1990 (11) TMI 189 - AT - Income Tax

Issues Involved:

1. Whether the transaction between the assessee and M/s. Diamond Construction Co. constituted a transfer of capital asset.
2. Whether the transaction between the assessee and M/s. Pond's India Ltd. constituted a transfer of capital asset.
3. Whether the consideration received by the assessee was lease money, salami, or consideration for transfer of the subject matter.
4. Whether the consideration received was a capital receipt or a revenue receipt.
5. The effect of non-registration of the documents on the transfer of the capital asset.

Issue-wise Detailed Analysis:

1. Whether the transaction between the assessee and M/s. Diamond Construction Co. constituted a transfer of capital asset:

The assessee entered into an agreement on 22-10-1982 with M/s. Diamond Construction Co. to acquire ownership rights in the property known as 'Diamond Link' for Rs. 13,50,000. This agreement was presented for registration on 26-7-1984. The Tribunal noted that under Section 17(1)(d) of the Indian Registration Act, leases of immovable property from year to year or for any term exceeding one year must be registered. The Supreme Court in Alapati Venkataramiah v. CIT held that title to immovable property does not pass until the conveyance is executed and registered. Therefore, since the agreement was not registered until 26-7-1984, the assessee did not acquire any title to the property on 22-10-1982.

2. Whether the transaction between the assessee and M/s. Pond's India Ltd. constituted a transfer of capital asset:

The assessee entered into a lease agreement on 26-10-1982 with M/s. Pond's India Ltd. for a term of 98 years and received Rs. 44 lakhs as lease rent. This lease deed was also presented for registration on 26-7-1984. The Tribunal examined whether this lease constituted a transfer under Section 2(47) of the Income-tax Act, which includes sale, exchange, relinquishment, or extinguishment of rights. The Tribunal concluded that since the lease deed was not registered until 26-7-1984, no legal transfer of rights occurred on 26-10-1982.

3. Whether the consideration received by the assessee was lease money, salami, or consideration for transfer of the subject matter:

The assessee argued that the Rs. 44 lakhs received was advance lease rent for the entire term of 98 years, to be apportioned over the lease period. The ITO and CIT(A) held that the amount was consideration for the transfer of property and taxable as short-term capital gain. The Tribunal, referencing the Supreme Court's decision in CIT v. Panbari Tea Co., noted that the nomenclature used in the lease deed is not decisive; the substance of the transaction matters. The Tribunal found that the lease agreement transferred significant rights to M/s. Pond's India Ltd., indicating a transfer of capital asset.

4. Whether the consideration received was a capital receipt or a revenue receipt:

The assessee contended that the receipt was a capital receipt not chargeable to tax as it did not arise from the transfer of any property. The CIT(A), referencing the Gujarat High Court's decision in CIT v. Minal Rameshchandra, held that the transaction was a transfer of interest in property with the motive to make a profit, thus subject to capital gains tax. The Tribunal agreed, noting that the transaction involved the transfer of significant rights in the property, making the receipt a capital gain.

5. The effect of non-registration of the documents on the transfer of the capital asset:

The Tribunal emphasized the importance of registration under the Indian Registration Act. Section 49 of the Act states that unregistered documents affecting immovable property cannot affect the property or be received as evidence of any transaction affecting such property. The Tribunal referenced the Supreme Court's decision in Nawab Sir Mir Osman Ali Khan v. CWT, which held that legal title to immovable property passes only upon registration. Therefore, the Tribunal concluded that since the documents were not registered until 26-7-1984, no transfer of capital asset occurred on 22-10-1982 or 26-10-1982.

Conclusion:

The Tribunal concluded that there was no transfer of capital asset in the assessment year 1984-85 as the documents were not registered until 26-7-1984. Consequently, the addition of Rs. 30,50,000 as short-term capital gain was deleted. The appeal was allowed in favor of the assessee.

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