1. The Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1961, has referred the following question of law for the opinion of this court:
'Whether, on the facts and in the circumstances of the case, only one-half of the capital gain of Rs. 79,119 is liable to be taxed in the hands of the assessee ?'
2. The facts which had given rise to the above question of law lie within a very narrow compass. The assessment relates to the year 1961-62. One property known as 'Khushaldas Gardens' was owned by seven individuals. One of them, namely, Shri Haridas Ghirdhardas, filed C. S. No. 391 of 1950, on the file of this court, against the other co-owners for division by metes and bounds of all the properties belonging to them inclusive of the aforesaid Khushaldas Gardens. During the pendency of the suit, one of the co-owners, namely, Shri Baldevdas Govindas, died survived by his minor son, Vallabhadas and his widow, Mrs. Kamala Bai, who were brought on record as parties to the suit in the place of the deceased. During the course of the partition proceedings, the High Court directed the sale of the abovesaid Khushaldas Gardens. Before the property could be sold, some of the co-owners entered into an agreement dated 5th August, 1959, whereby they agreed to request the court to allot the said property to them towards their shares at a valuation of Rs. 3,50,000 or such other sum which the court considered reasonable. The High Court, by its order dated 6th August, 1959, allotted the said property to the following five individuals, who held shares in the proportion mentioned against their names, for a sum of Rs. 3,61,001.
1.Ghanshamdas Ghirdhardasl/4th share2.Handas Ghirdhardasl/4th share3.Jagannathadas Goviudasl/4th share4.Smt. Kamala Bail/8th share5.Vallabhadas Baldevdasl/8th share
3. These five individuals, by an agreement dated August 4, 1959, agreed to own the property in the above manner. The said agreement also provided that the assessee herein, one of the five co-owners, should pay all the other co-sharers the value of their respective shares and that the co-sharers so paid should release their interest in the property in his favour. Subsequently, the assessee acquired the interest of Smt. Kamala Bai and her son, Vallabhadas Baldevdas, under release deeds dated April 11, 1960, and July 9, 1960, respectively. After the said release deeds, the assessee became the owner of one-half share in the entire property, while the other two co-owners remained as owners of one-fourth share each. In such a situation, in September-October, 1960, a portion of the aforesaid property was sold resulting in an excess of Rs. 79,119 realised over the market price as on the date of the order of the High Court. The liability to capital gains tax arose in respect of this transfer which resulted in a gain of Rs. 79,119. It is not in dispute that the sale deeds were executed by all the three persons, namely, the assessee and the other two co-owners. Further, the sale deeds referred to the agreement entered into between the parties under which the assessee had undertaken to take over the one-fourth share (each) of the other two co-owners on payment. They also referred to the fact that by the date of the sale the assessee had not paid the other two co-owner's in full and, therefore, had not obtained release deeds from them and that hence all the three continued to be owners of the property with reference to their respective shares and only with reference to those shares they were executing the sale deeds. In that set up, the assessee put forward the contention that he was liable to capital gains tax only in respect of one-half of Rs. 79,119 and not the whole of it. The ITO, the AAC and the Tribunal for different reasons declined to accept this contention. In view of the legal position being patent and clear, it is unnecessary to refer to the differing reasons given by the various authorities for taxing the entire amount in the hands of the assessee.
4. As we have pointed out already, on the date of the transfer of the property which resulted in the capital gain, the assessee had not obtained the release deeds from the other two co-owners and the assessee and the other two co-owners joined in the execution of the sale deed claiming that they were entitled to their respective shares in the property. Under such circumstances, whether the assessee had paid out of the capital gains the shares of the other co-owners or not, legally the capital gains belonged to all the three co-owners, the assessee in respect of one-half share and the other two in respect of one-fourth share each and, therefore, they would be liable to capital gains tax only in respect of the amounts to which they were entitled in law. As a matter of fact, the Tribunal has adopted a peculiar method of computation. In para 9 of its order, the Tribunal points out as to what was the value of the share of the co-sharers other than the assessee and it gives their value as follows :
Rs.Shri Haridas Ghirdhardas90,250.25Shri Jagannathadas Govindas90,250.25Smt. Kamala Bai45,125.12Shri Vallabhadas Baldevdas45,125.12
5. After mentioning the value of their shares as above, the Tribunal states:
'He (the assessee) has to pay Shri Haridas Ghirdhardas and Shri Jagannathadas Govindas Rs. 90,250'25 each and to Smt. Kamala Bai and Vallabhadas Baldevdas Rs. 45,125.12 each. From the statement of accounts of Shri Haridas Ghirdhardas and Shri Jagannathadas Govindas it is apparent that they were paid in all a sum of Rs. 93,874.50 each. This more or less amounts to the value of their share in the property.'
6. It is rather difficult to appreciate the relevancy of this statement of the Tribunal. We have already referred to the fact that the sale deed itself in categorical terms states that the assessee has not paid the money in full which he had undertaken to pay to the other co-sharers by the stipulated period, namely, September 30, 1969, and that it is in view of this only the other co-sharers have joined in the execution of the sale deed as owners of the property. In such a situation, it is really irrelevant as to what exactly was the amount the assessee has paid to the other co-sharers--whether it is exactly equivalent to the original value of their shares or more or less.' All that we are concerned with is, to whom did the capital gains belong in law. Since they happened to be co-owners of the property the capital gains resulting from the transfer of the property effected by all the three jointly will belong to all the three jointly according to their respective interests sold and consequently the entire capital gains cannot be assessed in the hands of the assessee alone.
7. Under these circumstances, we answer the question referred to this court in the affirmative and in favour of the assessee. The assessee is entitled to his costs of this reference. Counsel's fee Rs. 500 (Rs. five hundred only).