1981 (8) TMI 68 - HC - Income Tax

Summary

Issues Involved:
1. Whether there was a relinquishment or extinguishment of rights in the property by the assessee.
2. Whether the Tribunal was right in deleting the capital gain assessed by the Income-tax Officer.

Summary:

Issue 1: Relinquishment or Extinguishment of Rights
The core issue was whether the assessee-company had relinquished or extinguished its rights in the property known as "Pili Building" through agreements of sale with certain shareholders. The agreements stipulated that the sale deeds would be registered by December 31, 1967, and that possession was purportedly given to the intending purchasers. However, no registered sale deeds were executed due to a notification u/s 4 of the Land Acquisition Act issued on August 30, 1967. The Tribunal found that no actual or constructive possession was delivered to the purchasers, as the property remained with the tenants and no attornment letters were issued. The Tribunal concluded that there was no relinquishment or extinguishment of rights in the absence of a registered document, citing Supreme Court decisions in CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 and Alapati Venkataramiah v. CIT [1965] 57 ITR 185.

Issue 2: Deletion of Capital Gain
The Income-tax Officer (ITO) had assessed a capital gain of Rs. 1,26,82,136, arguing that the transfer of property should be deemed effective from July 1, 1967, based on the agreements of sale. The Appellate Assistant Commissioner (AAC) deleted this inclusion, stating that no sale was effected without a registered document. The Tribunal upheld the AAC's decision, emphasizing that capital gain could only arise upon a valid transfer of property, which requires a duly executed and registered document. The Tribunal also noted that the acquisition of the property by the government, which could result in extinguishment of rights, did not occur during the relevant assessment year.

Conclusion:
The High Court agreed with the Tribunal, stating that there was no relinquishment or extinguishment of rights by the assessee in the properties in question. Consequently, the Tribunal was correct in deleting the capital gains assessed by the ITO. The reference was answered in favor of the assessee, with costs awarded to the assessee and counsel's fee set at Rs. 350.