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Patsons Properties (P.) Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1991)37ITD115(Mum.)
AppellantPatsons Properties (P.) Ltd.
Respondentincome-tax Officer
Excerpt:
1. the assessee, as its very name depicts, is a resident private limited company. the method of accounting employed is 'mercantile'. for the assessment year under appeal, viz. 1984-85, the previous year of the assessee ended on 31st october 1983.1.1 assessment has been framed under section 143(3) of the income-tax act, 1961 and the feed back of the facts as found by the learned first appellate authority in para 4 of the impugned order is to the following effect:- the facts of the case are that the appellant company vide an agreement dated 22-10-1982 with m/s diamond construction company, a partnership builders firm, acquired 'ownership rights' in a property in the building known as 'diamond link' situated at bandra for a consideration of rs. 3,50,000. simultaneously the appellant, after.....
Judgment:
1. The assessee, as its very name depicts, is a resident private limited company. The method of accounting employed is 'Mercantile'. For the assessment year under appeal, viz. 1984-85, the previous year of the assessee ended on 31st October 1983.

1.1 Assessment has been framed under Section 143(3) of the Income-tax Act, 1961 and the feed back of the facts as found by the learned first appellate authority in para 4 of the impugned order is to the following effect:- The facts of the case are that the appellant company vide an agreement dated 22-10-1982 with M/s Diamond Construction Company, a partnership builders firm, acquired 'ownership rights' in a property in the building known as 'Diamond Link' situated at Bandra for a consideration of Rs. 3,50,000. Simultaneously the appellant, after negotiations with M/s Pond's India Ltd., entered into a lease agreement for a term of 98 years commencing from the same date of 26-10-1982 on an apparent consideration of Rs. 44 lakhs received in lump sum on that date itself by cheque. The cheque was deposited in the bank and encashed on the very same date. The appellant company itself was incorporated on 20-10-1982 with the object to "acquire by purchase, lease, exchange or otherwise deal in land, building and hereditaments of any tenure or description or any estate or interest therein...." The appellant filed its return of income on 30-6-1984 declaring a loss of Rs. 1,86,183 which was later revised on 3-7-1985 at nil income and declaring Rs. 44,900 being the 98th part of the lease money of Rs. 44 lakhs received in lump sum as 'income from house property' for the year. The ITO rejected the appellant's claim and held that the receipt of Rs. 44 lakhs from M/s Pond's India Ltd. was a consideration for transfer of the property under reference and the same was subject to short term capital gain during this year itself.

1.2 The stand of the assessee before the learned first appellate authority as summarised by him in para 5 of the impugned order reads as under :- (a) that the provisions of Section 2(47) and Sections 45 and 55 did not apply to the facts of the case. The ITO erred in holding that the 'grant' of lease amounted to relinquishment of property.

(b) the ITO erred in not appreciating the lease transaction and the lease deed provisions properly and consequently erred in bringing the annual and advance lease rent received to capital gain.

(i) the appellant was the owner of the properties and continued to be owner even after grant of lease (ii) the lease rights and ownership rights were not mutually interchangeable but were distinct rights (iii) as such owner, the appellant granted lease for 98 years with full benefits of lease for the use and enjoyment of the property by the lessee, that the possession of the property would revert back to the owner upon the efflux of lease term and there was no renewal term provided under the agreement.

(iv) the appellant only "granted" lease of the property for consideration of lease rent irrespective payable whether annual or in lump sum (v) grant of lease did not amount to transfer under Section 2(47) and/or Section 45 of Income-tax Act.

The appellant has further argued that the ITO erred in not appreciating its various claims and consequently erred in charging the receipts to capital gains tax, alternatively holding that the profit of Rs. 30.5 lakhs may be charged as profits and gains of the business.

1.3 The learned Commissioner of Income-tax (Appeals), while upholding the Assessing Officer's stand that there was a transfer of capital asset, hence the surplus was chargeable to tax as a short term capital gain, reasoned as under :- the appellant was incorporated on 20-10-1982. An agreement to acquire "what is popularly known as ownership rights" was signed on 22-10-1982. This agreement was submitted for registration with the Registrar only on 26-7-1984 and a registration fee of Rs. 5,085 paid on that date. On 26-10-1982 i.e. before making the payment towards this purchase and before taking possession of the property, an indenture of lease was signed with M/s Pond's India Ltd. pursuant to detailed negotiations as described by one of the directors of the appellant company Mrs. Vidhya V. Prabhu. It may be mentioned here that the firm M/s Diamond Construction Co. closed soon after. On 26-10-1982 the appellant company received a cheque from M/s Pond's India Ltd. which was encashed on that day and the lease commenced from that day itself. The company subsequently started a truck hiring business and no other transaction in properties were made after this transaction.

(7) Section 45 of the Income-tax Act brings to charge any profits or gains arising from the transfer of a capital asset effected in the previous year. Section 2(47) of the Act includes under the term transfer the sale, exchange or relinquishment of the asset or the extinguishment of the rights therein or compulsory acquisition thereof under any law. This being an inclusive term the reference may be made to the Transfer of Property Act which includes lease as a transfer of right to enjoy such property made for a certain time, expressed or implied in consideration of price paid or promised.

Lease is not a mere contract but is a transfer of an interest and creates a right in rem.

Section 105 of the Transfer of Property Act brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lesser.

When the interest of the lesser is parted for a price, the receipt would be called a capital income. "There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases the so called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the Court, having regard to the other circumstances, to ascertain the intention of the parties.

(CIT v. Panbari Tea Co. [1965] SC 1871 (1873, a case under the Income-tax Act).

Shri A.K. Lal, learned counsel for the appellant vide his letter dated 31-7-1987 had submitted that the lease rent for the entire period of 98 years was fixed at Rs. 44 lakhs and was paid to the appellant as advance lease rent. Clause I of the lease deed stipulates that "the lessor hereby transfer by lease up to the lessee shop, store, basement and 2 parking spaces with enclosures situated in the building referred to as Diamond Link...together with all rights privilege advantages and appurtenances of whatever nature and relating to the leased premises or usually enjoyed in connection herewith for the term of 98 years commencing from the 26th Day of October, 1982...". It has further been stipulated in Clause II(a) that the lease rent for the entire term of lease on signing of the lease deed amounting to Rs. 44 lakhs was payable and was actually paid in one lump sum for the entire period.

All municipal taxes and liabilities were to be borne by M/s Pond's India Ltd. and that company was required to pay the stamp duty and registration charges in respect of this deed. Under Clause III of lease deed it was provided that M/s pond's India shall be at liberty to assign, mortgage or otherwise subject, transfer the demised premises or any part thereof without being required to obtain permission and/or consent of the lessor in that behalf. The lessee was only required to give to the lessor a notice in writing. In Clause IV(2) it has been provided that the lessor shall not be entitled to terminate the lease granted on any grounds whatsoever.

House property is a bundle of rights. Interest in the property or the right of possession and usage by itself are asset that has been transferred not an annual rent but for the whole period of 98 years as one unit of time. There is no annuality clause in the lease deed.

The terms used in the lease deed indicate the intention that all rights in the property have been transferred for a period of 98 years. This would further be confirmed by the fact that the whole amount was provided to be received and was actually received in one lump sum. There is no clause for revocation of the transfer before ninety eight years for any reason whatsoever, and the property .as a whole stands transferred against full consideration for that period of time.

During the course of hearing a reference was also made to the provisions of Section 269A(h) wherein transfer in relation to any immovable property meant transfer of such property by way of sale or exchange or lease for a term not less than 12 years. The learned Counsel for the appellant has sought to make a distinction on the ground that under Section 2(47) there is nothing to indicate that lease is included in transfer. As mentioned above that the definition of transfer under Section 2(47) is an inclusive one. To include lease as a transfer, reference may be made to Calcutta High Court decision reported in 168 ITR 533.

The appellant company entered into an agreement to purchase with the builders M/s Diamond Construction Co. No sale deed as such has been made between the builder firm and the appellant company. In fact, the sequence of event over a period of one week is that a part of a newly constructed building was transferred to the appellant, a private company consisting only of ladies which was incorporated around that time only and that company in turn, found a party to whom it transferred the property and then started a truck hiring business and soon after the builder firm was closed. The appellant company had acquired the ownership rights for a sum of Rs. 13,50,000 which it almost simultaneously transferred for a period of ninety eight years to another company namely M/s Pond's India for a consideration of Rs. 44 lakhs. This, on all accounts is a transfer of property and cannot be defined as the property having been let out on an annual rent. The appellant's claim that the receipt of Rs. 44 lakhs be treated as a sum for which the property might reasonably be expected to let from year to year cannot be accepted and is dismissed.

(8) The appellant had made a submission that it had granted lease of the property for consideration of lease rent irrespective whether paid annually or in lump sum. This statement is negatived by Clause II(a) of the lease deed which unequivocally provides that the lease rent of Rs. 44 lakhs was payable in advance for the entire term of the such lease. The payment was not subject to any contingency whether property was actually used or further mortgaged or transferred by M/s Pond's India Ltd. (9) Coming to the question whether this could be charged under Section 45 of the IT Act or keeping in view the object clauses of the appellant company in its articles of association, as income from business arising out of sale of stock in trade. The facts are that this is a solitary transaction in property entered into by the appellant company. There is no such other transaction in this year or in the later years. The appellant company acquired certain assets which it transferred soon after. On the facts of the case I hold this as transfer of capital assets and hence chargeable to tax as a short term capital gain.' 1.4 As to the assessee's alternate stand that consideration received under the lease deed was capital receipt not chargeable to tax since it had no income character nor was arising out of the transfer of any property, the learned Commissioner of Income-tax (Appeals) in paras 10 and 11 of the impugned order held as under:- As has been held by me above lease was a transfer for a consideration and the capital receipts received was subject to capital gains tax. From the facts and circumstances of the case, I am convinced that this was a deal in transfer of interest in property with the motive to make profit, whatever other colour the appellant may have tried to give it. A reference may be made to the judgment of the Gujarat High Court in the case of CIT v. Minal Rameshchandra reported in 167 ITR 507. The observations of the Court are relevant 10 my interpretations of facts of this case are quoted as under:- where a device has been adopted to evade tax the Court is entitled to unravel the device. The Court must examine the substance of a transaction and then decide whether the transaction is such that the judicial process may accord approval to it". I am also reminded of the observations of the Supreme Court judgment in the case of T.N. Arvinda Reddy (reported in 120 ITR 47) which though made in a different context but principally could be defined as a precursor to the judgment in the McDowell case. While concluding the judgment their Lordships observed that "We find no reason to divorce the meaning of the word 'purchase' as buying for a price of equivalent of price... from the legal meaning of that word in Section 54(1)...

A passing reference to avoidance and evasion of tax was made at the bar, a dubious refinement of a dated legal culture sanctified though by judicial dicta... This clever concept of avoidance against evasion may have to be exposed.

(11) The appellant's contention that the ITO's order was illegal because he was not definite whether the income should be charged under the head "Business income" or to capital gains tax. In the context of ground No. 1, the contention has been elucidated by Shri A.R. Shetty the learned C.A. for the appellant vide his letter dt.

10-9-87 with the submissions that "the illegality of the order arises from the observations made by the learned ITO in para 7 of his order. These observations show that the assessment has been made partly for the use of the higher authority and partly for the consumption of the appellant... The learned ITO has made a tentative assessment order. He must make up his mind whether he would like to assess the sum involved as business income or whether his final stand would be that there is a liability to capital gains". A reference to para 7 of the ITO's order in this regard would clarify his finding on the issue. He has held that it is not maintainable that the lease rights in the instant case can be held to be of the nature of stock in trade. Further it is also observed that even though the company was set up with an intent to deal with the immovable property but so far in the last 4 years the company had not carried out any transaction in immovable property except the transaction under reference. He has only taken the alternative situation where a different opinion could be taken in appeal but his findings are there, notwithstanding the discussion on a different viewpoint. Therefore, I do not agree with the appellant that these observations could in any way be construed to be an infirmity so as to make the assessment order illegal or void. The appellant's plea in this regard is rejected.

2. The assessee having failed at the first appellate stage also, is in second appeal before the Income-tax Appellate Tribunal and we have heard the learned authorised representatives of the parties at length on 21st of November, 22nd of November and finally on 24th of November 1988.

2.1 The assessee has placed on our file two paper books containing (i) Abstract of rent account of the subject matter in the books of account of M/s. Ponds (India) Ltd. alleged to be lessee; (if) Detailed bifurcation of the rent account, i.e., ledger extracts from the books of the lessee; and (iii) Xerox copy of the annual accounts of the lessee company. The assessee has also placed on our file copies of assessee's letters addressed to learned Commissioner of Income-tax (Appeals), which are dated 31-7-1987, 4-9-1987 and 10-9-1987. Copy of the alleged lease deed dated 26-10-1982 has also been placed on our file. The assessee has also placed strong reliance on orders of the ITAT in ITA No. 237 1/Bom/86 and 2649/Bom/84(assessee's second paper book pages 36 to 44 and 45 to 61).

2.2 During the course of the hearing of the appeals, the assessee was called upon' to place on our file copy of agreement dated 22nd October 1982 whereby the assessee is said to have purchased the subject matter.

2.3 It was complied with and the assessee has placed the same on our file along with photostat copy of a receipt dated 26th July 1984 bearing No. 3146/1984 evidencing that agreement dated 22-10-1982 has been deposited for registration with the authorities. The assessee has also placed on our file, 'the deed of confirmation dated 26th July 1984', which confirms the original alleged lease agreement entered into by the assessee with M/s. Ponds (India) Ltd. on 26th day of October 1982. It also has as an annexure photostat copy of receipt for payment to Government, which bears the date 26-7-84 and is said to be the fee deposited for registration of the document.

2.4 The assessee has also placed the following information vide its letter dated 22nd November 1988, of course, at our behest as directed:- In terms of the directions by the Hon'ble Members, we are herewith submitting a certified photocopy of the receipt of registration of the confirmation of the lease of Deed dated 26th July 1984, which deed of confirmation is the confirmation of the provisions contained in the deed of lease dated 26th October, 1982, between the Appellants and M/s Ponds (India) Ltd. The original lease Deed was executed on 26th October, 1982. The stamp duty of Rs. 6,59,150 was paid on 29-11-1982 (Annexure 'A') Since the registration was delayed, a Deed of Confirmation was made on 26th July 1984. Copy enclosed (Annexure 'B'). the Deed of Confirmation of lease was registered on 26-7-1984. A certified photocopy of the receipt No. 3147 dated 26-7-1984 is enclosed (Annexure 'C'). It is confirmed from the Appellant that the original Agreement has not been returned yet by the Registrar of Assurances.Bombay Sd/-Dated : 22nd Nov. 1988 Advocate for the appellant' B. The assessee-company entered into an agreement on 22-10-1982 with M/s. Diamond Construction Co. to acquire the subject matter of transfer and appeal for a consideration in the sum of Rs. 13,50,000.

This agreement was presented for registration before the authorities on 26th July 1984.

The assessee on its part entered into an agreement claimed to be a 'deed of lease' on 26-10-1982 whereby the subject matter of transfer and appeal is claimed to have been leased to M/s. Ponds (India) Ltd. The assessee-company received Rs. 44 lakhs in terms of lease rent for the entire term of lease, which was 98 years. This 'deed of lease' was also presented for registration with the authorities on 26th July 1984.

4. The case of the assessee is that lease has been made in terms of Sections 105 and 107 of the Transfer of Property Act; that entries in the books of accounts of the parties are relevant and is cogent evidence to determine the character of lease; that in terms of the said lease deed, what is transferred is the possession of the property and not the property; that the assessee has reserved an yearly rent and has taken rent for the entire period of the lease, which is to be apportioned/amortised over the period of the lease, which is 98 years.

4.1 The assessee has for the purpose contended that the amount received is a deposit in trust to be apportioned/amortised on year to year basis for a period of 98 years, hence is not a consideration for transfer because there has been no transfer but only lease of the subject matter -Purshottam V. Raheja v. Second ITO [1988] 27 ITD 54 (Bom.), Hakim Ram Prasad, In re [1936] 4 ITR 104 (Lahore), CIT v. Globe Theatres Ltd. [1950] 18 ITR 403 (Cal.), Nagasuri Raghaveswara Rao v. CIT [1967] 66 ITR 496 (AP), CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422 (SC), Durga Das Khanna v. CIT [1969] 72 ITR 796 (SC) and R.K. Palshikar (HUF) v.CIT [1988] 172 ITR 311 have been pressed into service to support assessee's case.

4.2 On his part, Shri Keshav Prasad, the learned Senior Departmental Representative, while supporting the orders of the learned lower authorities contended that the issue before the Income-tax Appellate Tribunal were three-fold, viz. (i) whether the so-called agreement was a 'transfer'; (ii) whether consideration received was lease money, salami or consideration for transfer of the subject matter; and (iii) whether the consideration received was a capital receipt or a revenue receipt. He has very forcefully argued that the alleged lease being of 98 years' duration, it is lease in perpetuity and the lease agreement in form may be what it is but in substance it is a transfer of the subject matter of M/s. Ponds (India) Ltd. for a full consideration of Rs. 44 lakhs, as such is taxable as short term capital gain, in the alternate even if it be held that it is a lease, still it is 'salami' and taxable as a short term capital gain. He has for the purpose strongly relied on the case of R.K. Palshikar (supra). He has further placed strong reliance on the reported decision of the Andhra Pradesh High Court in Rajah Manyam Meenakshamma v. CIT [1956] 30 ITR 286. For the purpose, he has relied on clauses III and IV of the 'Deed of lease'. Clause III of 'deed of lease' provides that, 'It is hereby expressly agreed and declared that the lessee shall be at liberty to assign, mortgage or otherwise sublet, transfer the demised premises or any part thereof without being required to obtain the permission and/or consent of the lessor in that behalf. Provided, however, that after the demised premises or any part thereof shall have become assigned, mortgaged, sub-leased, or transferred whether absolutely or by operation of law or otherwise howsoever to give to the Lessor, notice in writing thereof.' Sub-clause (2) of Clause IV of the said 'deed of lease', which has been relied on by the learned Senior Departmental Representative, provides that 'the lessor doth hereby covenants and agrees with the lessee to use the premises during the said period without any interruption or disturbance by the lessor or any person lawfully claiming from under or in trust for the lessor or otherwise whomsoever and that the lessor shall not be entitled to terminate the lease hereby granted on any ground whatsoever.

4.3 The learned departmental representative as such has contended that what is transferred is 'absolute rights', since the lessor is excluded from resiling and/or rescinding the lease under any circumstance whatsoever. According to the learned departmental representative, since absolute rights have been vested with Ponds (India) Ltd., the consideration is a consideration for transfer or, else, salami and taxable as short term capital gains. The learned Senior Departmental Representative has also again and vehemently relied upon the guidelines laid down by the Andhra Pradesh High Court and the Supreme Court in the already mentioned cases, viz. 30 ITR 268 (AP) and 172 ITR 311 (SC).

5. Section 105 of the Transfer of Property Act (Central Act No. IV) of 1882 defines 'lease', 'lessor', 'lessee', 'premium' and 'rent' as under:- 'Lease' defined. - A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.' 'Lessor', 'lessee', 'premium', and 'rent' defined. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service, or other thing to be so rendered is called, the rent.' Section 105 of the same Act, deals with the topic 'leases - how made'.

It reads as under:- A lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument.

All other leases of immovable property may be made either by a registered instrument or by agreement accompanied by delivery of possession.

Where a lease of immovable property is made by a registered instrument, such instrument or, where there are more instruments than one, each such instrument shall be executed by both the lessor and the lessee: Provided that the "State Government" may from time to time, by notification in the Official Gazette, direct that leases of immovable property, other than leases from year to year, or for any term exceeding one year, or reserving a yearly rent, or any class of such leases, may be made by unregistered instrument or by oral agreement without delivery of possession.

5.1 Section 2(7) of the Indian Registration Act (Central Act No. XVI) of 1908 defines 'lease' as under: - 'lease' includes a counterpart, kabuliyat, an undertaking to cultivate or occupy, and an agreement to lease; 5.2 Section I7(1)(d) of the Act, which section deals with, 'Documents of which registration is compulsory', reads as under: - 'The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely:- (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent; 5.3 Section 49 of the above Act deals with the topic, 'Effect of non-registration of documents required to be registered'. It reads as under: - No document required by Section 17 or by any provision of the Transfer of Property Act, 1882, to be registered shall- (c) be received as evidence of any transaction affecting such property or conferring such power, Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purposes of Section 53 A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument.

5.4 Section 2(47) of the Income-tax Act, 1961 defines 'transfer' in relation to a capital asset as under:- (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him, such conversion or treatment;' 5.5 Section 45 of the above enactment deals with, 'capital gains' and provides for as under:- (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B, 54D, 54E and 54F, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.

5.6 In the light of above definitions of a 'capital asset', 'transfer' and 'lease', we have to examine whether, on the facts and in the circumstances of the case, with which we are seized of, there was a lease or a transfer of a capital asset and, if so, whether the amount of consideration received is a deposit or a consideration. The next limb that merits adjudication is whether the consideration is a capital receipt or a revenue receipt. If we take the case of the revenue, then the consideration for transfer of the subject matter is Rs. 44 lakhs and if we take the case of the assessee, then the yearly rent is reserved under the 'deed of lease' and the amount of lease money per annum accounts for Rs. 44,900. Either way, two things are very clear, one is that by whatsoever name we may call it, lease money or the consideration, it is more than Rs. 100 and second is that the transfer involves immovable property, whether we say as a whole or interest therein. Certainly, if we take the lease as 'deed of lease' there is an extinguishment of a right in the immovable property but if we take it as a 'transfer', then it is a sale of a capital asset/ relinquishment of rights therein.

5.7 The Hon'ble Supreme Court of India in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185 (SC) has held that the title to an immovable property does not pass till the conveyance was executed and registered. The facts of the case before the Hon'ble Supreme Court as also their finding are reproduced hereunder from the said reported decision (Head Notes):- The appellant, who owned certain lands and the buildings, plant and machinery thereon, and carried on the manufacture of tiles and bricks, entered into an agreement on March 17,1948, with one V to sell those assets including the stocks and the goodwill of the business for a sum of Rs. 2 lakhs to a company. Option was reserved for the company to adopt the agreement. On March 17, 1948, the appellant handed over possession of the land and buildings and machinery to the company. On March 20,1948, the company credited the sum of Rs. 2 lakhs in its accounts in favour of the appellant and the appellant also made appropriate entries in his own account books. The sale deed in respect of the land was executed in favour of the company on November 22, 1948. The agreement was approved by the board of directors of the company only on March 16, 1949, and by the shareholders of the company at a general meeting on April 10,1949. The question was whether capital gains arose from the sale in the previous year ending March 31, 1948, relevant to the assessment year 1948-49: Held, (i) that before Section 12B of the Indian Income-tax Act, 1922, could be attracted, title must pass by any of the modes mentioned in Section 12B, i.e., sale, exchange or transfer. In the context "transfer" meant effective conveyance of the capital asset to the transferee. Delivery of possession of immovable property could not by itself be treated as equivalent to conveyance of the immovable property.

(ii) That the entries in the account books of the appellant and of the company on March 20, 1948, were irrelevant for the purpose of determining the date when the sale or transfer took place.

(iii) That title to the land and buildings and the plant and machinery and electrical fittings permanently embedded thereon could not pass to the company till the conveyance was executed and registered; and as the sale deed was executed and registered only on November 22, 1948, no sale or transfer of these assets took place before April 1, 1948, and no capital gains arose in the relevant previous year.

5.8 The Hon'ble Supreme Court of India in a very recent decision, although that was a case under the provisions of the Wealth-tax Act, 1957 and the Hon'ble Court was concerned with the definition of 'assets' and 'belonging to assessee', held that mere possession or joint possession unaccompanied by the right to be in possession or ownership of the property would not convey the property to the other party because, according to their Lordships, the property is owned by one to whom it legally belongs and while holding it so they have held that an immovable property or interest therein passes only when a proper deed is executed and registered in the case of Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (SC).

5.9 Under Section 17(1)(d) of the Indian Registration Act (reproduced as above), leases of immovable property from year to year or for any term exceeding one year, or reserving an yearly rent must be registered under the Indian Registration Act. The fact of non-registration of such a document has been given in Section 49(a) (reproduced as above) and it is that it does not affect any immovable property comprised in any deed, i.e., till such time it is registered under the Indian Registration Act.

5.10 On the facts and in the circumstances of the case, with which we are seized of, the original agreement whereby the assessee claims to have purchased the property on 22-10-1982 from M/s. Diamond Construction Co. has been presented for registration with the authorities on 26-10-1984. The 'deed of lease' executed on 26-10-1982 between the assessee-company and M/s. Ponds (India) Ltd. has also been presented for registration with the authorities on the same date, i.e., 26-7-1984. So neither the assessee held any immovable property, i.e., a capital asset nor did he could convey any such immovable property/capital asset or any interest therein in favour of Ponds (India) Ltd., since both the documents, viz., the agreement of purchase as also the 'deed of lease" were unregistered documents and have been presented for registration under the provisions of the Indian Registration Act only on 26-7-1984 and as yet new register arguments are required for the proposition that one cannot convey a better title than that which one has. In this case, no title to any immovable property or any interest therein stood conveyed in favour of the assessee vide agreement dated 22-10-1982, as such the assessee could, on his part, also not convey any immovable property or, else, any right therein, including the lease rights in favour of Ponds (India) Ltd. 5.11 Under Section 107 of the Transfer of Property Act, a lease of immovable property from year to year or for any term exceeding one year or reserving an yearly rent can be made only by a registered document.

It has not so been done because the document purporting to be so was presented for registration on 26-7-1984.

5.12 Within the meaning of Section 2(47) of the Income-tax Act, 1961, there was neither any sale, exchange or relinquishment of a capital asset, much less extinguishment of any rights therein, since documents affecting the interests of the assessee as also that Ponds (India) Ltd. were not registered documents and did not convey any right or title in any immovable property. Within the meaning of Section 45 of the Act, there could not be said to be any profits or gains arising from the transfer of a capital asset effected in the previous year relevant to the assessment year under appeal because there was no transfer. Alapati Venkataramiah's case, (supra), Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (SC) both decisions of Supreme Court of India, are in point.

6. On the facts and in the circumstances of the case, we have to hold accordingly with the resultant effect that addition made and sustained by the learned lower authorities while computing the total income of the assessee for the assessment year under appeal to the tune of Rs. 30,50,000 representing short term capital gain stands deleted.

7. There is another aspect of the matter and it is that M/s. Ponds (India) Ltd. are in peaceful enjoyment of the premises - the subject matter of appeal - and that peaceful enjoyment, qua him is under an agreement entered with the assessee-company for consideration, though, as mentioned earlier, the said agreement is also not registered under the provisions of the Indian Registration Act. So, on these facts, whether we can say once consideration has been paid to the assessee and possession has been taken over by Ponds (India) Ltd. who are in enjoyment of the property, under those arrangements, qua Ponds (India) Ltd. and the assessee there is a transfer or not when part performance is there. For this type of eventuality, the Legislature in its wisdom has enacted Section 53 A of the Transfer of Property Act. The said section reads as under:- 53A. Part performance: - Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other, than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.

7.1 The doctrine of part performance embodied in the above section is on grounds of equity. The object is to prevent a transferor or his successor-in-interest from taking any advantage on account of non-registration of the document, provided the transferee has performed his part of the contract and in pursuance thereof has taken possession of some immovable property. The attitude adopted by the Courts is that it would be fraudulent for a defendant to take advantage of the absence of writing if he has stood by and allowed the plaintiff to alter his position for the worse. By doing acts in performance of his obligation under the contract. However, this section does not give the transferee any right on which he can bring a suit as a plaintiff. It is only a right, which is available to him as defence in order to protect his position. This section does not confer any title on the transferee who takes possession in pursuance of a written but unregistered contract.

Accordingly the transferee cannot maintain a suit for declaration of his title or that the transferor or other person has no title to the property.

7.2 In fact, their Lordships of the Hon'ble Supreme Court in the case of (Late) Nawab Sir Mir Osman Ali Khan (supra) has had an occasion to discuss Section 53 A of the Transfer of Property Act and their Lordships held that even if a person as the user and is in enjoyment of the property, it is he who should be made liable for the property, in question, yet the legal title is important and the Legislature might consider the suitability of an amendment if it is so inclined. Their Lordships as such suggested to the Legislature the necessity to remove hardship and injustice because legal owners who have parted with possession after receiving full consideration but have not executed the sale deeds were being made to bear the tax burden without having the enjoyment of the property in question pointed out. In the above case, the ratio laid down by their Lordships was that the immovable property stands transferred only and the legal title vests if and when a deed of conveyance is executed and registered under the provisions of the Indian Registration Act.

7.3 As the facts of the present case are, despite part performances on the part of the assessee as also the said M/s. Ponds (India) Ltd. vis-a-vis the original owner, M/s. Diamond Construction Co., no title to the subject matter, viz., the immovable property had passed to the assessee-company. The resultant effect is that there being no transfer qua M/s. Diamond Construction Co. and the assessee, the assessee, on its part, could not transfer any title to the said immovable property in favour of Ponds (India) Ltd. 7.4 The result remains that the consideration cannot be charged to short term capital gain.

9. Before parting, we will like to observe that since on the above legal aspect of the case the assessee succeeds we have not discussed the stand of the parties raised in terms of contentions during the course of hearing of the appeals because we are of the opinion that these do not survive. Yet, that apart, we will like to place on record our real appreciation of the cogent and lucid arguments adduced before us during the course of the hearing of this appeal on behalf of the revenue by the learned Senior Departmental Representative, Shri Keshav Prasad. Shri Patil, as usual, was thorough.

1. I have carefully gone through the order of the learned Judicial Member and I am not in a position to pursuade myself to agree with his findings. The facts of the case and the arguments by the Appellant and the Respondent have been elaborately dealt with by the learned Judicial Member and they, therefore, need not be recalled in detail here.

However, it would be necessary to set out in brief detail some of the salient facts of the case.

2. The assessee in this case is a limited company and vide agreement dated 22-10-1982 acquired ownership rights in regard to a part of the building belonging to M/s. Diamond Construction Company. Soon thereafter the assessee entered into, what described as, a lease agreement for a period of 98 years commencing from 26-10-1982 with M/s Ponds (India) Ltd. The consideration under the lease agreement was a sum of Rs. 44 lakhs. In the return of income filed for this year a sum of Rs. 44,900 being the 98th part of the lease money was declared as income from house property. The Income-tax Officer did not accept the contention of the assessee and held that the entire receipts of Rs. 44 lakhs from M/s. Ponds (India) Ltd. was a consideration for the transfer of the property and the same was exigible to tax under the head Short term capital gains'. This finding of the Income-tax Officer was upheld by the Commissioner of Income-tax (Appeals). The learned Judicial Member while passing the Appellate order observes that the original agreement whereby the assessee claims to have purchased the property on 22-10-1982 from M/s. Diamond Construction Co. has been presented for registration with the authorities on 26-7-1984. The deed of lease executed on 26-10-1982 between the assessee-company and M/s. Ponds (India) Ltd. has also been presented for registration with the authorities on the same date, i.e., 26-7-1984. According to him, therefore, the assessee could not have held any immovable property, i.e., a capital asset; nor could be have conveyed any such immovable property Capital asset or any interest therein in favour of Ponds (India) Ltd., since both the documents, viz., the agreement of purchase as also the deed of lease were unregistered documents and had been presented for registration under the provisions of the Indian Registration Act only on 26-7-1984. He further observes that these documents have not yet been registered. According to him title to any immovable property or any interest therein could pass only after the documents in this regard are registered with the appropriate authorities.

3. Under the provisions of Section 45, profits or gains arising from the transfer of a capital asset is chargeable to income-tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. The short issue, therefore, before the Tribunal is whether the assessee was the owner of a capital asset and whether the same was transferred during the previous year relevant to the assessment year under consideration.

Capital asset has been defined under Section 2(14) of the Income-tax Act and it takes within its fold property of any kind other than those exempted under that section. The word 'property' has a very wide meaning and would include all kinds of rights corporeal or tangible and also lesser interest like licence and lease hold interest etc. A right to enjoyment and exploitation would also constitute property. The Calcutta High Court in the case of A. Gasper v. CIT [1979] 117 ITR 581 has held the right of tenancy under the West Bengal Tenancy Act where the tenant is not prohibited from transfer of such right, is a capital asset. The Madras High Court CIT v. A.R. Damodara Mudaliar & Co. [1979] 119 ITR 583 has held that the licence granted for setting up of an industrial undertaking would be in the nature of capital asset. Similar is the view taken by the Madras High Court in the case reported in A.R.Krishnamurthyl A.R. Rajagopalan v. CIT [1981] 6 Taxman 289. In this case it cannot be denied that there was an agreement for purchase of a property and the assessee was also put in possession of the property.

That the registration has not been affected would not go to negate the right of the assessee to enjoy the property or to exploit the same. In that sense it is a capital asset and the transfer of such capital asset would attract the provisions of Section 45 of the Income-tax Act.

4. The next question to be considered is whether there has been any transfer of capital assets by the assessee to M/s. Ponds (India) Ltd. By the deed dated 26-10-1982 the assessee transferred all its rights in the said property, at least for a period of 98 years to M/s. Ponds (India) Ltd. There is, thus a relinquishment of the assessee's rights in the said property at least for a period of 98 years. The relevant terms of the deed have been elaborately discussed by the Commissioner (Appeals) and the learned Judicial Member in his order. These clauses are clause Nos. III & IV. It would appear that the lease is one in perpetuity and the lessee is vested with all the rights that were vested in the assessee at the relevant time. The lessee shall be at liberty to assign, mortgage or otherwise sublet, transfer the demised premises or any part thereof without being required to obtain the permission and/or consent of the lessor in that behalf. The lessee also could during the subsistence of the agreement use the premises without any interruption or disturbance by the lessor and further the lessor was not entitled to terminate the lease on any ground whatsoever. The effect of the agreement is that whatever right the assessee possessed, all those were transferred the lessee for a period of 98 years. Such rights as were transferred were not mere illusory or even intangible.

This act in my opinion would constitute a transfer within the meaning of Section 1(47) of the Income Tax Act.

It has been already observed earlier that the assessee though was not in possession of ownership right had right of possession, enjoyment and exploitation and such right is a capital asset. It may be stated in this connection that the word 'transfer' in relation to a capital asset has been defined in very wide terms and a transaction of this nature would undoubtedly be hit by the said definition. Thus, the ingredient that are required for bringing to tax the surplus realised by the assessee are totally present. In sum the assessee was possessed of a capital asset which in this case is a right to enjoy and exploit a property, that the said right has been transferred to M/s. Ponds (India) Ltd., and such transfer could be treated as one, which would come within the provisions of Section 2(47) of the Income-tax Act. The absence of a registered deeds can, therefore, have no bearing on the issue. In the absence of a registered document, the assessee may not be a legal owner and, therefore, cannot transfer such ownership to the lessee. But the assessee is undoubtedly is in possession of lesser right which is the right to enjoyment and exploitation of the assets and such lesser right has been transferred by the assessee to M/s.

Ponds (India) Ltd. without any reservation. In this view of the matter, I am of the opinion that the order passed by the Commissioner of Income-tax (Appeals) does not require any modification and the same is confirmed.

Since there is a difference of opinion vis-a-vis conclusions arrived at in ITA No. 762/Bom/1988 in the case of M/s. Patsons Properties Pvt.

Ltd. v. Income-tax Officer, Com. Cir. VI(1), Bombay involving assessment year 1984-85, we are of the opinion that the following point of difference is required to be referred to the Third Member and for the purpose we direct that the file be put up to the Hon'ble President.

Point of difference :- Whether, on the facts and in the circumstances of the case, qua the subject matter, the building known as 'Diamond Link', situated at Bandra, there could be said to be a transfer within the meaning of Section 2(47) read with Section 45 of the Act, vis-a-vis M/s.

Diamond Construction Co. and the assessee as also the assessee and M/s. Ponds (India) Ltd., if so, to what effect? This appeal preferred by M/s. Patsons Properties Pvt. Ltd., Bombay relating to the assessment year 1984-85 was first heard by Bombay Bench 'D' of ITAT on the point whether the Income-tax Department was justified in bringing to tax the sum claimed to have been received by way of advance lease rent as 'short term capital gain' rejecting the claim of the assessee-company that only a part of it was taxable and that too as income from the property. The Members who heard this appeal could not agree on the conclusion and the following point of difference of opinion between them was referred to me under Section 255(4) of the Income-tax Act, 1961 for my opinion : Whether, on the facts and in the circumstances of the case, qua the subject matter, the building known as 'Diamond Link' situated at Bandra, there could be said to be a transfer within the meaning of Section 1(47) read with Section 45 of the Act vis-a-vis M/s. Diamond Construction Co. and the assessee as also the assessee and M/s Ponds (India) Ltd., if so, to what effect? 2. Now I will advert briefly to the facts that gave raise to difference of opinion. The assessee, as the name indicates, is a limited company which came into existence on 20-10-1982 with the avowed object of acquiring and dealing in properties. Vide an Agreement dated 22-10-1982 the assessee-company agreed to purchase a building belonging to M/s.

Diamond Construction Co. for a consideration of Rs. 13,50,000. The Agreement of sale provided that the assessee-company would acquire from M/s. Diamond Construction Co. what are described as ownership rights in the property known as 'Diamond Link' situated at Bandra. Shortly thereafter, the assessee-company entered into a lease with M/s. Ponds (India) Ltd. to lease out this property for a term of 98 years commencing from the same date of 26-10-1982 and received a sum of Rs. 44 lakhs by cheque. This sum was claimed to be the advance rent received from M/s. Ponds (India) Ltd. for a period of 98 years. The cheque was deposited in the Bank and was encashed on the very same date. The assessee-company filed its return of income on 30th June, 1984 declaring a loss of Rs. 1,86,183 which was later on revised by filing a 'nil' return on 3-7-1985 in which a sum of Rs. 44,900 being the 98th part of the lease money of Rs. 44 lakhs was shown as income from property. The ITO rejected the appellant's claim that what was taxable was only Rs. 44,900, and on the view that the receipt of Rs. 44 lakhs from M/s. Pond's (India) Ltd. was a consideration for the transfer of the property under reference by way of lease brought the sum to short term capital gain which was computed at Rs. 30,50,000. The claim of the assessee, both before the ITO as well as before the first appellate authority, was that the provisions of Section 2(47) and Sections 45 & 55 of the Income-tax Act did not apply to the facts of the case; The ITO erred in concluding that the grant of lease amounted to relinquishment of property and the advance lease rent received should not have been treated as consideration liable to capital gains tax. It was also contended that the ITO should have appreciated that the assessee was the owner of the properties and continued to be owner oven after the grant of lease; that the lease rights and ownership rights were not mutually interchangeable but were distinct rights; that after expiry of the lease the possession of the property would revert back to the owner as there was no provision of renewal of the lease and that only when a lease for a particular term/ period was granted the lease rent received as advance or in lumpsum did not/could not amount to transfer within the meaning of Section 2(47) and Section 45 of the Income-tax Act. Thus, there was neither the question of transfer of any asset or arisal of any capital gain much less short term capital gains.

These contentions were not accepted by the ITO and as mentioned earlier, he brought the sum of Rs. 30.5 lakhs as short term capital gains tax.

3. Aggrieved by this order, the assessee-company appealed to the Commissioner of Income-tax (Appeals) reiterating the same contentions.

The CIT(A) also agreed with the ITO and confirmed levy of capital gains tax. The order of the CIT( A) would show that he was influenced by the fact that the assessee-company was incorporated on 20-10-1982, soon thereafter an agreement to acquire, what was popularly known as the ownership rights, was signed two days later with the partnership firm and immediately thereafter another agreement was entered into for a long lease of 98 years and a sum of Rs. 44 lakhs was received in the garb of advance rent all of which together showed an arrangement by which or under which the property acquired by the assessee was leased out only with a view to avoid levy of capital gains tax. Both the ITO and the CIT(A) concluded that there was a transfer of interest when the assessee entered into Agreement of sale with M/s. Diamond Construction Co. and when the assessee-company entered into Agreement with M/s.

Ponds (India) Ltd. for the lease. In sum, the CIT(A) concluded relying upon the judgment of Gujarat High Court in the case of CIT v. Smt.

Minal Ramesh Chandra [1987] 167 ITR 507 and the Supreme Court's decision in the case of CIT v. T.M. Aravinda Reddy [1979] 120 ITR 46 and also another judgment of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 that there was planning for avoidance and evasion of tax by adopting a dubious refinement of a legal culture with a clever concept of avoidance against evasion of tax which now was to be exposed.

4. Having failed both before the ITO and the CIT(A) the assessee approached the ITAT by way of second appeal. The learned Members of the Tribunal, after hearing the case as mentioned earlier, could not come to an agreed conclusion. The learned Judicial member held that as no registration took place as required under Section 17 of the Indian Registration Act either from M/s. Diamond Construction Co. to the assessee or from the assessee-company to M/s. Ponds (India) Ltd., no title was acquired by the assessee from M/s. Diamond Construction Co.

or any title was passed by the assessee to M/s. Ponds (India) Ltd. In order that there is a levy of capital gains tax, the first requisite was that the assessee should be the owner of the capital asset and the second requisite was that the capital asset must be transferred giving raise to capital gains. Neither the assessee became the owner nor any capital was transferred despite the assessee's version to the contrary, and, therefore, there is no question of levying any capital gains arising in this case as no registration took place. These documents were submitted for registration on 26th July, 1984 on which date they were registered. So, the transfer took place only from that date and not earlier. Thus, no capital gains arose to the assessee in the assessment year under appeal. For this proposition the learned Judicial Member relied upon the judgment of the Supreme Court in R.K.Palshikar's case (supra); Section 17 of the Registration Act and another judgment of the Supreme Court in the case of Alapati Venkataramiah (supra). Reference was also made to the judgment of the Supreme Court in the case of Nawab Sir Mir Osman Ali Khan (supra).

Though this decision was rendered under the Wealth-tax Act but the principle laid down by the Supreme Court is that in the case of immovable property the right, title and interest in the property would pass only on registration and not earlier although the property was put in possession of the purchaser, purchase consideration was received and the purchaser, was enjoying the property. But the learned Accountant Member took totally a different view. According to him, the definition of expression 'capital asset' in Section 2(14) of the Income-tax Act was so extensive and expansive that took within its fold property of any kind. The word 'property' had a very wide meaning and would include all kinds of rights - corporeal or tangible and also lessor's interest.

A right to enjoyment and exploitation would also constitute property.

According to the learned Accountant Member, when the Calcutta High Court held in the case of A. Gasper (supra) held that the right of tenancy under the West Bengal Tenancy Act was a capital asset, and when the Madras High Court in the case of AM. Damodara Mudaliar & Co.

(supra) held that the licenee granted for setting up of an industrial undertaking would be in the nature of capital asset, there is no reason why the right to enjoyment and exploitation acquired by the assessee from M/s Diamond Construction Co. under the Agreement of sale and lease hold right granted to M/s Ponds (India) Ltd. and the grant of a sum of Rs. 44 lakhs received could not be said to be a right transferable within the meaning of Section 2(14) of the Act so as to attract levy of capital gains tax. The fact that there was no registration did not affect the rights accrued to the assessee, nor negate nor preclude the right of the assessee to enjoy the property or to exploit it in the manner it liked. He was also of the opinion that when the lease for 98 years was entered into with M/s. Ponds (India) Ltd. by the deed dated 26-10-1982 the assessee-company relinquished its rights in the property for a period of 98 years in favour of M/s. Ponds (India) Ltd. which amounted to transfer within the meaning of Section 2(47) giving raise to capital gains. According to him, it was very important that the lease was one of perpetuity and that the lessee was vested with all the rights that were vested in the assessee at the relevant time meaning thereby that the assessee divested itself of all rights that it acquired under the Agreement of sale dated 22-10-1982. The lessee was given the right to assign, mortgage or otherwise sublet, transfer the demise premises or any part thereof without being required to obtain the permission and/or consent of the lessor in that behalf which was a valuable right conferred on the lessee by the assessee-company. The transfer of these rights were not mere illusory or even intangible as the assessee was able to procure as high a sum as Rs. 44 lakhs.

According to him, this situation constituted a transfer within the meaning of Section 2(47) of Income-tax Act. According to him, all the ingredients that were required for bringing to tax the surplus realised by the assessee were present in full strength and, therefore, the Department was right in bringing the transaction within the meaning of ambit of short term capital gain and that the absence of registered deed had no bearing on the issue. All that the registered document would mean is that the assessee would become a legal owner thereafter and the absence of such a cover did not materially affect the case for the purpose of levy of capital gains tax. Thus, emphasis laid by the learned Accountant Member was on the fact that the assessee was in possession of the lessor's right which was the right to enjoyment and exploitation of the asset and that right having been transferred under the lease arrangement to M/s. Ponds (India) Ltd. without any reservation it brought the transaction within four corners of capital gains tax. It is thus that the matter ended up in difference of opinion which was referred to me as the Third Member for my opinion.

5. I have heard the learned counsel for the assessee S/Shri V.H. Patil & N.R. Rao and also the learned representative for the Department Shri Keshav Prasad. After recounting the facts that led to leasing out of the property to M/s. Ponds (India) Ltd. and receipt of money of Rs. 44 lakhs and filing of the Return disclosing l/98th of the sum as income from the property, the learned Counsel for the assessee emphasised the fact that whatever might have been the transactions that the assessee-company had entered into for the purchase of the property or for the leasing out of the property, as there was no registration of either of these transactions, no title was ever acquired by the assessee or transferred by the assessee to M/s. Ponds (India) Ltd. on leasing out and, therefore, no capital gains within the meaning of Section 45 of the Income-tax Act arose. It is very significant that both the documents were presented for registration to the Sub-Registrar, Bombay on 26-7-1984, after executing on the same day another set of documents called "confirmation documents", even though under law there was strictly no need for entering into confirmation agreements and even though they were entered into by way of abundant caution, nonetheless it would mean that the Agreement of 22-10-1982 with M/s. Diamond Construction Co. for the sale and the Agreement of lease with M/s. Ponds (India) Ltd. on 26-10-1982 must be deemed to have become inoperative by flux of time, and if such a view is taken all these confirmation agreements, in the eye of law, must be deemed to have been entered into only on 26-7-1984 although they were by way of confirmation of the earlier transactions. In other words the earlier transactions would only be transactions on assurances given without passing on any right, title or interest in the immovable property and the money that had passed hands was only on the strength of faith and trust, and such transactions of trust and faith should not have been considered as amounting to transfer of capital asset the enormity of the sums involved notwithstanding. He then emphasised that under the law any immovable property of the value of more than Rs. 100 can be transferred only on registration and law on the subject was firmly settled by a series of judgments delivered by the Supreme Court. In the face of the settled law the learned Accountant Member should not have said that registration was of no consequence in the matters of this nature merely because money changed hands concerning this transaction.

He submitted that if registration had not been taken place, the assessee would be obliged to return the entire money received from M/s.

Ponds (India) Ltd. and so also recovery of money from M/s. Diamond Construction Co. Receipt of money must have created in the assessee a right of ownership and a capital asset within the meaning of Income-tax Act must have arisen and that capital asset must have been transferred in law before the provisions of Section 45 of the Act are attracted.

The learned Accountant Member, the learned Advocate submitted that, was carried away by the enormity of money involved in the transaction side stepping the facts of non-registration of the documents under law. He placed reliance upon the judgments of Bombay High Court reported in 142 ITR 410 and also on other decisions which were adverted to by the learned Judicial Member in his order.

6. The learned Departmental representative Shri Keshav Prasad, on the other hand, countering these arguments and relying on very heavily upon every word of the order of the Accountant Member, emphasised the fact that all these documents were only a passage to extricate the transaction from falling within the four corners of capital gains. The assessee acquired the ownership rights under the agreement of sale contended that it continued to be the owner of the property and entered into agreement with M/s. Diamond Construction Co. and those rights were leased out to M/s. Ponds (India) Ltd. for a consideration. The ownership rights having thus been acquired and exploited, nothing more needs to be done for enjoyment of those rights and registration of documents thereafter remained only as a formality. It is this kind of transaction that was sought to be taxed under the Income-tax Act. One therefore has to look to the substance of the transaction rather than to the form of the transaction. In a case of this nature registration of the documents is only husk of the title the shell and core being the right to enjoy on exploitation thereof already being in the possession of them. In this case the assessee did exploit that right as an owner thereof and unless there was any conveyable right vested, Ponds (India) Ltd. would not have parted with the sum of Rs. 44 lakhs, the parties never therefore regarded registration as an impediment. Therefore, the learned Accountant Member's order ought to be supported. He placed reliance upon the decision of the Supreme Court reported in 172 ITR 311 and also on the philosophy of Section 45 of the Income-tax Act and Section 2(47) of the Income-tax Act. He also laid emphasis on Section 2(14) which defined 'capital assets' as including property of any kind.

According to him, "property of any kind" takes in the change of hands of a right of the nature involved in this case.

7. I have carefully considered these arguments and perused the orders of my colleagues and I have come to the conclusion that the view expressed by the learned Judicial Member deserved to be accepted. The point of difference of opinion referred to me postulates whether there was a transfer within the meaning of Section 2(47) read with Section 45 of the Income-tax Act vis-a-vis M/s. Diamond Construction Co. and the assessee and also the assessee and M/s. Ponds (India) Ltd. Section 2(47) has already been extracted in the order of the learned Judicial Member and needs no repetition. It states that "transfer" in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Section 2(14) of the Act defines 'capital asset' as property of any kind held by any assessee, whether or not connected with his business or profession and it contained certain exclusions with which we are not concerned in this appeal. The definition of 'capital asset' meaning "property of any kind held by assessee" refers to both movable and immovable properties but properties like stock-in-trade were excluded from the definition.

Therefore, the definition of 'capital asset' must refer to only immovable property. It is the increase in the prices as a consequence of run away inflation that was sought to be taxed as capital gain income although under the definition of 'income' such capital gains is not income except for the specific inclusion thereof in the definition of income. The whole object of levy of capital gains is to take a portion of escalation of prices by way of taxes, inflation is highest in the real estate and more pronounced. That was the reason why the expression "transfer" in relation to "capital asset" was widened as to include all kinds of transactions known to law and referred to above.

Each one of them, be it a sale, exchange or relinquishment or extinguishment of any rights or compulsory acquisition relate to immovable property. Any one of these rights relating to immovable property can be transferred subject to the provisions of the Indian Registration Act, 1908. Section 17 thereof is very pertinent and it says : The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely :- (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property; (c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent; and (e) non-testamentary instruments transferring or assigning any decree or order of a Court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property; This Section lays down very clearly that the documents which purports or operates to create, declare, assign, limit or extinguish, whether in the present or in future, any right, title or interest, whether vested or contingent to or in immovable property shall be registered.

8. In this context I am referring to an argument addressed by the learned Departmental representative where under he said that non-registration of a document can affect the passing of title in the immovable property but since the transaction in this case related to immovable property, that right to immovable property was not affected by non-registration. But this argument need not detain me for long because Section 17(1 )(b) extracted above effects not only the rights in the immovable property but also to the immovable properties as it is seen from the definition. Now the non-effect of registration of documents under Section 17 is mentioned in Section 49 of the Indian Registration Act and says :- No document required by Section 17 or by any provision of the Transfer of Property Act, 1882, to be registered shall - (c) be received as evidence of any transaction affecting such property or conferring such power, Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purposes of Section 53A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument.

Thus non-registration of the document which is required to be registered under Section 17(1 )(b) of the Indian Registration Act will not operate to create, declare, assign, limit or extinguish any right, title or interest to the immovable property comprised in the document.

The document will, therefore, be ineffectual to achieve the purpose for which it is brought into being. Under Section 49(c) of the Registration Act such an unregistered document cannot even be received as an evidence to any transaction effecting the immovable property comprised in it. Such being the effect of non-registration it cannot be said, as was held by the Accountant Member, that registration of these documents effecting the rights in an immovable property was of no avail or consequence even though money was received. In this context reference can be made to the decision of the Supreme Court in the case of (Late) Nawab Sir Mir Osman All Khan (supra). Though that was a case arising out of the Wealth-tax Act, the question involved was whether the properties in respect of registered sale deeds were not executed, but consideration was received by the assessee, whether those properties still belonged to the assessee for the purposes of inclusion in the net wealth in terms of Section 2(m) of the Wealth-tax Act, 1957. Possession of the properties was also given to the purchaser and the properties were enjoyed by them. The purchasers in that case had the right to that possession, resist any suit for eviction, can enforce a suit for specific purpose for execution, of formal registered deed if the vendor was unwilling to do so but still the Supreme Court held that in the eye of law the purchasers could not be and were not the legal owners of the properties in question. The Supreme Court clearly pointed out in this case at page 893 of the Report that it was not necessary to be tied down with the controversy whether in India there is any concept of legal ownership apart from equitable ownership. The Supreme Court pointed out that Sections 9 and 10 of the Indian Income-tax Act, 1922 and Sections 22 to 24 of the Income-tax Act, 1961 spoke of "owner", it meant the legal owner and not the equitable or beneficial owner. This is the latest decision of the Supreme Court where a number of other decisions were reviewed. The Supreme Court in this judgment settled the issue that registration is essential to convey the right, title and interest of the property from the seller to the purchaser. The facts present in the present appeal, viz., receipt of consideration, handing over of possession to the lessee, enjoyment thereafter by the lessee etc. were all present in the case before the Supreme Court but yet the Supreme Court held they are not sufficient to clothe the vendee with the legal ownership and it is the legal ownership that is material and relevant, significant, for the purpose of Income-tax and Wealth-tax. I have also seen the effect of non-registration as embodied in Section 49 of the Indian Registration Act. Therefore, non-registration does not avail of any rights. Since Section 2(47) of the Income-tax Act refers to the rights in immovable properties their effect remained unchanged unless the documents purporting to effect those rights are registered under the Indian Registration Act. It is not the case of the Revenue that the transactions entered into in this case are of such a nature as do not require registration under Section 17 of the Indian Registration Act. Whatever may be the advantage that the assessee might have gained by leasing the property to M/s. Ponds (India) Ltd. yet before that sum could be brought to tax as capital gains there must be a transfer in the eye of law in relation to the capital asset and the transfer could take place only on registration. Registration took place in this case on 26-7-1984. It was on that date and as and from that date the rights of the properties were effected. If at all there is any capital gains in this transaction liable to be taxed as short term capital gain, that arises only in the assessment year in which the date of 26-7-1984 falls. Shri Patil, the learned Counsel for the assessee, conceded that transfer took place only on that date and not earlier. But here his contention is something different. Even if a transfer has taken place on that date, there was no receipt of consideration because what was received by the assessee was only rent in advance and that could not be equated to any sale consideration so as to attract levy of capital gains tax. To this, the learned Departmental representative replied by placing reliance upon the decision of the Supreme Court in R.K.Palshikar's case (supra). But my task is made easier in the sense that this question, was in any form, neither discussed by my learned Brothers in their orders, nor did it form a part of the point of difference of opinion. As a Third Member my role is highly circumscribed to the point of difference of opinion referred to me.

Since this is not a point of difference of opinion, I do not propose to express any opinion on this issue.

9. Before I part with this issue, I would like to make a reference to the argument developed on the applicability of Section 47 of the Registration Act. Section 47 of the Indian Registration Act provided : A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.

On a first blush of reading of this Section showed that a registered document shall operate from the time from which it had commenced to operate viz. that registration relates back to the date of Agreement.

If that was so, even though the document was registered on 26-7-1984 registration would have the effect of operation from 22-10-1982 the date of executing the document between the assessee and M/s. Diamond Construction Co. and, therefore, there was a transfer from the date.

But that does not appear to be a correct interpretation of Section 47 of the Registration Act because a direct case involving interpretation of Section 47 and its retrospective effect arose before the Bombay High Court in the case of Amarchand J. Agarwal v. Union of India [1983] 142 ITR 402. In this case the Bombay High Court held that though Section 47 of the Registration Act, 1908 provides that a document shall operate from the time of its execution once it is duly registered by the registering authority, yet the section does not say as to when a sale would be deemed to be completed and the section only permits a document to operate from a certain date which may be earlier than the date when it was registered. Then it had observed that a sale, which is not complete until the registration of the instrument, cannot be stated to have been completed earlier by virtue of Section 47 of the Registration Act, 1908. The Bombay High Court has clearly laid down that the title to property passed only when the document was registered under the provisions of Registration Act. This was a case arising under Section 269C of the Income-tax Act and under that section and for the purpose of that case the date of registration and the date of passing of the title in the property became crucial. The Bombay High Court has ruled that the title in the property passes only from the date of registration and not earlier even by virtue of Section 47 of the Registration Act, 1908. In coming to this conclusion the Bombay High Court has relied on the decision of the Supreme Court in the case of Ram Saran Lall v. Mst. Domini Kuer AIR The effect of making the document operative from an earlier date is only to settle the transaction between the two parties and that has nothing to do with the date as to when the title to property passes. In this case the Supreme Court clearly pointed out that a sale which is admittedly not completed until the registration of the instrument of sale is completed, cannot be said to have been completed earlier because, by virtue of Section 47, the instrument by which it is effected, after it has been registered, commences to operate from an earlier date (page 408). This question was later followed by the Bombay High Court in the case of Amarchand Jain Agarwal (supra) at page 410.

The Andhra Pradesh High Court in the case of Diwi Suryanarayana Murthy v. Competent Authority [1979] 117 ITR 278 had also come to the very same conclusion with regard to the effect of Section 47 of the Indian Registration Act Thus the conclusion reached by the Bombay High Court, the jurisdictional High Court in this case on the effects of registration is binding on me.

10. Having regard to the above state of law, I am of the opinion that the assessee did not acquire any title in the property when the agreement of sale was entered into on 22-10-1982, nor did it transfer any right to M/s. Ponds (India) Ltd. when it had entered into a lease agreement on 26-10-1982, the assessee's contention to the contrary notwithstanding. The assessee's contention must be seen in the light of the law. His acquisance against the provisions of law cannot change the law in his favour, nor can he be bound by the agreement he makes against the specific rulings in law. The agreement of sale secures the assessee only a right to get the sale deed registered in its favour.

Such a right is not a right to exploitation of which could be said to have resulted in bringing capital gain. It is realising this difficulty that Sub-section (v) was added to Section 2(47) of the Income-tax Act with effect from 1-4-1988 providing that any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 would also be regarded as transfer in relation to a capital asset. This means that before insertion of this Clause (v) with effect from 1-4-1988 such a transaction of allowing of the possession of immovable property to be taken or retained in part performance of a contract is not to be considered as a transfer in relation to capital asset.

11. I, therefore, agree with the view expressed by the learned Judicial Member. The matter will now go before the regular Bench so that the appeal may be disposed of according to the opinion of the majority of the Members.


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