By TIOL News Service

CHENNAI, DEC 18, 2014: THE issue before the Bench is - Whether even if there is no transfer of property rights to power agent, capital gains can be taxed in his hand. NO is the answer.

Facts of the case

The assessee is an individual. He is a power agent of one Mr.M.Viswanathan, who is the actual owner and vendor of the property. The said Viswanathan entered into a registered power of attorney on in favour of the assessee without any consideration. After the execution of power of attorney, the property was registered in the name of the assessee's wife Dr.Meera Bai for a sum of Rs.25.00 lakhs by a sale deed. The AO took the view that it is the assessee who sold the plot to his wife Dr.Meera Bai for a sum of Rs.25.00 lakhs, whereas, the guideline value of the property was Rs.60.00 lakhs at that point of time by adopting the fair market value of the property at Rs.60.00 lakhs based on index cost at Rs.11.00 lakhs. The assessee contested the assessment of capital gains at his hands by pleading that he had acted only as a power of attorney holder of the actual owner Mr.Viswanathan, which plea was rejected by the AO and the total income was computed at Rs.61,25,290/- resulting in the demand of tax at Rs.16,94,560/-. On appeal, the CIT(A) rejected the plea of the assessee. On further appeal, the Tribunal, after considering the letter of the owner Mr.Viswanathan, who had stated in his letter that he had received a sum of Rs.25.00 lakhs from assessee, in the year 2006 itself, held that the recital contained in the registered power of attorney dated did not show that any consideration was paid to the actual owner and the assessee had acted merely as an agent. The letter of the owner that he had received only Rs.25.00 lakhs at the time of executing the power of attorney, which was a subsequent statement by the said owner did not inspire the confidence of the Tribunal to accept the Department's plea. The Tribunal laid emphasis on the registered document, namely, Power of Attorney, in letter and spirit holding that there was no consideration paid at the time of executing the power of attorney. The Tribunal was of the view that the assessee could not be treated as owner of the property sold, and therefore there was no question of computing capital gains in the hands of the assessee.

Having heard the parties, the High Court held that,

++ a careful reading of 2(47)(vi) reveals that any transaction by way of agreement or arrangement or in any manner whatsoever, which has the effect of transferring or enabling the enjoyment of any immovable property would get the character of transfer. It is seen that in the present case, there is no transfer to or enabling enjoyment of property in favour of the assessee in any manner and therefore, Section 2(47)(vi) does not get attracted. Clause 21 of the power of attorney, clearly reveals that no consideration was received from the power agent for appointing him as power of attorney. It also emphasised therein that the property right has not been handed over to the power agent. It is therefore, seems impossible to accept the plea of the Revenue that there was an element of transfer or enabling enjoyment in favour of the assessee. The letter of the land owner subsequently issued does not come to the aid of the Department. It is the duty of the power of attorney holder to deliver the amount received for the purpose of transfer of property. Therefore, no fault could be found on the part of the assessee. Assuming that he had delivered certain sum to the land owner, it is but the lawful duty of the power of attorney to deliver payment to the land owner. The sale to Dr.Meera Bai is also for the same value. Hence, nothing turns on the letter of the erstwhile owner, in favour of the Department;

++ section 2(47)(vi) make it clear that the transaction, which has the effect of transferring or enabling the enjoyment of immovable property alone would come within the ambit of transfer. The CBDT circular No.495 dated 22.9.1987 reads something more into the provision, which cannot be accepted. The circular also states that the legal ownership would continue with the transferor; but the property rights if it is transferred by way of power of attorney would come within the ambit of Section 2(47)(vi). Assuming the intention behind the circular is accepted, then there should be an element of transfer or enabling enjoyment of property right as stated in the circular by the power of attorney holder. However, no such recital in the power of attorney as extracted by the Tribunal has been referred to us. On the contrary, the terms of the power of attorney clearly show that property rights has not been transferred to the power of attorney holder and there is also no provision for enabling enjoyment. It is not the case of the Department that the power of attorney is sham. If they accept the power of attorney is valid, then the plea of capital gains at the hands of the assessee has no legs to stand.

(See 2014-TIOL-2271-HC-MAD-IT)