed that by reading the law in this manner only the correct position of law shall emerge.
(vi) We have considered these facts very carefully. Ld. CITDR has suggested us to follow Haydon’s mischief rule whereas Ld. Counsel of the assessee emphasised upon applicability of Doctrine of Legislation by Incorporation, on the given facts of this case. We did some thinking on this tricky situation. In our view, both the rules of interpretation are well accepted rules of interpretation and none of them can be discarded. Therefore, in our view, both the rules should be applied in their respective chronology and relevance. Thus, for the sake of completeness, first we should apply the Doctrine of Legislation by Incorporation and after applying the same, once the law before us becomes complete, then we should interpret the provisions so combined by applying Haydon’s mischief rule. In other words, we should first read the provisions of section 17(1A) of the Registration Act into provisions of section 53A of the Transfer of Property Act, and the provisions so combined together, should be read into section 2(47)(v) of the Act. In our view, the provisions of section 2(47)(v) should be read in toto. When section 2(47)(v) talks about contract of the nature referred to in section 53A of the Transfer of Property Act, then we should also read the conditions attached in section 53A and one of the main requirements is for registration of the document as per the provisions of section 17(1A) of the Registration Act 1908. Thus, registration of the document becomes one of the essential ingredients to invoke provisions of section 2(47)(v). It is noteworthy that subsequent to insertion of clause (v) to section 2(47) of the Act, amendments have been made in section 53A of Transfer of Property Act as well as section 17(1A) of Registration Act for mandating the requirement of registration of the documents. Clause (v) of section 2(47) was drafted by the legislature in the light of pre-amended provisions of section 53A and 17(1A). Thus, in our view, when there is a drastic ‘change’ in the source legislation [i.e. sections 53A and 17(1A)], it would be unwise, unsafe and contrary to cardinal principles of jurisprudence, to ignore the said ‘change’ while reading the dependent legislation [i.e. clause (v) to section 2(47)]. As a reader of law, we cannot afford to make adventures by reading the interplay between various sections of different legislations in a manner which results into choosing some part of the interplay while leaving the other, that too as per our discretion. Otherwise, at times, such an approach (where two inter-dependent provisions are not read in complete manner but in bits and pieces as per the requirement) may prove to be a risky and may not be found to be universally acceptable in legal parlance. It is further noted by us that this issue is no more res-integra, since Hon’ble Punjab & Haryana High Court in the case of C.S. Atwal v. CIT 378 ITR 244 has decided this issue in the similar fashion.
(vii) Thus, as per mandate of law, as explained by Hon’ble High Court in above said judgment, we must make conjoint reading of all three aforesaid sections to understand and give effect to its full meaning. Having done so, we can now apply Haydon’s mischief rule to interpret the law so as to achieve the objective of the legislation, in the light of the facts of the case before us. Undoubtedly, the purpose of the legislation [i.e. section 2(47)(v)] was to bring to tax those transactions where though the properties were actually transferred, but in certain cases assessees were avoiding payment of capital gain taxes on the ground of non-execution of sale deed. With a view to plug revenue leakage under such cases, clause (v) to section 2(47) was brought on the statute. Thus, in our opinion also section 2(47) (v) can for sure be pressed into service where transfer of the property has been completed in substance and assessee is trying to camaflouge the transaction by not executing a sale deed and/or by creating false impression of no transfer. But, before invoking these provisions, the burden is upon the Revenue to demonstrate with the help of cogent material that transfer has been completed in substance.
(viii) Further, we have analysed the development agreement independently also to find out whether the impugned property has actually been transferred by virtue of this agreement. It is generally seen that there may be several stages or events arising in a joint development arrangement made between owner of the land and the developer. For the purpose of determining the actual date of transfer of the land by the land owner, all these stages / events needs to be collectively analsysed and after evaluating overall effect of the same we can determine the actual date of transfer. These stages / events may be described as date of entering into JDA, date of executing power of attorney authorising the developer for taking various approvals / permissions etc., handing over the possession of the land to the developer for various purposes, receipt of part / full sale consideration from the developer, date of execution of power of attorney in favour of developer authorising him for the sale of developed units to the customers at his absolute discretion; and transfer of developed units to the customers etc. There may be few more stages / events to complete the transaction. Though, one single event may trigger the process of transfer but may not necessarily complete it also. Whether the transfer has, in substance, taken place, can be determined by analysing the inter-play and effect of all these stages / events combined and put together. For example, possession may be given for various purposes, viz. possession given to a contractor, or to a tenant also, but such an event in itself cannot be regarded as “transfer” of land. Possession of land may also be handed over as licensee only for the purpose of development of real estate on land. Here again, it shall not give rise to “transfer”. Thus, when the possession is given along with other legal rights to the developer resulting into entitlement of the developer for full use and enjoyment of the property as well as its further sale after converting it into developed units at its full, own and sole discretion, then it may result into ‘transfer’ provided other conditions also suggest so. Thus, handing over of the possession has to be necessarily coupled with the intention of transferring the rights of ownership and enjoyment of the property to the developer. Handing over of the possession for the limited purpose of developing the land while still retaining the ownership and control of various legal rights upon the property by the land owner would not fall in clause (v) of section 2(47).
(ix) Now, in this legal background, if we analyse the undisputed facts of the case before us, we find that in the situation given before us, by no stretch of imagination, we are able to reach upon the conclusion that the impugned land has actually been transferred. In fact, the land is attached with so many fetters and ifs and buts that it cannot to be held as transferred unless various conditions attached to it are duly complied with. Detailed findings have been recorded in this regard by Ld. CIT(A) after analyzing various clauses of the development agreement and other relevant facts of this case and also discussed briefly by us in earlier part of our order. It is noteworthy that the admitted fact on record is that requisite permissions from Slum Rehabilitation Authority have not been received even till date. The developer was not authorised to enjoy/sell his share of property unless he hands over to the owner its share of developed portion of FSI, which in turn was not possible unless all the formalities pertaining to SRA were completed. In fact, the developer, as per terms of the agreement, was to get proper permission for receiving rightful possession of the land only after obtaining all requisite permissions from SRA. Thus, under such peculiar facts and circumstances and applying any provision of law and interpreting the same in any manner, one cannot conclude by any stretch of imagination that the impugned property has indeed been transferred. Thus, viewed from any angle, we have no option but to affirm the detailed finding of Ld. CIT(A) on this issue.
(x) Ld. CIT-DR had also heavily relied upon the judgment of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT, (supra) for upholding the action of the AO on the ground that as per the said judgment the amount of capital gain shall be charged to tax in the year of entering of Joint Development Agreement, and the moment the possession is handed over irrespective of the fact that whether any conveyance deed was entered or not and whether the registration is done or not. We have carefully gone through the judgment of Hon’ble Bombay High Court as well as order of the AO. In fact, in the given facts of the case before us, the aforesaid judgment of Hon’ble Bombay High Court helps the assessee. Our reading of the said judgment suggest that ratio coming out from the same is that in the case of a development agreement, if the contract, read as a whole, indicates passing 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 of capital gains and substantial performance of the contract would be irrelevant. Now, if we look into the facts of the case as has already been discussed and analysed by us in above paras that when the agreement was read as a whole, and compared with the conditions attached thereto as well as real facts and circumstances of the case, it does not transpire that there was clear intendment of the assessee to make transfer of the said land by virtue of this agreement itself, in view of the detailed reasoning and analyses given by us in earlier part of our order. Further, the distinguishing features and facts of the above said case were that in the said case, the admitted case of the said assessee was that transfer had taken place, and the only dispute in the said case was confined to the year of chargeability. Further, the fact of possession having been handed over by the assessee to the developer was also admittedly on record and the same was not denied. Whereas, on the other hand, in the case before us neither the possession has been handed over nor it is an admitted case of the assessee that transfer has taken place even till date. Further,Hon’ble Bombay High Court got an occasion to analyse the aforesaid judgment in the case of CIT v. Geeta Devi Pasari Supra) dated 10th July 2008 wherein it was clearly held that unless the purchaser was actually physically put in possession, even though the agreement was entered, it cannot be said that transfer had taken place in view of section 2(47)(v) and therefore capital gain could not be charged to tax. Similar view was taken by Hon’ble Supreme Court in its order dated 24.1.2008, in the case of Ajay Kumar Shah Jagati, wherein their lordships clearly held that possession is essential element to be considered for deciding whether transfer had taken place in view of extended meaning of “transfer” in section 2(47)(v) read with section 53A of the Transfer of Property Act. It is to be further noted here that judgment of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra),was delivered on 13.2.2003. Subsequently, an amendment has been made under Registration Act,1908 in 2001 by which section 17(1A) was inserted which provided that registration of the agreement shall be mandatory to give effect to the provisions of section 53A of Transfer of Propter Act. Thus, the said judgment was delivered, keeping in view the pre-amended law. The development agreement under consideration before us is admittedly not registered. The effect of non-registration after the said amendment has been analysed by Hon’ble Punjab and Haryana High Court in the case of C.S. Atwal which has been already discussed by us in earlier part of our order. Thus, taking into account, totality of facts and circumstances of the case, it can be said that no transfer of the impugned land had taken place during the year before us.
(xi) Before parting with, we shall like to deal with an alternative issue raised by the Ld. CIT-DR that the impugned amount of Rs.10 crores received by the assessee should be brought to tax as income from other sources. We shall deal with the argument of Ld. CIT-DR on this aspect also. The impugned amount of Rs.10 crores is stated to be in the nature of advance money received by the assessee for the proposed contracts of the land and to deal with such a situation a specific section i.e. section 51 exists on the statute. Section 51 provides that under such circumstances, amount of advance received shall be deducted from the cost for which impugned asset was acquired. Thus, we direct the AO to treat this amount of Rs.10 crores as per provisions of section 51 of the Act and the consequences as per law should follow. The AO is directed to re-compute the income accordingly after giving opportunity of hearing to the assessee. Thus, subject to the aforesaid directions, grounds raised by the Revenue are dismissed.