Execution of Power of Attorney not to be treated as ‘ transfer ’ if no sale deed executed

Philp George and M.P. Senthil Kumar, Advs. for the Appellant.A.V. Sreekanth, JCIT for the Respondent.

ORDER

M. Balaganesh, Accountant Member – At the outset we find that the assesse has raised certain additional grounds of appeal challenging the validity of assumption of jurisdiction u/s. 147 of the Act for re-opening the assessment for the assessment year 2007-08. We find that the adjudication of this additional grounds of appeal would have to be addressed at the first instance.

In order to admit the additional ground the basic facts that are required to be presented would have to be gone into. The basic facts are as follows:

The assessee did not file her original return of income for the assessment year 2007-08. Based on an information obtained from the Registration Department regarding the sale of property by the assessee, the Ld. AO issued notice u/s. 148 of the Act after recording reasons for re-opening the assessment. In response to said notice, the assessee filed return of income disclosing capital gain among other incomes and also claiming exemption u/s. 54F of the Act in respect of re-investment in entire property. Re-assessment was completed by the Ld. AO denying the claim of exemption u/s. 54F of the Act thereon by assessing the capital gains in respect of the sale of property. The primary facts in the instant case are that the assessee purchased the property measuring about 2 grounds and 1412 sq.ft. at Sri Kapaleswar Nagar, No. 145, Shrotium Neelankarai Village, Tambaram Taluk, Kancheepuram District bearing Survey No. 92/2A vide sale deed dated 31.08.1994 registered as document No. 3655/1994. The assessee executed Power Of Attorney (POA) in favour of M/s. K2 Engineers Pvt. Ltd., on 15.12.2006. The copy of the said POA was placed on record vide page 25 of the paper book. The assessee received the sum of Rs. 1,60,00,000/- as advance from M/s. K2 Engineers Pvt. Ltd., in December, 2006. The assessee did not enter into any agreement of sale in writing pursuant to execution of POA on 15.12.2006. From the perusal of various clauses of the registered POA, we are able to understand that no possession of the subject mentioned property was handed over by the assessee in favour of the POA holder. Ultimately, the assessee represented by her POA holder M/s. K2 Engineers Pvt. Ltd., sold the property to four different persons as below:-

2. The Ld. AR before us argued that the Ld. AO could not have formed a belief that income has escaped assessment in the hands of the assessee for the assessment year 2007-08 for the simple reason on 15.12.2006 what was executed was only a registered POA by the assessee, which admittedly did not mention any consideration amount and admittedly no possession was handed over to the POA holder by the assessee pursuant to the said registered POA. In these circumstances, the provisions of section 2(47)(v) r.w.s. 53A of the Transfer of Property Act would not come into play stating that the assessee had made transfer by way of part performance of the contract, thereby inviting him with the levy of capital gains. It was only in the assessment year 2008-09 and in 2009-10, the assessee through her POA agent had executed sale deeds and the capital gains, if any, would arose only in those two years and definitely not in assessment year 2007-08. He also referred to the reasons recorded by the Ld. AO wherein it has been stated that assessee has sold the subject mentioned property for Rs. 1,60,00,000/- on 15.12.2006 to M/s. K2 Engineers Private Ltd. He argued at the cost of repetition that the documents which were executed on 15.12.2006 was only POA which admittedly do not contain any consideration amount. Apart from this no other document was executed in the form of agreement of sale in writing and by handing over possession of the subject mentioned property so as to fall within the ambit of provisions of section 53A of Transfer of Property Act. He also placed reliance on the decision of the Hon’ble Supreme Court in the case of Suraj Lamp and Industries (P.) Ltd. v. State of Haryana [2012] 340 ITR 1 , wherein after analysing the relevant provisions viz. section 5 and section 53A, 54 and 55 of Transfer of Property Act, together with section 17 of Registration Act, 1908 had held as follows:

“It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred.

12. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of TP Act enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter.

Scope of Power of Attorney

13. A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (see section 1A and section 2 of the Powers of Attorney Act, 1882). It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee.

An attorney holder may however execute a deed of conveyance in exercise of the power granted under the power of attorney and convey title on behalf of the grantor.

15. Therefore, a SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property. The observations by the Delhi High Court, in Asha M. Jain v. Canara Bank – 94 (2001) DLT 841, that the “concept of power of attorney sales have been recognized as a mode of transaction” when dealing with transactions by way of SA/GPA/WILL are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/WILL transactions are some kind of a recognized or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILL transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law.

16. We therefore reiterate that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance.

Transactions of the nature of ‘GP A sales’ or ‘SA/GP A/WILL transfers’ do not convey title and do not amount to transfer, nor can they be recognized or valid mode of transfer of immoveable property. The courts will not treat such transactions as completed or concluded transfers or as conveyances as they neither convey title nor create any interest in an immovable property.

They cannot be recognized as deeds of title, except to the limited extent of section 53A of the TP Act. Such transactions cannot be relied upon or made the basis for mutations in Municipal or Revenue Records. What is stated above will apply not only to deeds of conveyance in regard to freehold property but also to transfer of leasehold property. A lease can be validly transferred only under a registered Assignment of Lease. It is time that an end is put to the pernicious practice of SA/GPA/WILL transactions known as GPA sale/s .

17. It has been submitted that making declaration that GPA sales and SA/GP A/WILL transfers are not legally valid modes of transfer is likely to create hardship to a large number of persons who have entered into such transactions and they should be given sufficient time to regularize the transactions by obtaining deeds of conveyance. It is also submitted that this decision should be made applicable prospectively to avoid hardship.

18. We have merely drawn attention to and reiterated the well- settled legal position that SA/GPA/WILL transactions are not ‘transfers’ or ‘sales’ and that such transactions cannot be treated as completed transfers or conveyances. They can continue to be treated as existing agreement of sale.

Nothing prevents affected parties from getting registered Deeds of Conveyance to complete their title. The said SA/GPA/WILL transactions’ may also be used to obtain specific performance or to defend possession under section 53A of TP Act. If they are entered before this day, they may be relied upon to apply for regularization of allotments/leases by Development Authorities. We make it clear that if the documents relating to ‘SA/GPA/WILL transactions’ has been accepted acted upon by DDA or other developmental authorities or by the Municipal or revenue authorities to effect mutation, they need not be disturbed, merely on account of this decision.”

3. The Ld. AR also drew the attention of the bench that the possession was actually handed over by the assessee to the aforesaid buyers of the property on 31.10.2007 for first two purchasers, on 30.05.2008 for last two purchasers (being the date of execution of independent sale deeds in favour of four purchasers). This fact is also mentioned in the respective sale deed enclosed vide page 54, 71, 87 and 104 of paper book. He also argued that though, the assessee initially thought that the transfer had taken place in assessment year 2007-08, which is pursuant to the execution of POA and as per the advice given to him by his tax consultants, merely because the assessee has erroneously offered sum receipt/income in the returns, that alone would not enable the Ld. AO to take advantage of the ignorance of the assessee with regard to the provisions of law. He further argued that there is no estoppel against the statute. In support of this, he placed reliance on the decision of Hon’ble Calcutta High Court in the case of Maynak Poddar (HUF) v. WTO [2003] 262 ITR 633 . He further argued that it is the earnest duty of the Ld. AO to teach the assessee of his various tax obligations and the revenue should not get unjustly enriched by the ignorance of provisions of the Income Tax Act on the part of the assessee.

Based on these arguments, the Ld. AR argued that the Ld. AO could not have had reason to believe by having tangible material representing some benefit in facts and figures in Asst Year 2007-08 stating that income had escaped assessment and accordingly, the re-opening of assessment is bad in law.

4. In response to this, the Ld. DR argued that admittedly the re-opening in this case had happened pursuant to the information received by the ld. AO from the Registration Department. In the instant case, both POA as well as the sale deeds were duly registered with the Registration Department though on different dates filed in two different assessment years and accordingly he argued that income in the hands of the assessee had escaped assessment. He argued that it is already well settled with sufficiency of reason need not be taken into account at the time of recording the reasons for assessment. He further argued that the decision rendered by the Hon’ble Supreme Court in the case of Suraj Lamp Industries (P.) Ltd. (supra) is only in the context of general law and could not be made applicable for income tax proceedings.

5. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find that the assessee had filed the return of income in pursuant to notice issued u/s. 148 offering capital gain on sale of the subject mentioned property and claiming exemption u/s. 54F of the Act, in respect of the re-investment of entire property of Kodaikanal. We find that on 15.12.2016, the assessee had merely executed the POA in favour of M/s. K2 Engineers Private Ltd. Admittedly, the possession of the property was not handed over by the assessee to the POA holder based on the POA. Though, the various clauses in the POA confers various powers on the POA holder even for execution of sale deed in connection with the subject mentioned property, we feel that the said clauses are only general clauses as would be normally found in general POA. Admittedly, no agreement in writing in the form of agreement of sale was executed by the assessee in favour of POA holder. The provisions of section 53A of Transfer of Property Act are very clear that in order to construe the Transfer of Property, it could be made based on part performance of the contract by way of a valid agreement in writing. Since, in the instant case, there is no agreement in writing executed by the assessee in favour of POA holder, the provisions of implicating part performance of the contract within the provisions of section 53A of Transfer of Property Act cannot be invoked on the assessee. We find that the Hon’ble Supreme Court in Suraj Lamp & Industries (P.) Ltd. (supra) has elaborately discussed this issue as to at what point of time the Transfer of Property happens. The same are not reiterated herein for the sake of brevity. Once the applicability of provisions of section 53A of the Transfer of Property Act fails, there cannot be no transfer of capital asset within the provisions of section 2(47)(v) of the Act and accordingly no capital gains could arise for the assessee in assessment year 2007-08. Admittedly, the sale deeds were executed by the assessee in favour of four purchasers on 31.10.2007 and 30.05.2008 on which date only, the purchasers were placed in possession of the property by the assessee. In these facts and circumstances, the capital gains, if any, could arose only in assessment years 2008-09 and 2009-10 as the case may be and not in the year under appeal i.e., assessment year 2007-08.

5.1 Now let us go into the reasons recorded by the Ld. AO which are enclosed in page 133 of the paper book of the assessee. The reasons recorded by the Ld. AO for re-opening the assessment for the assessment year 2007-08 are as under:—

“The assessee Mrs. Mithra Ram has sold property measuring about two grounds and 1412 sq.ft. at Sri Kapaleeswarar Nagar, No. 145, Shrotrium Neelankarai Village, Tambaram Taluk, Kancheepuram District, bearing survey No. 91/2A for a sale consideration of Rs. 1,60,00,000/- on 15.12.2006 to M/s. K2 Engineers P. Ltd., Chenna-41. The assessee has not disclosed the capital gains arising out of the sale of the above said property made to M/s. K2 Engineers P. Ltd. ”

We have already seen based on the arguments of the Ld. DR that re-opening admittedly in this case had happened based on AIR information obtained by the Assessing Officer from the Registration Department. It would be pertinent to look as to what information could have been provided by the Registration Department in the instant case. The Registration Department could have at best provided only the POA executed by the assessee on 15.12.2006 registered as Doc. No. 2537/2006 at book -IV in the office of Sub-Registrar, Neelangarai and copies of registered sale deeds executed by the assessee in favour of four different invoices on 31.10.2007 and 30.05.2008 registered as Doc. No. 5532/2007; 5538/2007; 2230/2008 and 2231/2008. Admittedly, no consideration figure has been mentioned in the registered POA. Admittedly, no agreement of sale in writing has been entered into by the assessee in favour of the POA. We find that the Ld. AO had linked both the information (AIR information) received by him on two different dates representing completely two different documents and recorded the reasons for re-opening the assessment by stating that assessee had sold the property for Rs. 1,60,00,000/- on 15.12.2006 itself, whereas, the documents executed on 15.12.2006 was only registered POA are admittedly did not contain any consideration figure. In these facts and circumstances and in view of the decision of the Hon’ble Supreme Court (Supra) we hold that the Ld. AO has led himself to record the erroneous reasons for re- opening the assessment for the assessment year 2007-08. Now, the next question have to be addressed is as to whether the assessment be re-opened by an erroneous reason. We find that this issue has been duly considered in the following decisions :-

Pr. CIT v. Lincoln Pharmaceuticals Ltd. [2015] 375 ITR 561/[2016] 66 taxmann.com 355 (Guj.), wherein it was held as under:—

“16. In this regard, the findings recorded by the Commissioner (Appeals) on the merits of the order passed by the Assessing Officer show that various notifications were issued by the Ministry of Industry (Department of Industrial Policy and Promotion) from time to time increasing the limit of investment in plant and machinery for treating the undertaking as a small scale industrial unit. The Commissioner (Appeals) has recorded a finding to the effect that the investment made by the assessee at all times was within the limit for plant and machinery for the assessment years under consideration. A perusal of the table showing the calculation of plant and machinery as on the 31st March of each year which has been reproduced in the order of the Commissioner (Appeals) as well as the impugned order passed by the Tribunal, clearly shows that the investment made in plant and machinery was within the limit prescribed for an SSI unit. As pointed out by the learned counsel for the respondent assessee, certain assets are exempted from the computation of the exemption limit under the relevant notification. The Assessing Officer, however, had taken into consideration even the exempted assets and come to the conclusion that the assessee had crossed the limit. Moreover, the Assessing Officer has failed to take into consideration that as per notification No.857(E) the limit for investment in plant and machinery for SSI units manufacturing drugs and pharmaceutical products was Rs.3.00 crore and as per notification No.655(E) with effect from 5th June, 2003 such limit has been increased to Rs.5.00 crore. Therefore, the assessee remained an SSI Unit for the years under consideration. In the aforesaid premises, it is evident that the Assessing Officer has proceeded on an erroneous assumption that the respondent assessee does not meet with the requirement of an SSI unit when the record clearly points out to the contrary. Under the circumstances, it is manifest that based upon the material on record on the basis of which the Assessing Officer sought to reopen the assessment, he could not have formed the belief that the assessee did not meet with the requirements of an SSI unit and consequently could not have formed the requisite belief that income chargeable to tax has escaped assessment. In the absence of having any reason to believe that income chargeable to tax has escaped assessment for the assessment years under consideration, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act by issuing notice under section 148 of the Act is clearly without any authority of law.”

Dr. Ajit Gupta v. Asstt. CIT [2016] 383 ITR 361  (Delhi), wherein it was held that:—

” Since the action of the Revenue was based on a factually erroneous premise, the Court is of the view that the re-opening of the assessments for the said AYs is not sustainable in law. The Court is also satisfied that the requirement of the law, as explained by the Court in Commissioner of Income Tax V. Kelvinator of India Limited (2010) 320 ITR 561 (SC), and reiterated in the later decisions, has not been fulfilled in the present case.

24. Accordingly the impugned notices under section 148 of the Act dated 25th March, 2013 (for AY 2006-07), 28th March, 2013 (for AY 2008-09), 5th March 2014 (for AY 2007-08) and 7th March, 2014 (for AY 2009-10) and the corresponding orders dated 13th December, 2013 and 11th March, 2015 rejecting the objections of the Assessee to the said notices, are hereby quashed.

25. The writ petitions are allowed but in the circumstances with no order as to costs. The pending applications are also disposed of.”

Respectfully following the aforesaid decision of Hon’ble Gujarat High Court and Delhi High Court (Supra), we held that the Ld. AO assuming jurisdiction based on the erroneous reasons recorded by him has to be declared void abinitio and accordingly re-assessment notice issued u/s. 148 of the Act is not sustainable in law and requires to be quashed.

5.2 We also find that merely because the assessee had erroneously admitted the capital gains in Asst Year 2007-08 and had claimed exemption u/s 54F of the Act in respect of reinvestment in property at Kodaikanal and had filed a return in response to notice u/s 148 of the Act, this very action alone would not strengthen the reasons recorded by the ld AO and confer him power to frame the reassessment. We find that though the assessee based on mistaken understanding of provision of Income Tax Act had filed the return in response to notice u/s. 148 of the Act disclosing capital gains and claiming exemption us 54F of the Act for the assessment year 2007-08, that mere act alone could not be treated as a reason fastening unwarranted tax liability by the assessee for the year under appeal. It is well settled that there is no estoppel against the statute and reliance in this regard placed on the decision of the Hon’ble Calcutta High Court in the case of Maynak Poddar (HUF) (supra) is very well founded. In view of the aforesaid findings, we deem it fit and appropriate to admit the additional grounds raised by the assessee as it goes into the root of the matter and does not involve any investigation of facts in the light of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Corporation Ltd. v. CIT [1998] 229 ITR 383 (SC).

5.3 Accordingly, in view of our findings in the facts and circumstances of the case and respectfully following the judicial precedents relied upon herein above, we allow the additional grounds raised by the assessee and hold that the re-assessment framed by the Ld. AO for the assessment year 2007-08 is not sustainable in law. Accordingly, the grounds raised by the assessee are allowed.

6. In the result, the appeal of the assessee is allowed.