Allahabad High Court
Abdul Qayume vs Commissioner Of Income-Tax on 22 December, 1989
Equivalent citations: [1990]184ITR404(ALL), [1990]50TAXMAN171(ALL)
JUDGMENT R.K. Gulati, J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), both at the instance of the Commissioner of Income-tax, Meerut, and the assessee, Abdul Qayume. It arises out of the income-tax proceedings for the assessment year 1973-74.
2. The assessee was the owner of a property known as New Market, Shahghasa Bazar, Meerut. He sold it to one Dharam Das Jain subject to a stipulation to purchase it back. In pursuance of the said agreement, the assessee, along with Dharam Das Jain, by a registered sale deed dated February 12, 1963, sold the said property to two persons, namely, Vishnu Kumar Gupta and Sheelal Gupta (hereinafter referred to as the "Guptas"), for a consideration of Rs. 30,000. On the same day, a contemporaneous document was executed by the Guptas agreeing to resell the property to the assessee for that amount within a period of three years. By another document of the same date, the property was given on lease to the assessee. Subsequently, an agreement for reconveyance was renewed on three occasions, the last being on November 9, 1970, but for a consideration Rs. 45,000. In the year under consideration, the Guptas along with the assessee sold different portions of the property to six near relatives and to two educational institutions for amounts aggregating to Rs. 81,000. Out of this amount, Rs. 45,000 was received by the Guptas and the balance amount of Rs. 36,000 was paid to the assessee. The stamp duty for the eight sale deeds was paid on the total amount of Rs. 1,40,000.
3. The assessee, in his income-tax return, declared a capital gain of Rs. 19,000 treating himself to be the owner of the property and the Guptas as mortgagees. The amount of gains was returned after adjusting from the total sale consideration, the amount received by the Guptas, the cost of acquisition of the property, statutory allowances and certain other amounts which were claimed as expenditure.
4. The Income-tax Officer, however, computed the taxable gains at Rs. 54,848. In doing so, he disallowed the amount of Rs. 45,000 and certain other amounts claimed as expenditure. The Income-tax Officer also invoked the provisions of Sub-sections (1) and (2) of Section 52 of the Act and adopted the figure of Rs. 1,40,000, the amount on which the stamp duty was paid, the full value of consideration for the transfer as the fair market value of the asset on the date of the transfer for the purposes of computing the capital gains.
5. The assessee challenged the assessment in appeal, contending, inter alia, that he was not liable to tax on any capital gains, for the Guptas were the owners of the property and not the assessee. In the alternative, if the assessee had any interest in the property, capital gains should have been assessed proportionate to that interest only. The application of the provisions of Section 52 of the Act as well as the disallowances, etc., were also challenged. The appeal was dismissed in all other respects except that some relief was allowed in the computation of taxable gains.
6. Being still aggrieved, the assessee appealed to the Income-tax Appellate Tribunal which was allowed substantially. The Tribunal held that the provisions of Section 52 had no application. The ass'essee was not the owner of the disputed property, but the assessee was liable to capital gains tax in respect of Rs. 36,000. The Tribunal also allowed partial relief with regard to the expenses claimed.
7. On the above facts, the Income-tax Appellate Tribunal has referred the following questions for the opinion of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in holding that the assessee was not the owner of the property in question and that he only had an interest in the property ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that Sections 52(1) and 52(2) of the Income-tax Act, 1961, were not applicable to the case and, therefore, the fair market value of the property could not be taken at Rs. 1,40,000 ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not allowing Rs. 6,000 claimed as deduction as cost of improvements ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the assessee was entitled to the deduction of stamp duty and registration charges of Rs. 10,768 instead of Rs. 5,362 allowed by the Income-tax Officer and the Appellate Assistant Commissioner ?"
8. Out of the above, which question or questions is at whose instance is not indicated in the statement of the case submitted by the Tribunal. Sri P. K. Jain, learned counsel, who had initially filed his appearance for the assessee stated that he has no instructions from his client despite several communications sent by him. We have heard Sri M. Katju, learned standing counsel appearing for the Revenue. He stated that questions Nos. 1, 2 and 4 are at the instance of Revenue and only question No. 3 is at the asking of the assessee. We feel that Sri Katju is right and we shall proceed accordingly.
9. So far as question No. 3 is concerned, we return it unanswered for want of prosecution in view of the statement of Sri P. K. Jain.
10. Now coming to the first question, learned standing counsel contended that the transaction represented by the sale deed dated February 12, 1963, in essence and substance, was a transaction of mortgage though apparently, it may have been given the appearance or form of an ostensible sale, because a contemporaneous agreement for reconveyance was contained in a separate document. It was urged that, for deciding the question whether a transaction is a mortgage by conditional sale or a sale outright, the court must have regard to the surrounding circumstances and the subsequent conduct and intention of the parties. We were invited to the findings recorded by the Income-tax Officer, in particular, that until the immediately preceding assessment year, i.e., 1972-73, the assessee had been returning and was assessed on the income from the disputed property notwithstanding its purchase by the Guptas. Further, the assessee had all along been claiming and was allowed deduction of the amounts said to have been paid by way of interest to the Guptas. It was emphasised that the assessee having returned the capital gains treating himself to be the owner of the disputed property was estopped from raising the plea that he was not the owner thereof.
11. We have considered the matter carefully and find no substance in any of the arguments referred to above.
12. The plea about the ownership was turned down by the first appellate authority relying on the conduct of the assessee subsequent to the sale of the property. This is clear from the following passage appearing in the order of the Appellate Assistant Commissioner ;
"... Facts of appellant's case, as narrated above, clearly indicate that the real relationship of the appellant with respect to the property sold during the period under consideration was that of a real owner which was different from the apparent relationship shown as per a different document which stood disproved by the appellant's own conduct as per his income-tax record referred to by the Income-tax Officer."
13. The Tribunal looked at the matter differently and for the view that the assessee was not the owner of the disputed property, it remarked :
"The assessee sold the property to the Guptas by sale deed dated March 12, 1963. This deed did not contain any item for the repurchase of the property by the assessee. The assessee took the property on lease by a separate deed and there was no question of payment of interest on the sale proceeds by the assessee. The agreement of repurchase was by way of a contemporaneous deed of March 12, 1963, for an amount of Rs. 30,000 for which the property had been sold. The repurchase was to be made within a period of three years. These facts show that the parties had no intention to treat the sale as a mortgage. The subsequent renewal of the agreement does not change the original position and create a relationship of debtor and creditor between the parties. The assessee, therefore, was not the owner of the property at the time of sale."
14. We may note that none of the three documents mentioned earlier has been filed in this reference nor have they been made a part of the statement of the case. Thus, we had no opportunity to look into those documents ourselves. The findings of fact recorded by the Tribunal were not questioned by learned standing counsel. It was admitted that the agreement for reconveyance was contained in a separate document and there was no such condition embodied in the document of sale which effected or purported to effect the sale. The contention urged was that both the documents, i.e., the sale deed and the document of reconveyance ought to have been read together in order to find out whether the transaction was a mortgage by conditional sale or an outright sale.
15. Now, Section 58(a) of the Transfer of Property Act defines "mortgage" as the "transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan". Sub-clause (c) of Section 58 provides :
"(c) Mortgage by conditional sale.--Where the mortgagor ostensibly sells the mortgaged property on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called a mortgage by conditional sale and the mortgagee a mortgagee by conditional sale :
Provided 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."
16. The effect of the proviso to Clause (c) of Section 58 of the Transfer of Property Act is that if the condition for retransfer is not embodied in the document which effects or purports to effect a sale, the transaction will not be regarded as a mortgage. In other words, there cannot be a mortgage by conditional sale when the agreement of sale and resale is embodied in more than one document. In a situation like the one with which we are confronted, it is not at all open in law to enquire into the nature of the transaction and to take into account the other evidence for holding that the sale deed which purports to be an out and out sale was in reality a mortgage by conditional sale. The rule laid down in the proviso is unambiguous and clear and any other construction will stultify the enactment contained in the proviso. The contention that the sale deed and agreement of reconveyance be read together and treated as one document is not open in view of the provisions contained in Section 58(c) irrespective of the fact that both the documents were executed on the same day. The Supreme Court in the case of Chunchun Jha v. Ebadat Ali, AIR 1954 SC 345, observed (headnote) :
". . . If the sale and agreement to repurchase are embodied in separate documents, then the transaction cannot be a mortgage whether the documents are contemporaneously executed or not. But the converse does not hold good, that is to say, the mere fact that there is only one document does not necessarily mean that it must be a mortgage and cannot be a sale. If the condition of repurchase is embodied in the document that effects or purports to effect the sale, then it is a matter for construction which was meant. The Legislature has made a clear cut classification and excluded transactions embodied in more than one document from the category of mortgages, and therefore, it is reasonable to suppose that persons who, after the amendment choose not to use two documents, do not intend the transaction to be a sale, unless they displace that presumption by clear and express words ; and if the conditions of Section 58(c) are fulfilled, then the deed should be construed as a mortgage."
17. The argument that, in considering the question whether the transaction was one of sale or mortgage, the court should have regard to the intention and conduct of the parties is without any merit. Such an enquiry is shut out by the rule contained in the proviso which is rigid in its application and permits no scope for such an enquiry. This could have been possible had the case of the Revenue been that the condition for reconveyance was contained in the sale deed itself. As stated earlier, the case put up by the Revenue before us was otherwise and for that matter that was not the case of the Revenue even before the tax authorities.
18. In view of what has been stated above, the view taken by the Tribunal is in conformity with the provisions contained in the proviso to Clause (c) of Section 58 of the Transfer of Property Act and we find no infirmity in it.
19. There is also no substance in the argument that the assessee was not entitled to canvass before the appellate authorities that he was not the owner of the property, having declared the capital gains in his return treating himself to be the owner of the disputed property. An admission or an acquiescence cannot be a foundation for an assessment, where the income is returned under an erroneous impression or misconception of law. It is always open to an assessee to demonstrate and satisfy the authority concerned that a particular income was not taxable in his hands and that it was returned under an erroneous impression of law. The fact that the assessee had been taxed in respect of the property income in the preceding assessment years does not improve the case or the Revenue. Each assessment year is an independent year and it is always open to the taxpayer to contend that he had wrongly been assessed in the past.
20. Coming to the second question, the provisions of Section 52 of the Act were invoked solely on the ground that the assessee had paid the stamp duty on the value of Rs. 1,40,000 against the sale consideration of Rs. 81,000 mentioned in the eight sale deeds. The resort to Sub-section (1) of Section 52 was taken in respect of sales which were effected in favour of near relatives and persons connected with the assessee. According to the Income-tax Officer, property worth Rs. 58,000 out of total sales of Rs. 81,000 was sold to the near relations but the stamp duty was paid on an amount of Rs. 70,000. This by itself, in the opinion of the Income-tax Officer, was sufficient to attract the provisions of Section 52(1) of the Act.
21. A consideration of the above provisions would show that, for its successful application, two requirements are necessary : (i) the transferee is a person directly or indirectly connected with the assessee, and (ii) the object of understatement is to avoid or reduce the income-tax liability of the assessee to tax on capital gains. The burden of proof is on the Revenue to establish that the above twin conditions are made out in order to attract the said provisions. A perusal of the assessment order shows that there is no whisper, much less any finding, that the understatement, if any, was to avoid or reduce the income-tax liability of the assessee to tax on capital gains. A finding in this regard is a condition precedent and, where no such finding is recorded, the action of the authority concerned cannot be upheld. Sub-section (1) of Section 52 has no application to bona fide transactions.
22. In the absence of any finding or material on record that the understatement, if any, was to avoid tax liability, the Income-tax Appellate Tribunal, in our opinion, was perfectly justified in taking the view that Sub-section (1) of Section 52 had no application on the facts of the present case.
23. As regards the other two sale deeds made in favour of the two educational institutions, the provisions of Sub-section (2) of Section 52 were invoked by the Income-tax Officer, on the same ground, namely, that the stamp duty was paid on a higher amount than the amount of sale consideration disclosed in the sale deeds.
24. Sub-section (2) of Section 52 provides that if, in the opinion of the Income-tax Officer, the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount not less than 15% of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer. In CIT v. Balram Prasad [1984] 150 ITR 687, a Division Bench of this court held (headnote) :
"If the Revenue seeks to bring a case within Sub-section (2) of Section 52 of the Income-tax Act, 1961, it must show not only that the fair market value of the capital asset as on the date of the transfer exceeded the full value of the consideration declared by the assessee by not less than 15% of the value so declared, but also that the consideration had been understated and the assessee had actually received more than what was declared by him. These are two distinct conditions which have to be satisfied before Sub-section (2) can be invoked by the Revenue and the burden of showing that these two conditions are satisfied rests on the Revenue."
25. In the instant case, the finding recorded by the Tribunal is "it is not the case of the Department that any on-money was received by the asses-see". This finding of fact recorded by the Tribunal has not been challenged by the question under consideration, nor was any attempt made by learned standing counsel to show that there existed some material to show that the assessee had actually received an extra amount than what had been stated in the two sale deeds. The Tribunal was perfectly justified in holding that the provisions of Section 52(2) had no application and that the capital gains had to be determined on the footing that the consideration for the property in question was what had been declared in the sale deeds.
26. We may now deal with question No. 4. It appears that the assessee had claimed a deduction of Rs. 10,766 being the amounts spent on stamp duty and registration charges, in the computation of capital gains chargeable to tax. The Income-tax Officer had allowed Rs. 5,362 only which was incurred in respect of sales effected in favour of educational institutions.
27. The balance of the amount was disallowed on the ground that there was no specific stipulation in the other sale deeds. The Income-tax Appellate Tribunal allowed the balance amount also. Nothing was brought to our notice to show that the view taken by the Income-tax Appellate Tribunal is wrong, or that it suffers from any infirmity. In this view of the matter, we see no justification to take a different view.
28. In view of the above, the questions referred to this court are answered as under :
Question No. 1 : In the affirmative, in favour of the assessee and against the Revenue.
Question No. 2 : In the affirmative, in favour of the assessee and against the Revenue.
Question No. 3 : Returned unanswered.
Question No. 4 : In the affirmative, in favour of the assessee and against the Revenue.
29. As no one has appeared on behalf of the assessee, there shall be no order as to costs.