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TMI Blog1990 (11) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... m of 98 years commencing from the same date of 26-10-1982 on an apparent consideration of Rs. 44 lakhs received in lump sum on that date itself by cheque. The cheque was deposited in the bank and encashed on the very same date. The appellant company itself was incorporated on 20-10-1982 with the object to "acquire by purchase, lease, exchange or otherwise deal in land, building and hereditaments of any tenure or description or any estate or interest therein ......." The appellant filed its return of income on 30-6-1984 declaring a loss of Rs. 1,86,183 which was later revised on 3-7-1985 at nil income and declaring Rs. 44,900 being the 98th part of the lease money of Rs. 44 lakhs received in lump sum as 'income from house property' for the year. The ITO rejected the appellant's claim and held that the receipt of Rs. 44 lakhs from M/s Pond's India Ltd. was a consideration for transfer of the property under reference and the same was subject to short term capital gain during this year itself." 1.2 The stand of the assessee before the learned first appellate authority as summarised by him in para 5 of the impugned order reads as under :--- "The appellant's arguments against the ITO's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter. On 26-10-1982 the appellant company received a cheque from M/s Pond's India Ltd. which was encashed on that day and the lease commenced from that day itself. The company subsequently started a truck hiring business and no other transaction in properties were made after this transaction. (7) Section 45 of the Income-tax Act brings to charge any profits or gains arising from the transfer of a capital asset effected in the previous year. Section 2(47) of the Act includes under the term transfer the sale, exchange or relinquishment of the asset or the extinguishment of the rights therein or compulsory acquisition thereof under any law. This being an inclusive term the reference may be made to the Transfer of Property Act which includes lease as a transfer of right to enjoy such property made for a certain time, expressed or implied in consideration of price paid or promised. Lease is not a mere contract but is a transfer of an interest and creates a right in rem. Section 105 of the Transfer of Property Act brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lesser. When the interest of the les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. There is no annuality clause in the lease deed. The terms used in the lease deed indicate the intention that all rights in the property have been transferred for a period of 98 years. This would further be confirmed by the fact that the whole amount was provided to be received and was actually received in one lump sum. There is no clause for revocation of the transfer before ninety eight years for any reason whatsoever, and the property as a whole stands transferred against full consideration for that period of time. During the course of hearing a reference was also made to the provisions of section 269A(h) wherein transfer in relation to any immovable property meant transfer of such property by way of sale or exchange or lease for a term not less than 12 years. The learned Counsel for the appellant has sought to make a distinction on the ground that under section 2(47) there is nothing to indicate that lease is included in transfer. As mentioned above that the definition of transfer under section 2(47) is an inclusive one. To include lease as a transfer, reference may be made to Calcutta High Court decision reported in 168 ITR 533. The appellant company entered into an agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the transfer of any property, the learned Commissioner of Income-tax (Appeals) in paras 10 and 11 of the impugned order held as under :--- 'As has been held by me above lease was a transfer for a consideration and the capital receipts received was subject to capital gains tax. From the facts and circumstances of the case, I am convinced that this was a deal in transfer of interest in property with the motive to make profit, whatever other colour the appellant may have tried to give it. A reference may be made to the judgment of the Gujarat High Court in the case of CIT v. Minal Rameshchandra reported in 167 ITR 507. The observations of the Court are relevant to my interpretations of facts of this case are quoted as under :--- "where a device has been adopted to evade tax the Court is entitled to unravel the device. The Court must examine the substance of a transaction and then decide whether the transaction is such that the judicial process may accord approval to it". I am also reminded of the observations of the Supreme Court judgment in the case of T. N. Arvinda Reddy (reported in 120 ITR 47) which though made in a different context but principally could be defined as a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned authorised representatives of the parties at length on 21st of November, 22nd of November and finally on 24th of November 1988. 2.1 The assessee has placed on our file two paper books containing (i) Abstract of rent account of the subject matter in the books of account of M/s. Ponds (India) Ltd. alleged to be lessee; (ii) Detailed bifurcation of the rent account, i.e., ledger extracts from the books of the lessee; and (iii) Xerox copy of the annual accounts of the lessee company. The assessee has also placed on our file copies of assessee's letters addressed to learned Commissioner of Income-tax (Appeals), which are dated 31-7-1987,4-9-1987 and 10-9-1987. Copy of the alleged lease deed dated 26-10-1982 has also been placed on our file. The assessee has also placed strong reliance on orders of the ITAT in ITA No. 237 I/Bom/86 and 2649/Bom/84(assessee's second paper book pages 36 to 44 and 45 to 61). 2.2 During the course of the hearing of the appeals, the assessee was called upon' to place on our file copy of agreement dated 22nd October 1982 whereby the assessee is said to have purchased the subject matter. 2.3 It was complied with and the assessee has placed the same o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect matter of transfer and appeal is claimed to have been leased to M/s. Ponds (India) Ltd. The assessee-company received Rs. 44 lakhs in terms of lease rent for the entire term of lease, which was 98 years. This 'deed of lease' was also presented for registration with the authorities on 26th July 1984. 4. The case of the assessee is that lease has been made in terms of sections 105 and 107 of the Transfer of Property Act ; that entries in the books of accounts of the parties are relevant and is cogent evidence to determine the character of lease; that in terms of the said lease deed, what is transferred is the possession of the property and not the property; that the assessee has reserved an yearly rent and has taken rent for the entire period of the lease, which is to be apportioned/amortised over the period of the lease, which is 98 years. 4.1 The assessee has for the purpose contended that the amount received is a deposit in trust to be apportioned/amortised on year to year basis for a period of 98 years, hence is not a consideration for transfer because there has been no transfer but only lease of the subject matter Purshottam V. Raheja v. Second ITO [1988] 27 ITD 54 (Bom.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o use the premises during the said period without any interruption or disturbance by the lessor or any person lawfully claiming from under or in trust for the lessor or otherwise whomsoever and that the lessor shall not be entitled to terminate the lease hereby granted on any ground whatsoever. 4.3 The learned departmental representative as such has contended that what is transferred is 'absolute rights', since the lessor is excluded from resiling and/or rescinding the lease under any circumstance whatsoever. According to the learned departmental representative, since absolute rights have been vested with Ponds (India) Ltd., the consideration is a consideration for transfer or, else, salami and taxable as short term capital gains. The learned Senior Departmental Representative has also again and vehemently relied upon the guidelines laid down by the Andhra Pradesh High Court and the Supreme Court in the already mentioned cases, viz. 30 ITR 268 (AP) and 172 ITR 311(SC). 5. Section 105 of the Transfer of Property Act (Central Act No. IV) of 1882 defines 'lease', 'lessor', 'lessee', 'premium' and 'rent' as under :--- 'Lease' defined. - A lease of immovable property is a transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above Act deals with the topic, 'Effect of non-registration of documents required to be registered'. It reads as under :--- 'No document required by section 17 or by any provision of the Transfer of Property Act, 1882, to be registered shall--- (a) affect any immovable property comprised therein, or (b) confer any power to adopt, or (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered: Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument.' 5.4 Section 2(47) of the Income-tax Act, 1961 defines 'transfer' in relation to a capital asset as under:--- "transfer", in relation to a capital asset, includes, --- (i) the sale, exchange or relinquishment of the asset; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of tiles and bricks, entered into an agreement on March 17, 1948, with one V to sell those assets including the stocks and the goodwill of the business for a sum of Rs. 2 lakhs to a company. Option was reserved for the company to adopt the agreement. On March 17, 1948, the appellant handed over possession of the land and buildings and machinery to the company. On March 20, 1948, the company credited the sum of Rs. 2 lakhs in its accounts in favour of the appellant and the appellant also made appropriate entries in his own account books. The sale deed in respect of the land was executed in favour of the company on November 22, 1948. The agreement was approved by the board of directors of the company only on March 16, 1949, and by the shareholders of the company at a general meeting on April 10, 1949. The question was whether capital gains arose from the sale in the previous year ending March 31, 1948, relevant to the assessment year 1948-49: Held, (i) that before section 12B of the Indian Income-tax Act, 1922, could be attracted, title must pass by any of the modes mentioned in section 12B, i.e., sale, exchange or transfer. In the context "transfer" meant effective conveyance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esented for registration with the authorities on the same date, i.e., 26-7-1984. So neither the assessee held any immovable property, i.e., a capital asset nor did he could convey any such immovable property/capital asset or any interest therein in favour of Ponds (India) Ltd., since both the documents, viz., the agreement of purchase as also the 'deed of lease' were unregistered documents and have been presented for registration under the provisions of the Indian Registration Act only on 26-7-1984 and as yet new register arguments are required for the proposition that one cannot convey a better title than that which one has. In this case, no tide to any immovable property or any interest therein stood conveyed in favour of the assessee vide agreement dated 22-10-1982, as such the assessee could, on his part, also not convey any immovable property or, else, any right therein, including the lease rights in favour of Ponds (India) Ltd. 5.11 Under section 107 of the Transfer of Property Act, a lease of immovable property from year to year or for any term exceeding one year or reserving an yearly rent can be made only by a registered document. It has not so been done because the docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other, than a right expressly provided by the terms of the contract : Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.' 7.1 The doctrine of part performance embodied in the above section is on grounds of equity. The object is to prevent a transferor or his successor-in-interest from taking any advantage on account of non-registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer any title to the said immovable property in favour of Ponds (India) Ltd. 7.4 The result remains that the consideration cannot be charged to short term capital gain. 8. The appeal succeeds and stands allowed. 9. Before parting, we will like to observe that since on the above legal aspect of the case the assessee succeeds we have not discussed the stand of the parties raised in terms of contentions during the course of hearing of the appeals because we are of the opinion that these do not survive. Yet, that apart, we will like to place on record our real appreciation of the cogent and lucid arguments adduced before us during the course of the hearing of this appeal on behalf of the revenue by the learned Senior Departmental Representative, Shri Keshav Prasad. Shri Patil, as usual, was thorough. Per Shri N.R. Prabhu (Accountant Member): --- I have carefully gone through the order of the learned Judicial Member and I am not in a position to pursuade myself to agree with his findings. The facts of the case and the arguments by the Appellant and the Respondent have been elaborately dealt with by the learned Judicial Member and they, therefore, need not be recalled in detail he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be the income of the previous year in which the transfer took place. The short issue, therefore, before the Tribunal is whether the assessee was the owner of a capital asset and whether the same was transferred during the previous year relevant to the assessment year under consideration. Capital asset has been defined under section 2(14) of the income-tax Act and it takes within its fold property of any kind other than those exempted under that section. The word 'property' has a very wide meaning and would include all kinds of rights corporeal of tangible and also lesser interest like licence and lease hold interest etc. A right to enjoyment and exploitation would also constitute property. The Calcutta High Court in the case of A. Gasper v. CIT [1979] 117 ITR 581 has held the right of tenancy under the West Bengal Tenancy Act where the tenant is not prohibited from transfer of such right, is a capital asset. The Madras High Court CIT v. A.R. Damodara Mudaliar & Co. [1979] 119 ITR 583 has held that the licence granted for setting up of an industrial undertaking would be in the nature of capital asset. Similar is the view taken by the Madras High Court in the case reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngredient that are required for bringing to tax the surplus realised by the assessee are totally present. In sum the assessee was possessed of a capital asset which in this case is a right to enjoy and exploit a property, that the said right has been transferred to M/s. Ponds (India) Ltd., and such transfer could be treated as one, which would come within the provisions of section 2(47) of the Income-tax Act. The absence of a registered deeds can, therefore, have no bearing on the issue. In the absence of a registered document, the assessee may not be a legal owner and, therefore, cannot transfer such ownership to the lessee. But the assessee is undoubtedly is in possession of lesser right which is the right to enjoyment and exploitation of the assets and such lesser right has been transferred by the assessee to M/s. Ponds (India) Ltd. without any reservation. In this view of the matter, I am of the opinion that the order passed by the Commissioner of Income-tax (Appeals) does not require any modification and the same is confirmed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Since there is a difference of opinion vis-a-vis conclusions arrived at in ITA No. 762/Bom/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuated at Bandra. Shortly thereafter, the assessee-company entered into a lease with M/s. Ponds (India) Ltd. to lease out this property for a term of 98 years commencing from the same date of 26-10-1982 and received a sum of Rs. 44 lakhs by cheque. This sum was claimed to be the advance rent received' from M/s. Ponds (India) Ltd. for a period of 98 years. The cheque was deposited in the Bank and was encashed on the very same date. The assessee-company filed its return of income on 30th June, 1984 declaring a loss of Rs. 1,86,183 which was later on revised by filing a 'nil' return on 3-7-1985 in which a sum of Rs. 44,900 being the 98th part of the lease money of Rs. 44 lakhs was shown as income from property. The ITO rejected the appellant's claim that what was taxable was only Rs. 44,900, and on the view that the receipt of Rs. 44 lakhs from M/s. Pond's (India) Ltd. was a consideration for the transfer of the property under reference by way of lease brought the sum to short term capital gain which was computed at Rs. 30,50,000. The claim of the assessee, both before the ITO as well as before the first appellate authority, was that the provisions of section 2(47) and sections 45 & 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Supreme Court's decision in the case of CIT v. T.M. Aravinda Reddy [1979] 120 ITR 46 and also another judgment of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 that there was planning for avoidance and evasion of tax by adopting a dubious refinement of a legal culture with a clever concept of avoidance against evasion of tax which now was to be exposed. 4. Having failed both before the ITO and the CIT(A) the assessee approached the ITAT by way of second appeal. The learned Members of the Tribunal, after hearing the case as mentioned earlier, could not come to an agreed conclusion. The learned Judicial member held that as no registration took place as required under section 17 of the Indian Registration Act either from Ws. Diamond Construction Co. to the assessee or from the assessee-company to M/s. Ponds (India) Ltd., no title was acquired by the assessee from M/s. Diamond Construction Co. or any title was passed by the assessee to M/s. Ponds (India) Ltd. In order that there is a levy of capital gains tax, the first requisite was that the assessee should be the owner of the capital asset and the second requisite was that the capital asset mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of Section 2(14) of the Act so as to attract levy of capital gains tax. The fact that there was no registration did not affect the rights accrued to the assessee, nor negate nor preclude the right of the assessee to enjoy the property or to exploit it in the manner it liked. He was also of the opinion that when the lease for 98 years was entered into with M/s. Ponds (India) Ltd. by the deed dated 26-10-1982 the assessee-company relinquished its rights in the property for a period of 98 years in favour of M/s. Ponds (India) Ltd. which amounted to transfer within the meaning of section 2(47) giving raise to capital gains. According to him, it was very important that the lease was one of perpetuity and that the lessee was vested with all the rights that were vested in the assessee at the relevant time meaning thereby that the assessee divested itself of all rights that it acquired under the Agreement of sale dated 22-10-1982. The lessee was given the right to assign, mortgage or otherwise sublet, transfer the demise premises or any part thereof without being required to obtain the permission and/or consent of the lessor in that behalf which was a valuable right conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on documents", even though under law there was strictly no need for entering into confirmation agreements and even though they were entered into by way of abundant caution, nonetheless it would mean that the Agreement of 22-10-1982 with M/s. Diamond Construction Co. for the sale and the Agreement of lease with M/s. Ponds (India) Ltd. on 26-10-1982 must be deemed to have become inoperative by flux of time, and if such a view is taken all these confirmation agreements, in the eye of law, must be deemed to have been entered into only on 26-7-1984 although they were by way of confirmation of the earlier transactions. In other words the earlier transactions would only be transactions on assurances given without passing on any right, title or interest in the immovable property and the money that had passed hands was only on the strength of faith and trust, and such transactions of trust and faith should not have been considered as amounting to transfer of capital asset the enormity of the sums involved notwithstanding. He then emphasised that under the law any immovable property of the value of more than Rs. 100 can be transferred only on registration and law on the subject was firmly se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wner thereof and unless there was any conveyable right vested, Ponds (India) Ltd. would not have parted with the sum of Rs. 44 lakhs, the parties never therefore regarded registration as an impediment. Therefore, the learned Accountant Member's order ought to be supported. He placed reliance upon the decision of the Supreme Court reported in 172 ITR 311 and also on the philosophy of Section 45 of the Income-tax Act and Section 2(47) of the Income-tax Act. He also laid emphasis on Section 2(14) which defined 'capital assets' as including property of any kind. According to him, "property of any kind" takes in the change of hands of a right of the nature involved in this case. 7. I have carefully considered these arguments and perused the orders of my colleagues and I have come to the conclusion that the view expressed by the learned Judicial Member deserved to be accepted. The point of difference of opinion referred to me postulates whether there was a transfer within the meaning of Section 2(47) read with Section 45 of the Income-tax Act vis-a-vis M/s. Diamond Construction Co. and the assessee and also the assessee and M/s. Ponds (India) Ltd. Section 2(47) has already been extracte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd upwards, to or in immovable property; (c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent; and (e) non-testamentary instruments transferring or assigning any decree or order of a Court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present Of in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property;" (Other parts are left out as not relevant for the purpose). This Section lays down very clearly that the documents which purports or operates to create, declare, assign, limit or extinguish, whether in the present or in future, any right, title or interest. whether vested or contingent to or in immovable property shall be registered. 8. In this context I am referring to an argument addressed by the learned Departmental representative where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising out of the Wealth-tax Act, the question involved was whether the properties in respect of registered sale deeds were not executed, but consideration was received by the assessee, whether those properties still belonged to the assessee for the purposes of inclusion in the net wealth in terms of Section 2(m) of the Wealth-tax Act, 1957. Possession of the properties was also given to the purchaser and the properties were enjoyed by them. The purchasers in that case had the right to that possession, resist any suit for eviction, can enforce a suit for specific purpose for execution, of formal registered deed if the vendor was unwilling to do so but still the Supreme Court held that in the eye of law the purchasers could not be and were not the legal owners of the properties in question. The Supreme Court clearly pointed out in this case at page 893 of the Report that it was not necessary to be tied down with the controversy whether in India there is any concept of legal ownership apart from equitable ownership. The Supreme Court pointed out that Sections 9 and 10 of the Indian Income-tax Act, 1922 and Sections 22 to 24 of the Income-tax Act, 1961 spoke of "owner", it meant the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Departmental representative replied by placing reliance upon the decision of the Supreme Court in R.K. Palshikar's case . But my task is made easier in the sense that this question, was in any form, neither discussed by my learned Brothers in their orders, nor did it form a part of the point of difference of opinion. As a Third Member my role is highly circumscribed to the point of difference of opinion referred to me. Since this is not a point of difference of opinion, I do not propose to express any opinion on this issue. 9. Before I part with this issue, I would like to make a reference to the argument developed on the applicability of Section 47 of the Registration Act. Section 47 of the Indian Registration Act provided: "A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration." On a first blush of reading of this Section showed that a registered document shall operate from the time from which it had commenced to operate viz. that registration relates back to the date of Agreement. If that was so, even though the document was registered on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m an earlier date (page 408). This question was later followed by the Bombay High Court in the case of Amarchand Jain Agarwal at page 410. The Andhra Pradesh High Court in the case of Divvi Suryanarayana Murthy v. Competent Authority [1979] 117 ITR 278 had also come to the very same conclusion with regard to the effect of Section 47 of the Indian Registration Act. Thus the conclusion reached by the Bombay High Court, the jurisdictional High Court in this case on the effects of registration is binding on me. 10. Having regard to the above state of law, I am of the opinion that the assessee did not acquire any title in the property when the agreement of sale was entered into on 22-10-1982, nor did it transfer any right, to M/s. Ponds (India) Ltd. when it had entered into a lease agreement on 26-10-1982, the assessee's contention to the contrary notwithstanding. The assessee's contention must be seen in the light of the law. His acquisance against the provisions of law cannot change the law in his favour, nor can he be bound by the agreement he makes against the specific rulings in law. The agreement of sale secures the assessee only a right to get the sale deed registered in its fav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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