Transfer of the property by irrevocable power of attorney not valid mode of transfer u/s 2(47). ITAT follows Supreme Court judgment against section 2(47)(vi)
ABCAUS Case Law Citation:
ABCAUS 2969 (2019) (05) ITAT
Important Case Laws Cited/relied upon by the parties:
Suraj Lamp Pvt Ltd v/s State of Haryana and Others 14 taxmann.com 103
Pace Developers and Promoters Pvt. Ltd. 215 taxmann.com 554;
In the instant case the assessee had transferred the land in two parts to the same party through an irrevocable general power of attorney at two different dates.
The assessee treated the said transfer as under the provision of section 2(47)(vi) of the Income Tax Act, 1961 (the Act). The amount of stamp duty on the registration of irrevocable power of attorney with sub-registrar was also paid.
The assessee accordingly recognized the capital gain on sale of agriculture land in two assessment years.
However, the Assessing Officer (AO) after considering the submission of the assessee was of the view that power of attorney is not an instrument of transfer for right, title or interest in immovable property.
According to him, the POA is a creation of agency where grantor authorizes to guarantee to do some acts on behalf of the grantor. Similarly, the irrevocable power of attorney is also subject to the same parameter.
Therefore the AO held that POA was not a valid instrument to transfer the ownership.
In view of the above, the AO concluded that the transfer of immovable property could not take place through the irrevocable POA. As such the AO considered the transfer of such land by taking the date when the sale deed of the entire land was executed. Therefore the AO accordingly by applying the provision of section 50C of the Act, considered the transaction value of the property as provided in the jantri value submitted by the sub-registrar instead of value as claimed by the assessee.
The aggrieved assessee preferred an appeal before the CIT (A). The assessee further submitted that it had rightly declared the STCG in two years as the transfer was considered within the meaning of the provision of section 2(47)(vi) of the Act.
The assessee also claimed that the irrevocable power of attorney was executed along with the payment of consideration received so that the irrevocable right in the property was created in favor of the purchaser.
The assessee further submitted that the value adopted by the AO for sale consideration by applying the provision of section 50C was erroneous as the provision of section 50C of the Act will be applicable where the consideration is different from the valuation made by the stamp valuation authority. But in the case on hand, there was no such difference in valuation when a power of attorney was registered on the payment of stamp duty.
However, the CIT (A) was of the view that if the date of sale deed as recorded by the AO was taken the date of transfer, then the STCG would be assessable by the AO in the succeeding A.Y. rather than current AY. Therefore the CIT (A) deleted the addition made by the AO in the relevant AY.
Also, the CIT (A) in respect of the transfer of the land referred to the provision of section 2(47)(vi) observed that the transaction such as the agreement and/or arrangement by way of execution of an agreement of becoming a member or transferring enjoyment of the immovable property etc. is valid transfer. Accordingly, the income accrued to assessee on the transfer of the land on the execution of POA was a valid transfer.
Thus the CIT (A) was of the view that the transfer of immovable property through power of attorney was also covered under the definition of section 2(47) of the Income Tax Act. Therefore the CIT (A) rejected the contention of the AO that irrevocable power of attorney are not a valid instrument to transfer the right in immovable property.
Aggrieved by the order of the CIT (A) Revenue was in appeal before the Tribunal.
The Tribunal opined that once the AO had taken the date of transfer as per agreement to sale, then the question of determining the capital gain for the year under consideration did not arise.
The next question before the Tribunal was as to whether the transfer of the property is valid by way of executing irrevocable power of attorney?
The Tribunal observed that A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another’s behalf in private affairs, business, or some other legal matter. The person authorizing the other to act is the principal, grantor, or donor (of the power). The one authorized to act is the agent, attorney.
The Tribunal observed that the Hon’ble Supreme Court had held that 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. 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.
The Tribunal opined that from the above judgment, there remains no doubt that the transfer of property based on the POA is not a valid transfer.
However, the Tribunal noted the provisions of section 2(47)(vi) of the Act according to which transfer in relation to a capital asset, includes any transaction (whether by way of becoming a member of, 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.
The Tribunal opined that a plain reading of the above provision revealed that any agreement or arrangement enabling the transfer or enjoyment of the property will be treated as a transfer to compute the capital gain. Thus from the above provision, it appeared that power of attorney shall also be treated as a transfer for working out the capital gain tax.
However, the Tribunal noted that the judgment of the Hon’ble Supreme Court was directly on the issue which stood covered against the assessee.
Therefore following the judgment of the Hon’ble Supreme Court the Tribunal held that there was no transfer of the land upon the execution of power of attorney in favor of the party. Thus the transaction for the transfer of property had not been affected in two assessment years as claimed by the assessee upon the execution of power of attorney.
However, the Tribunal also opined that there was no transfer of the impugned property in the year under consideration as alleged by the AO because the sale deed was registered as admitted in the next assessment year. Hence there could not be any addition to the total income of the assessee on account of capital gain for the year under consideration.