TMI Blog2008 (8) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ns HUF (hereinafter referred to as 'the 1st assessee') and Om Prakash (hereinafter referred to as 'the 2nd assessee'):- "Whether on the facts and in the circumstances of the case the Tribunal was right in holding that there was no transfer of a capital asset within the meaning of Section 2(47) of the Income-Tax Act, 1961 and hence no capital gain has arisen to the assessee?" 2. In order to answer the aforesaid question it would be important to refer to certain undisputed facts. The same are as follows:- 3. On 9.10.1936 a perpetual deed was executed between the Secretary of State for India-in-Council representing the Government of India (i.e., the lessor) and one Shri Kanwar Narain Singh (i.e., the lessee) whereby, the said indenture demised in perpetutity, as and by way of lease, for a consideration and conditions contained in the said indenture as a lessee; rights, title and interest in land admeasuring 3851 sq. meters situate at block No. 205 in New Capital of Delhi presently known as Bungalow No. 22, Barakhamba Road, New Delhi. 4. By way of devolution, consequent upon partition and inheritance in the family of the aforesaid lessee, the said plot of land alongwith a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- will be paid to the 1st assessee by SSPL at the time of registration of the conveyance deed in the presence of the sub-Registrar, New Delhi by way of a bank draft payable at New Delhi. 7. It transpires that on 24.8.1981 the possession of the said property was handed over to SSPL. 8. On 6.10.1981 the 1st assessee executed two (2) agreements with SSPL. The first, being an agreement to sell dated (hereinafter referred to as the 'first agreement') and the second, being a collaboration agreement (hereinafter referred to as the 'collaboration agreement'). 8.1. In the first agreement, the parties therein i.e., the 1st assessee and SSPL, recorded that on account of certain diverse circumstances and reasons, it had not been possible to execute the sale deed in pursuance to the earlier agreement for sale dated 24.06.1977 and hence, the agreement for sale executed on 24.06.1977 stood modified to the extent and according to the terms and conditions provided in the collaboration agreement for redevelopment and construction of a multi-storeyed building after demolition of the existing structure. 8.2. The agreement further recorded that on fulfillment of the collaboration agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the building on the said property complete in all respects the area allocated to the 1st assessee in this agreement shall be conveyed and transferred by the 1st assessee to SSPL and/or to its nominees at the cost and expense of SSPL. 8.11. The first agreement was, however, made subject to any change as may be necessitated on account of permissions/approvals and sanctions of the municipal authority, Urban Land (Ceiling and Regulation) authorities etc. or by mutual consent of parties. 9. As referred to hereinabove, on 6.10.81 the 1st assessee also executed the collaboration agreement with SSPL. The collaboration agreement reflects the terms agreed to between the 1st assessee and SSPL in the first agreement. The salient terms and conditions as recorded in the collaboration agreement being important for the purposes of deciding the present matter are extracted hereinbelow:-???? (i) THAT the subject matter of this Deed of Collaboration between the Owners and the Builders is the utilization of the bungalow property No.22, Barakhamba Road, new Delhi, for the purpose of erecting a multistoreyed commercial building on the said plot of land after demolishing the exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t stands modified and shall be treated as security to ensure due performance of the obligations on the part of the Builders reserved in this Agreement. (xi) THAT 6,000 sq.ft. (six thousand sq. ft. only) (1,000 sq.ft. on second floor and the rest of the area on any floor, from 1st to 7th floor) in the proposed multi-storeyed commercial building and three garages in the said commercial building with proportionate share of the open area shall be taken by the Owner, and the remaining areas built and unbuilt in the said proposed multi-storyed commercial building shall be taken by the Builders in accordance with their respective separate agreement with the Owners of the five-sixth share of property as a consideration for the liabilities undertaken by the Builders in terms thereof. (xii) THAT unless exemption of the excess vacant land, if any, also the land that would be obtained after demolition of the existing building on the plot No.22, Barakhamba Road, New Delhi, from provisions of Chapter III of the Urban Land (Ceiling and Regulation) Act, 1976 is obtained with regard to the construction of the multi-storeyed commercial building on the said plot of land, the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement dated 24.8.81 and an agreement to sell of even date dated 24.8.81. The share of the 2nd assessee in the collaboration agreement is mentioned as 1/6th . 10.1. By virtue of the collaboration agreement dated 24.8.81, the 2nd assessee was to receive 6000 sq. ft. of covered area and three (3) garages alongwith a proportionate open area in the proposed multi-storeyed commercial building. As referred to above, the 2nd assessee, as was in the case of the 1st assessee, also entered into an agreement to sell of even date dated 24.08.1981, by virtue of which, the 2nd assessee agreed to sell to SSPL, 4000 sq. ft. of covered area and two (2) garages alongwith a proportionate open area in the proposed multi-storeyed commercial building. 10.2. The 2nd assessee received similar sums of money as was in the case of the 1st assessee. Also, the stipulations contained in the two agreements dated 24.08.1981 were identical to the ones contained in the two agreements dated 6.10.81 executed between the first assessee and SSPL. 11. Since the terms and conditions contained in the agreements entered into between SSPL and the two assessees are identical for the purpose of discussi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st assessee preferred an appeal to the ITAT. By a common order dated 22.9.87 the ITAT allowed the appeals of both the assessees. 15. As stated hereinabove by virtue of a reference made under Section 256(1) of the Income Tax Act, the afore-mentioned question of law was referred to this Court. 16. Having perused the record and the documents and after hearing the submissions of the learned counsel for the revenue Mr.Sanjeev Sabharwal, we are of the view that the decision of the ITAT deserves to be upheld. In our view, no capital gains accrued to the assessees for the reasons given below. 17. Under Section 45 of the said Act an assessee is liable for capital gains, if any, provided profit or gain arises to him from the 'transfer of a capital asset' effectuated in the previous year, by deeming such gains as income of the previous year in which the transfer took place. The relevant portion of Section 45(1) is extracted herein below:- "(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in section 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income-tax under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring his undivided share in the said property it would get in return, as consideration, 6000 sq.ft. and three garages alongwith proportionate open area in the proposed multi-storeyed building to be built by the SSPL, out of which 4000 sq. ft. alongwith two garages alongwith proportionate open area would be conveyed by the assessee to SSPL, in lieu of consideration in the sum of Rs.11 lacs, which was required to be appropriated and paid in the manner provided in the said agreements, and, (iii) lastly, to be noted that the, collaboration agreement reflected only the first limb of the transaction whereby, 6000 sq.ft. and three garages alongwith the proportionate open area was required to be allocated to the 1st assessee in lieu of the assessee conveying his undivided share in the said property to SSPL. The reference to the second limb of the transaction, that is, the said proposed sale of 4000 sq. ft. and two garages alongwith with the proportionate open area out of the allocable area to the assessee finds mention only in the 1st agreement dated 06.10.1981. 20. It is, thus, evident that the transaction entered into between the parties envisaged :- (i) first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approvals necessary for the said purpose; (vi) the SSPL was given power to transfer portions of the building under contemplation both before and after the building was ready. Similarly, the assessee was also free to transfer the areas allocable to them; (vii) on the record available before us the proposed superstructure did not get constructed and; (viii) lastly, the collaboration agreement provided that it would not constitute a partnership agreement between the 1st assessee and the SSPL and also that it was subject to a force majeure clause. 24. In view of the above, what is clear is that the said property which comprises of the land and the existing super structure was neither transferred nor conveyed by the 1st assessee in favour of SSPL nor could it have been in view of the fact that admittedly, there is no registered sale / conveyance deed executed by the 1st assessee in favour of the SSPL. The law in India recognize only a legal estate. Therefore, when an agreement for sale in respect of immovable property is entered into between the parties the legal estate remains with the seller, while it creates an equitable estate in the buyer. Similarly, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Section 2(47) of the Act spoke of 'extinguishment of any rights' in the property which according to revenue would amount to transfer of property within the meaning of the said provision. It was the contention of the revenue before us that the right to build on the said property by the 1st assessee got extinguished by virtue of the collaboration agreement dated 6.10.81 and agreement to sell dated 6.10.81. It was contended that since the assessee cannot raise any building on the said land, his right which is a capital asset within the meaning of Section 2 (14) had got extinguished and hence, there was transfer as contemplated under Section 2(47) of the Act. 26. As discussed above, what the collaboration agreement envisaged was that SSPL had bought for itself the permission to build a multi-storeyed building on the land leased out to the assessee. In view of the fact that there was firstly, no registered document and secondly no building in question had been built, the right granted to the builders SSPL had not been exercised. SSPL had in a sense merely got a right to occupy the land to construct a building thereupon. 26.1. In our view, mere grant of a permissive ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reation of interest in an immovable property, but, it is not conclusive proof of the same. The observations of the Supreme Court in the case of Smt Rajbir Kaur and Another v. M/s S. Chokosiri and Company : AIR 1988 SC 1845 (at page 1850), while discussing the attributes of a lease as against a license, are apposite and most relevant :- " In Wood v. Leadbitter (1845) 153 EDR 351 at p.354 Baron Alderson emphasized the element of the transfer of interest: "A dispensation or license properly passeth no interest, nor alters or transfers property in anything, but only makes an action lawful which without it had been unlawful." In Glenwood Lumber Co. v. Phillips (1904) AC 405 at p. 408 the distinction was pointed out thus: "If the effect of the instrument is to give the holder an exclusive right of occupation of the land, though subject to certain reservations or to a restriction of the purpose for which it may be used, it is in law a demise of the land itself." It is essential to the creation of a tenancy that the tenant be granted the right to the enjoyment of the property and that, further the grant be for consideration. While the definition of 'Lease' in Section 105 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the room is furnished or not. It does not depend on whether the occupation is permanent or temporary. It does not depend on the label which the parties put on it. All these are factors which may influence the decision but none of them is conclusive. All the circumstances have to be worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it intended that the occupier should have a stage in the room or did not have only permission for himself personally to occupy the room, whether under a contract or not, in which case he is a licensee." 26.5. In the present case SSPL was given the right to occupy the land in order give effect to its permissive right under the collaboration agreement to build subject to terms and conditions contained therein. The project was admittedly a joint venture with responsibility of each party clearly delineated. There was, to our minds, a licence given to make use of the said property in a particular manner, keeping in mind that all through, it was a venture in which the 1st assessee had a stake. Therefore, there was no 'transfer' within the meaning of Section 2 (47) of the Act since the right to make use of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract to transfer or make over in future every dividend and sum of money which may be declared or become due and payable on account or in respect of the shares held by the husband to his wife during her lifetime. It said that all other covenants in the deed of settlement were ancillary in nature and sub-serve the aforesaid main object of the contract. 26.9. The relevant observations of the Supreme Court are extracted herein below:-"A transfer of property may take place not only in the present, but also in future; but the property must be in existence. It is clear to us that the instrument of January 19, 1953, was not a transfer of any existing property of the assessee. It was in its true nature a contract to transfer or make over in future, every dividend and sum of money which may be declared or become due and payable on account or in respect of the shares held by the assessee, to his wife during her lifetime; the other covenants are ancillary in nature and subserve this main object of the contract. The assessee did not assign the shares and, therefore, retained the right to participate in the profits of the company; he did not part with that right. What the contract provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, in our opinion no consideration received by the assessee for transfer of property as such an eventuality would have arisen only if the property was in existence. 26.13. In the aforesaid circumstances, we are of the view that no capital gains has accrued to the assessee. 27. The learned counsel for the revenue, Mr. Sanjeev Sabherwal, cited the judgment of Madhya Pradesh High Court in the case of CIT v. Laxmi Devi and Ratni Devi and Ors : (2008) 290 ITR 363. A bare perusal of the facts in the said case would show that the same is distinguishable. The broad facts that obtained in the said case were, that the assessee firm entered into an agreement of purchase for a certain immovable property. Since the agreement was not carried out by the seller, the assessee filed a suit for specific performance. The suit for specific performance was compromised and in settlement a certain amount of money was received by the assessee firm. The Assessing Officer treated the said sum of money received by the assessee as 'capital gains' and taxed it accordingly. The matter was carried to the High Court. In this context, a Division Bench of the Madhya Pradesh High Court held that since th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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