TMI Blog1986 (6) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... s duly registered with the registering authority. On the very same day, the assessee leased out lands to the vendor Shri Jainarayan Mishra on a monthly rent of Rs. 2,000 for a period of 5 years and the said lease deed was also registered with the registering authority. On the very same day, the assessee entered into an agreement with the vendor Shri Jainarayan Mishra to reconvey the property to him on the condition that the latter pays to the assessee Rs. 1 lakh within 5 years from 20-8-1970, provided there was no arrear of rent to the assessee for four consecutive months by due dates at that point of time. The first two documents, viz., the conveyance deed in favour of the assessee and the lease deed in favour of Shri Jainarayan Mishra were submitted to the ITO. The third document, viz., the agreement for reconveyance was not produced before the ITO. In Part IV of the return of income, the assessee disclosed the lease rent claiming the same to be exempt as agricultural income. Assessments were duly completed on that basis for all these years. 3. However, for the assessment year 1974-75, the special audit party observed as follows : " 2(a) To arrive at the gross total income th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Village were only under mortgage by conditional sale as provided for in section 58(c) of the Transfer of Property Act, 1882. On this reasoning, it was viewed by the department that the so-called lease rent received by the assessee was nothing but interest on the amount advanced by the assessee to Shri Jainarayan Mishra. Therefore, the ITO took the lease rent under the head 'Income from other sources', whereas the claim of the assessee was that the lease rent is agricultural income. 4. The assessee carried the matter in appeal to the Commissioner (Appeals) who was of the view that no material was suppressed or withheld from the department by the assessee. Therefore, the reopenment made under section 147(a) for the assessment years 1971-72 and 1972-73 was held invalid. For the assessment year 1974-75, the Commissioner (Appeals) applied the ratio of the decision of the Supreme Court in Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996, and held that the objections of the audit party on a point of law could not amount to 'information', enabling the ITO to initiate reassessment proceedings under section 147(b). 5. Shri N. Santhanam, the learned departmental representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completed the original assessments. It is the department's contention that the omission to bring this document to the notice of the ITO is a serious omission of primary fact having a material bearing on the assessment giving rise to cause of action under section 147(a). In our opinion, the agreement to reconvey the property does not constitute primary fact having a material bearing on the assessment. It is not each and every omission of certain facts primary or secondary, which is fatal. It is only those primary facts which have a bearing on the assessment that have to be disclosed to the ITO, the non-disclosure of which would empower the taxing authority to initiate reassessment proceedings under section 147(a). On a cursory examination of the agreement to reconvey the property entered into by the assessee and the vendor-cum-lessee Shri Jainarayan Mishra, it would be clear that what is envisaged in the agreement is not an outright resale to the other party on the payment of a sum of Rs. 1 lakh at the expiry of a certain period, viz., five years. There are further conditions in it. Clause 4 of the agreement of reconveyance is as follows : " Notwithstanding the provision in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of an agreement to reconvey the said property to the vendor Shri Jainarayan Mishra. In our opinion, this agreement to reconvey the property to the vendor upon fulfillment of certain terms and conditions as adumbrated in the said agreement dated 20-8-1970 does not constitute primary fact the non-disclosure of which is fatal to the assessee. 8. In fact, the department was informed by the audit party on a point of law in the course of audit for the assessment year 1974-75. The Commissioner (Appeals) had extracted that part of the audit objection in paragraph 10 of his order [paragraph 2 (b) already extracted in this order] and has held the reasons for reopening of the assessment as per the order-sheet entry exactly tallied with the language of the audit objection mentioned above. Therefore, he held that the reassessment under section 147(b) for the assessment year 1974-75 was launched exclusively on the basis of the above audit objection. Applying the ratio of the decision of the Supreme Court in Indian Eastern Newspaper Society's case he held the opinion of an audit party on a point of law could not be regarded as information enabling the ITO to initiate reassessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no such transaction shall be deemed to be a mortgage unless the condition is embodied in the document which effects or purports to effect the sale. " The proviso to section 58(c) is very significant. According to the said proviso, unless the condition for re-transfer is embodied in the document which effects or purports to effect the sale, the said document cannot be considered as a mortgage by conditional sale. In this context, Shri Santhanam wanted us to lift the veil and look into the substance of the transaction. Certainly, in certain situations the Courts are empowered to look for the substance of transactions. In order to enable us to lift the veil, the department must by cogent evidence prove that the transaction is really in the nature of mortgage with all the trappings of ostensible sale and reconveyance. Here again, one has to look into the provisions of the document. This is not a case in which the property purchased by the assessee was simply conveyed back to the vendor, This is a case in which the property initially purchased by the assessee was conveyed to some other person at the instance of the vendor. From a perusal of the deed of conveyance registered as D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time, the proviso to section 58(c) was not there in the statute. In fact, the proviso was added by the Transfer of Property (Amendment) Act, 1929 and, therefore, the Supreme Court has no occasion to consider the effect of the transaction in the light of the proviso which was added subsequently. The other case relied on by him, viz., Bhaskar Waman Joshi's case is not on all fours with the case before us. In that case, it was observed by Shah, J., as follows : " The proviso to this clause [i.e., clause (c) of section 58 of the Transfer of Property Act] was added by Act 20 of 1929. Prior to the amendment there was a conflict of decisions on the question whether the condition contained in a separate deed could be taken into account in ascertaining whether a mortgage was intended by the principal deed. The Legislature resolved this conflict by enacting that a transaction shall not be deemed to be a mortgage unless the condition referred to in the clause is embodied in the document which effects or purports to effect the sale.... " Therefore, this case also does not come to the assistance of the revenue. 13. In the result, the appeals of the department fail and are dismissed. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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