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Puran Chand Sawhney Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)6ITD417(Delhi)
AppellantPuran Chand Sawhney
Respondentincome-tax Officer
Excerpt:
1. this order will dispose of all the four appeals mentioned above. the assessment year involved in all the four appeals is the assessment year 1973-74.2. under three lease deeds dated 9-3-1923 and registered with sub-registrar of delhi under nos. 1587,1588 and 1589 in additional book no. 1, vol. 10 at pages 297 to 304, 305 to 312 and 313 to 320, respectively, between the secretary of state for india in council and r.b.l. tirath ram shah sawhney, three plots of land measuring 2.45 acres, 3.02 acres and 3.02 acres situated on 1, south end road, 19, prithvi raj road and 20, prithvi raj road, new delhi, respectively, were leased out in perpetuity to the said r.b.l. tirath ram shah sawhney. after obtaining the three lease deeds, the said r.b.l. tirath ram shah sawhney became lessee in.....
Judgment:
1. This order will dispose of all the four appeals mentioned above. The assessment year involved in all the four appeals is the assessment year 1973-74.

2. Under three lease deeds dated 9-3-1923 and registered with Sub-Registrar of Delhi under Nos. 1587,1588 and 1589 in Additional Book No. 1, Vol. 10 at pages 297 to 304, 305 to 312 and 313 to 320, respectively, between the Secretary of State for India in Council and R.B.L. Tirath Ram Shah Sawhney, three plots of land measuring 2.45 acres, 3.02 acres and 3.02 acres situated on 1, South End Road, 19, Prithvi Raj Road and 20, Prithvi Raj Road, New Delhi, respectively, were leased out in perpetuity to the said R.B.L. Tirath Ram Shah Sawhney. After obtaining the three lease deeds, the said R.B.L. Tirath Ram Shah Sawhney became lessee in perpetuity of the said three plots of lands measuring in the aggregate 8.49 acres and constructed some buildings on the said plots of lands.

3. Upon the death of said R.B.L. Tirath Ram Shah Sawhney, the lease hold rights in the said three plots of land and the buildings constructed thereon devolved on his sons R.B.L. Isher Das Sawhney, Shri Balmokand Shah Sawhney and Shri Kanhayalal Sawhney and the said three sons of the original lessee of the aforesaid plots in equal shares.

4. By virtue of the partition deed dated 19-6-1940 registered with Sub-Registrar of Abottbad in Book No. 1, Vol. 100 at pages 306 to 309, on 12-8-1940 made between R.B.L. Isher Das Sawhney and his sons, one-third share of R.B.L. Isher Das Sawhney in the said three plots at 19 and 20, Prithvi Raj Road and 1, South End Road, New Delhi, together with buildings thereon were allotted to Shri Puran Chand Sawhney and Devi Chand Sawhney in equal parts.

5. By virtue of the partition deed dated 7-8-1953 registered and entered as No. 2061 in Additional Book No. 1, Vol. 212 on pages 1 to 5 on 10-8-1953 in the office of the Sub-Registrar, New Delhi and made between Shri Balmokand Shah Sawhney, Kanhaya Lal Sawhney, Puran Chand Sawhney and Devi Chand Sawhney, all of New Delhi, Shri Balmokand Sawhney became the exclusive owner of lease hold rights in the plot of land measuring 3.02 acres known as No. 20, Prithvi Raj Road, New Delhi, along with buildings constructed thereon and the plots known as 19, Prithvi Raj Road and 1, South End Road, New Delhi, along with the buildings constructed thereon were thereafter held jointly by S/Shri Kanhaya Lal Sawhney, Puran Chand Sawhney and Devi Chand Sawhney in the proportion of 50 per cent, 25 per cent and 25 per cent, respectively.

6. By virtue of partition deed dated 10-11-1971 registered as No. 7374 in Additional Book No. 1, Vol. 2762 on pages 15 to 45 on 15-11-1971 in the office of the Sub-Registrar, Asaf Ali Road, New Delhi, Shri Kanhaya Lal Sawhney, Puran Chand Sawhney and Devi Chand Sawhney, Man Mohan Sawhney and Chander Mohan Sawhney sons of Shri Puran Chand Sawhney, all residents of New Delhi, partitioned the leasehold rights in the plots of land measuring 3.02 acres known as 19 Prithvi Raj Road and measuring 2.45 acres known at 1, South End Road, New Delhi, with buildings constructed thereon, whereby the leasehold rights in the plot of 3.02 acres of land at 19, Prithvi Raj Road together with the building thereon fell to the share of Shri Kanhaya Lal Sawhney and Shri Devi Chand Sawhney in the proportions of 55 per cent and 45 per cent, respectively, while in the plot of land measuring 2.45 acres at 1, South End Road, Shri Kanhaya Lal Sawhney (HUF) was allotted leasehold rights in 1.0825 acres and Shri Puran Chand Sawhney (HUF), was allotted 1.3675 acres together with the building thereon.

7. By virtue of the family settlement dated 10-3-1972, made in consequence of the above share of the HUF, of Puran Chand Sawhney, in the plot being 1.3675 acres at 1, South End Road and the building constructed thereon, the same are said to have become the exclusive and absolute property of Puran Chand Sawhney and his two sons Shri Man Mohan Sawhney and Shri Chander Mohan Sawhney in equal parts to the exclusion of Smt. Mohini Sawhney who is said to have been provided otherwise from its other joint family assets in terms of the above settlement.

8. An application for an order under Section 171 of the Income-tax Act, 1961 ('the Act') for partial partition in terms of the aforesaid settlement, dated 10-3-1972, was made but by his order dated 11-3-1975, the ITO rejected the claim for partial partition. The reason given was that the property in question was not partitioned by metes and bounds.

On appeal, the AAC vide his order dated 7-11-1975 in Appeal No. 200 of 1975-76 (pages 97 to 101 of (he paper book) accepted the assessee's claim for partial partition of the property in question.

9. Thus, it will be seen that in the plot measuring 2.45 acres at 1, South End Road, New Delhi and the building thereon, 1.0825 acres with the building thereon became the property of Kanhaya Lal Sawhney (HUF) and in respect of the remaining portion, viz., 1.3675 acres with the building thereon, Puran Chand Sawhney, Man Mohan Sawhney and Chander Mohan Sawhney became the absolute owners in equal parts.

10. The 'Sawhneys' represented by Shri Puran Chand Sawhney thought of establishing a five star hotel at 1, South End Road, New Delhi, and for this purpose he contacted various parties like. Chatterjee, Kukreja, Architects, Engineers and Town Planners, Delhi Development Authority, Land and Development Officer, Hotel & Food Service Consultants (P.) Ltd., Ministry of Tourism and Civil Aviation, but he did not succeed in his efforts and permission for establishing a hotel at the aforesaid premises has not been received.

11. On 7-3-1972 a company called Carvanserai Ltd., New Delhi, was incorporated with main objects to construct, manufacture and to provide for sale all forms and types of lodgings, foods and beverages, entertainment and all products available for sale in shops, super markets and stores. The object introduced also was to carry on business of hoteliers. The share capital of this company was fixed at Rs. 5 crores; 35,00,000 shares of Rs. 10 each were to be equity shares and 15,00,000 shares of Rs. 10 each were to be redeemable preference shares to be issued as per conditions provided in the articles of association and as permitted by the Companies Act, 1956. The Ganga Sugar Corporation Ltd., a public limited company, promoted and owned all the shares in Carvanserai Ltd. 12. On 30-3-1972, a deed of partnership was executed between Carvanserai Ltd., called the first party and S/Shri Kanhaya Lal Sawhney, Puran Chand Sawhney, Man Mohan Sawhney alias Dhruv Man Mohan Sawhney and Chander Mohan Sawhney alias Pavan Sawhney, collectively called the second party. It is stated in the preamble that the second party through Shri Puran Chand Sawhney had incurred expenses amounting to Rs. 5,000 for the promotion of a hotel project at 1, South End Road, New Delhi-11, and further Ganga Sugar Corporation Ltd. had incurred expenses amounting to Rs. 7,000 for the investigation and promotion of a hotel project in New Delhi-11. These amounts were to be reimbursed to the respective parties by the partnership firm. The parties agreed to carry on business of hoteliers and this business was to be carried on under the name and style, Delhi Hotels. It was stated that the initial business of the partnership would be the construction and operation of a hotel at 1. South End Road or elsewhere in New Delhi. The partnership was to be at will. The capital of the partnership was fixed at Rs. 1 crore to be contributed as under:First party: 1. Carvanserai Ltd. 51,00,000Second party: 1. Shri Kanhaya Lai Sawhney 21,65,000 The aforesaid capital was to be provided by both the parties on or before 15-5-1972. Towards capital, the second party provided premises known as 1, South End Road, Delhi, measuring 2.45 acres approximately with buildings constructed thereupon and which was valued at Rs. 30 lakhs. The individual shares of the parties of the second party were stated as under:1. Shri Kanhaya Lal Sawhney 1.082500acres2. Shri Puran Chand Sawhney 0.455834acres Mohan Sawhney 0.455833acres Sawhney 0.455833acres The balance of Rs. 10 lakhs was agreed to be provided by these persons on or before the above-mentioned date. It was provided that if the aforesaid payments were not provided on or before 15-5-1972, the defaulting partners will pay interest at 10 per cent per annum on such shortfall from that date to the actual date of payment. Further, capital, if needed, was to be provided in the same proportion. The first party assigned in favour of the partnership, the said 'Delhi Hotels' by endorsement in their favour and deposited in favour of the said firm on 30-3-1972, a pronote dated 1-11-1971 for Rs. 8 lakhs made by the Associated Sugar Sales and another pronote dated 1-1-1972 for Rs. 2 lakhs made by R.B.L. Tirath Ram Shah (India) Ltd. In favour of the Ganga Sugar Corporation Ltd. (which were duly endorsed by Ganga Sugar Corporation in favour of the first party) and thus, made the initial contribution to the capital of the said firm. The profit and loss of partnership business was to be divided amongst the parties in the following ratio: 13. As the premises known as '1, South End Road, New Delhi' along with all out-houses and appurtenants have become the property and assets of the partnership and the partnership has to demolish the same so as to be ready to start the erection of the hotel as soon as the plans are sanctioned, the second party shall deliver vacant possession of the aforesaid premises within 30 days from the date hereof being the time provided for contribution of capital of all the parties: Provided that if Shri Puran Chand Sawhney is unable to vacate the premises on or before 30-4-1972, he shall pay such rent for such period during which he holds the possession as may be agreed to between the parties. It is, however, expressly agreed that any time it becomes necessary to demolish the building, he shall immediately and without demur vacate the premises.

13. This partnership was dissolved by a deed of dissolution on 9-6-1972. In this dissolution deed it is stated that the party of the first part further contributed capital of Rs. 22 lakhs in part payment of the share capital on 6-6-1972 and proposed to the second party further capital contribution of Rs. 5 lakhs by each of the parties to the partnership and also asked the first party to deposit the sum of Rs. 10 lakhs and the interest which they presumed must now have been recovered from Associated Sugar Sales Co. and R.B.L. Tirath Ram Shah (India) Ltd. The preamble states that whereas the aforesaid demand having been made by the first party was informed by the second party that the said Associated Sugar Sales Co. had adjusted the amounts due on the' pronote of Associated Sugar Sales Co. and R.B.L. Tirath Ram Shah (India) Ltd., in the loan account which members of the second party had with Associated Sugar Sales Co., the debtor, and whereas the second party in consequence of this act of Associated Sugar Sales Co.

expressed their inability to recover the moneys against the aforesaid pronotes and deposits, against the capital contribution of the aforesaid firm, it was considered by the first party to be an act of negligence and faithlessness by the second party. The second party had also refused to accept the demand of the first party for the payment of the further sum of Rs. 5 lakhs by each party towards the share capital.

In these circumstances disputes arose between the parties and it was mutually decided to dissolve the firm from 9-6-1972. It was agreed that the firm under the name and style of 'Delhi Hotels' shall be the property of Carvanserai Ltd. It was further decided during the period of five years from the aforesaid date and without the consent of the first party, the second party shall not carry on or be interested in any way directly or indirectly in the business of running a hotel in New Delhi. The accounts of the firm were to be made up to the date of dissolution and the partners were to be paid back out of the assets of the firm in the following manner provided in Clause 5 thereof: 5. Out of the assets of the firm, the property known as 1, South End Road, New Delhi with all its appurtenances and rights concerning the same of the value of Rs. 30 lakhs as on the date of dissolution shall vest, belong to and remain with Carvanserai Limited, the first party, subject to the terms and conditions of the lease deed dated 9-3-1923 made between Secretary of State in Council and late R.B.L.

Tirath Ram Shah Sawhney while the balance with the bank and cash in hand will be distributed amongst the partners in payment of the amount due to them on account of capital including share of profit up to the date of dissolution.

The aforesaid payments to both the parties were to be made within two weeks of the date of dissolution by issuing cheques in their account of the firm and distributing the balance cash available on the date of dissolution. Carvanserai Ltd. agreed to discharge and fulfil all debts, losses and obligations of the partnership and they also agreed to indemnify the parties of the second part in respect of any liabilities or obligations of the partnership. It was also agreed (Clause 9) that Carvanserai Ltd. will pay the rents and abide by the covenants/conditions laid down in the perpetual lease deed dated 9-3-1923 and the second party was to be kept indemnified against all claims, charges and demand of all types by any person or persons claiming or to claim from under or in trust from it. Clause 10 provided that at the cost of the first party, the second party shall do all such lawful, reasonable acts, deeds, things, matters, conveyances and assurances whatsoever that are considered in law to be better and more perfectly assuring the title in respect of the said plot of land, hereditaments and premises known as 1, South End Road, New Delhi in such (sic). Clause 11(a) provided that the first party will permit Shri Puran Chand Sawhney or at his option the first party shall construct a Pent House on the top floor of the hotel building or any multi-storeyed building and Shri Puran Chand Sawhney or his successors and his visitors will have free access to such Pent House. The taxes levied by the local bodies or by the Government in relation to the said Pent House were to be paid by Shri Puran Chand Sawhney.

14. On 23-9-1972 a deed of disclaimer was executed between S/Shri Kanhaya Lal Sawhney, Puran Chand Sawhney, Man Mohan (alias Dhruv) Sawhney, Chander Mohan (alias Pawan) Sawhney, collectively called the first party, Smt. Mohini Sawhney wife of Shri Puran Chand Sawhney, called the second party and Carvanserai Ltd. called the third party.

This deed mentioned the facts as to how the persons called the first party became exclusive and absolute owners of the premises known as 1, South End Road, New Delhi, the fact that the said property was contributed as a part of their capital in the partnership firm known as Delhi Hotels which was executed by partnership deed dated 30-3-1972, the fact that disputes arose between the first party and the third party, the fact that the partnership was dissolved by dissolution deed dated 9-6-1972 and the fact that on dissolution of the partnership, Carvanserai Ltd. became exclusive owner of the plot of land measuring 2.45 acres known as 1, South End Road, New Delhi, together with buildings thereon but the preamble mentions that even so, the third party was anxious to be assured of a good and indefeasible title in the aforesaid property and to avoid all future disputes so as to be able to make any transaction regarding the said property in any manner it desired in future. The preamble also states that the third party was advised that the other partners of the dissolved firm Delhi Hotels as well as the second party, viz., Smt. Mohini Sawhney wife of Shri Puran Chand Sawhney, by virtue of her erstwhile share in the HUF of Shri Puran Chand Sawhney when it owned a share in the property at 1, South End Road, New Delhi, should execute a deed of disclaimer confirming that they had no right and title in the said plot of land and buildings constructed thereon in such terms that in case of any dispute they and/or their respective heirs, legal representatives, administrators, executors or assignees and successors were not able to impeach the title of Carvanserai Ltd. (who hold a good and indefeasible title) in any manner and on any ground. The preamble also states that though Smt.

Mohini Sawhney had by virtue of the family settlement of 10-3-1972, no right or title in the premises known as 1, South End Road, and hence, there was no necessity for her to join as a party in the deed of disclaimer, but she became a party to the said deed at the request of the first party. After an elaborate preamble, the deed of disclaimer has 11 different clauses. The sum and substance of the deed of disclaimer is that though with effect from 9-6-1972, being the date of dissolution deed of the firm Delhi Hotels, Carvanserai Ltd. became absolute and exclusive owners of the premises known as 1, South End Road, New Delhi, the said deed of disclaimer removed any doubt that may exist in any quarter whatsoever and established beyond any possibility of doubt that the said property was the absolute and exclusive property of Carvanserai Ltd. This deed of disclaimer was executed on a stamp paper of Rs. 13 (rupees thirteen). The deed of disclaimer contains the following certificate on the first page: "Certified that full stamp duty of Rs. 13, transfer duty of Rs. nil, total Rs. 13 (Rupees thirteen only) has been paid vide Challan No. nil, dated 4-9-1972.

The above order was recorded after adjudicating upon the fact whether the proposed deed of disclaimer was a transfer deed or simply a deed of disclaimer. The deed of disclaimer was presented for registration before the Sub-Registrar, New Delhi, on 23-9-1972 and it was registered on 2 6-9-1972. Clause 11 of the deed of disclaimer reads as under: 11. This deed has been transcribed on a stamp paper of the value of Rs. 13 (thirteen) being the duty payable on these presents as prescribed for the Union territory of Delhi.

Originally the partnership deed dated 30-3-1972 was not registered but the partnership bearing stamp of Rs. 15 was presented for registration before the Sub-Registrar, New Delhi, on 23-9-1972 and it was registered on 26-10-1972. Similarly, the dissolution deed bearing stamp of Rs. 10 was presented for registration before the Sub-Registrar, New Delhi, on 23-9-1972 and it was registered on 25-9-1972.

15. Delhi Hotels filed a return of income for the previous year ending 9-6-1972 relevant to the assessment year 1973-74 and declared income of Rs. 23,084. The partners of the firm applied for registration under Section 185 of the Act. The ITO passed a combined order under Sections 143(3) and 185 on 9-1-1976. In the order under Section 185 he held that the document, dated 30-3-1972 was a fake document and no genuine firm came into existence. He further held that since no business was carried on by the alleged partners, no genuine firm came into existence by simply executing a deed of partnership. According to the ITO, the creation of the firm was fictitious, and its subsequent dissolution was a cooked up story and the entire scheme had been planned with the purpose of tax evasion because in the different assessments of concerned members of the Sawhney family capital gains arising on the transfer of the property known as 1, South End Road, New Delhi, had not been declared in their returns for the assessment year 1973-74. The main argument taken by the concerned members of the Sawhney family was that when a partner brings into partnership an asset, it becomes an asset of the partnership firm and this does not involve any transfer of an asset under Section 45 of the Act. Reference was made to Section 47 of the Act which in terms lays down that nothing contained in Section 45 shall apply to any distribution of capital assets on the dissolution of a firm. Having held that no genuine firm known as Delhi Hotels came into existence the ITO held that the property known as 1, South End Road, New Delhi, could not be the subject-matter of any distribution on dissolution of the said non-genuine firm and, therefore, the provisions of Section 47 were not held to be applicable. Thus, it was held that there was no firm which was required to be registered. Without prejudice to the finding given in the order under Section 185, the income of Rs. 23,084 was taxed on a protective measure in the status of 'AOP'. This course was adopted to dispose of the return of income filed by Delhi Hotels.

16. While dealing with the case of the assessee the ITO referred to the order under Section 185 passed in the case of Delhi Hotels, a copy of which was furnished to the assessee. He reiterated his stand that the creation of the firm was bogus, the dissolution of the firm was a made up story, the entire scheme was put through not only to avoid tax on capital gains but also to avoid stamp duty and corporation tax.

According to the ITO, Section 47 was not applicable to the facts of this case. Thus, the deed of partnership and the deed of dissolution had to be completely ignored. The ITO, however, held that the property known as 1, South End Road, New Delhi, was transferred by the owners thereof under the deed of disclaimer dated 23-9-1972. He, therefore, took the value of the property transferred at Rs. 30,00,000 and deducted therefr\om the fair market value of the property as on 1-1-1954 at Rs. 2,93,500 and determined capital gains of Rs. 27,06,500 in respect of the entire property in question. This amount was taxed in the hands of the following persons as income under the head 'Capital gains' (long term): 4. Shri Chander Mohan Sawhney (individual) 4,96,372 277,06,501 The assessments in the cases of all these four assessees were completed on 19-7-1976.

17. Delhi Hotels filed two appeals to the AAC--one against the order under Section 143(3) and the second against the order under Section 185. The appeal against the order under Section 143(3) was decided on 1-3-1977 in Appeal No. 316 of 1975-76 and it was dismissed. In this order itself the AAC gave a finding that neither any genuine firm came into existence nor the firm carried on any business of hoteliers, because such business could be started only after the hotel was constructed. The AAC also held: "The accounts thus do not prove either the existence of a genuine firm or of a carrying on of any business by the alleged firm." The appeal against the order under Section 185 was decided on 1-3-1977 in Appeal No. 1326 of 1976-77 and for the reasons given in the earlier order, that appeal was also dismissed.

18. Shri Kanhaya Lal Sawhney (HUF), S/Shri Puran Chand Sawhney, Man Mohan Sawhney and Chander Mohan Sawhney filed appeals to the AAC against their own assessments. The main order was passed by the AAC on 5-3-1977 in the case of Shri Kanhaya Lal Sawhney (HUF), in Appeal No.1010 of 1976-77. In that case it was argued that it should be held that both the deeds dated 30-3-1972 and 9-6-1972 were a genuine and that a genuine partnership deed was formed which was dissolved and thus the property in question received by Carvanserai Ltd. did not attract any capital gains. For the reasons recorded in order dated 1-3-1977 in Appeal No. 316 of 1975-76 in the case of Delhi Hotels, the AAC did not accept the assessee's submission. In para 5 of his order in the said appeal he held as under: . . . The findings of the ITO that no firm came into existence on 30-3-1972 and the property was not transferred to the alleged firm on that date and, consequently, there was no question of dissolution of the firm or of distribution of its assets are, therefore, upheld.It was claimed before the AAC that the disclaimer deed dated 23-9-1972 was a genuine document and the property in question could not be said to have been transferred through this deed. The AAC rejected this argument in the following words: ... The correct interpretation of the deed dated 23-9-1972 is that the rights in the said leasehold property were transferred to Carvanserai Ltd. only on that date and through the said deed. The fact that after the execution of the deed dated 23-9-1972, the co-owners sent a letter to the Land and Development Officer, Ministry of Works and Housing, Govt. of India, Nirman Bhavan, New Delhi, supports this conclusion. This letter reads as under: We enclose herewith copy of the registered deed dated 23-9-1972. We request you to kindly effect mutation of the above noted premises in favour of Carvanserai Ltd., National Insurance Building, 1st Floor, 5, Parliament Street, New Delhi-110001.

This letter was sent immediately after the deed, dated 23-9-1972, was executed. Had the property been transferred earlier on 9-6-1972 to Carvanserai Ltd., the co-owners would have written to the authorities for its mutation with the same promptness. I, therefore, find no force in the argument of the appellant.

The AAC did not attach much importance to the argument that in the case of Delhi Hotels the status given was that of 'AOP' and, therefore, the provisions of Section 47(ii) would be applicable. According to the AAC, the assessment in the case of Delhi Hotels was a protective assessment, wherein a finding was recorded that there was no legal entity of Delhi Hotels. The AAC also did not accept the assessee's argument that if any transfer of the property in question took place, it was on 30-3-1972.

The AAC accepted the argument of the assessee that in place of Rs. 2,93,500 taken as the fair market value of the said property as on 1-1-1954, the fair market value should be taken at Rs. 3,62,676. The ITO was directed to work out capital gains, accordingly in the case of Shri Kanhaya Lal Sawhney (HUF). This order was followed by the AAC in the case of Shri Puran Chand (order dated 5-3-1977 in Appeal No. 1013 of 1976-77), Man Mohan Sawhney (order dated 5-3-1977 in Appeal No. 1011 of 1976-77) and Chander Mohan Sawhney (order dated 5-3-1977 in Appeal No. 1012 of 1976-77). All the four parties are aggrieved by these different orders of the AAC.19. Before we take up these appeals, we may state that the two appeals filed by Delhi Hotels came to be decided by the Tribunal in IT Appeal Nos. 1078 and 1079 (Delhi) of 1977-78 dated 28-8-1980. The question for consideration by the Tribunal was whether Delhi Hotels was a genuine firm and whether it was entitled to registration as also for the assessment on its declared income of Rs. 23,084. The Tribunal held that the firm of Delhi Hotels was not a genuine firm and it was, therefore, not entitled to registration. The Tribunal agreed with the AAC that the firm was not genuine as it was intended to serve only the purpose, namely, transfer of property from Sawhneys to Carvanserai Ltd. According to the Tribunal, every circumstance showed that everything was pre-planned in advance and only to give a colour of genuineness, a partnership deed was executed on 30-3-1972 and dissolution deed was drawn on 9-6-1972. The firm was set up with only one purpose, namely, to transfer the property from Sawhneys to Carvanserai Ltd., without payment of either any stamp duty or capital gains. The Tribunal did not agree with the learned Counsel for the assessee that if the firm could not be treated as a firm, it could be treated as an 'AOP'. According to the Tribunal, in the first place no such case was made out before the lower authorities and in the second place the ingredients of constituting an AOP were not much different from those constituting a firm. The finding of the Tribunal in para 29 of its order was ". . . we cannot accept the plea that merely because a few persons had come together for some purpose, it could be stated as an association of persons particularly when, in our opinion, that purpose was not to carry on any business". The Tribunal in para 31 of its order agreed with the submission made by the learned Counsel for the department that the judgment of the Delhi High Court in the declaratory Suit No. 351 of 1977 filed by Car-vanserai Ltd. against Sawhneys did not in any way affect the position before it. In that judgment it was held th at "the suit is decreed and the plaintiff is granted a declaration that it is exclusive and only owner of property at 1, South End Road, New Delhi, since 9-6-1972". The Tribunal observed that the question that the firm of Delhi Hotels was a genuine concern constituted by the partnership deed dated 30-3-1972 was admitted by both the plaintiff and defendants in that case. It was on the basis of this admitted fact that the Court held that there was the transfer of property at 1, South End Road, New Delhi to Carvanserai Ltd. The Tribunal made it clear that ". . . We are not giving any finding on the issue whether the property was in fact so transferred or not we are only giving a finding that the firm of Delhi Hotels was not a genuine firm and, therefore, it was not entitled to registration. It also could not, therefore, be assessed as a legal entity." The Tribunal finally held as under in para 33 of its order: 33. We, therefore, hold that Delhi Hotels was not constituted as a genuine partnership and, therefore, it was not liable to be assessed nor was it entitled to registration. We may, however, make it clear that we are not giving any finding as to whether the property was at all transferred to Carvanserai Limited either by the declaratory suit of the High Court referred to above or by the deed of disclaimer dated 23-9-1972. That issue is not before us nor its decision is necessary to decide the appeals before us. That question might need decision in the cases of Sawhneys themselves for determining the amount of capital gains. In the appeals before us, we are not concerned with that.

20. The learned Counsel for the assessee submitted that according to the AAC, the transfer of the property at 1, South End Road, New Delhi, took place on 23-9-1972, the date when the deed of disclaimer was executed. He submitted that the deed of disclaimer dated 23-9-1972 was a deed of declaration of pre-existing state of affairs, in that it recapitulates and reiterates the sequence of events recorded in the partnership deed dated 30-3-1972 and dissolution deed dated 9-6-1972.

He submitted that it was a well settled principle of construction of a document that the same had to be read as a whole and no portions or lines of the document could be torn out of their proper context. It was also a settled rule of construction that the plain or ordinary meaning was to be adopted in construing a document. He referred to the judgment in Sri Ram Mills v. CIT [1974] 95 ITR 279 (Pat.), wherein the following observations appear in the head notes: It is a fundamental principle of interpretation of documents that they have to be read as a whole and if there is any conflict between one part of a document and another then effect has to be given to that part of the document which finds support from other facts and circumstances of the case.

He also referred to the following observations from the judgment in Hasan Mumtaz v. CIT [1979] 116 ITR 573 (All.): . . . It is a settled rule of construction that the plain and ordinary meaning is to be adopted in construing a document. After applying the aforesaid rule of construction to the facts of the present case we feel no hesitation in agreeing with the view of the Tribunal that the deed could by no stretch of imagination be considered as a gift and was rightly interpreted as a sale.

He submitted that the disclaimer deed, on its very perusal, would show that it was not a deed of transfer in that it did not even purport to be deed of sale, exchange, relinquishment or extinguishment of any rights in property in favour of those who had no such rights earlier.

There was no consideration nor was there even an intention to transfer property through the disclaimer deed from Sawhneys to Carvanserai Ltd. He referred to the judgment in Smt. Savitri Devi Abdali v. Ram Bhaj Dutt [1976] 12 DLT 334 (Delhi). He also referred to the Delhi High Court judgment dated 1-3-1979 in Suit No. 351 of 1977 in the case of Carvanserai Ltd. v. Sawhneys, wherein the High Court decreed the suit in favour of Carvanserai Ltd. and granted a declaration that the said company was the exclusive and the only owner of property at 1, South End Road, New Delhi since 9-6-1972. He submitted that the disclaimer deed was not a deed of transfer in the light of the judgments of the Supreme Court in the cases of Thayyil Mammo v. Kottiath Ramunni AIR 1966 SC 337 and Kuppuswami Chettiar v. A.S.P.A. Arumugam Chettiar AIR 1967 SC 1395. In these two cases, the Supreme Court had two specific documents which had to be interpreted. The Supreme Court held the same to be deeds of transfer as against the claims of the same being merely release deeds. For instance, the deed for interpretation in the first case runs as follows: Since I have this day received to satisfaction in ready cash the sum of Rs. 935 made up of the above balance purappad of Rs. 135 and the kanom amount of Rs. 800, and which you have paid to me, the entire rights, liabilities, and claims belonging to me under the aforesaid kanom deed No. 266 and marupat deed No. 267, have been surrendered to you.

The position of the deed in the second case was held to be identical on its perusal by the Supreme Court. He submitted that the perusal of the disclaimer deed in the instant case would show that there was no intention to transfer the property through it nor was there any consideration nor did it purport to transfer any property.

21. He submitted that the stamp duty with reference to a document had to be charged as per order of adjudication of the Collector of Stamps on a reference under Section 31/32 of the Indian Stamp Act, 1899. The order of the Collector of Stamps was final and conclusive. It was not open to any other authority before whom the document was presented for some other purpose to embark upon a fresh investigation or to have a second look about the nature and character of the document. He referred to the judgments in Government of U.P. v. Raja Mohammad Amir Ahmad Khan AIR 1961 SC 787, Dr. Manjunatha Rai v. Board of Revenue AIR 1973 Mad.

343 and ILR 25 Mad. 751. He submitted that the Collector of Stamps held that the disclaimer deed of 23-9-1972 was not a deed of transfer and further held that it was merely a deed of declaration of pre-existing state of affairs. He, therefore, held that stamp duty of Rs. 13 only was chargeable as against stamp duty of Rs. 90,000, which would have been payable if it had been a deed of transfer. He continued to argue that the disclaimer deed was not held to be a deed of transfer by the Sub-Registrar, Asaf Ali Road, New Delhi and hence, he did not require the production of an income-tax clearance certificate by Sawhneys in terms of Section 230A of the Act, which he would have demanded if the disclaimer deed would have been found to be a deed of effecting the transfer of immovable property nor did he demand the transfer fee of Rs. 1,50,000 with reference to the value of Rs. 30 lakhs of the said property.

22. He submitted that the ITO completed the assessment of Delhi Hotels on an income of Rs. 23,084 in the status of an 'AOP'. The assessment was confirmed by the AAC both with regard to status and the quantum of income. The department did not file an appeal against the order of the AAC either on the point of status or on the point of quantum. The status of an 'AOP' was not an issue before the Tribunal. The Delhi Hotels in its appeal claimed that the status should be that of a registered firm. The Tribunal could not proceed to record findings on an issue which was not in appeal before it. The assessment in the status of an 'AOP' having been completed against Delhi Hotels for the assessment year 1973-74 and the said assessment having become final and conclusive, no capital gains tax was chargeable under Section 47(ii) of the Act on the distribution of the capital assets of the said AOP even assuming without admitting that Delhi Hotels was not a genuine firm to be eligible for the grant of registration under the Act. He referred to the following observations of the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546: ... The High Court, however, rightly pointed out that the only property which the widows could have managed jointly was the immovable property which fetched an income of about Rs. 11,000, and as to the property, the Appellate Assistant Commissioner had held that Section 9(3) applied. There was no appeal by the Department against that finding and it was not open to the Tribunal to go behind it . ...

23. He submitted that Sawhneys and Carvanserai Ltd. joined hands for the construction and running of a hotel under an instrument of partnership executed on 30-3-1972. Even assuming, without admitting, that partnership firm was not genuine, they could be said to have associated for a common purpose of 'for a joint action', and hence, the status for the assessment of Delhi Hotels would be that of an AOP. In this connection, he referred to the judgment in G. Murugesan & Bros. v.CIT [1973] 88 ITR 432 (SC) and Indira Balkrishna's case (supra). He submitted that on distribution of assets of the AOP on 9-6-1972, no capital gains tax was chargeable in view of the specific provisions of Section 47(ii).

24. He then argued that immovable property worth Rs. 100 or more had to be transferred in the manner and mode prescribed by the Transfer of Property Act, 1882. Till the execution and registration of such an instrument there was no transfer of immovable property so as to attract the charge of capital gains tax within the meaning of Section 45.

Reference was made to the judgments in CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC) and Alapati Venkataramiah v. CIT [1965] 57 ITR 185 (SC). He also referred to the judgments in CIT v. Meatles Ltd. [1972] 84 ITR 37 (Delhi) and CIT v. Hindustan Cold Storage & Refrigeration (P.) Ltd. [1976] 103 ITR 455 (Delhi). He submitted that the partnership deed, dissolution deed and disclaimer deed had to be read together. The same could not be brushed aside in pursuance of an alleged 'substance of the transaction' nor could the provision of Section 45 be invoked in the facts and circumstances of the case. He referred to the judgments in CIT v. Motor & General Stores (P.) Ltd. [1967] 66 ITR 692, 699-700 (SC), CIT v. A. Raman & Co. [1968] 67 ITR 11, 17 (SC), Bank of Chettinad Ltd. v. CIT [1940] 8 ITR 522 (PC) and Provident Investment Co. Ltd. v. CIT [1953] 24 ITR 33, 39 to 42 (Bom.).

25. He continued to argue that it was open to the Sawhneys and Carvanserai Ltd. to enter into a partnership agreement. It was open to the Sawhneys to pool their immovable property into the stock of the firm on the formation of the firm. The said property became an asset of the firm on its being pooled into the stock of the firm on the basis of the specific terms of the partnership deed and the entries in the account books. He relied on the judgments in Addanki Narayanappa v.Bhaskara Krishnappa AIR 1966 SC 1300, CIT v. Dewas Cine Corpn. [1968] 68 ITR 240 (SC), CIT v. Kartikey V. Sarabhai [1981] 131 ITR 42 (Guj.), CIT v. Amber Corpn. [1981] 127 ITR 29 (Raj.) and CIT v. Amber Corpn.

[1974] 95 ITR 178 (Raj.). He went on to argue that it was open to the partners/members to dissolve the firm AOP, especially when the partnership firm was 'at will'. It was also open to the partners/members to distribute the assets of the firm/AOP among the partners/members on its dissolution. Reference was made to the judgments in G. Murugesan & Bros.' case (supra) and CIT v. Bankey Lal Vaidya [1971] 79 ITR 594 (SC). He submitted that the observation of the ITO, that the only intention of the Sawhneys was to transfer property to Carvanserai Ltd. without the payment of stamp duty or capital gains tax, was contrary to the facts on record and the findings of the Tribunal in the appeal of Delhi Hotels. In this connection he referred to the preambles of the partnership deed and disclaimer deed and paras 3 and 4 of the order of the Tribunal in the case of Delhi Hotels (supra) for the assessment year 1973-74. He also referred to certain letters indicating the activities of Sawhneys and Ganga Sugar Corporation over the period of about one year preceding the constitution of the partnership firm. He particularly mentioned the letter dated 4-10-1971, which, according to him, was misconstrued by the Tribunal in the case of Delhi Hotels (supra).

26. He submitted that Mrs. Mohini Sawhney was associated with the execution of the disclaimer deed not as an owner of the property because she had no right or interest in the property after the family settlement of 10-3-1972. She was associated with the execution of deed of disclaimer like Sawhneys out of abundant caution to obviate objections from public financial institutions in their dealings with Carvanserai Ltd. He pointed out that the ITO had not taken the association of Mrs. Mohini Sawhney with the execution of the disclaimer deed to its logical end. If the disclaimer deed was a deed of transfer, some capital gains tax was assessable in the hands of Mrs. Mohini Sawhney. But no capital gains tax had been charged or assessed in her hands for the assessment year 1973-74.

27. He argued that the title to an immovable property could not pass by an admission when the statute required a proper deed of conveyance. For this submission he referred to the judgment of Privy Council in Immudipattam v. Pariya 28 IA 46. He submitted that clauses 10 and 7 of the dissolution and disclaimer deeds, respectively, were identical and such clauses were usual and were recorded out of abundant caution and hence, it could not be made out of abundant caution, and hence, it could not be made out from Clause 10 of the dissolution deed that disclaimer deed was a deed of transfer in the presence of similar Clause 7 in the disclaimer deed itself. He submitted that the scope of the term 'transfer' under Clause (47) of Section 2 of the Act, was not wider as compared to its scope under the provisions of Section 12B of the Indian Income-tax Act, 1922. He referred to the judgment in CIT v.Madan Lal Bhargava [1980] 122 ITR 545 (All.). He finally submitted that no capital gains tax was liable to be charged in the case of the four assessees.

28. The learned Counsel for the assessee further submitted that a decree for a declaration without more could only be made under Section 34 of the Specific Reliefs Act, 1877, and only in accordance with precise terms thereof--Kishorilal v. Beg Raj AIR 1952 Punj. 387. The prerequisite for a valid declaration under Section 34 was that the character or right which the plaintiff claimed and which was denied or threatened by the other side must exist at the time of suit and should not be the character or right that was to come into existence on some future date, a fortiori, a declared decree could not create any right or title which did not exist at the time of the institution of the suit--Ahmad Yar Khan v. Haji Khan AIR 1944 Lahore 110. A decree made in a suit filed under Section 34 of the Specific Reliefs Act, could not be equated with a decree passing title or which may have the effect of passing title. Any party to a judgment or decree in a suit filed under Section 34 of the Specific Reliefs Act may avoid the same by providing fraud or collusion by the adverse party and the decree could be challenged as a nullity on these grounds--Sisir Kumar Chandra v. Smt.

Monorama Chandra AIR 1972 Cal. 283. In any case, if the decree was not declaratory of pre-existing rights but had the effect of itself passing title, then the transfer could not be said to be effected on any date prior to the date of the decree. A document which created an interest in property, and was not merely declaration of such an interest was registrable under Section 17(1)(b) of the Registration Act--(Thakur) Bageshwari Charan Singh v. Jagamath Kuari AIR 1932 PC 55. A document which was, therefore, registered as an optionally registrable document under Section 18 of the Registration Act could not be construed as a document which would create an interest in property.

29. The learned Counsel for the revenue submitted that the Tribunal had decided in the appeals of Delhi Hotels that the firm was not genuine or a genuine entity and that it did not carry on business and that the sole object of the owners of 1, South End Road, New Delhi, was to effect the transfer of the property to Carvanserai Ltd. by avoiding stamp duty, etc. Neither the partnership deed, dated 30-3-1972, nor the so-called deed of dissolution, dated 9-6-1972, took effect as such. He submitted that since the firm was not a genuine entity, the deeds dated 9-6-1972 and 23-9-1972 had to be interpreted on that basis. According to him, it was not the firm but the substance of the transaction that had to be seen, the nomenclature used was not decisive and the circumstance was to be taken as one where the parties had camouflaged the real nature of the transaction. In this connection he referred to the judgments in CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422, 425 (SC), Thayyil Mammo's case (supra), Kuppuswami Chettiar v. A.S.P.A.Arumugam Chettiar AIR 1967 SC 1395. He went on to argue that particular form of transaction was adopted as a cloak to conceal a different transaction as envisaged by the Supreme Court in Motors & General Stores (P.) Ltd.'s case (supra). He submitted that the property remained that of its owners and the only deed that thereafter was executed between the owners and the Carvanserai Ltd. as the deed, dated 23-3-1972, called the disclaimer deed. It was the intention of the owners to transfer title to the property by this deed. He specifically referred to clauses 1, 2, 3, 4, 5, 7, 9 and 10 of the disclaimer deed.

According to him, all the documents were registered only after this deed was executed and parties agreed to inform the L. & D.O. (sic) only pursuant to Clause 9 of the deed of disclaimer. The parties themselves represented, by letter dated 11-10-1972, to the L. & D.O. that the registered deed dated 23-9-1972 was a deed on the basis of which mutation was to be effected. The proposition that he submitted was that the property at 1, South End Road, New Delhi, therefore, passed under a deed of disclaimer for the consideration fixed earlier in the deed dated 9-6-1972 which had been incorporated in the deed of disclaimer by reference.

30. Alternatively, he argued that the property in question was intended by the parties to pass and did, in fact, pass under a deed of dissolution dated 9-6-1972 which was also registered.

31. He submitted that in order to see whether capital gains was exigible, one had to see first, whether the parties intended to effect a transfer and, whether the act of parties was effective in transferring the property, i.e., whether there was effective conveyance of property. Reference was made to the judgment in Alapati Venkataramiah's case (supra). He pointed out that the registration of the intrument came only next to test the effectiveness of the transaction. By way of example, he referred to the judgment in Hira Lal Ram Dayal v. CIT [1980] 122 ITR 461 (Punj. & Har.) He then referred to the definition of 'transfer' in Section 2(47) and submitted that it had to be taken in a wider sense and as comprising every act by which property may be passed from one person to another. He referred to the judgment in Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655 (SC) approving Vadital So da Ice Factory v. CIT [1971] 80 ITR 711 (Guj.)and CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 (Guj.).

He submitted that both the dissolution deed dated 9-6-1972 and the deed of disclaimer dated 23-9-1972 had been registered and they could effectively deal with the transfer of immovable property. He submitted that neither the fact that the full stamp duty as on a conveyance nor the fact that the full registration fee payable on a sale had not been paid would affect the effectiveness of the deeds. These were only procedural defects which would be cured by Section 87 of the Indian Registration Act, and would not affect the validity of the deeds. He referred to the judgment in Ma Pwa May v. S.R.M.M.A. Chettiar Firm AIR 1929 PC 279.

32. He submitted that the Collector and the Registrar had only to see what the document presented before them purported to be. They were not required, indeed they had no power, to enquire and decide whether the partnership formed was a genuine entity or not. He referred to Section 35 of the Indian Stamp Act, and submitted that this section did not declare an insufficiently stamped deed as invalid or void. The validity of the transaction or the effectiveness of the document were not affected because the document was unstamped or defectively stamped.

Failure to stamp a document which had got to be stamped under the provisions of the Stamp Act did not affect the validity of the transaction embodied in the document; it merely rendered the document inadmissible in evidence. He referred to Joyman Bewa v. Easin Sarkar AIR 1926 Cal. 877 and Puma Chandra Chakravarty v. Kalipada Roy AIR 1942 Cal. 386. He also submitted that there was absolutely no doubt that an unstamped or defectively stamped document was not void and that it was effective from the date of its execution, though it was incapable of being made use of as evidence, until it was stamped properly. As Lindley, L.J. has remarked in Towel v. London & Provincial Bank [1893] 2 Ch. 555(B): "No case that I know of can be cited to show that an erroneous stamp would invalidate the deed": Subramanian Chettiar v.Revenue Divisional Officer AIR 1956 Mad. 454. He further submitted that Section 35 of the Indian Stamp Act did not affect the admissibility of the deeds in evidence because they had been taken in evidence by the ITO and Section 36 of the Act would protect the admissibility of the deeds. In any case, he contended, Clause (e) of the proviso to Section 35 protected the deed dated 23-9-1972. According to him, the remedy of the Government against the parties for recovering the full stamp duty lay in other provisions of the Stamp Act.

33. He further submitted that Section 230 of the Act was only a command to the registering authority and did not declare that the deed registered without a tax clearance certificate under Section 230A of the Act was bad or invalid. The only effect was that the department could resort to the property covered by the deed so registered ignoring the deed. He further submitted that the assessment order in the status of an AOP was purely protective in the sense that no recovery could be made thereunder and it would be effective only in case the Delhi Hotels will have to be a genuine entity. Both the ITO and the AAC had held that the Delhi Hotels was not a genuine entity. The status of AOP was in issue before the Tribunal and a finding was given that the Delhi Hotels was not an AOP because it was not a genuine entity.

34. The learned counsel for the assessee, in reply, submitted that the crucial question in this case was whether it was the intention of the parties to transfer the property in question through a conveyance and this question had to be determined on the basis of the deed of partnership dated 30-3-1972, the dissolution deed dated 9-6-1972 and the deed of disclaimer dated 23-9-1972. He submitted that his argument based on Section 54 of the Transfer of Property Act had not been answered by the learned counsel for the revenue. He referred to para 51 of the order of the Tribunal in the case of Delhi Hotels (supra) and submitted that if the partnership deed and the dissolution deed were not held to be genuine, then, there could be no transfer of the aforesaid property as argued by the revenue. He also submitted that in its judgment in Caravanserai Ltd.'s case (supra), the High Court had no occasion to consider the deed of disclaimer. He reiterated his submission that the document should be registered according to Section 17 of the Registration Act. He submitted that the deed of disclaimer did not come under Section 17. He referred to the judgment in Raghunath v. Kedarnath AIR 1969 SC 1316. He also submitted that the assessment of Delhi Hotels in the capacity as AOP stood confirmed and that fact could not be ignored in determining the point in issue. He referred to the judgment in Assam Co-operative Apex Bank Ltd. v. CIT [1978] 112 ITR 257 (Gauhati). He pointed out that the ground was not before the Tribunal in the case of Delhi Hotels (supra).

He referred to the word 'thereon' used in Section 254 of the Act and in respect of the powers of the Tribunal, he referred to the judgments in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232, 237 (SC), Motor Union Insurance Co. Ltd. v. CIT [1945] 13 ITR 272, 273 (Bom.), Puranmal Radhakishan & Co. v. CIT [1957] 31 ITR 294 (Bom.), Pathikonda Balasubba Setty v. CIT [1967] 65 ITR 252, 258 (Mys.), M.R.M. Periannan Chettiar v. CIT [1960] 39 ITR 159, 170, 171 (Mad.) and Narendrakumar J. Modi v.CIT [1976] 105 ITR 109 (SC). On the question of protective assessment he referred to the judgments in Smt. Hemlata Agarwal v. CIT [1967] 64 ITR 428 (All.), U.P. Hardware Store v. CIT [1976] 104 ITR 664 (All.) and Jagannath Hanumanbux v. ITO [1957] 31 ITR 603 (Cal.). He referred to the declaratory suit referred to above and made the submission that this suit by itself did not create any title, it only declared a pre-existing right.

35. In respect of IT Appeal No. 1083 of 1977-78 in the case of Man Mohan Sawhney, the learned Counsel for the assessee sought permission to raise the following additional ground of appeal: The learned Income-tax Officer has erred in law in assessing long-term capital gains of Rs. 4,96,372 on the alleged transfer of property at 1, South End Road, New Delhi, on the basis of the disclaimer deed dated 23-9-1972 in the status of an individual as against the correct status of HUF contrary to the ratio of the Supreme Court judgment in the case of N.V. Narendra Nath v. CWT [1969] 74 ITR 190 and Allahabad High Court judgment in the case of Prem Kumar v. CIT [1980] 121 ITR 347.

He referred to the judgments in T.S. Srinivasan v. CIT [1966] 60 ITR 36 (SC), Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi [1979] 118 ITR 507 (SC), CIT v. Khemraj Laximchand [1978] 114 ITR 75 (MP) and CIT v. S. Nelliappan [1967] 66 ITR 722 (SC) for the submission that if the assessee had claimed a wrong status in the original assessment, the aforesaid ground should be admitted so that the correct status could be determined. He referred to the judgments in Manjushree Plantation Ltd. v. CIT [1981] 131 ITR 307 (Mad.), Gangadas Sarda v. CIT [1956] 29 ITR 799 (Pat.) and Gundathur Thimmappa & Sons v. CIT [1968] 70 ITR 70 (Mys.) for the submission that if the point goes to the root of the assessment, it should be considered and determined. He also referred to the judgments in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778 (AP), L.H. Sugar Factories & Oil Mills (P.) Ltd. v. Addl. CIT [1979] 116 ITR 937 (All.), Steel Containers Ltd. v. CIT [1978] 112 ITR 995 (Cal.), CIT v. Anand Prasad [1981] 128 ITR 388 (Delhi) and Mrs. Freny Rashid Chenai v. ACED [1973] 90 ITR 31 (AP). For the submission that when the alleged capital gains did not belong to the assessee, it should not be taxed in his hands. The learned Counsel for the revenue submitted that the assessee had three occasions for raising the ground in respect of which permission was not being sought. The first occasion was when the ITO gave notice to the assessee that it was his intention to charge capital gains in the hands of the assessee and the second occasion was when the IAC gave a hearing to the assessee under Section 144B of the Act. The third occasion was when the assessee was in appeal before the AAC.36. He further submitted that the order of the AAC dated 7-11-1975 in Appeal No. 200 of 1975-76 under Section 171 of the Act for the assessment year 1972-73 in the case of Shri Puran Chand Sawhney was rendered even before the assessment was completed in the case of Shri Man Mohan Sawhney on 19-7-1976 and the assessee should have claimed the status of HUF right at the stage of the assessment. He further submitted that the fact that Shri Man Mohan Sawhney was married was not known to the ITO and thus new material was required to be gathered and thus the additional ground should not be admitted. He also submitted that the addition on account of capital gains impinges on other assessments also and it could not be argued on behalf of the assessee that the additional ground was an aspect of the same ground pertaining to the capital gains. He submitted that even in Umedray Worah v. CIT [1965] 56 ITR 702 (Pat.) there was no affect on any other assessments.

He referred to the judgment in Manjushree Plantation Ltd.'s case (supra). He pointed out that the facts of that case were entirely different, because in that case the accountant and the secretary of the assessee-company had committed a fraud. He also referred to Manji Dana v. CIT [1966] 60 ITR 582, 586 (SC). He submitted that if it was decided to admit the additional ground of appeal, then a direction to the ITO would be necessary to enable him to first determine whether a HUF had really come into existence and then make the assessment according to law. In reply, the learned Counsel for the assessee submitted that the counsel for the assessee had made a bona fide mistake in not claiming the status of a HUF and, therefore, in the interest of justice the additional ground should be admitted. The question whether the aforesaid additional ground should be admitted or not, is to be determined after we have dealt with the main controversy involved in this case regarding the taxability of the income from capital gains.

37. We have carefully considered the rival submissions. The point in issue is whether there has been any 'transfer' of the property known as 1, South End Road, New Delhi, within the meaning of that term as defined under Section 2(47), and if there has been any transfer of the said property, then, what is the date on which the transfer took place.

The term transfer used in Section 12B of the 1922 Act was not specifically defined but in Mangalore Electric Supply Co. Ltd.'s case (supra), it was held that the word 'transfer' which occurs in Section 12B(1), is an expression of wide comprehension and includes within its sweep both voluntary and involuntary transfers. In that case it was held: ... We are, therefore, Clear that if any existing title is extinguished and a new one is created, there is within the meaning of Section 12B(1) of the Act of 1922, transfer of a capital asset .

. .

It may be stated that Section 12B of the 1922 Act which corresponds to Section 2(47) of the 1961 Act did not levy tax on capital gains arising on the extinguishment of any rights in a capital asset. Further, that section did not contain any reference to compulsory acquisition as there is in the definition of 'transfer' in Section 2(47). The judgment in Mangalore Electric Supply Co. Ltd.'s case (supra) is unexceptionable but the controversy in this case has to be determined in the light of the definition of the term 'transfer' contained in Section 2(47). The decision whether there has been any transfer of a capital asset in this case has to be taken by reading all the three documents together, viz., the deed of partnership dated 30-3-1972, the deed of dissolution dated 9-6-1972 and the deed of disclaimer dated 23-9-1972. We do not dispute the proposition of law laid down in the judgments in Sri Ram Mills' case (supra) and Hasan Mumtaz's case (supra). While deciding the issue involved in this case we have to keep in view the following rule laid down by the Supreme Court in Motor & General Stores (P.) Ltd.'s case (supra): In the absence of any suggestion of bad faith or fraud the true principle is that a taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document the liability to tax depends upon the meaning and content of the language used in accordance with the ordinary rules of construction.

38. The first question that arises for our consideration is as to what is the effect of the order of the Tribunal in the case of Delhi Hotels [IT Appeal Nos. 1078 and 1079 of 1977-78, dated 28-8-1980]. The decision of the Tribunal in that case is that the firm Delhi Hotels was not constituted as a genuine partnership and, therefore, it was not liable to be assessed nor was it entitled to registration. The consequence of this decision, therefore, is that both the partnership deed dated 30-3-1972 and the dissolution deed dated 9-6-1972 will have to be ignored. If that is considered to be the correct view of the aforesaid order of the Tribunal, then the natural corollary would be that there would be no transfer of a capital asset either on formation of the partnership on 30-3-1972 or on the dissolution of the partnership on 9-6-1972. An alternative argument was advanced by the learned Counsel for the revenue that the property in question was intended by the parties to pass and did in fact pass under the deed dated 9-6-1972 which was also registered. It is of course true that both the partnership deed dated 30-3-1972 and the dissolution deed dated 9-6-1972 have been registered, but the finding of the Tribunal in the case of Delhi Hotels (supra) is that no genuine firm ever came into existence. Assuming that this finding is correct, it follows that when a genuine firm itself is not constituted, there cannot be any dissolution of such a firm. The alternative submission that there was a transfer of a capital asset in the property at 1, South End Road, New Delhi, cannot, therefore, be accepted. The dissolution has to be read along with the partnership deed. If the partnership is considered to be genuine, then alone the dissolution deed can have some meaning. If both the partnership deed and the dissolution deed are considered to be genuine, then also no capital gains would arise on the dissolution of the firm in view of the specific provisions of Section 47(ii). We may refer to the judgment in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC), wherein it had been held that no transfer of an asset takes place when there is distribution of capital assets on the dissolution of the firm.

39. At this stage we must also consider the judgment of the Hon'ble Delhi High Court in the case of Caravanserai Ltd. (supra). In that case the suit was filed by Caravanserai Ltd. against Shri Kanhaya Lal Sawhney, Puran Chand Sawhney, Man Mohan Sawhney and Chander Mohan Sawhney for a declaration that (a) the plaintiff is the exclusive and only owner of the property at 1, South End Road, New Delhi, since 9-6-1972; (b) in the alternative, that the deed of disclaimer dated 23-9-1972 was a deed of transfer and the plaintiff became the owner of the property aforesaid from its date; and (c) for a permanent injunction restraining the defendants from interfering with the plaintiff's right as owner of the property in suit. The relief for permanent injunction was given up and the alternative relief was not pressed at the time of arguments. There was thus only one question to be determined in that case and the question was whether the plaintiff was the exclusive and only owner of the property at 1, South End Road, New Delhi, as on 9-6-1972. It was an admitted position in that case that a genuine partnership deed was executed on 30-3-1972 and that the partnership functioned from the date of its inception till 9-6-1972 when the deed of dissolution was executed. According to the deed of dissolution, the assets of the partnership were divided between the parties and the property in suit went to the plaintiff whereas the defendants got Rs. 30 lakhs in place of the assets which they had contributed and which they had given to the other parties at the time of the dissolution. It had been submitted on behalf of Caravanserai Ltd. that, as will be revealed by the accounts produced by it, the management of the partnership had employed a secretary and a peon, acquired the requisite stationery and conducted correspondence in advancement of the objective of the partnership. It was significant that the previous owners of the property, the defendants, became the tenants of partnership and paid Rs. 3,120 as rent of the accommodation occupied by them. The unutilised cash balance of Delhi Hotels earned interest and the ITO assessed Delhi Hotels as such for the said income.

It has been observed in the judgment that "Since both the parties submit that their entering into a partnership was a genuine affair and as the running of the partnership business and its ultimate dissolution, there can be no conclusion other than the one that the property at 1, South End Road, New Delhi passed on the execution of the dissolution of the plaintiff". The High Court finally decreed the suit in favour of the plaintiff and granted a declaration that Caravanserai Ltd. is the exclusive and only owner of property at 1, South End Road, New Delhi, since 9-6-1972. This judgment proceeds on the basis that both the partnership deed dated 30-3-1972 as well as the dissolution deed dated 9-6-1972 are genuine documents and it is on this basis that Caravanserai Ltd. was declared as the exclusive and the only owner of the property at 1, South End Road, New Delhi, since 9-6-1972. As already stated, the provisions of Section 47(ii) will be applicable and, therefore, no capital gains would arise to the Sawhneys as on 9-6-1972, which is the date of dissolution of the partnership deed.

39A. The main argument of the learned Counsel for the revenue proceeds on the basis that both the deeds dated 9-6-1972 and 23-9-1972 should be read together and it should be held that the transfer of the aforesaid property took place when the deed of disclaimer was executed on 23-9-1972. The argument taken was that the definition of the term 'transfer' given in Section 2(47) should be construed in a wider sense as held by the Supreme Court in Mangalore Electric Supply Co. Ltd.'s case (supra) and that so far as this case is concerned, it should be held that the consideration was fixed in the deed dated 9-6-1972 and the transfer of the property took place on 23-9-1972. According to the learned Counsel for the revenue, neither the fact that full stamp duty as on a conveyance nor the fact that the full registration fee payable on a sale had not been paid affected the effectiveness of the deeds.

According to him, the full stamp duty had not been paid and if full registration fee had also not been paid, these were only procedural defects which could be cured by Section 87 of the Registration Act. He had also submitted that a deed registered without a tax clearance certificate as required under Section 230A of the Act would not become invalid. The submission of the learned Counsel for the assessee, on the other hand, is that the deed of disclaimer cannot be considered to be a deed whereby the property in question would be considered to have been transferred from Sawhneys to Caravanserai Ltd. He had referred to Section 17 of the Registration Act. He referred to Section 54 of the Transfer of Property Act and the certificates on the deed of disclaimer wherein the Collector of Stamps after adjudication had certified that stamp duty of Rs. 13 had been paid vide challan No. nil, dated 4-9-1972. Section 17 of the Registration Act and Section 54 of the Transfer of Property Act require that an immovable property can only be transferred by a duly registered deed of conveyance. We were told that if proper registration duty was to be charged, it would have amounted to about Rs. 1,50,000 and similarly, if proper stamp duty was to be charged it would have amounted to Rs. 90,000 and then only it could be said that the property in question had been duly transferred from Sawhneys to Caravanserai Ltd. Such payments have not been made and, therefore, wecannot accept the revenue's argument that the deed of disclaimer is the instrument by which the property in question was transferred from Sawhneys to Caravanserai Ltd. and in respect of which the consideration was fixed in the deed of dissolution dated 9-6-1972.

We may refer to the judgments in the cases of Bhurangya Coal Co.

(supra), Alapati Venkataramiah (supra), Meatles Ltd. (supra) and Hindustan Cold Storage & Refrigeration (P.) Ltd. (supra). These judgments are authorities for the proposition that since the value of the property exceeded Rs. 100 in value, no transfer of the property in question valued at Rs. 30 lakhs could take place unless the conveyance was properly executed and registered. The non-payment of such large amount of duty and fee under the Stamp Act and the Transfer of Property Act, cannot be considered to be curable defects. Section 230A which places restrictions on registration of transfers of immovable property in certain cases cannot also be allowed to be flouted and we certainly do not accept the revenue's suggestion that, without obtaining a tax clearance certificate from the ITO, property of the value of Rs. 30 lakhs could be transferred and registered.

40. We may refer to the judgment in Smt. Savitri Devi Abdali's case (supra) wherein the Delhi High Court has held that the rule of law laid down by the Supreme Court in V.N. Sarin v. Ajit Kumar Poplai AIR 1966 SC 432 could with advantage be referred to in the case in hand. In the said decision, the Supreme Court observed that partition of the family did not transfer any rights of the parties but it declared the separate enjoyment of the existing rights of joint enjoyment and so partition was not covered by expression 'transfer' and acquisition occurring in Sub-section (6) of Section 14 of the Delhi Rent Control Act, 1958.

Consequently, the parties getting the property by partition could maintain the petition for eviction without waiting for the expiry of five years. The Delhi High Court observed that what had been observed by the Supreme Court in respect of partition would apply with greater force to the case of release and disclaimer. The reason was that in a partition it was possible to argue that there was at least a change in the nature of the possession from joint to several, but in the case of release and disclaimer, there was absolutely no change of any kind what was already true and existing but was ostensibly hidden, had been brought out to light and so the release and disclaimer could not by any stretch of imagination be included within the expression 'transfer'.

This judgment is an authority for the proposition that the deed of disclaimer did not transfer the property in question from Sawhneys to Caravanserai Ltd. The deed of disclaimer could not by itself create any right in the property which did not originally belong to either party.

The deed of disclaimer would only bring to light the facts which already existed. Thus, we are unable to accept the revenue's submission that the consideration for transfer of property in question was fixed in the deed of dissolution dated 9-6-1972 and by executing the deed of disclaimer on 23-9-1972 the property in question passed from Sawhneys to Caravanserai Ltd. In the two judgments in Thayyil Mammo's case (supra) and Kuppuswami Chettiar's case (supra) the two deeds were claimed to be release deeds but, it was held by the Supreme Court that the deeds in question were deeds of transfer. Consequently, our finding is that there was no transfer of the property in question by the deed of disclaimer dated 23-9-1972.

41. The learned Counsel for the assessee had submitted that an immovable property could not pass by an admission when the statute requires a proper deed of conveyance. The judgment in Immudipattam's case (supra) is relevant.

42. It is also to be noted that Smt. Mohini Sawhney, who signed the deed of disclaimer as a second party, was not a party either to the partnership deed dated 30-3-1972 or the dissolution deed dated 9-6-1972. Thus, it will be clear that the parties who signed the partnership deed, the parties who signed the dissolution deed and the parties who signed the deed of disclaimer are different. The reason for making Smt. Mohini Sawhney as a party to the deed of disclaimer was with a view to be assured of good and indefeasible title in the aforesaid property. Smt. Mohini Sawhney was made a party because before the family settlement dated 10-3-1972, Smt. Mohini Sawhney had owned the aforesaid property. The learned Counsel for the revenue had taken an argument that the consideration passed between the parties on 9-6-1972 at the time of dissolution of the firm and then by the deed of disclaimer dated 23-9-1972 the property was transferred. Now, when Smt.

Mohini Sawhney was not even a party to the dissolution deed dated 9-6-1972, it cannot be said by any stretch of imagination that she too along with other parties had received some consideration for some interest in the property in question which was finally transferred on 23-9-1972. No material has been placed before us to show that in respect of any interest in the property at 1, South End Road, New Delhi, Smt. Mohini Sawhney had been charged with any capital gains tax during this year.

43. The assessment of Delhi Hotels though a protective assessment has been made in the status of an AOP. This status was assigned in the assessment under Section 143(3). The AAC as well as the Tribunal had confirmed the assessment made in this status. The Tribunal, of course, went to the extent of saying that Delhi Hotels was not liable to be assessed nor was it entitled to registration. Though this observation has been made by the Tribunal but the assessment as such has not been cancelled. The result even on the basis of the order of the Tribunal in the case of Delhi Hotels (supra) is that the status of AOP stands confirmed. In such a situation again the provisions of Section 47(ii) would be applicable. On this ground also no capital gains would arise on distribution of the capital assets to the members of the AOP at the time of the dissolution deed.

44. We, thus, hold that there was no transfer of the property called '1, South End Road, New Delhi', either on 9-6-1972 or on 23-9-1972 and, therefore, no capital gains is liable to be charged from any of the four assessees in the assessment year 1973-74.

45. The crucial question then arises as to when capital gains can be said to arise in a transaction of the nature under consideration. We would only like to mention that in a situation of this nature the Gujarat High Court judgment in Kartikey V. Sarabhai's case (supra) has held that capital gains would arise on the formation of the partnership. We would have applied the ratio of this judgment to the facts of this case if there was a finding in the case of Delhi Hotels (supra) that the partnership deed dated 30-3-1972 was clearly a genuine partnership firm. Since our finding in the case of Delhi Hotels (supra) is that no genuine firm came into existence by the deed of partnership dated 30-3-1972, we are afraid, we cannot give a finding that the aforesaid judgment of the Gujarat High Court should be applied to this case. We are also not required to give a finding as to when capital gains actually arose in this case because for the disposal of these appeals such a finding is not required. In this connection, we may refer to the judgment in Rajinder Nath v. CIT [1979] 120 ITR 14 (SC).

The main point before us is whether any capital gains arose in the cases of the assessee and our finding is that no capital gains arose in these cases during the assessment year 1973-74.

46. We may now advert to the additional ground which has been sought to be raised in the case of Man Mohan Sawhney [IT Appeal No. 1083 (Delhi) of 1977-78]. It is unnecessary for us to discuss the case laws cited by both the parties because capital gains tax can, if at all, be charged in the hands of the person who is the owner of the asset. The fact that if Man Mohan Sawhney in his individual capacity is the owner of a part of the property known as 1, South End Road, New Delhi, then he would be liable to pay capital gains tax on the share of the property which has been transferred and similar would be the position if his status is determined that of a HUF. The assessment under consideration has been made in the status of an individual. Since the additional ground raised goes to the root of the assessment, we would admit the additional ground. After admitting this ground we would set aside the orders of the authorities below in this particular case with a direction that for purposes of levying tax on capital gains in respect of the share in the aforesaid property belonging to Shri Man Mohan Sawhney, his status should be determined properly in the assessment proceedings. We are setting aside his assessment irrespective of our finding that no capital gains arose to the Sawhneys in this year on the transfer of the property known as 1, South End Road, New Delhi.

47. We may now take up the other grounds involved in these appeals. One common ground in all the four appeals is that the authorities below erred in fixing the annual letting value of the property at 1, South End Road, New Delhi, at Rs. 2,400 per month as against Rs. 265 per month, declared by the co-owners. The ITO had adopted the annual letting value at Rs. 2,400 per month following the order of the AAC for the assessment year 1972-73 in the case of Puranchand Sawhney (HUF).

The Tribunal in IT Appeal No. 4613 (Delhi) of 1975-76, dated 10-3-1977, in the case of Puranchand Sawhney (HUF) reduced the annual letting value to Rs. 3,180 for the full year. That order has been accepted by the department. Respectfully following the aforesaid order, we direct that the aforesaid order of the Tribunal in the case of Puranchand Sawhney (HUF) (supra) should be followed. Our decision is supported by the judgment of the Supreme Court in the cases of Dewan Daulat Rai Kapoor v. NDMC [1980] 122 ITR 700 and Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435.

48. In the case of Kanhaya Lal Sawhney (HUF) [IT Appeal No. 1081 (Delhi) of 1977-78], the grievance made is that the AAC erred in not allowing deduction of 50 per cent for self-occupation under Section 23(2) of the Act in respect of the property at Simla called 'Rock-wood'. The ITO and the AAC followed the order for the assessment year 1971-72. In that year, however, the assessee had three residences, two at New Delhi (at 19, Prithvi Raj Road and 1, South End Road) and one at Simla. In the present year, however, he had only one residence at New Delhi at 1, South End Road. This fact is not controverted by the learned departmental representative. Thus, the assessee would be entitled to the deduction of 50 per cent of the annual letting value in respect of the Simla property referred to above. We direct accordingly.

49. The ground regarding the deduction of 50 per cent of the annual letting value in respect of the aforesaid property at Simla in the cases of S/Shri Puran Chand Sawhney, Man Mohan Sawhney and Chander Mohan Sawhney was withdrawn as they were not the owners of the aforesaid property at Simla. This ground was erroneously taken in these three appeals.

50. In the result, IT Appeal No. 1081 of 1977-78 is allowed, IT Appeal No. 1083 of 1977-78 is allowed for statistical purposes and IT Appeal Nos. 1080 of 1977-78 and 1082 of 1977-78 are partly allowed.


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