TMI Blog1987 (9) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... uate to be a commercial area permitting the use of the land and buildings for commercial purposes. In order that the residential property No. 22,Barakhamba Road,New Delhicould be commercially exploited, a firm of builders M/s. Skipper Sales P. Ltd. entered into an agreement to purchase this property from its several co-sharers. Separate agreements dated24th June, 1977were entered between the said builder on the one hand and the respective co-sharers on the other. By agreement dated24-6-1977, the assessee M/s. Atam Prakash Sons agreed to sell its 1/6th share in the said property for a sum of Rs. 16 lakhs. However, for certain reasons the sale could not materialise and on6-10-1981, there were two agreements between the assessee Ms. Atam Prakash Sons, HUF and the said M/s. Skipper Sales P. Ltd. The first agreement provided that the agreement to sell referred to above would stand modified so as to convert the same into a collaboration agreement whereby the parties can mutually in furtherance of their objects proceed to construct the property. The agreement provided that a multistoreyed building would be erected on the said plot No. 22, Barakhamba Road, New Delhi by M/s. Skipper Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration for the sale is mentioned at Rs. 16 lakhs and like M/s. Atam Prakash Sons this assessee too by virtue of the collaboration agreement was to get 6000 sq. ft. of covered area and 3 garages in the proposed building. This assessee too entered into another agreement dated24th August, 1981by which like M/s. Atam Prakash Sons had agreed to sell to M/s. Skipper Sales P. Ltd. 4000 sq. ft. of covered area and 2 garages. This assessee too had received similar amounts and the stipulations mentioned in the case of M/s. Atam Prakash Sons were provided in the agreement with this assessee as well. 7. The assessee Shri Om Prakash is an individual. In the asst. order it is stated that the assessee had 1/18th share in the aforesaid property. The assessment order goes on to state that there was a partial partition in the HUF headed by the assessee Om Prakash as a result of which he had 1/3rd of 1/6th, i.e., 1/18th share in the property. In both the cases the ITO was of the opinion that there has been a transfer of the property resulting from the aforesaid transactions and both the assessee had made capital gains which were liable to be assessed to income-tax. He accordingly issued n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell 16,50,000 While accepting the sale consideration the facts of the assessee's having sold 4000 sq. ft. covered area + 2 garages for Rs. 11,00,000 and the rate of booking in the relevant period, i.e. Rs. 250 sq. ft. has been kept in view. Less cost of acquisition as on 1-1-1964 as per WT order in the case of M/s. Om Prakash Atam Prakash, HUF from where the property has fallen to the share of the assessee 1,66,667 Less : Basic exemption 14,83,333 5,000 ------------- 14,78,333 Less : 40% thereof as the property is more than 20 years old as per details given in the collaboration agreement 5,91,532 ------------- 8,87,001" ------------- In the case of assessee Om Prakash however, the ITO determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny registered document conveying any rights to the builders the learned CIT (A) observed that along with the collaboration agreement the assessee executed an irrevocable power of attorney in favour of the builders giving them the right to do all necessary things for the.construction of a multi-storyed complex on the land in question; that the builders were in their turn assuring the prospective buyers that they would get heritable and transferable rights. The learned CIT (A) also observed that after the building is completed, a transfer of a property to a limited company or a society was in contemplation. According to him, deeds of collaboration and power of attorney did not require registration and by these documents, the owners had irrevocably transferred the right of exploiting their immovable property and non-registration of these documents is not fatal to the completion of these documents. The learned CIT (A) also held that the capital gains arose in the accounting year in question. The assessee's appeals were dismissed with the aforesaid findings. 10. The learned counsel for the assessee contended that in this case no transfer of property has taken place and hence no capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinguished and, therefore, there was extinguishment of rights in the land within the meaning of section 2(47) (ii) of the Income-tax Act, 1961 and there was thus a transfer of a capital asset. According to him, it was not necessary that the entirety of the bundle of rights in the capital asset should be extinguished. According to him, to effect an extinguishment of a right to build on the land ordinary agreements as entered into between the assessees and the builder were enough and no registered document was necessary. According to him, the transaction should be looked upon with a reference to its real effect and not to the mere form and the fact that the assessees have not completed the transfer as envisaged in the original agreement to sell should not be allowed to avoid taxes on the substantial gain made by him then. 12. Under section 45 of the Income-tax Act, 1961, gains arising from the transfer of capital asset are chargeable to income-tax.'Capital asset' has been defined in section 2(14) to mean property of any kind held by an assessee. The assessees in question were the lessees of the land forming part of plot No. 22,Barakhamba Roadand they owned the building that stood t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts to transfer of property. According to him, the right to build on the property gets extinguished by virtue of the various agreements. The owners thus cannot raise any building on this land and that right having got extinguished, there is a transfer within the meaning of section 2(47). The learned counsel there hand, had contended that extinguishment of rights can amount to a transfer only if all the rights that the assessee has in the property are extinguished and there would not be any transfer if merely by virtue of a grant of some of those rights by the assessee to a third person, there is a diminution in bundle of rights that the assessee possessed. In order to solve this controversy, it would be proper if we have a fresh look at the mutual rights created by the various agreements entered into between the assessee and the said builders. Initially as already stated, there was an agreement to sell. It is to be remembered that this was not a freehold property. The land belonged to the Government of India and the leasehold right that the assessees possessed could not be transferred without the sanction of the Government. Apparently no such sanction appears to have been granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already agreement to sell by the two assessees in respect of portions of the built up area to be given to them in favour of the builders. But since they continue to be agreements to sell nothing turns upon them. 15. As is evident from the terms of the so called collaboration agreement what is ultimately brought about is a permission by the assessees to the builders to raise Multi storeyed building on the land held by them (the assessee) on lease. This transaction Cannot amount to sale of the property to the builders because there is no registered document. Secondly, no building has yet been raised on the land in question with the result that the.right granted to the builders has not actually been exercised. This transaction cannot amount even to a lease because a lease too if it is for indefinite period has to be registered. Further in a lease exclusive possession of the lease property has to be delivered to the lessee while in the case before us what is contemplated is the joint possession of the multi storeyed building inasmuch as the assessees will also occupy parts of the proposed building which were to be given to them in consideration of the right granted to the builders t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts of the present case. The Government of India is the owner of the land and is, therefore, vested with all those rights connected with the ownership which remain with an owner after he leases out the land to a particular person for a particular purpose. According to him, the assessees were the lessees of the land and their rights were different from that of the Government of India and the builders M/s. Skipper Sales Pvt. Ltd. have a yet different type of right in respect of the land i.e. a permission from the assessees to raise on the land in question a multi-storeyed building and to maintain it. According to him, each of the three persons has a different variety of rights in the same property and those rights constituted a capital asset in the hands of each with the result that each may transfer his rights to the extent permitted by law. According to the learned counsel, a transfer must be of the entirety of the rights that a particular person possesses and it is with respect to all those rights that the word 'any' has been used. 16. Reliance was placed from both sides on Vania silk Mills [p.] Ltd.'s case. In that case a fire had demanded the assessee's machinery to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother observation, which is as below : "It follows from the foregoing discussion that the Legislature in order to effectuate its intention, has deliberately chose the language of wides amplitude by suing the expression the extinguishment of any rights therein in section 2[47]. It covers every possible transaction which results in the destruction, annihilation, extinction, termination, cessation or cancellation, by satisfaction or otherwise, of all or any of the bundle of rights--qualitative or quantitative--which the assessee has in a capital asset, whether such asset is corporeal or incorporeal." In the aforesaid paragraphs the Hon'ble High Court has no doubt stated that extinguishment can be all or any of the bundle of rights which could be interpreted in the manner asserted by the learned Departmental Representative, but we have to read the same with reference to the earlier observations, otherwise the two observations would be contrary to each other which cannot be reconciled. Capital gains arise out of a transfer of a capital asset and the word transfer has a definite notion. A mere permission to use the property or the mere grant of a certain permissive right over the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Skipper Sales P. Ltd. can certainly assure the prospective buyers that the property purchased by them is not the result of an act of trespass and would not be removed. If they have been assuring anyone that in due course of time the land in question would be got conveyed to a company or a co-operative society, that too is immaterial. The gains arising.to the assessees, if any, would then be determined according to the ultimate transaction that materialises. 20. A similar transaction was the subject of the decision of a Bench of this Tribunal in Ashok Kapur [HUF]'s case. In that case it was argued on behalf of the revenue that the joint venture between the builders and the owners amounted to a partnership and there was a transfer of the property to the partnership and capital gains had to be calculated on that basis. It was admitted in that case by the assessees that they had converted their immovable property into stock in trade on6-11-1979but contended that this had not resulted in any transfer within the meaning of the Act. The Tribunal held that on the terms of the agreement (which was identical with those of the cases before us) there was no partnership between the owners a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like this where there is no evidence to cheat the revenue and as held by Hon'ble the supreme court in the case of Nawab Sir Mir Osman Ali Khan, the title has not been transferred for want of a proper deed of conveyance. 21. In view of the above discussion, we hold that there was no transfer of property No. 22,Barakhamba Road,New Delhiby the assessees in favour of the builders M/s. Skipper Sales P. Ltd. and hence no capital gains has arisen to them on account of the moneys received by them. It is important to note that in pursuance of the collaboration agreement the assessees were to hold a certain built up area of the proposed multi-storeyed building in consideration of the licence to build granted to the builders. By another agreement the assessees agreed to transfer a part of that area of the said builders for a certain price. What they received in respect of the proposed transfer of the built up area was thus merely an advance towards the sale consideration because the property which was the subject-matter of the agreement was yet to come into existence and the sale had to be effected only after the building had been raised. The assessee M/s. Atam Prakash and Sons, HUF also re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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