THE issues before the Bench are - Whether when the sale agreement makes it very clear that the transfer of 3 grounds of land to the assessee, an advocate by profession, was intended as by way of consideration for securing patta and lay-out, the income earned on sale of such plots by the assessee amounts to professional income; Whether when the plots were given to the assessee as part performance for his services and not in the capacity of advocate, the same is subject to capital gains tax and Whether the mere incident of the assessee being a practicing advocate, he is disentitled to claim the receipt as income assessable under capital gains. And the verdict goes in favour of the assessee.
Facts of the case
The assessee, an advocate by profession entered into an agreement with one Chakravarthy and E.Umapathy on 10th October, 1995 in respect of the property situate in Puliyur village, Kodambakkam. The said Chakravarthy was the absolute owner of 3 grounds of land measuring about 7,200 sq.ft. The said Umpathy was the absolute owner of 2 grounds measuring about 4,800 sq.ft in the same property. At the time of registration of the document in favour of the above two persons, the vendor promised to furnish the copy of the proper layout plan to them. However, when the said parties found that there were no proper layout or even a rough sketch, leading to difficulties in identifying the boundaries, the purchasers viz., Chakravarthy and Umapathy approached J.Mahalingam, the assessee herein, seeking his services for getting necessary patta as well as for getting the necessary layout of the properties purchased by them. The agreement stated that the assessee would undertake the job of preparing a sketch of the entire area and obtain patta from the Revenue Authorities. For the services to be rendered by the assessee herein, the owners agreed to transfer 3 grounds of land in the said property situated in Puliyur village.
The agreement has specifically pointed out that after obtaining patta in the names of the owners, the assessee herein would take possession of the property and obtain patta in the names of the owners, Umapathy and Chakravarthy. Thereupon, they would transfer the rights of 3 grounds of plot to the assessee free of cost as the assessee would be incurring huge expenses in preparing the plan and in the process of obtaining patta. the owners of the property viz., Chakravarthy and Umapathy executed a General Power of Attorney (GPA) registered in the Office of Sub-Registrar, Anna Nagar empowering the assessee herein to apply for patta in the owners' name and sell 3 grounds of land and that the remaining 2 grounds should be handed-over to the owners viz., Chakravarthy and Umapathy after fencing for their enjoyment. Later on, the two owners in the capacity of vendors and the assessee in the capacity of the confirming party entered into another agreement for sale of the said property to a purchaser.
The AO assessed the assessee on this sales consideration and held that role of the assessee was only that of a professional; consequently, the receipt was to be assessed as income from professional services. On appeal, the CIT(A) held that if the transaction was to be taken as for rendering professional services, then the receipt from the professional service would generally be limited to minimum 5% to 10% in most of the cases. However, to say that the receipt of 60% of total sale consideration as 'business income' and treating it as such was devoid of logic or merit.
Aggrieved, the Revenue has filed this appeal before the High Court.
On further appeal, the Tribunal held that the power to sell the land does not find place in the agreement and the assessee did not act in the capacity of a professional Advocate to render the services. The Tribunal held that considering the above said circumstances and going by the definition of 'transfer' as per Section 2(47) the receipts at the hands of the assessee could only be treated as income available for capital gains.
The Departmental Representative submitted that considering the fact that the assessee is a practising lawyer and had received the consideration on the sale of the property and the income received need not be one in cash, the consideration in the form the lands given could be treated as "Professional Receipt".
Having heard the parties, the High Court held that,
++ we do not agree with the said line of reasoning of the Standing counsel appearing for the Revenue, since, the original agreement dated 10.10.1995 between the assessee herein and the original owners viz., Chakravarthy and Umapathy, makes no reference at all to the profession status of the assessee for taking the services of the assessee. There is not even a mention about the assessee being an Advocate and his services was taken by the original owners of the property only in that capacity. In the circumstances, in the absence of any material to show that the payment was made only for the services rendered by the assessee as an Advocate, we do not accept the plea of the Revenue that the receipt was to be assessed as professional income;
++ reading Sections 5 and Section 53-A of the Transfer of Property Act, 1882 with Section 2(47) of the Income Tax Act, 1961 on facts, we find that the entrustment of the possession of the entire 5 grounds to the assessee was with the specific object of getting patta and layout of the property. The sale agreement makes it very clear that the transfer of 3 grounds of land to the assessee herein was intended as by way of consideration for securing patta and lay-out and as such, the original owners had entrusted the entire land to the assessee;
++ thus, when possession was given to the assessee enabling exercise of general control for discharging certain services, in consideration whereof the assessee was to be given 3 grounds of land coupled with the power given to the assessee to sell the 3 grounds, we hold, rightly the assessee placed reliance on Section 2(47)(v) of the Income Tax Act, 1961 read with Section 53A of the Transfer of Property Act, 1882 that the receipt would attract capital gains at his hands. There is nothing on record to show that the services to be rendered was taken in the capacity as a lawyer;
++ on the admitted fact that the assessee had performed his part of contract when the sale was sought to be effected, rightly, the assessee acted as 'Confirming Party' as per the terms of the agreement and the assessee was given Rs.90,00,000/-;
++ in the background of the above facts, we do not accept the case of the Revenue that on the mere incident of the assessee being a practising advocate, he is dis-entitled to claim the receipt as income assessable under capital gains. In the circumstances, the Tax Case (Appeal) filed by the Revenue is rejected.
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