Bal Raj Tuli, J.
1. This order will dispose of Income-tax Cases Nos. 32 of 1973 (Hira Lal Ram Dayal v. Commissioner of Income-tax, Haryana), 41 of 1973 (Hira Lal Ram Dayal v. Commissioner of Income-tax, Haryana) and 53 of 1973 (Hira Lal Ram Dayal v. Commissioner of Income-tax, Haryana), as they concern the same parties and the same assessment.
I. T. C, No. 32 of 1973.
2. The petitioner, Messrs. Hira Lal Ram Dayal (hereinafter called 'the assessee'), is a Hindu undivided family of which Shri Chanan Ram was the karta during the assessment year 1963-64, to which year these petitions relate. By a registered sale deed dated June 14, 1962, he sold on behalf of the Hindu undivided family as its karta the gram dal and cotton ginning factory at Dabwali to the Mandi Dabwali Haryana Handmade Paper Chemicals and General Works production-cum-sale Co-operative Industrial Society Limited, Dabwali, for Rs. 1,31,400. When the Income-tax Officer asked the assessee to furnish the details of the total cost of the assets transferred by means of the registered sale deed dated June 14, 1962, for the purpose of arriving at the capital gains, if any, the assessee flatly denied the existence of any such factory or assets and pleaded that the sale evidenced by the said sale deed was a sham and bogus transaction. Shri Chanan Ram signed as a vendor and his son, Shri Niran jan Dass, signed the sale deed on behalf of the vendee, co-operative society. They were examined by the Income-tax Officer. Shri Niranjan Dass also stated before the Tribunal that one Shri Raj Kumar Chalna had set up the co-operative society mentioned above which was a one-man show and the other members of the society were bogus. He suggested to Shri Niranjan Dass that if he would persuade his father, Shri Chanan Ram, to sell the plot of land enclosed by four walls and a room constructed on the land as a dal factory, the co-operative society, on the basis of that asset could obtain loan from the co-operative bank to the extent of RS. 6,00,000 and from that loan, the co-operative society or, for that matter, the assesses could run a good business. It was under these temptations that Sim Niranjan Dass persuaded his father, Shri Chanan Ram, to sell the vacant plot of land, described above as a dal factory, to the co-operative society for a total consideration of Rs. 1,31,400. Since no loan could be obtained from any co-operative bank, the co-operative society executed another document on December 3, 1963, whereby it sold back the same assets to the assessee for a consideration of Rs. 1,20,000 even when, no dal factory existed. It was pleaded that there being, in fact, no sale, no capital gains had accrued to the assessee and, therefore, no assessment could be made. This plea was not accepted by the income-tax authorities on the ground that the transactions had been made through a registered sale deed and it could not be ignored and had to be given effect.
3. Another plea raised by the assessee was that the plot of land had been purchased in 1938 for Rs. 1,200 and its price was to be taken as at January 1, 1954, in accordance with Section 55(2) of the Income-tax Act, 1961, (hereinafter called 'the Act'). That price on January, 1 1954, was Rs. 37,500 and the value of other assets, that is building and plant, was Rs. 82,500. The total cost of the plot and the assets transferred, vide sale deed dated June 14, 1962, was Rs. 1,20,000 and the capital gains only amounted to Rs. 11,400. While computing the amount of capital gains, the Income-tax Officer did not act in accordance with section 55(2)(i) of the Act. This plea was not accepted by the income-tax authorities and the Income-tax Appellate Tribunal. Consequently, the assessee filed an application under Section 256(1) of the Act to the Income-tax Appellate Tribunal for drawing up a statement of the case and referring the following questions of law to this court for decision:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the sum of Rs. 1,18,513 represented capital gains chargeable to tax under Section 45(1) of the Act ?
2. Whether the judgment of the Tribunal is not vitiated for the reasons that they have not considered the explanation and the 47 documents accompanying thereto as per paragraphs 9 and 20 of the statement of facts ?
3. Whether, on the face of the registered document, the Tribunal was right in holding that it was the applicant, Hindu undivided family, which had sold the assets, the vendor being Shri Ghanan Ram, not in his representative capacity ?
4. Whether the assessment on the applicant should be annulled for the reasons contained in question No. 2 ?
5. Without prejudice to the contention that there was no capital asset hence no capital gain, whether the Tribunal's judgment is vitiated by reason of omission on their part to decide the issue relating to the cost to be deducted from the sale price in order to arrive at the net capital gain?
6. Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in coming to the conclusion that Rs. 10,000 in the account of Smt. Shanti Devi, married daughter of Shri Chanan Ram, was the income of the applicant from undisclosed sources ?
7. Whether the decision on the issue raised in paragraph 4 is not vitiated for the reason that the relevant evidence produced before the authorities below had not been considered '
4. The Tribunal rejected that application and that is why this petition under Section 256(2) of the Act has been filed by the assessee.
5. It is apparent from the orders of the Income-tax Officer, the Appellate Assistant Commissioner of Income-tax and the Income-tax Appellate Tribunal that the assessee was trying to prove that the transaction of sale dated June 14, 1962, was a sham transaction and did not amount to sale, but in view of the fact that a duly registered sale deed had been executed the assessee was not allowed to go back upon it. It has to be remembered that the capital gains accrue only if there is a sale or any other transfer of the capital asset and if the assessee is able to prove that in fact no sale took place, no capital gains accrued which could be assessed to income-tax. It is, therefore, a question of law to be determined whether it is open to the assessee to plead and prove that, even in the face of a registered sale deed, no sale in fact took place. That point of law should have been referred by the Income-tax Appellate Tribunal to this court for decision.
6. Section 55(2) of the Act provides that 'cost of acquisition', in relation to a capital asset, which had become the property of the assessee before January 1, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset to the assessee on that date at the option of the assessee. It is not clear from the order of the Income-tax Officer whether the assessee was given the option to choose the cost of acquisition in accordance with Section 55(2) of the Act. Consequently, a question of law does arise as to whether the computation of capital gains is in accordance with Section 55(2)(i) of the Act.
7. For the reasons given above, we allow this petition and direct the Income-tax Appellate Tribunal to draw up the statement of the case and to refer the following two questions of law to this court for decision :
'1. Whether it is open to the assessee to prove that the sale transaction evidenced by a registered sale deed was a sham transaction and no sale in fact took place ?
2. Whether the amount of capital gains liable to assessment has been correctly computed in accordance with the provisions of Section 55(2)(i) of the Income-tax Act, 1961 ?'
8. The parties are, however, left to bear their own costs.
I.T.C. No. 4] of 1973.
9. The Income-tax Officer imposed penalty on the assessee under Section 271(1)(c) read with Section 274(2) of the Act for concealment of particulars of the assessee's income by way of capital gains which is the subject-matter of I.T.C. No. 32 of 1973. The imposition of a penalty will depend on the answers to the questions which have been directed to be referred to this court in that case. Consequently, the following question of law docs arise in the case :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty under Section 271(1)(c) read with Section 274(2) was exigible ?'
I.T.C. No. 53 of 1973.
10. The penalty has been imposed on the assessee for not filing the return with regard to the amount of capital gains which is the subject-matter of I.T.C. No. 32 of 1973. The imposition of penalty under Section 271(1)(a) of the Act will depend on the answers to the questions which have been directed to be referred to this court in that case. Consequently, the following question of law does arise in this case :
''Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty under Section 271(1)(a) of the Act was exigible '
11. We accordingly direct the Income-tax Appellate Tribunal to draw up the statement of the case and to refer these two questions of law also for decision to this court along with the questions of law formulated in I.T.C. No. 32 of 1973. The petitions are accordingly accepted but without any order as to costs.
Bhopinder Singh Dhillon, J.