1. In this reference, Begum Noor Banu Alladin is the assessee. She owned a building 'Rockland House' and vacant land of five acres at Sanatnagar. The assessee gifted away the two properties. The Rockland House was gifted on September 17, 1963, to her daughter-in-law, Sultana, and two grandsons-Aziz Noor Mohd. and Asif Noor Mohammad. Three days later, a memorandum was reduced to writing confirming the oral gift on September 20, 1963. As to the vacant land, the assessee made an oral gift on April 1, 1966, in favour of a charitable trust. Mohd. and Noor Mohammad are the trustees of the trust. The trustees were delivered the vacant land. The two confirmation deeds executed by the donor on September 20, 1963, and on April 1, 1966, were not registered under the Indian Registration Act, 1908. Begum Noor Banu Alladin died. Before the authorities under the Income-tax Act, 1961, the legal representatives of the donor asserted that the gifts were true and were made on September 17 of 1963 and April 1, 1966. The donor ceased to be the owner of the two properties. The Income-tax Officer and the appellate authority did not accept that the gift were valid in law though true in fact. The Appellate Tribunal accepted the gifts to be true and held that the donor no more held the two properties, and, therefore, she or her legal representatives cannot in law be taxed for the income from the property derived by the donees.
2. The assessee under her personal law was entitled to make an oral gift of the two properties. She did make oral gifts. The donees received the properties. In the case of Rockland House, the confirmation deed was executed three days later, on September 20, 1963. The document was not compulsorily registrable. Notwithstanding the facst of non- registration, the oral gift made on September 17, 1963, is true and valid in law. The position, however, as respects the vacant land is different. The gift was made on April 1, 1966, and contemporaneously the memorandum of confirmation was drawn. The memorandum, since it was not registered under the Indian Registration Act, become inadmissible in evidence. As a result or sequel of non-registration, the oral gift cannot be proved, for the deed is inadmissible. The position is so clear that it needs no further discussion.
3. The issue that arises is whether the ground rent received by the trustees, Dost Mohammad and Noor mohammad,, can be taxed under the Act in the hands of the legal representatives of the assessee, for the donor died possessed of title to the vacant land. That the donnor ceased to hold the land and did not receive any income is not at all doubted. On the other hand that the trustees of the donee-trust received the income is also accepted. It is in this circumstance the question at issue is under what classification of section 14 of the Income-tax Act, 1961, the (income from the) property has to be computed as the income of the donee if at all such an income is to be taxed.
4. The Appellate Tribunal, at the instance of the Revenue, referred the following question for the answer of this court :
'Whether, on the facts and in the circumstances, the income from the house property known as Rockland House and also the lease amount from the land measuring 5 acres situated at sanatnagar are assessable in the hands of the assessee ?'
5. The question is capable of a simple answer so far as the Rockland House is concerned. The income from the house is to be taxed in the hands of the donees. The assessee-donor is not liable to pay the tax on above house. The question, however, is wrapped up in complexity as respects the lease amount for the acres of (vacant) land.
6. The learned counsel for the Revenue asserts that the donor is still liable in law to pay taxes on the income derived from the vacant land. The donor is liable to account for the income under clause of section 14 of the Act, - 'Income from other sources'. The Revenue in this case relied on the Supreme Court case pushpa Devi v. CIT : 109ITR730(SC) a case from the Delhi High Court. In that case, Pushpa Devi was a member of a Hindu undivided family. She was held to be not a coparcener of the Hindu undivided family. This aspect was held by the Delhi High Courts as well as the Supreme Court. In the Supreme Court, supplemental facts were called for as respects the second question relating to blending under Hindu law affecting some funds. The Delhi High Court held that Pushpa Devi is a member of the joint family. She blended her amounts with the coparcenary of her Hindu undivided family. Therefore, she could not be assessed on income derived from her blended property. This issue was considered in the Supreme Court due to supplemental facts as what was blended was accepted as gifted by her to coparceners. The Supreme Court, therefore, did not as of fact decide the question. Therefore, we reject the contention of the Revenue that by 'implication', the judgment supports the contention raised by the assessee.
7. The next case Madhav Prasad Jatia v. CIT : 118ITR200(SC) relates to a promise of gift made in favour of a college by the assessee. It was held as of fact that there was no gift made. What was assessed was a mere promise made by the assessee. Even as to that, it was stated as not part of a business transaction, but a personal promise made by the assessee. In that, the assessee, (promisor) agreed to gift Rs. 10,00,000 to a college. The Supreme Court considered the facts and held that there was no gift made. The assessee made a promise in favour of a collage and the amount of ten lakhs was not parted with by the assessee. In view of these facts, whether the assessee should not be taxed or should be taxed affecting the gift was not decided in the case. Therefore, the ratio in the above case does not support the contention of the Revenue.
8. In the course of the debate, the following observations in two cases are relied upon by the learned counsel for the assessee. In CIT v. A. Raman and Co. : 67ITR11(SC) , it was observed (p. 17) : 'But the law does not oblige a trader to make the maximum profit that the he can out of his trading transactions. Income which accrues to a trader is taxable in his hands : income which he could have, but has not earned, is not made taxable as income accrued to him'. In CIT v. Praffulla Kumar Mallick : 73ITR119(Orissa) the observation relied on is. (p. 124) :
'Moreover, it is an elementary principle of income-tax law that a man is taxed only on the profits he actually receives and not on the profits he might have, but his not received.'
9. These observations are emphasised by the learned counsel to hold that the gift of vacant land of five acres even if the donor is not holding the property the donor is no more obliged to pay the tax. We may state that we do not wish to rest our judgment merely on the extracted observation. for the issue is covered by the decision of this court and to that we will return later.
10. In two cases of the Patna High Court, the question arose as regards house property. Income from houses are dealt with under a special provision under the Income-tax Act, 1961. Therefore, we understand the ratio in the Patna cases in the background of law with reference to what is laid down under section 22 of the Act. In both the cases, the transaction were entered into to redeem dower in favour of the respective spouses. In CIT v. Syed Sadique Imam : 111ITR475(Patna) it was held there was no transfer made. The document of transfer was not registered. The assessee-spouse ceased to hold the house, therefore, she is not accountable for the income derived from the house. In Syed Sadique Imam v. CIT : 117ITR62(Patna) in a like situation, a contention was raised on behalf of the Revenue and section 22 was considered in the sense it was referred. In the two cases, the transfers were hit by the provisions of the Indian Registration Act. The transfers, on facts, were invalid in law. The transferors parted with the houses. The ratio in the two cases, as stated earlier, can be explained from the provisions of section 22. Parliament made a special provision in the Act to hold that if the title in the house property does not pass in gift, the donor in such case is liable in law to pay taxes on the income from such houses. This is peculiar to (income from) house. There is no provision in the Act to affect other than (income from) houses. The instant case is of vacant land and not a house.
11. We may now refer to the decision of this court in ITO v. Nizam's Dependants and Khanza Das Trust : 139ITR517(AP) . In that case, the question arose whether Rs. 23.5 lakhs can be excluded from the net wealth of the assessee. Answering the question, the decision in R.C. No. 59 of 1976 was referred. If was held that the amount of Rs. 23.5 lakhs would cease to be an asset of the Nizam and, therefore, it was not available for inclusion in the net wealth of the Nizam. The judgment of the Rajasthan High Court in CIT v. Motilal Ramswaroop was approved and followed and it was held :
'Once the wealth goes out of the hands of the hands of the assessee, that wealth including the interest accrued thereon, would not be available for assessment of either wealth-tax or income-tax in the hands of assessee....'
12. The ratio in the above case is apposite for application in the facts of the instant case.
13. Following the above case, we hold that the income from Rockland house cannot be taxed in the hands of the assessee. The income of ground rent as respects 5 acres of land also cannot be taxed as the assessee ceased to hole the land. The answer is against the Revenue. No costs.