S. Ranganathan, J.
(1) This reference under the Income-tax Act, 1961 arises out of the assessment of Mjs. Mercury General Corporation Pvt. Ltd. for the assessment year 1969-70 in respect of the previous year which ended on 30th June, 1968. The question referred to this court reads as under:
'Whether on the facts and in the circumstances of the case, the Tribunal was not in error in holding I hat as a matter of law there was no relinquishment or extinguishment of the right In the property by the assessed and whether the Tribunal was right in deleting the capital gain assessed by the Income-tax Officer of Rs. 1,26,82,136 ?'
(2) The assessed company was the owner of a big property known as 'Pili Building' situated at Arya Samaj Road, New Delhi. The building consists of 12 units bearing municipal Nos. 411 to 422. It appears that this comprises of 50 shops, 10 offices and about 160 rooms. They are all in possession of various tenants. The property had been purchased by the assessed company on 21-1-1963 for Rs. 4,25,000 from Arya Dharam Seva Sangh, New Delhi.
(3) On 31-5-1967 and 9-6-1967 the assessed company entered into agreements of sale with certain parties .who were shareholders of the assessed company and who had credit balances in their accounts with the company. By these agreements the assesses agreed to sell to these persons 9 of the units bearing municipal Nos. 411 to 416, 420, 421 and 422 for consideration aggregating to about Rs. 4,42,000. The accounts of the shareholders above- mentioned were debited with the amounts of the consideration in respect of the property agreed to be sold to them, these debit entries being made on 1st July, 1967 relevant for the assessment year 1968-69. The agreements of sale, however, provided that sale deeds would be got registered before 31-12-1967. The agreements also recited that the possession of the properties which was- with the tenants was being given over to the intending purchasers from the dates of the respective agreements and according to the agreements the intending purchasers were entitled to realise rents from 1st July, 1967 directly from the tenants.
(4) No regular sale deeds were, however, got executed or registered in pursuance of the above agreements of sale. This was principally because a notification under Section 4 of the Land Acquisition Act for the acquisition of the property was issued by the Collector on 30th August, 1967. This we are told followed up by a notification under Section 6 on 23rd July, 1969. Notices under Section 9 were issued in 1970 and the assessed (not the proposed vendee) filed a claim for compensation in respect of the entire property consisting of 12 units. The assessed claimed a compensation of Rs. 1,75,00,000 valuing the land at Rs. 2,500 per sq. yard (the total extent of land was 3117 sq. yards), the building at Rs. 25,00,000, damages for loss due to stoppage of business at Rs. 20,00,000 and in addition to the above a claim for solarium at 15 per cent. As already stated, the intended vendees on their part did not submit any claim for compensation under the Land Acquisition Act. It appears that some of the tenants who were in possession submitted some claims. These acquisition proceedings went on for a long time and we are told by the counsel for the respondent that the award has been made long afterwards on 31-3-1975 determining a compensation of Rs. 4,96,250 (including solarium etc.)-
(5) It should, however, be mentioned that though the agreements of sale referred to possession of the premises being handed over to the shareholders, such possession either actual or constructive was not delivered to the intending purchasers. To this aspect we shall revert a little later.
(6) The above inclusion of capital gains was deleted by the Appellate Assistant Commissioner (AAC). Before the Acc it was pointed out by the assessed that there had been no sale of the property effected during the previous year since there had been no registered documents executed by the assessed in respect thereof. The decisions of the Supreme Court in the case of Cit v. Bhurangya Coal Co. 1954 34 Itr 802 (1) and in the case of Alapati Venkataramiah v. Commissioner of Income Tax : 57ITR185(SC) (2) were relied upon in support of the contention that there was no question of assessing any capital gains until there had been a valid transfer of the property by a duly executed and registered document. The Aac called for a report from the Income-tax Officer who submitted that even if the transactions fell short of the requirements of sale within the meaning of the Transfer of Property Act read with Indian Registration Act there had been at least relinquishment of the right, title and interest of the company over the 9 units of the property. But the Aac pointed out that even in regard to the plea of relinquishment the same objection based on the absence of the registered document would prevail. He, thereforee, held that there was no capital gain available for the present year.
(7) The revenue filed an appeal to the Appellate Tribunal. Before the Tribunal reliance was placed on behalf of the department on the definition of 'transfer' contained in Section 2(47) of the Income-tax Act, 1961 which includes relinquishment as well as extinguishment of rights, over a capital asset. On the other hand, on behalf of the assessed it was pointed out that there could be no question even of relinquishment or extinguishment in the absence of a proper registered document. The Tribunal dismissed the appeal of the revenue observing :
'In our considered opinion, it could not be held on the facts of the present case that any transfer of any part of the property had taken place in favor of the vendees in the present years. The mere execution of agreements of sales or even receipt of sale consideration could not operate as completed sales in the absence of registered sale deeds. The Supreme Court authorities in the case reported as : 34ITR802(SC) and the Delhi case of : 84ITR37(Delhi) clinch the matter in so far as the legal position is concerned. The capital gain in the hands of the assessed would arise only on the acquisition of the property by the Government and in the year in which that acquisition is held to be operative in accordance with law. We are, further of the opinion that from the facts brought out on record and the clear statement of the assessed before us, it is plain that no possession in reality passed to the vendees under the agreements of sale although it was so purported to be so mentioned in the said agreements. There was no question of delivery of actual possession as the assessed itself was not in possession. The properties were entirely with the tenants. There was besides no constructive delivery of possession either inasmuch as no attornment letters were issued to the tenants nor they attorney to the vendees. They continued to attorney and pay rent to it. What the assessed did with that rent after realisation from them was entirely its own concern. It would have as well thrown away the same. Moreover, its case has been that if credits of rental earnings, were made in the respective accounts of the vendees, it was in lieu of the interest on their deposits. No question of agency was thereforee involved. The circumstances how the assessed has accepted the computation of the entire value for the present year in its total income on the basis of the annual letting value of all the 12 units of this property shown that it fully owns the ownership of the property as well as the income thereof.'
(8) Aggrieved by the order of the Tribunal the Commissioner of Income-tax has had this reference made to this court of the question already set out. It will be seen from the frame of the question that the department is no longer agitating the question whether a valid sale had been effected by the assessed of the properties in question during the previous year. The finding of the Aac that there could be no sale without a duly registered document appears to have been accepted by the department. In that so far that aspect of the matter is concerned there can be no doubt at all in view of the decision of the Supreme Court already referred to and which have been applied to two decisions of this court, namely, in the case of Commissioner of Income Tax v. Meatles Ltd. : 84ITR37(Delhi) (3) and in the case of Commissioner of Income Tax v. Hindus-tan Cold Storage and Refrigeration P. Ltd. 1976 183 Itr 455 : (4). In view of these bench decisions of this court it is not necessary to refer to other authorities. Learned counsel for the applicant, referred to the decision of the Supreme Court in .Associated Clothiers Ltd. v. Commissioner of Income Tax : 63ITR224(SC) (5). But this case has already been referred to and distinguished in Cit v. Meatles Ltd. : 84ITR37(Delhi) . Mr. Wazir Singh farther invited our attention to a decision of the Bombay High Court in Commissioner of Income Tax v. Modem Flats Private Ltd. : 65ITR67(Bom) (6). It appears to us that this decision far from supporting the learned counsel actually holds that there can be no transfer of property in the absence of a registered document and that even the provisions of Section 53A of the Transfer of Property Act and Section 27A of the Specific Relief Act will not come to the aid of a person who has been out in possession of a property in pursuance of an agreement of sale to claim ownership or title in the property. Mr. Wazir Singh relied upon the fourth proposition set out in the head note at page 67 where it was held that the assessed had transferred all its right, title and interest in a number of flats to the various flat holders even though there had been no registered document in respect thereof. But the clue to this aspect of the decision is really contained in the penultimate paragraph of the judgment at page 80. In that case the assessed Modern Flats Private Ltd. had acquired the property by a series of transfers none of which had been supported by registered documents. The assessed in turn conveyed its right, title and interest in the various flats to the flat holders. The department held that Modern Flats Pvt. Ltd. had become the owners of the property. The High Court pointed out that this was not possible because there were no registered documents transferring the property to the said company. Apart from this the High Court also pointed out that if the department's case was that Modern Flats Pvt. Ltd. had become the owners of the property even without such registered documents then on the same logic Modem Flats Ltd. had succeeded in transferring the ownership of the property to the various flat holders. In other words, the High Court merely pointed out that the stand of the department should be consistent and this is what has been brought out in the penultimate paragraph of the judgment referred to above. Mr. Wazir Singh also referred to the decision in Commissioner of Income Tax v. Dr. R. B. Kamdin : 95ITR476(Bom) (7) and Addl. Commissioner of Income Tax v. U.P. State Agro Industrial Corporation Ltd. : 127ITR97(All) (8). The first of these cases arose under a different set of facts and in a different context and the learned counsel is merely trying to rely upon some general observations at page 485 which in our opinion are not of any assistance in the present case. So far as the second Allahabad case is concerned, the facts were somewhat special and in any event in view of the earlier decisions of this court we are unable to adopt the line of reasoning of the Allahabad High Court which we may incidentally point out is at variance also with the view taken by the. Bombay High Court in the case earlier referred to.
(9) Mr. Wazir Singh suggested that this was a case governed by Section 53A of the Transfer of Property Act. But even this contention cannot be upheld in this particular case?-. We have already extracted the findings of the Tribunal in paragraph 13 of the order. The Tribunal has clearly found that though an agreement for sale was entered into, possession of the property had not been handed over either physically or constructively to the intending purchasers. In view of this clear finding of the Tribunal even this plea based on the doctrine of specific purposes does not survive that apart as we have already pointed out, even where the doctrine could have been availed of, it was not considered to be sufficient to vast the transferee with title. The decision in Meatles Ltd. and Hindustan Cold Storage and Refrigeration P. Ltd. are clearly against the department.
(10) The only question that survive and indeed the only question which has been referred to us is whether this case can be treated as one of relinquishment or extinguishment of rights within the meaning of section 2(47). So far as relinquishment of rights is concerned for the reasons which we have already stated it is very difficult to say that the assessec company relinquished its rights in properties m favor of the intending shareholders. It will be appreciated that even for purposes of relinquishment of interest in properties there is as much necessity for a registered document as there is for the completion of a valid sale. For the same reasons as have been referred to earlier, it is thereforee not possible to say that the assessec Company had relinquished its right, title and interest in the properties in question in favor of the intending purchasers.
(11) So far as the question of extinguishment of rights is concerned, we have not been able to appreciate how exactly the department tries to bring in the concept of extinguishment in the context of the present case. An extinguishment of rights of a person in certain properties can take place either on account of 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 circumstances have been brought to our notice either by way of a statutory rule or otherwise from which it can be said that the rights of the assessed company in the properties got extinguished on the dates of the agreements. Possibly it can be said that when the land was eventually acquired by the Government such acquisition resulted in the extinguishment of the rights of the assessed in the properties. But the acquisition did not take place during the previous year. The acquisition, if any, was subsequent and, thereforee, no capital gains alleged to result from such acquisition would be taxable in the assessment year with which we are concerned.
(12) For the above reasons, we answer the question by saying that the Tribunal was not in error in holding that there was no relinquishment or extinguishment of the rights of the assessed in the properties in question and that the Tribunal was right in deleting the capital gains assessed by the Income-tax Officer.
(13) The reference is answered accordingly. The assessed will be entitled to its costs : counsel's fee Rs. 350.