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Des Raj Nagpal Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)13ITD800(Delhi)
AppellantDes Raj Nagpal
Respondentincome-tax Officer
Excerpt:
1. this is an appeal by the assessee pertaining to the assessment year 1976-77 for which the previous year ended on 31-3-1976.2. vide agreement to sell dated 12-8-1975 the assessee agreed to sell house property bearing no. 26/136, west patel nagar, new delhi, to shri ashok kumar and shri mahendra kumar anand, sons of shri d.r. anand, new delhi, for a consideration of rs. 55,000. according to the agreement, the purchasers had paid rs. 5,000 to the assessee by way of earnest money. the balance sale consideration of rs. 50,000 was to be received by the assessee from the said purchasers at the time of registration of the sale deed before the sub-registrar, new delhi. the possession of the property in question was to be given to the purchasers by the seller on the date of registration of the.....
Judgment:
1. This is an appeal by the assessee pertaining to the assessment year 1976-77 for which the previous year ended on 31-3-1976.

2. Vide agreement to sell dated 12-8-1975 the assessee agreed to sell house property bearing No. 26/136, West Patel Nagar, New Delhi, to Shri Ashok Kumar and Shri Mahendra Kumar Anand, sons of Shri D.R. Anand, New Delhi, for a consideration of Rs. 55,000. According to the agreement, the purchasers had paid Rs. 5,000 to the assessee by way of earnest money. The balance sale consideration of Rs. 50,000 was to be received by the assessee from the said purchasers at the time of registration of the sale deed before the Sub-Registrar, New Delhi. The possession of the property in question was to be given to the purchasers by the seller on the date of registration of the sale deed. The agreement to sell provided that the sale deed will be executed by the assessee in favour of the purchasers after obtaining the Income-tax clearance certificate and sale permission from the proper authorities. When both the certificates will be granted, then the sale deed will be effected within two weeks. The time will be taken from the date of last certificate out of two certificates. The assessee-seller was to apply for sale permission within two weeks from the date of execution of the agreement. Pursuant to the said agreement, the assessee-seller approached the Land and Development Officer who vide his letter dated 29-11-1975 intimated to the assessee that there was no objection to the transfer of his rights. It appears that prior to the receipt of the said permission, the assessee had handed over possession of the property in question (West Patel Nagar) to the aforesaid purchasers in September 1975. The assessee-seller had received the balance sale consideration of Rs. 50,000 from the purchasers prior to the execution and registration of the sale deed, on the dates detailed below : Cheque No. Date Amount Rs. 835774 20-9-1975 20,000 710310 10-11-1975 10,000 460736 20-1-1976 10,000 460750 3-1-1976 5,000 300251 9-2-1976 5,000 It is undisputed fact that vide agreement of sale dated 18-11-1970, the assessee agreed to purchase the said property for a consideration of Rs. 20,000. In pursuance of the said agreement the sale deed was executed and registered on 7-5-1973. It is also common ground that vide agreement dated 7-11-1974, the assessee had agreed to purchase property bearing No. XV/ 3030, Multani Dhanda, Paharganj, Delhi, with all rights of ownership, possession, etc., for a consideration of Rs. 40,000. Out of the said sale consideration the assessee had paid Rs. 20,000 at the time of agreement and balance of Rs. 20,000 was to be paid at the time of registration. Practically possession of the entire property was taken by the assessee. The sale deed in respect of this property was executed and registered on 19-11-1974.

3. On the aforesaid facts the case of the assessee before the ITO was that capital gains arising on the transfer of the property at West Patel Nagar, New Delhi, was exempt under Section 54 of the Income-tax Act, 1961 ('the Act') inasmuch as the assessee had purchased the property at Paharganj within one year prior to the date of sale of the property at West Patel Nagar. The properties, both at West Patel Nagar and Paharganj are being used for residential purposes and income therefrom was taxable under the head 'Income from house property'. It was the case of the assessee before the ITO that the house property bearing No. 26/136, West Patel Nagar, was sold by him pursuant to an agreement of sale dated 12-8-1975 which was within the stipulated period of one year. Thus, it was asserted that the sale of the house property at West Patel Nagar was within a period of one year of the purchase of the house property at Paharganj. The ITO was of the view that the sale of West Patel Nagar property took place on 11-2-1976 when sale deed was executed and registered. The assessee had purchased Paharganj property on 19-11-1974 when the sale deed was executed and registered. As such the purchase of the Paharganj property did not take place within one year of the transfer of West Patel Nagar property.

Thus, the ITO held that the provisions of Section 54 are not attracted.

The ITO pointed out that West Patel Nagar property was held by the assessee for not more than 60 months immediately preceding the date of its transfer. So he computed short-term capital gain out of the sale of the capital asset, namely, West Patel Nagar property.

4. Being aggrieved with the order of the ITO, the assessee took up the matter in appeal. Before the learned AAC it was submitted that the West Patel Nagar property was sold on 12-8-1975 when agreement of sale was executed. The assessee had purchased within a period of one year from that date Paharganj property and as such the capital gain tax was exempt under Section 54. The learned AAC held that transfer of immovable property of the value of Rs. 100 or more can be only made by a registered instrument. The agreement to sell West Patel Nagar property dated 12-8-1975 was merely a contract for sale. Although substantial part of the sale consideration was paid subsequently and possession was also handed over but ownership of the property was only transferred on 8-2-1976 when a sale deed was executed and registered.

He found that permission to sell the property was given by the Land and Development Officer on 15-11-1976 while the competent authority under the Urban Land (Ceiling and Regulations) Act has given the permission to sell it on 6-8-1976. Thus, he was of the view that the vendor was not even competent to sell the property on 12-8-1975 and the purchaser could not even claim to have become the owner thereof under the agreement of sale. Purchase and sale of immovable property are two faces of the same coin. He, therefore, held that the assessee had not purchased Paharganj property within one year of the sale or transfer of the West Patel Nagar property and as such the assessee was not entitled to the benefit of exemption under Section 54. He was also of the view that the ITO was correct in assessing short-term capital gain on the sale of West Patel Nagar property.

5. Before the Tribunal, the contention of the learned Counsel for the appellant was that the learned AAC has wrongly rejected the contention that the assessee is not entitled to relief under Section 54. The assessee had purchased Paharganj property within one year of the transfer of West Patel Nagar property and as such the assessee is entitled to relief under Section 54. The assessee came in possession of the Paharganj property on 28-10-1974 when agreement to purchase the property for Rs. 20,000 was entered into. Possession of the property was also taken by the assessee. So under the provisions of the Transfer of Property Act, 1882, the assessee became owner of the property from the date of the agreement and the capital gain should have been treated as long-term capital gain instead of short-term capital gain. The learned Counsel further contended that transfer in relation to capital asset includes the sale, exchange or relinquishment of the assets or the extinguishment of any right therein or the compulsory acquisition thereof under the law. According to the learned Counsel, the right under the agreement to sell is a capital asset and when the agreement of sale of West Patel Nagar property was enterted into, the transfer of the property was complete because the assessee got possession the property before the sale deed was executed and as such capital gain arose on that point of time. The assessee also obtained right to get the sale deed executed when agreement to sell was entered into between the vendor and the vendee. The learned Counsel contended that in view of the definition of the word 'transfer' in Section 2(47) of the Act and artificial extended meaning to the expression 'transfer' was given.

It not merely includes transactions of 'sale' and 'exchange' which, even in ordinary parlance, would be transfers but also 'relinquishment' or 'extinguishment of rights' which may ordinarily not be included in that concept. The word 'extinguishment' of any rights therein used in Section 2(47) would cover the case of the assessee when he received the sale consideration and possession over the property before the sale deed was executed and registered. Reliance was placed on the ratio of decisions in CIT v. R.M. Amin [1977] 106 ITR 368 (SC), Addl. CIT v.M.A.J. Vasanaik [1979] 116 ITR 110 (Kar.), CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46 (SC), Addl. CIT v. Mercury General Corporation (P.) (Ltd.) [1982] 133 ITR 525 (Delhi) and CIT v. Hindustan Cold Storage & Refrigeration (P.) Ltd. [1976] 103 ITR 455 (Delhi).

6. On behalf of the revenue it was vehemently contended that West Patel Nagar property was sold or transferred on 10-2-1976, when the sale deed was executed and registered. By agreement to sell the said property on 12-8-1975 the seller never intended to transfer the property on that date. The agreement of sale clearly shows that the transfer of the property could be operative only after the sale deed was executed and registered and other formalities were completed. The Paharganj property was purchased by the assessee on 19-11-1974 when the sale deed was executed and registered. Thus, the assessee had not purchased Paharganj property within one year of the transfer or sale of West Patel Nagar property. Thus, the assessee was not entitled to exemption under Section 54. According to the revenue, an agreement for sale of immovable property is a contract and sale of such property shall take place on terms settled between the parties. Such a contract by itself does not create any interest in or charge on such property. Under Section 53A of the Transfer of Property Act the defendant was given a right to protect his possession. This section does not create a title on the defendant. It merely operates as a bar to the plaintiff in civil proceedings asserting his title. It is limited to cases where the transferee had taken possession and against whom the transferor is debarred from enforcing any right other than that expressly provided by the contract. This right was given to protect the possession of the transferee against any challenge to it by the transferor contrary to the terms of the contract. As a matter of fact, this section does not confer title on the defendant in possession. He cannot maintain a suit for title. In the present case, the transfer of interest in the West Patel Nagar property took place on 10-2-1976 when the sale deed was executed and registered. The departmental representative contended that a property cannot be owned by two persons each, one having independent and exclusive right over it. On the date of agreement to sell the immovable property of the value of Rs. 100 and above could never vest in favour of the transferee unless the sale deed is executed and registered. According to the revenue, on the agreement of sale of Paharganj and West Patel Nagar properties there was no transfer of such properties and there was also no relinquishment or extinguishment of the right in the property of the seller on the date of agreement of sale within the meaning of Section 2(47). Since the Paharganj property was not purchased within one year of the transfer of West Patel Nagar property as such the assessee is not entitled to claim exemption under Section 54.

7. We have considered the rival submissions and perused the entire material on record. The facts of the case are not in dispute. The assessee agreed to purchase property No. XV/3030 Multani Dhanda, Paharganj on 7-5-1974 for a consideration of Rs. 40,000. Rs. 20,000 was paid at the time of agreement and the balance amount of Rs. 20,000 was to be paid at the time of registration of the sale deed. Possession of the property was also given on the date of the agreement of sale but the sale deed was executed and registered on 19-11-1974. The assessee agreed to sell West Patel Nagar property on 12-8-1975 for a consideration of Rs. 55,000. A sum of Rs. 5,000 was paid at the time of agreement of sale. Possession over the property was given in September 1975. Remaining sale consideration was paid in instalments as discussed above before the sale deed was executed and registered on 10-2-1976.

8. On the facts it is to be seen whether the capital gain arising out of transfer of West Patel Nagar property is exempt under Section 54.

Section 54 enacts an exempting provision by way of exception to the general rule as to chargeability laid down in Section 45 of the Act and is in these terms : Profit on sale of property used for residence.--(1) Where a capital gain arises from the transfer of a capital asset to which the provisions of Section 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property', which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent's own residence, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, then, instead of the capital gain being charged to Income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,-- (i) if the amount of capital gain is greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under Section 45 as the income of the previous year ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or (construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under Section 45 ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

The section grants exemption in respect of capital gain arising from the transfer of a house property provided two conditions are satisfied, namely, (i) the house property must have been used by the assessee or a parent of his mainly for the purpose of his own or the parent's own residence, during the period of two years immediately preceding the date on which the transfer took place, and (ii) the assessee must have within a period of one year before or after such date purchased or within a period of two years after such date constructed a house property for the purpose of his own residence. It is only if these two conditions are satisfied, then the assessee can lay a claim to exemption in respect of capital gain arising from the transfer of the house property.

9. Before the Tribunal for claiming exemption under Section 54, the only dispute was whether the assessee had purchased Paharganj property within a period of one year before the transfer of West Patel Nagar property. The entire dispute in this case revolved round the date of transfer. The West Patel Nagar property was sold by registered deed on 10-2-1976 whereas the sale deed of Paharganj property was executed and registered on 19-11-1974. If these two dates are taken for the purpose of deciding the present controversy, then the assessee will not be entitled to exemption under Section 54 because the latter property (Paharganj property) was not purchased within a period of one year before the transfer of the West Patel Nagar property. West Patel Nagar property was sold on 10-2-1976. For getting benefit under Section 54, Paharganj property should have been purchased on or before 10-2-1975.

But it was only purchased in November 1974, i.e., beyond the period of one year. According to the assessee, although West Patel Nagar property was sold on 10-2-1976, there was actually an agreement to sell which was entered into on 12-8-1975 and if this date was taken, then Paharganj property, which was purchased on 19-11-1974, was within a period of one year and as such the assessee was entitled to exemption.

For the purpose of deciding the controversy, it is necessary to go into the document dated 12-8-1975 which was an agreement of sale. The agreement provides that property is to be sold for a consideration of Rs. 55,000 out of which only Rs. 5,000 had been received as earnest money through a cheque dated 12-8-1975 and the balance of Rs. 50,000 was to be received at the time of registration of the proper sale deed before the Sub-Registrar of Delhi. The next clause of the deed states that the possession of the property will be given to the purchaser on the date of registration of the said property. The agreement further goes to show that the sale deed will be effective after obtaining the Income-tax clearance certificate and the sale permission from the proper authorities. When both the certificates will be granted, then sale deed will be effected within two weeks. The time will be considered from the date of last certificate out of both certificates.

The agreement further provides that the first party, namely, the assessee, will apply for sale permission within two weeks. Thus, in this case it was quite clear what the assessee had received under the agreement dated 12-8-1975 only the earnest money of Rs. 5,000 and the possession of the property was to be given only after full consideration had been received which was to be received only when the sale deed was executed and registered. Thus, though an agreement of sale was entered into in respect of West Patel Nagar property, the title or interest in the property was intended to be transferred only after the execution and registration of the sale deed.

10. In order to attract provisions of Section 54 there should take place transfer of property and capital gain should arise in the year of account as as result of transfer of such property. The word 'transfer' has been defined in Section 2(47). In order to attract the provisions of Section 2(47), there must be a capital asset and a sale, exchange or relinquishment of that asset or the extinguishment of any rights therein or there is compulsory acquisition under any law. Reference may be made to the ratio of decision in the case of CIT v. Madan Lal Bhargava [1980] 122 ITR 545 (All.). Even prior to the introduction of this comprehensive definition, the word 'transfer' was held to include case of compulsory acquisition which involved a transfer by operation of law. Reference may be made to the ratio of decision in the case of Mangalore Electric Supply Co. Ltd. v. CIT [1978] 113 ITR 655 (SC). The word 'transfer' has been held to involve the transfer of the totality of interest in any property and not the transfer of mere interest in it, as for example, a mortgage. Reliance is placed on the ratio of the decision in the case of Ghanshyamrao Kishan Chander v. CIT [1979] 2 Taxman 244 (AP). In the decision in Alapati Venkataramiah v. CIT [1965] 57 ITR 185 at p. 192 their Lordships of the Supreme Court observed that before Section 12B of the Indian Income-tax Act, 1922 ('the 1922 Act') can be attracted, title must pass to the company by any of the modes mentioned in Section 12B, i.e., sale, exchange or transfer. It is true that the word 'transfer' is used in addition to the word 'sale' but even so, in the context transfer must mean effective conveyance of capital asset to the transferee. Delivery or possession of immovable property of the value of Rs. 100 and above cannot by itself be treated as equivalent to conveyance of immovable property. On similar facts the Delhi High Court in the case of Mercury General Corporation (P.) Ltd. (supra) held that agreement to sell is not sufficient to vest transferee with title. The Court had relied on their earlier decisions in the cases of CIT v. Meatles Ltd. [1972] 84 ITR 37 (Delhi) and Hindustan Cold Storage & Refrigeration (P.) Ltd. (supra). The word 'sale' has been defined in Section 54. According to the definition, sale is a transfer of ownership in exchange for a price paid or promised or part paid or part promised. Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immovable property, of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. A contract for the sale of the immovable property is a contract and a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property. The payment of price is not necessarily a sine qua non to the completion of the sale if the intention was that property should pass on registration. The sale is complete as soon as the deed was registered whether the price has been paid or not. Reference may be made to page 303 of the Transfer of Property Act by Mulla, 6th edition. Section 54 itself makes it clear that a contract for the sale of immovable property does not by itself create any interest in the property. Any right conferred under such agreement has been specified in Section 53A. The right conferred by this section is a right only available to a defendant to protect his possession. This section does not create a title on the defendant. At the most it operates as a bar to the plaintiff's asserting his title.

It is limited to cases where the transferee had taken possession and against whom the transferor is debarred from enforcing any right other than that specially provided by the contract. When the conditions mentioned in the provisions are fulfilled, it debars the plaintiff from enforcing against the transferee any right or interest expressly provided by the contract. So far as the transferee was concerned, the section confers a right on him to the extent it imposes a bar to the transferor. But that is only a right to protect his possession against any challege to it by the owner contrary to the terms of the contract.

This section does not confer title on the defendant in possession and on the basis of such contract he cannot maintain a suit on title. In the present case the agreement to sell immovable property did not confer any right and interest in the property to the purchaser on the date of the said agreement. As discussed above, the possession was to be transferred at the time of execution of the sale deed. Even the right in the property was to be transferred to the purchaser only on the date when the sale deed was executed and registered. Even if an assessee got possession over the property on the date of agreement of sale, in those cases also it was held in the cases of Meatles Ltd. (supra) and Hindustan Cold Storage & Refrigeration (P.) Ltd. (supra) that it was not considered to be sufficient to vest the transferee with title.

11. The only question that survives is whether this case can be treated as one of relinquishment or extinguishment of rights of the assessee in West Patel Nagar property when agreement to sell was executed on 12-8-1975. So far as relinquishment of right as provided in the Section 2(47) is concerned, for the reasons which we have already stated, it is very difficult to say that the assessee relinquished its rights in West Patel Nagar property in favour of the intending purchaser on the date when agreement to sell was executed. It may be appreciated even for the purpose of relinquishment interest in the properties that there is as much necessity for registered document as there is for the completion of the sale. For the same reasons, as have been discussed earlier, it was not possible to hold that the assessee had relinquished his right title and interest in respect of West Patel Nagar property on 12-8-1975 when agreement of sale was entered into in favour of intending purchasers. Reference may be made to the ratio of decision of the Delhi High Court in the case of Mercury General Corporation (P.) Ltd. (supra). So far as the question of extinguishment of right is concerned, we are not able to appreciate how the rights of the assessee on 12-8-1975 in respect of West Patel Nagar property could be extinguished. An extinguishment of rights of a person in certain properties can take place either on account of the operation of some law or as a result of some transaction entered into by that party which has that effect. In the present case no facts and circumstances were brought to our notice either by way of statutory rules or otherwise from which it can be said that the rights of the assessee in West Patel Nagar property got extinguished on 12-8-1975 when agreement to sell the said property was entered into. We have discussed above in detail that the rights of the assessee in West Patel Nagar property can only be vested in favour of the purchaser when a sale deed was executed and registered and some other formalities were completed. Simply because the assessee got possession of the property in September 1975 and sale consideration was paid in instalments before execution of the sale deed, the rights of the assessee cannot be extinguished in the said property on the date of agreement to sell. In support of this proposition we are also fortified by the ratio of decision in the case of Mercury General Corpn. (P.) Ltd. (supra).

12. The decisions relied on by the counsel for the appellant are not applicable on the facts of the present case. However, we would like to discuss them in brief. In the case of R.M. Amin (supra) the assessee held 192 shares in a private company incorporated in Uganda. That company was not a company falling within the definition of a 'company' in Section 2(77). The company went into voluntary liquidation and during 1961, the previous year for the assessment year 1962-63, the assessee received Rs. 1,84,326 in excess of the amount he had paid for those shares. The question was whether the excess of Rs. 1,84,326 was taxable as capital gains in the assessee's hands under Section 45, read with Section 2(47). It was held that there was no transfer of capital assets within the meaning of Section 2(47). When a shareholder received money representing his shares on the distribution of the net assets of the company in liquidation, he received that money in satisfaction of the right which belonged to him by virtue of his holding the shares and not by any operation of any transaction which amounted to sale, exchange, relinquishment, transfer of a capital asset or extinguishment of any rights in capital assets. But for Section 46(2) of the Act, it would not have been possible to charge tax under the head 'Capital gains' on the money or other assets of a company received by its shareholders on its liquidation. Section 46(2) was enacted both with a view to making shareholders liable for payment of tax on capital gains as well as to prescribing the mode of calculating the capital gains to the shareholders on the distribution of assets by a company in liquidation. Since the provisions of Section 46(2) applied only to the distribution of assets by such companies in liquidation, as were covered by the definition of the word 'company' in Section 2(17), capital gains tax was not leviable when companies other than those which fell within the definition in Section 2(17) distributed assets on liquidation to their shareholders.

13. In the decision in M.A.J. Vasanaik (supra) the facts were that during the assessment year 1964-65 the assessee claimed development rebate under Section 33 of the Act in respect of certain machinery and plant which was being used by him in business. The 1T0 disallowed the claim made by the assessee under Section 33 on two grounds : (i) that the asses-see had not created the necessary reserve in accordance with the provisions of the Act, and (ii) that the machinery and the plant had been transferred to a firm within eight years. On appeal, the AAC upheld the order of the ITO disallowing the development rebate on the latter ground, namely, that the proprietary concern of the assessee which owned the assets in respect of which development rebate was claimed, had been converted into a partnership in which the assessee was also a partner and the said assets had become the partnership assets. The AAC held that the first ground on which the ITO had disallowed the rebate was not available. On appeal, the Tribunal held that when a partnership was formed for the first time and one of the members of the partnership brought into the firm his individual assets, there was no transfer in the eye of law under Section 34(3)(b) of the Act. However, during the assessment year 1969-70 on similar facts in the case of another assessee, the Tribunal held that on the conversion of individual business into a partnership business, there was a transfer of assets which attracted Sections 34(3)(b) and 155(5) of the Act. On reference, the Court held that on the conversion of the property of an individual into property of a firm of which he is a partner, there is a transfer of interest of the individual to the partnership and Sections 34(3)(b) and 155(5) were attracted where development rebate had been allowed in respect of the partnership property.

14. In the decision in T.N. Aravinda Reddy (supra) the facts were that four brothers, members of an HUF, partitioned the joint family properties leaving undivided a common house. The assessee, the eldest of them, had sold his own house incurring capital gains tax. Each of his three brothers executed a release deed valuing his share in the common house in favour of the assessee towards the extra share agreed to be given. The question was whether this would amount to a purchase of the house by the assessee attracting Section 54(1) and the assessee would be entitled to the relief thereunder on the ground that he had purchased the house property. It was held that the word 'purchase' in Section 54(1) had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor's share for consideration to the release and the transferee, the assessee purchased the share of each of his brothers and the assessee was, therefore, entitled to the relief under Section 54(1).

15. The facts in the case of Mercury General Corpn. (P.) Ltd. (supra), were that a building consisting of 12 units, all in possession of tenants, was purchased by the assessee-company in 1963. In May and June 1967, the assessee agreed with some of its shareholders who had credit balances to sell to them 9 of the units. The agreement provided that the sale deeds would be registered before 31-12-1967 and respective units were being given over to the intending purchasers and that they were to be entitled to realise rent from the tenants from July 1967.

The accounts of the shareholders were debited with the amounts of the consideration. No regular sale deeds were executed and the Tribunal found that there was no question of actual delivery since the units were occupied by tenants and the assessee was not in possession and that there was no constructive delivery of possession since the tenants had not attorned to the intending purchasers ; and held that there was no relinquishment or extinguishment of the right in the property by the assessee within the meaning of Section 2(47) and no capital gains arose during the previous year relevant to the assessment year 1969-70. On a reference, the Court held, affirming the decision of the Tribunal, that no sale was effected during the previous year because there could be no sale without a duly registered document.

16. Similarly the relevant facts in the case of Hindustan Cold Storage & Refrigeration (P.) Ltd. (supra) were that under an agreement dated 1-2-1955, the assessee-company took over possession of a certain flour mill in consideration of Rs. 8,75,000 which consideration was satisfied by the assessee by allotting its share of the face value to the seller.

Execution of the sale deed as contemplated by the agreement was postponed and the deed was not executed during the previous year relevant to the assessment year 1958-59. The question was whether the assessee was entitled to depreciation on the flour mill for that the assessment year under Section 10(2)(vi) of the 1922 Act. The Court held that the words 'being the property of the assessee' appearing in Section 10(2)(vi) had the same meaning as the words 'owned by the assessee' appearing in Section 32(1) of the 1961 Act and these words merely clarified the position that already existed under Section 10(2)(vi). The interest which a person had in a property by virtue of Section 53A of the Transfer of Property Act did not amount to ownership of the property. The flour mill constituted immovable property of more than Rs. 100 in value and title thereto would not pass to the assessee in the absence of the registered sale deed. As admittedly no sale deed was executed in favour of the assessee-company during the previous year relevant to the assessment year 1958-59, the title to the flour mill did not pass to the assessee-company. The flour mill was not the property of the company during the assessment year and, therefore, one of the conditions prescribed under Section 10(2)(vi) was not satisfied and the assessee-company was not entitled to depreciation in respect thereof.

17. The abovesaid decisions are on different facts. Moreover, these decisions do not support the assessee. On the other hand, the decisions of the Delhi High Court, referred to above, are supporting the revenue.

18. On the facts discussed above and particularly on the basis of the agreement dated 12-8-1975, it is difficult to hold that the assessee got any right of a capital asset on 12-8-1975 and there took place complete transfer of the property when possession was given to the purchaser in respect of West Patel Nagar property in September 1975. It is also not correct to say that transfer took place of the property on 12-8-1975. Even if on the basis of agreement to sell the assessee got any right to get the sale deed executed, such right cannot amount to transfer of the capital asset on 12-8-1975 when agreement to sell was entered into. In the present case on the basis of agreement to sell dated 12-8-1975 West Patel Nagar property was intended to be transferred. There could be only one transfer and not piece-meal transfer. From the agreement as discussed above it was clear that the immovable property was only intended to be transferred when sale deed was executed and registered. Under the circumstances, in the present case, on the date of the agreement dated 12-8-1975 there could be no transfer of the property within the meaning of Section 2(47).

19. The other point for determination is whether in the present case, as a result of the transfer of the West Patel Nagar property on 10-2-1976, there was long-term or short-term capital gain. Section 2(42A) defines short-term capital asset. Short-term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. By the Finance Act, 1973, with effect from 1-4-1974 (in relation to the assessment year 1974-75 and subsequent years), this section was amended to enlarge the scope of 'short-term' capital gains by providing that gains arising from the transfer of any capital asset held by the taxpayer for not more than 60 months prior to the date of the transfer will be treated as capital gains relating to short-term capital assets. As discussed above, the West Patel Nagar property was purchased by the assessee by an agreement of purchase on 18-11-1970. In pursuance of the agreement, Rs. 5,000 was paid towards sale consideration. Possession was also given on the said date. The said property was agreed to be transferred by the assessee vide agreement of sale dated 12-8-1975. So the assessee had been in possession of the property for more than 36 months prior to its transfer on 10-2-1976.

20. On the facts discussed above, whether it can be said that the assessee was holding the property for more than 36 months prior to its transfer which resulted in the capital gain We may point out that the word 'held' used in Section 2(42A) is not defined in the Act. We have, therefore, to go by the dictionary meaning of the term. According to the Concise Oxford Dictionary, 'held' means--to possess ; to be the owner or holder or tenant, keep possession, occupy. Thus, 'held' connotes ownership as well as possession and in the context of the definition it is possible to interpret the term 'held' only in the sense of possession or a owner of the property. For example, if a land is held by a owner and also by a tenant or by a person in possession pursuant to a contract for sale, the holding will be taken to be the holding of all such persons. It obviously means that an owner who is not in actual possession will also be taken to be a holder of the land.

If there was any doubt in this behalf, the same has been dispelled by Explanation (i) to Section 2(42A). It reads as under : Explanation (i) In determining the period for which any capital asset is held by the assessee-- (a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ; (b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in Sub-section (1) of Section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section ; (c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of Section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee ; Reference may be made to the ratio of decision of the Supreme Court in the case of State of Andhra Pradesh v. Mohd. Ashrafuddin AIR 913. The word held by an assessee in the definition of capital asset in in Section 2(42A) of the 1922 Act include physical, actual, constructive and also symbolic possession of any property of any kind.

Reference may be made to the ratio of decision in the case of CIT v.All India Tea & Trading Co. Ltd. [1979] 117 ITR 525 (Cal.). Similarly, in the case of CWT v. C. Rai [1979] 119 ITR 553, the Hon'ble Bombay High Court observed as under: ...any share held by the assessee' in Section 5(1)(xx) [of the Wealth-tax Act] should be interpreted as meaning shares possessed of, owned by or belonging to the assessee and it is not necessary that the shares should stand in the name of the assessee in the company's share register.

21. In the instant case in pursuance of agreement to sell dated 18-11-1970 the assessee came in possession of West Patel Nagar property. A sum of Rs. 5,000 was also paid as part of the sale consideration. From the date of the agreement the assessee was given right to realise rent and profits and the seller will have no right or interest in the same. Ultimately the sale deed was executed in favour of the assessee on 7-5-1973. So the assessee was holding the property with effect from 18-11-1970. The said West Patel Nagar property was agreed to be sold by the assessee on the basis of agreement to sell on 12-8-1975 and possession to the purchaser was given in September 1975 and ultimately sale deed was executed and registered on 10-2-1976. In view of these facts and also in view of the law laid down as discussed above, the asset, namely, West Patel Nagar property, sold in February 1976 was held by the assessee for more than 36 months before its transfer. As such, on the transfer of the said property, there would be long-term capital gains and the same was to be assessed in the hands of the assessee. The finding of the learned AAC to the contrary is not correct. For the reasons discussed above, the assessee shall get relief accordingly.


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