Holding

Since the builder only received a licence and not possession, Section 53A does not apply, and the de facto transfer occurred only upon receipt of the final cheque, bringing the transaction within Section 2(47)(ii) and (vi) of the Income Tax Act, leading to dismissal of the appeal.

Summary

M/s Seshasayee Steels Ltd entered into an agreement to sell land to Vijay Santhi Builders Ltd and granted a licence to commence construction, later executing a Power of Attorney and a compromise deed that reduced the consideration and stipulated payment by post‑dated cheques, all of which were encashed. The Assessing Officer treated the entire sale consideration as a capital gain under the Income Tax Act, a view upheld by the CIT(A), ITAT and the Madras High Court. The appellant challenged the taxability, arguing that Section 53A of the Transfer of Property Act and Section 2(47)(vi) of the Income Tax Act should apply. The Supreme Court held that the builder only had a licence, not possession, so Section 53A was inapplicable, and that the owner’s rights remained intact until the final cheque was received, rendering Section 2(47)(vi) inapplicable. However, the compromise deed effected a de facto transfer, bringing the transaction within Section 2(47)(ii) and (vi) of the Income Tax Act. Consequently, the Court dismissed the appeal.

Issues considered

Whether the provisions of Section 53A of the Transfer of Property Act, 1882 are attracted in the present transaction.
Whether Section 2(47)(vi) of the Income Tax Act, 1961 applies to the agreement to sell and the subsequent compromise deed.
Whether the compromise deed constitutes a transaction falling within Section 2(47)(ii) or (vi) of the Income Tax Act, thereby attracting tax on the capital gain.

Legislation cited

Income Tax Act, 1961s. 2(47)(v), s. 2(47)(vi)
Transfer of Property Act, 1882s. 53A

Subjects

Transfer of Property ActSection 53AIncome Tax ActSection 2(47)capital gainsde facto transferagreement to sellcompromise deedpossessionlicence

Judgment

196 [2019]REPORTS
SUPREME COURT 15 S.C.R. 196 [2019] 15 S.C.R.

A 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 AND
V. RAMASUBRAMANIAN, JJ.]
C Transfer of Property Act, 1882: s.53A – Applicability of –
Essential ingredients – Held: In order that the provisions of s.53A
be attracted, the transferee must, in part performance of the
contract, have taken possession of the property or any part thereof
and the transferee must have performed or be willing to perform
his part of the agreement – In the instant case, as per agreement to
D
sell, assessee gave permission to the builder company to start
construction on the land – This showed that a license was given
upon the land for the purpose of developing the land into flats and
selling the same – Such license cannot be said to be ‘possession’
within the meaning of s.53A, which is a legal concept, and which
E denotes control over the land and not actual physical occupation
of the land – That being the case, s.53A was not attracted to the
facts 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 builder
F company and granted permission to the builder company to start
construction on the land – Pursuant to the agreement to sell, a Power
of Attorney was executed by which assessee appointed a director
of the Builder company to execute the necessary sale agreements in
respect of the schedule property after developing the same into flats
– Subsequently, a memo of compromise was also entered into between
G them – Assessing officer treated entire sale consideration as a capital
gain and brought to tax – Challenged by appellant-assessee – Held:
Under s.2(47)(vi), any transaction which has the effect of
transferring or enabling the enjoyment of any immovable property
would come within its purview – The expression “enabling the
H
196
M/S. SESHASAYEE STEELS P. LTD. v. ASSISTANT COMMISSIONER OF 197
INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI

enjoyment of” in s.2(47)(vi) must take colour from the earlier A
expression “transferring”, so that it can be stated on the facts of a
case, that a de facto transfer of immovable property has, in fact,
taken place making it clear that the de facto owner’s rights stand
extinguished – In the instant case, as on the date of the agreement
to sell, the owner’s rights were completely intact both as to ownership
B
and to possession even de facto, so that this Section equally, cannot
be said to be attracted – A perusal of the compromise deed however
showed that the agreement to sell and the Power of Attorney were
confirmed, and a sum of Rs.50 lakhs was reduced from the total
consideration of Rs.6.10 crores – Clause 3 of the said compromise
deed confirmed that the appellant, received a sum of Rs.4.68 crores C
out of the agreed sale consideration and the balance Rs.1.05 crores
towards full and final settlement in respect of the Agreement entered
into was then to be paid by 7 post-dated cheques – All the cheques
mentioned in the compromise deed were, in fact, encashed – This
being the case, assessee’s rights in the said immovable property
D
were extinguished on the receipt of the last cheque, as also that the
compromise deed could be stated to be a transaction which had the
effect of transferring the immovable property in question – The
pigeonhole, therefore, that would support the orders under appeal
would be s.2(47)(ii) and (vi) of the I.T. Act in the facts of this case.
Dismissing the appeal, the Court E

HELD: 1. In order that the provisions of Section 53A of
the T.P. Act be attracted, first and foremost, the transferee must,
in part performance of the contract, have taken possession of
the property or any part thereof. Secondly, the transferee must
have performed or be willing to perform his part of the agreement. F
A reading of agreement to sell dated 15.05.1998 showed that
that both the parties were entitled to specific performance. Clause
16 is crucial, and the expression used in Clause 16 is that the
party of the first part hereby gives ‘permission’ to the party of
the second part to start construction on the land. Clause 16 would,
G
therefore, lead to the position that a license was given to another
upon the land for the purpose of developing the land 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
H
198 SUPREME COURT REPORTS [2019] 15 S.C.R.

A physical occupation of the land. This being the case, Section 53A
of the T.P. Act cannot possibly be attracted to the facts of this
case for this reason alone. [Paras 11-14][204-D-H]
2. The expression “enabling the enjoyment of” in Section
2(47)(vi) of the Income Tax Act must take colour from the earlier
B expression “transferring”, so that it can be stated on the facts of
a case, that a de facto transfer of immovable property has, in fact,
taken place making it clear that the de facto owner’s rights stand
extinguished. It is clear that as on the date of the agreement to
sell, the owner’s rights were completely intact both as to
ownership and to possession even de facto, so that this Section
C equally, cannot be said to be attracted. [Para 17][205-F-G]
3. A perusal of the compromise deed showed that the
agreement to sell and the Power of Attorney are confirmed, and
a sum of Rs.50 lakhs is reduced from the total consideration of
Rs.6.10 crores. Clause 3 of the said compromise deed confirms
D that the party of the first part, this is the appellant, has received
a sum of Rs.4,68,25,644/- out of the agreed sale consideration.
Clause 4 records that the balance Rs.1.05 crores towards full
and final settlement in respect of the Agreement entered into
would then be paid by 7 post-dated cheques. A finding of the ITAT
was that all the cheques mentioned in the compromise deed have,
E in fact, been encashed. This being the case, the assessee’s rights
in the said immovable property were extinguished on the receipt
of the last cheque, as also that the compromise deed could be
stated to be a transaction which had the effect of transferring the
immovable property in question. The pigeonhole, therefore, that
would support the orders under appeal would be Section 2(47)(ii)
F
and (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

G Case Law Reference
[2017] 10 SCR 1073 relied on Para 16
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9209
of 2019.
From the Judgment and Order dated 25.01.2012 of the High
H Court of Judicature at Madras in Tax Case (Appeal) No. 461 of 2011.
M/S. SESHASAYEE STEELS P. LTD. v. ASSISTANT COMMISSIONER OF 199
INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI

R. V. Easwar, Sr. Adv., Rubal Bansal, V. Ramasubramanian, A
P. Bala Senthil Kumar, Advs. for the Appellant.
K. Radhakrishnan, Sr. Adv., Ms. Seema Bengani, Ms. Purnima
Bhat Kak, Prem Prakash, Anas Zaidi, Mrs. Anil Katiyar, Advs. the
Respondent.
The Judgment of the Court was delivered by B
R. F. NARIMAN, J.
1. The appellant-assessee entered into an agreement to sell, on
15.05.1998, with one Vijay Santhi Builders Limited for a total sale
consideration of Rs.5.5 crores.
C
2. The important clauses of the sale agreement are set out
hereinbelow:
“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 grounds D
and the total sale consideration of Rs.5,50,00,000/-(Rupees Five
Crores Fifty Lakhs only) will be paid directly by the nominees/
members on behalf of PARTY OF THE SECOND PART or by
the PARTY OF THE SECOND PART, whichever is earlier. The
property shall be free of all encumbrances at the time of
registration. E
2. It is agreed that the total extent of the property is 100 grounds
approximately including the areas allotted for road and other
amenities, plus the actual extent available for flats.
12. THE PARTY OF THE FIRST PART has already handed
over to the PARTY OF THE SECOND PART Xerox copies of F
all land documents of the schedule mentioned property for their
legal counsel’s scrutiny and opinion. THE PARTY OF THE
SECOND PART have also satisfied themselves about the title
deeds. The PARTY OF THE FIRST PART agree to show the
original title deed which are kept with them to the nominees of the G
second part as and when required after fixing prior appointment.
14. Both the parties are entitled to specific performance of this
agreement.

H
200 SUPREME COURT REPORTS [2019] 15 S.C.R.

A 16. THE PARTY OF THE FIRST PART hereby gives permission
to 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 PARTY
OF THE FIRST PART before publication or circulation.
B SCHEDULE OF PROPERTY
Sl.
No. Patta No. Village Area in Acres
4 117 Perungudi 2.52
C 1 117 Perungudi 1.66
320/1 469 Perungudi 1.44
_______
5.62

D
3. Pursuant to this agreement to sell, a Power of Attorney was
executed on 27.11.1998, by which, the assessee appointed one Chandan
Kumar, Director of M/s. Vijay Santhi Builders Ltd. to execute and join
in execution the necessary number of sale agreements and/or sale deeds
E in respect of the schedule mentioned property after developing the same
into flats. The Power of Attorney also enabled the Builder to present
before all the competent authorities such documents as were necessary
to enable development on the property and sale thereof to persons.
4. The appellant did not file any Return for Assessment Year 2004-
F 2005. Apparently, it was detected later by the Assessing Officer, that
the agreement to Sell had been entered into and that, subsequently, a
Memo of Compromise had also been entered into between the parties
dated 19.07.2003. Based on the discovery of this fact, Notice dated
04.11.2008 issued under Section 148 of the Income Tax Act, 1961
(hereinafter referred to as ‘I.T. Act’ for brevity) was served on the
G appellant. Even in response to this notice, no Income Tax Return was
filed. A notice dated 08.09.2009 was issued under Section 142(1) fixing
the case for hearing on 20.09.2009. Here again, the appellant did not
turn-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 was
H issued on 11.12.2009 fixing the case for hearing on 22.12.2009. In
M/S. SESHASAYEE STEELS P. LTD. v. ASSISTANT COMMISSIONER OF 201
INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI [R. F. NARIMAN, J.]

response to the aforesaid letter, the assessee, by letter dated 29.12.2009 A
stated as follows: -
“I refer to your letter dated 11.12.2009. I request you humbly and
sincerely not to pass any order u/s 144 and to give me time for
one month from today. I shall positively submit all necessary
statements and documents within 30 days of today to your B
satisfaction. I seek this time only because of my very serious
illness after an abdominal surgery.”
5. Since time bar was foremost in the mind of the Assessing
Officer, limitation falling on this transaction by 31.12.2009, a Best
Judgment Assessment Order was then passed under Section 144 of the C
I.T. Act dated 31.12.2009. Vide this Order, the entire sale consideration
was treated as a capital gain and brought to tax.
6. An appeal was preferred against this Order. The Commissioner
of Income Tax (Appeals) (hereinafter referred to as ‘CIT (A)’ for brevity)
by Order dated 28.10.2010 examined the three documents in question D
and ultimately dismissed the appeal. The Income Tax Appellate Tribunal
(hereinafter referred to as ‘ITAT’ for brevity) by Order dated 24.06.2011
agreed with the CIT(A) and found that on or about the date of the
agreement to sell, the conditions mentioned in Section 2(47)(v) of the
I.T. Act could not be stated to have been complied with, in that, the very
fact that the compromise deed was entered into on 19.07.2003 would E
show that the obligations under the agreement to sell were not carried
out in their true letter and spirit. As a result of this, Section 53A of the
Transfer of Property Act, 1882, (hereinafter referred to as ‘T.P. Act’ for
brevity) could not possibly be said to be attracted. What was then referred
to was the Memo of Compromise dated 19.07.2003 under which various F
amounts had to be paid by the Builder to the owner so that a complete
extinguishment of the owner’s rights in the property would then take
place. The last two payments under the compromise deed were
contingent upon M/s.Pioneer Homes also being paid off, which apparently
was done, as the Appellate Tribunal held:
G
“Further on the specific query from the Bench as to whether all
the cheques as mentioned in the compromise deed have been
encashed, the answer to which was “Yes”. This further supports
that the transfer took place during the assessment year 2004-05
as the last cheque is dated 25.01.2004.”
H
202 SUPREME COURT REPORTS [2019] 15 S.C.R.

A 7. The High Court, by the impugned judgment dated 25.01.2012,
adverted to the concurrent findings of the authorities, and stated that the
three questions of law that were set out were all answered in favour of
the Revenue and against the assessee.
8. Shri R. V. Easwar, learned senior counsel appearing on behalf
B of the appellant, read to us in copious detail the three documents in
question. His first argument was that Section 2(47)(v) of the I.T. Act
was attracted on the facts of this case, on a reading of the agreement to
sell together with the Power of Attorney. The alternative argument was
that, assuming that this argument fails, in any case, this case would fall
within Section 2(47)(vi), as on this date, there could be said to be a
C transaction which has the effect of “enabling the enjoyment of any
immovably property”. The third submission made before us was that, in
any event, what is relevant to bringing to tax the capital gain in Assessment
Year 2004-2005 is whether the compromise deed of 19.07.2003, when
read, 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 the
D
case, as a result of which, in any event, there would be no transfer of a
capital asset within the meaning of Section 2(47), so far as this
Assessment Year is concerned.
9. Shri K. Radhkrishnan, learned senior counsel appearing for the
Revenue, took us through the Assessment Order, Order of the CIT (A)
E and the ITAT as well as the High Court’s judgment, and supported these
judgments stating that clearly Section 2(47)(v) could not be made out on
the facts of this case and, therefore, in any case, this appeal should be
dismissed. No other point had been argued before the forums below,
and need not therefore be entertained.
F 10. Having heard learned counsel for both the parties, it is
necessary 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 …………………………………………………………………….
…………………………………………………………………….
(47) “transfer”, in relation to a capital asset, includes,-
…………………………………………………………………….
H …………………………………………………………………….
M/S. SESHASAYEE STEELS P. LTD. v. ASSISTANT COMMISSIONER OF 203
INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI [R. F. NARIMAN, J.]

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

(vi) any transaction (whether by way of becoming a member of, B
or acquiring shares in, a co-operative society, company or other
association of persons or by way of any agreement or any
arrangement or in any other manner whatsoever) which has the
effect of transferring, or enabling the enjoyment of, any immovable
property. C

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;]
D

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

Section 53A of the Transfer of Property Act, 1882:
53A. Part performance.— Where any person contracts to transfer
for consideration any immoveable property by writing signed by G
him or on his behalf from which the terms necessary to constitute
the 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 the
transferee, being already in possession, continues in possession in H
204 SUPREME COURT REPORTS [2019] 15 S.C.R.

A part performance of the contract and has done some act in
furtherance of the contract,
and the transferee has performed or is willing to perform
his part of the contract,
then, notwithstanding that where there is an instrument of
B transfer, that the transfer has not been completed in the manner
prescribed therefor by the law for the time being in force, the
transferor or any person claiming under him shall be debarred
from enforcing against the transferee and persons claiming under
him any right in respect of the property of which the transferee
C has taken or continued in possession, other than a right expressly
provided by the terms of the contract:
Provided that nothing in this section shall affect the rights
of a transferee for consideration who has no notice of the contract
or of the part performance thereof.
D 11. In order that the provisions of Section 53A of the T.P. Act be
attracted, first and foremost, the transferee must, in part performance
of the contract, have taken possession of the property or any part thereof.
Secondly, the transferee must have performed or be willing to perform
his part of the agreement. It is only if these two important conditions,
E among others, are satisfied that the provisions of Section 53A can be
said to be attracted on the facts of a given case.
12. On a reading of the agreement to sell dated 15.05.1998, what
is clear is that both the parties are entitled to specific performance. (See
Clause 14)
F 13. Clause 16 is crucial, and the expression used in Clause 16 is
that the party of the first part hereby gives ‘permission’ to the party of
the second part to start construction on the land.
14. Clause 16 would, therefore, lead to the position that a license
was given to another upon the land for the purpose of developing the
G land 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 occupation
of the land. This being the case, Section 53A of the T.P. Act cannot
possibly be attracted to the facts of this case for this reason alone.
H
M/S. SESHASAYEE STEELS P. LTD. v. ASSISTANT COMMISSIONER OF 205
INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI [R. F. NARIMAN, J.]

15. We now turn to the argument of the learned senior counsel A
appearing on behalf of the assessee based on Section 2(47)(vi) of the
Income Tax Act.
16. This Court in Commissioner of Income Tax v. Balbir Singh
Maini (2018) 12 SCC 354 adverted to the provisions of this sub-Section
in the following terms: B
24. However, the High Court has held that Section 2(47)(vi) will
not apply for the reason that there was no change in membership
of the society, as contemplated. We are afraid that we cannot
agree with the High Court on this score. Under Section 2(47)(vi),
any transaction which has the effect of transferring or enabling C
the enjoyment of any immovable property would come within its
purview. The High Court has not adverted to the expression “or
in any other manner whatsoever” in sub-clause (vi), which would
show that it is not necessary that the transaction refers to the
membership of a cooperative society. We have, therefore, to see
whether the impugned transaction can fall within this provision. D

25. The object of Section 2(47)(vi) appears to be to bring within
the tax net a de facto transfer of any immovable property. The
expression “enabling the enjoyment of” takes color from the earlier
expression “transferring”, so that it is clear that any transaction
which enables the enjoyment of immovable property must be E
enjoyment as a purported owner thereof. The idea is to bring
within the tax net, transactions, where, though title may not be
transferred 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 take F
colour from the earlier expression “transferring”, so that it can be stated
on the facts of a case, that a de facto transfer of immovable property
has, in fact, taken place making it clear that the de facto owner’s rights
stand extinguished. It is clear that as on the date of the agreement to
sell, the owner’s rights were completely intact both as to ownership and G
to possession even de facto, so that this Section equally, cannot be said
to be attracted.
18. Coming to the third argument of the learned senior counsel on
behalf of the appellant, what has to be seen is the compromise deed and
H
206 SUPREME COURT REPORTS [2019] 15 S.C.R.

A as to which pigeonhole such deed can possibly be said to fall under
Section 2(47) of the Income Tax Act. A perusal of the compromise deed
shows that the agreement to sell and the Power of Attorney are
confirmed, and a sum of Rs.50 lakhs is reduced from the total
consideration of Rs.6.10 crores. Clause 3 of the said compromise deed
confirms that the party of the first part, this is the appellant, has received
B
a sum of Rs.4,68,25,644/- out of the agreed sale consideration. Clause 4
records that the balance Rs.1.05 crores towards full and final settlement
in 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 be
presented only upon due receipt of the discharge certificate from one
C M/s. Pioneer Homes.
19. In this context, it is important to advert to a finding of the
ITAT, which was that all the cheques mentioned in the compromise deed
have, in fact, been encashed.
20. This being the case, it is clear that the assessee’s rights in the
D said immovable property were extinguished on the receipt of the last
cheque, as also that the compromise deed could be stated to be a
transaction which had the effect of transferring the immovable property
in question.
21. The pigeonhole, therefore, that would support the orders under
E appeal would be Section 2(47)(ii) and (vi) of the I.T. Act in the facts of
the present case.
22. This being the case, we dismiss this appeal but for the reasons
stated by this judgment.

F
Devika Gujral Appeal dismissed.

G

H