1. The revenue is objecting to substitution of 'Rs. 30,183' as capital gains of the assessee in place and stead of 'Rs. 51,357' computed by the ITO in the assessment for 1978-79. The germane facts are in the way following.
2. A certain extent of land from various Hissa numbers of Survey No. 29 of Nowpada village, Thane, had been purchased from its earlier owner, J.N. Michael Alwares, by a deed of sale dated 22-5-1948 by one Laxmidas Ramji Thakkar and the document states that he had obtained the conveyance as promoter of a company to be floated in the name Bharat Pottery & Chemical Works Ltd. It would appear that there was a mistake in the description of the Hissa numbers and to correct the same, a deed of rectification was brought forward on 29-10-1948. The consideration for the sale was Rs. 28,000. The company was incorporated on 4-4-1949.
By a resolution dated 12-5-1949, the company had accepted the purchase made by the promoter, Laxmidas Ramji Thakkar. For a reason, the company had come to bear the name Navbharat Potteries & Chemical Works.
Laterly, it was formed into a private limited company known as Navbharat Potteries (P.) Ltd. For the purpose of wealth-tax assessment, this property had been shown as the asset of the assessee since 1957 onwards. It had also found a place in the balance sheet of the assessee. A portion of the land purchased, under the document dated 22-5-1948, had been sold by the assessee in the year 1973-74. In sum, this immovable property had been treated and enjoyed as an asset of the assessee all through ever since the purchase was made under the document dated 22-5-1948 by the chief promoter, Laxmidas Ramji Thakkar.
3. On 13-2-1970, Laxmidas Ramji Thakkar executed document (registered) in favour of the assessee regarding the very property and which purports to be a deed of conveyance. We shall say about the purpose of bringing about this document a little later. The return filed by the assessee declared capital gain of Rs. 30,183 and for this, the valuation report of Bansali as on 1-1-1954 had been taken as the substituted cost. The ITO, upon scrutiny of the deed of transfer dated 13-2-1970, was of the view that the assessee was not entitled to substitute the value as on 1-1-1954 since it was not of its ownership earlier to 13-2-1970. More simply, the ITO took that there was in reality a transfer of ownership in favour of the assessee on 13-2-1970 and taking the cost price of the property at Rs. 10,271 in 1971 and the 'realised sale price' under the document dated 13-2-1970, he computed the gains at Rs, 51,357.
4. On appeal to the Commissioner (Appeals) by the assessee, the finding of the ITO was reversed and we may straightaway say that the contention raised on behalf of the assessee that this property was throughout an asset of the assessee even earlier to the document dated 13-2-1970, was accepted. This finding is cavilled at by the revenue in the instant appeal.
5. It was argued on behalf of the revenue by Shri Agarwal, the learned departmental representative, that regard being had to the tenor of the deed dated 13-2-1970, which purports to convey right, title and interest in praesenti to the transferee (the assessee), it must be concluded that the assessee acquired legal ownership for the first time in 1970, justifying computation of capital gains in the manner did by the ITO. The rejoinder of the counsel on the other side was that the antecedent facts to the document dated 13-2-1970, including the internal evidence in the sale deed dated 22-5-1948 and the rectification deed dated 29-10-1948, are such that they cannot be divorced in knowing whether the company did or did not own this property as an asset earlier.
5A. We may at the outset refer to CIT v. Bijli Cotton Mills Ltd.  23 ITR 278 (All.) which sheds certain light as to the nature of relationship between the promoter and the company he brings into existence. The promoter stands in a fiduciary position--see also Palmer's Company Law, 21st edition, p. 140. The legal consequence of this fiduciary relationship shows the complexion of a property purchased by a promoter of a company intended to be floated. A promoter of a company, buying property for the benefit of a company intended to be incorporated, gets impressed with ownership of the company if it assented, subsequently, to the promoter's act in the purchase.
6. Turning to the indisputable facts here, both the indenture of sale dated 22-5-1948 and the rectification deed dated 29-10-1948 contain recitals that Laxmidas Ramji Thakkar was obtaining the document for and on behalf of the company he was intending to float. He later became the director of the company, when registered on 4-4-1949. The company's board resolution of 12-5-1949, found extracted in para 2 of the order of the Commissioner (Appeals), shows that the transaction bargained by Laxmidas Ramji Thakkar had been accepted and all his earlier actions were ratified and taken into account of the company. The company could not be given the name Bharat Potteries & Chemical Works Ltd., as originally proposed. But, however, with little modification, the name Navbharat Potteries & Chemical Works Ltd. was adopted. It was mentioned at the bar that this slight change became necessary at the instance of the authority connected with incorporation. The concern was, subsequently, formed into a private limited company. Although there was a change in the nomenclature of the company, as stated in the deed of purchase of 1948 and the actual name in which it was incorporated, it can be seen that there was no change of the legal persona. For 1957-58 assessment, the assessee had shown this property as an asset for the purposes of wealth-tax. The assessee had declared this in its balance sheet. All this abounding evidence is clearly indicative of the fact that the beneficial ownership of the property had vested in the company and that the company had, at all times, regarded this as its asset.
7. Apropos the deed of transfer dated 13-2-1970, to prevent an attempt at trespass (or encroachment), the assessee had raised an action in Civil Court against Panama (P.) Ltd. and in that proceeding, title of the assessee had been questioned by the contesting party. Legal advice obtained was that a formal deed of transfer should be obtained from Laxmidas Ramji Thakkar in favour of the assessee instead of relying solely on other evidence to establish its absolute ownership and in deference thereto, the document dated 13-2-1970 had been brought forward. What, therefore, falls for consideration is whether ownership of the property did or did not vest with the assessee earlier to 13-2-1970.
8. The relationship of a promoter, vis a vis, a property purchased by him qua promoter should be deemed as fiduciary and such being the case, the equitable or beneficial ownership of the property vested with the assessee although Laxmidas Ramji Thakkar was the ostensible owner. The purchase itself had been made to the benefit of the prospective company. The company, when incorporated, had accepted the advancement.
If the company had pre-existing title to the property even earlier to 13-2-1970, then there was no transfer of asset on 13-2-1970 within the meaning of Section 2(47) of the Income-tax Act, 1961, for nothing was acquired by the deed of even date. For various reasons, a formal document by the ostensible owner may have to be obtained and in this case, the assessee had litigation with a trespasser (Panama (P.) Ltd.) and to keep the matter beyond dispute, a formal deed of transfer had been obtained by the assessee on 13-2-1970 in view of the advice given by its legal advisor. Such documents are no more than to clear the blurred image, if any, on record and to express the document dated 13-2-1970 in any other way would be to ignore the equitable ownership the assessee had. Equitable ownership cannot altogether be ignored in the matter of capital gains. No amount had been paid by the assessee on 13-2-1970 and this is another significant factor supporting the contention of Shri Shah. The revenue authorities had from as early as 1954 recognised the assessee as the occupant of the land. Both on facts and in law, the stand of the assessee is good and we are, therefore, thoroughly in agreement with the view taken by the Commissioner (Appeals).