Section 50C Cannot Be Applied Where Property Rights Were Already Transferred Under Earlier Registered Agreement

Background of the Dispute

The matter in Zarir Rustom Joshi Vs ITO came before the ITAT Mumbai as an appeal against the order passed by the Commissioner of Income Tax (Appeals) under Section 250 of the Income Tax Act 1961 for A.Y. 2009-10.

The assessee, an individual, had not originally filed a return of income for A.Y. 2009-10. The case was later reopened on the basis of third-party information that a piece of agricultural land bearing Survey No. 5/1, CTS No. 4083, had been sold for Rs.2,08,00,000/-. Out of this total sale consideration, Rs.22,00,000/- was shown as payable to ten vendors, including the assessee.

As the land was located within municipal limits, the Revenue treated the transaction as giving rise to taxable capital gains and issued notice under Section 148. In response, the assessee filed a return declaring income of Rs.1,98,110/-.

The Assessing Officer completed the reassessment under Section 143(3) read with Section 147, determining total income at Rs.21,17,110/-. This included an addition of Rs.19,19,000/- towards Long-Term Capital Gain (LTCG) by:

  • Adopting total sale consideration at Rs.3,23,40,000/-
  • Calculating assessee’s 1/12th share at Rs.26,95,000/-
  • Adding the differential amount over and above what was declared.

The CIT(A) affirmed the addition on the footing that the assessee had allegedly failed to furnish satisfactory documentary proof supporting his stand. The assessee then approached the Tribunal.

Assessee’s Core Contention: Transfer Took Place in 2000, Not 2008

Registered Development Agreement and Power of Attorney

Before the ITAT, the assessee, through his Authorized Representative, placed emphasis on a registered development transaction entered into much earlier. The facts pleaded were:

  1. The assessee and other co-owners had executed a registered development agreement dated 08.03.2000 with a developer, one Mr. Parag S. Shah.
  2. Under this document, the co-owners agreed to sell the land to the developer for a lump sum consideration of Rs.66,00,000/-, which was:
    • Entirely paid via cheques, and
    • Recorded in detail within the development agreement itself.
  3. The development agreement was duly registered with the Sub-Registrar, Mumbai, under Registration No. 832/2000.
  4. Simultaneously, a general Power of Attorney (POA) was executed in favour of the same developer through a registered deed bearing Registration No. 226/2000.

The assessee argued that the combined effect of the development agreement and the POA was that:

  • Full and final consideration had been received in 2000,
  • Possession and development rights were effectively handed over, and
  • The assessee’s 1/12th share in the land stood relinquished in that year itself.

Accordingly, the assessee maintained that the transaction amounted to a “transfer” within the meaning of Section 2(47)(v) and Section 2(47)(vi) of the Income Tax Act 1961.

Capital Gain Already Offered in A.Y. 2000-01

The assessee further submitted that:

  • Capital gains attributable to his 1/12th share had already been computed and offered to tax in A.Y. 2000-01.
  • The consideration of Rs.66,00,000/- had been allocated amongst the co-owners, and the assessee had shown his share as LTCG in that earlier year.
  • An exemption was claimed under Section 54EA in A.Y. 2000-01, based on investment in eligible assets.

Thus, by the time the sale deed of 2008 was executed by the developer, the assessee’s interest in the land had already ceased.

Subsequent 2008 Conveyance by Developer

The Tribunal was apprised that: