ORDER
R.P. Tolani, J.M.
Out of the above two appeals, one is by the assessee and the other filed by the revenue for assessment year 1989-90. The assessee in its appeal challenges the exercise of jurisdiction under section 263 by the Commissioner. The revenue's appeal arise out of the order of the Commissioner (Appeals) against the order under section 143(3) passed by the assessing officer consequent to the order under section 263 by the Commissioner. The grounds taken by the parties are as under :
Assessee
'1. The learned Commissioner has erred in passing the order under section 263 of the Income Tax Act 1961, and setting aside the assessment order for assessment year 1988-89, on the ground that provisions of clause (v) of section 2(47) of the Income Tax Act, 1961, are applicable to the appellants case.
2. The learned Commissioner has failed to appreciate that the amended clause (v) and clause (vi) of section 2(47) of Income Tax Act, apply to transactions taken place after 1-4-1987 and the appellants transaction had taken place on 17-9-1986, that is assessment year 1987-88.
3. The learned Commissioner ought not to have set aside the assessment order.
4. The relief claimed is to cancel the order passed under section 263 of the Income Tax Act,'
Revenue
'On the facts and circumstances of the case and in law the learned Commissioner (Appeals)
(1) Erred in holding that the transaction of sale was concluded on 17-9-1986, i.e., on the date of agreement overlooking the fact that the final payment was received in July, 1987 to the extent of Rs. 15 lakhs and hence the relevant date for purposes of capital gains accrual is subsequent to 1-4-1987.
(2) Erred in holding that the provisions of 'deemed transfer' under section 2(47) were not applicable to the assessee's case.
(3) Erred in deleting the addition of Rs. 21,46,963 on account of capital gains.
(4) The appellant prays that the order of the Commissioner (Appeals) on the above ground be set aside and that of the AC 9(3) restored.'
2. Briefly stated the facts are that the property in question is a flat at Delhi. The assessee entered into an agreement, dated 17-4-1986, with Shri M.L. Sheth and M.K. Sheth for sale of the said property for a consideration of Rs. 45 lakhs. The assessee received a sum of Rs. 30 lakhs on 17-9-1986, and handed over the possession to the proposed purchasers with a right to collect the rent from the tenants. It was further agreed that all dues, taxes, etc. payable will be paid by the assessee till the date of execution of the registration. The execution of the conveyance was agreed to be held subsequently and the balance consideration of Rs. 15 lakhs was agreed to be given on the execution of the conveyance deed. The assessee filed return of income for assessment year 1987-88 wherein a note was placed that the property has been agreed to be sold for Rs 45 lakhs with effect from 17-9-1986, and no rent has been received thereafter. The assessee did not show any capital gains in assessment year 1987-88. The balance payment of Rs. 15 lakhs was given on 1-7-1987 (in the assessment year 1988-89) and conveyance deed was dispensed with. The assessee did not disclose any capital gains in assessment year 1988-89 also. The assessment was framed on the basis of return of income filed.
3. Subsequently, the Commissioner assumed jurisdiction under section 263 and proposed to revise the order as the same was erroneous and prejudicial to the interest of the revenue. The assessee replied that as per the terms of agreement, the final conveyance deed of the property was to be executed on completion of formalities. Since the transaction had taken place prior to 1-4-1987, clause (v) of section 2(47) as amended was not applicable to assessee's case and the provisions were applicable for transactions/agreement which took place after 1-4-1987. The fine argument of the assessee was that in assessment year 1988-89, the, assessee is not liable to capital gain tax and if at all there was a liability that was in assessment year 1987-88. The Commissioner, however, set aside the assessment with directions to the assessing officer to reframe the assessment. The assessee is aggrieved on this order of the Commissioner.
4. In the reassessment proceedings, before the assessing officer, the assessee represented its case as under :
'Our client have written agreement to sell his property for Rs. 45 lakhs vide agreement, dated 17-9-1986. As per the terms and conditions filed conveyance deed will be executed on completion of the formalities. Since our client's transactions have taken place prior to 1-4-1987, clause (v), amended provisions of section 2(47) of the Income Tax Act, 1961, is not applicable in our client's case.
The amended provisions are applicable for transactions/ agreements for sale of property taken place after 1-4-1987.
In view of the above, no change should be made in the order.'
The assessing officer, however, was of the view that as per the sale agreement, the full and final payment was to be made in assessment year 1988-89. The assessee agreed to the fact that the assessee's case falls within the scope of clause (v) of section 2(47) of the Income Tax Act. The assessee was only disputing the period, i.e., assessment year and on the interpretation of applicability of section 2(47)(v). The assessing officer held that since the sale transaction was completed in assessment year 1988-89, and not in assessment year 1987-88, the assessee has transferred almost all the rights associated with the property to the purchaser in assessment year 1988-89 the assessee and the purchaser have dispensed with the execution and registration of the sale deed on mutual agreement, the amended provisions of section 2(47) were applicable in assessee's case. The capital gains were accordingly taxed in assessment year 1988-89.
5. Aggrieved, the assessee preferred first appeal. The Commissioner (Appeals) deleted the capital gains holding as under :
'4.1 Newly inserted sub-clause (iv) of section 2(47) has brought into the ambit of 'transfer' the practice of enjoyment of property rights were commonly known as power of attorney arrangement. The practice is such cases is adopted normally where transfer of ownership is legally not permitted. A person holding power of attorney is authorised with the powers of ownership, including that of making construction. The legal ownership in such cases continues to be with the transferor. This amendment shall come into force with effect from 1-6-1988, and will accordingly apply to assessment year 1988-89 and subsequent years.
5. From the above circular it is very clear that where the legal ownership is taken with the transferor but all the rights vested with the property were transferred to the purchaser clauses (v) and (vi) were inserted in section 2(47) with effect from assessment year 1988-89. In order to attract clause (v) or (vi) of the Income Tax Act it is necessary that the transfer of asset should have been made after 1-4-1987. Since in this case the transfer has taken place much before this date, i.e., on 17-9-1986 corresponding to assessment year 1987-88 the amended provisions which are applicable from assessment year 1988-89 will not apply and, therefore, in view of section 45, profits arising out of the sale of the asset cannot be taxed in the assessment year 1988-89 and, therefore, the addition is deleted as it does not relate to assessment year 1988-89.
Aggrieved, the revenue is before us against this order of the Commissioner (Appeals).
6. Before us, the learned counsel for the assessee contended that the order of the Commissioner under section 263, for assessment year 1988-89 was not valid as there was no prejudice caused to the revenue. As per clause (v) to section 2(47), the word 'transfer' in relation to capital asset means any transaction which allows possession of any immovable property to be taken or retained in part-performance of a contract. Since the assessee's case with effect from 1-4-1988, was governed by this clause and the part-performance was completed in assessment year 1987-88 there was no transfer within the meaning of clause (v) of section 2(47) in assessment year 1988-89. Since there was no transfer of a capital asset as envisaged, there can be no capital gains as per law and, therefore, the order of the Commissioner (Appeals) was erroneous. Reliance was placed on the Supreme Court Judgments in the case of CIT v. Poddar Cement Ltd. : [1997]226ITR625(SC) and Mysore Minerals Ltd. v. CIT : [1999]239ITR775(SC) that the ownership is to be viewed from the common law concept and the assessee having given the rights of possession, enjoyment and collection of rent to the vendee in assessment year 1987-88, according to the common law concept of ownership as enunciated by the above Supreme Court Judgments the ownership on this premise was transferred in assessment year 1987-88. Therefore, the transaction was liable for tax in assessment year 1987-88 and not in assessment year 1988-89. Since the Commissioner chose to issue notice under section 263 in respect of assessment year 1988-89, the issue is whether in assessment year 1988-89 there is any liable to capital gain tax or not. Since no liability of capital gain tax existed in assessment year 1988-89, there was no error in the order of the assessing officer and, therefore, order under section 263 is invalid.
7. The learned counsel for the assessee fairly conceded that with the amended clause of section 2(47)(v), the assessee's liable to pay capital gain tax in assessment year 1987-88. The learned counsel for the assessee defended the order of the Commissioner (Appeals) against which the revenue is in appeal on the ground that the Commissioner (Appeals) has taken stock of the correct legal position and deleted the capital gain.
8. The learned Departmental Representative, on the other hand, contended that the definition of 'transfer' in relation to capital asset as given in section 2(47) is inclusive one and merely because there is a specific clause dealing with the situation where the transfer is deemed consequent to part-performance will not mean that other modes of transfer are removed from the statute book. The insertion of this clause (v) is to tackle a peculiar type of transaction and not all the immovable property transactions. The assessee's transaction falls in the main meaning of the word 'transfer'. The other clauses are nothing but extension of the word 'transfer'. The assessee by an agreement did not agree to transfer the ownership by merely receiving Rs. 30 lakhs and handed over the possession, but deferred the transfer of ownership till the time of receipt of balance payment and execution of a conveyance deed. Consequently, as on 31-3-1987, this agreement was the basis to decide the chargeability to capital gain tax. According to the general meaning of transfer which is accepted by section 2(47) and the agreement of the assessee himself in assessment year 1987-88 the transfer was not deemed to be complete. It was further contended that in any case, this is a case of spilled over transaction of clause (v) of section 2(47) as earlier execution of conveyance deed was the deciding criteria but the same has not been removed from the statute book and the transactions completed by conveyance deed are still governed by the main meaning of transfer as contemplated by section 2(47) of the Act. Under these circumstances, this being a spilled over transaction from assessment year 1987-88 the logical end will come to the transaction in assessment year 1988-89, in this year the assessee, consequent to the agreement decided to transact the balance of consideration and dispensed with the execution of the conveyance deed. This does not suggest that the part-performance in assessment year 1987-88 was transfer of the ownership. Even if the concept of Poddar Cement Ltd. and Mysore Minerals Ltd. (supra) is applied, by agreement, the assessee clearly reserved the right of ownership pending, payment of consideration and recovery of possession in case of default.
9. The learned Departmental Representative further contended that the transaction of the assessee is still covered by the general and main meaning of transfer. Alternatively, it is a spilled over transaction and its logical conclusion comes in assessment year 1988-89 when the final terms of ownership was transacted and the subsequent insertion of clause (v) will not govern the transactions, which are executed prior to that as the legislature cannot be expected to create such anomaly without specific wordings to that effect.
10. Alternatively, it was pleaded that the Tribunal may issue necessary directions under section 150 of the Income Tax Act to reopen the assessment for assessment year 1987-88 as the assessee is willing to be taxed in assessment year 1987-88 because the time-limit for reassessment, etc. having expired, the only way to give the legitimate revenue to the state is only by way of exercise of power by the Tribunal under section 150 of the Act. It was, therefore, contended that the transactions capital gain may be taxed in assessment year 1988-89 or alternatively suitable directions under section 150 may be given to tax the same in assessment year 1987-88.
11. In the rejoinder, the learned counsel for the assessee did not raise any further contention on the issue of section 150 of the Act.
12. We have heard the rival submissions and perused the material available on record. Section 2(47) prescribes definition of transfer with the words 'transfer in relation to a capital asset includes..........'. It is a well settled proposition that the definition of transfer is inclusive one and by the appended clauses what is meant by legislature is to expand the meaning of word 'transfer'. Prior to 1-4-1988, the transfer was completed on the execution of conveyance. From 1-4-1988, to control the anomaly created by a situation where substantial step for completion of a transaction were taken pending execution of conveyance by which the charge of capital gains was deferred by the ingenuity of the taxpayer. Insertion of clause (v) does not mean that the general meaning of transfer as contemplated was altered. It was an additional measure which clearly suggest that any transaction effected after 1-4-1988, in which possession of any immovable property to be taken or retained as part-performance to be held as 'transfer' for the purpose of capital gains. The assessee entered into agreement on 17-9-1986, and gave possession. Therefore, its eventuality cannot be governed by clause (v) of section 2(47) which was introduced subsequent to this event, i.e., with effect from 1-4-1988. Under these circumstances, this transaction has to be governed by general meaning of the word 'transfer' which is very much there in the statute book. It is in assessment year 1988-89 that the assessee received the balance consideration and mutually agreed to dispense with the conveyance deed meaning thereby that the ownership as contemplated by assessee was transferred to the vendee. Looking at the general definition of the word 'transfer' the transaction completed on these events and the transaction was completed in assessment year 1988-89.
13. We also find merit in the alternative argument of the learned Departmental Representative that this is a spilled over transaction and even though if it is held that clause (v) is applicable, the same was applicable to transfers on the basis of possession with effect from 1-4-1988, and not applicable to transfers of possession prior to that date and, therefore, is a spilled over transaction to which the general meaning of transfer will apply. The case laws cited by the learned counsel for the assessee in the case of Poddar Cements Ltd. (supra) and Mysore Minerals Ltd. (supra) also refer to a common law approach to define the word 'ownership'. Although section 2(47) is not deliberation on the issue of ownership, the whole emphasis is put on the word 'transfer', then also what the Hon'ble Supreme Court in this judgment has enunciated is to see the overall conduct of the parties and view the same from the common law point of view. On this proposition also what we find is that both the parties did not agree to transfer the ownership in assessment year 1987-88, but deferred it to making a final payment and execution of conveyance. This deferment came to a logical conclusion when the balance payment was made and the conveyance was dispensed with. Even these two decisions suggest this course of action. Under these circumstances, we hold that the transfer of the assessee is governed by the main meaning of the word 'transfer' as enunciated by section 2(47)(v), is a specific eventuality by extension of the meaning of the word 'transfer'. Since the transaction is covered by main meaning we hold that the capital gains are liable to be taxed in assessment year 1988-89.
14. Coming to the plea of provisions of section 150 by the learned Departmental Representative as a further lenient ground, we appreciate that the assessee has fairly conceded that it is liable for tax in assessment year 1987-88. Since we have already held that the assessee is liable for capital gain tax in assessment year 1988-89, we do not express any opinion on this issue.
15. Under these circumstances, the assessee's appeal challenging the action of the Commissioner under section 263 is dismissed and the revenue's appeal is allowed.