Patna High Court
Commissioner Of Income-Tax vs Krishna Lal Ajmani on 25 June, 1996
Equivalent citations: [1996]222ITR653(PATNA)
Author: M.Y. Eqbal
Bench: M.Y. Eqbal
JUDGMENT S.N. Jha, J.
1. This reference under Section 256(1) of the Income-tax Act, 1961, is at the instance of the Revenue. The Income-tax Appellate Tribunal, Patna Bench, has referred the following question to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the income from property, proposed to be transferred, should not be assessed in the hands of the assessee even though the transfer has not been effected in favour of intending purchaser by way of registered sale deed?"
2. The material facts are as follows :
3. The assessee is an individual. During the relevant period, he was a partner of a firm, Bokaro Diesel. He also carried on a separate business in the name of Krishna Lal and Company. He filed a return showing income of Rs. 13,313 for the assessment year 1978-79 in which he did not disclose the income from the house property which was being shown in the returns in the previous years, on the ground that he had entered into an agreement for its sale and as per the terms of the agreement, with effect from April 1, 1977, on payment of the earnest money from the intending purchaser, one Smt. Usha Kumari, the rent from the house property was receivable by her, i.e., the intending purchaser. The Income-tax Officer held that in the absence of any registered deed of conveyance in favour of the intending purchaser, the assessee continued to be the legal owner of the property and was liable to tax on its income. He, therefore, included a sum of Rs. 11,275 in the total income, as income from the house property and assessed tax on it. The assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the case of the assessee that by virtue of the terms of the sale agreement the possession of the house had been delivered to the intending purchaser and it was she who became entitled to receive the rent of the house. The intending purchaser had performed part of the agreement by paying the earnest money but the sale deed had not been executed as certain formalities which were required to be observed before the registration of the deed could be effected had not been completed although, in fact, the intending purchaser, namely, Smt. Usha Kumari, was receiving the rent of the house property. The Appellate Assistant Commissioner, accordingly, allowed the appeal and deleted the addition of the rental income of Rs. 11,275 from the total income of the assessee. It was the turn of the Department to prefer appeal before the Income-tax Appellate Tribunal, Patna Bench, Patna. The Tribunal relying on a decision of this court in the case of Addl. CIT v. Sahay Properties and Investment Co. (P.) Ltd. [1983] 144 ITR 357 dismissed the appeal. It, however, acceded to the request of the Department to refer the question, as indicated above, for an "authoritative pronouncement of law" and that is how the matter has come to this court in the present reference.
4. Mr. K.K. Vidyarthi, learned standing counsel for the Department, at the very outset, accepted the position that the decision of this court in Sahay Properties' case [1983] 144 ITR 357 is applicable to this case on all fours. He nevertheless made submissions on the merits to persuade us to refer this case to a larger Bench since, as he pointed out, even the Tribunal has observed that the decision is contrary to "preponderance" of the judicial opinion expressed by the majority of the High Courts. He alternatively suggested that the hearing of this case may be deferred as the correctness of the decision of this court is under challenge before the Supreme Court in S. L. P. (Civil) Nos. 6553-6555 of 1983 (see [1983] 143 ITR (St.) 60) in which leave has been granted on August 1, 1983, till the decision of those appeals.
5. A perusal of the judgment of the Tribunal shows that a number of cases were cited on behalf of the Revenue in support of the contention that until and unless ownership of an immovable property, is transferred under a registered transfer deed, the prospective vendor continues to be the legal owner of the property and liable to tax on its income. The decisions are CIT v. Modern Flats Pvt. Ltd. [1967] 65 ITR 67 (Bom); 5. Kartar Singh v. CIT [1969] 73 ITR 438 (Delhi) ; CIT v. Ganga Properties Ltd. [1970] 77 ITR 637 (Cal) ; CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom) and CIT v. Sultan Brothers Pvt. Ltd. [1983] 142 ITR 249 (Bom). The Tribunal, however, as stated above, felt bound by the decision of this court in the case of Sahay Properties and Investment Co. (P.) Ltd. [1983] 144 ITR 357, and held that once possession of the house property is delivered to the intending purchaser under an agreement of sale and as per the terms of the agreement, the intending purchaser becomes entitled to realise the rent of the house, ownership within the meaning of Section 22 of the Income-tax Act, 1961, stands transferred in favour of the intending purchaser and it is he and not the seller who is liable to tax on its income.
6. Mr. Vidyarthi submitted that the facts of the present case are distinguishable and, therefore, the Tribunal was not right in coming to the conclusion that the case is covered by the law laid down in Sahay Properties and Investment Co. (P.) Ltd.'s case [1983] 144 ITR 357 (Patna). It is this aspect of the matter which I propose to consider because if the case cannot be distinguished on facts, it would be futile to postpone the hearing of the case merely because the correctness of the decision is under challenge before the Supreme Court and special leave has been granted.
7. Sahay Properties and Investment Co. (P.) Ltd.'s case [1983] 144 ITR 357 (Patna) was a converse case in which the question was whether the intending purchaser was liable to tax on income from the house property even though the transfer deed had not been executed in his favour. This court held that as the consideration money had been paid in full and the assessee had been put in exclusive and absolute possession of the property, with authority to dispose of and even alienate the same, to get the conveyance deed registered and executed in its favour, it could not absolve itself of the liability to pay tax on its income merely because it had not exercised its option to get the transfer deed executed and registered since that would amount to giving premium for its own default. In the present case', it was pointed out, although an agreement of sale has been executed, only part of the consideration money of Rs. 1 lakh as earnest money has been paid by the intending purchaser ; the balance money to be paid in instalments.
8. I do not think part payment of the consideration money, as earnest money, unlike full payment in the case of Sahay Properties' case [1983] 144 ITR 357 (Patna), would make any material difference so far as applying the ratio of the decision is concerned. Like Sahay Properties' case [1983] 144 ITR 357, in this case also there is evidence showing that the intending purchaser was put in possession and appropriating income from the property. This court held that once the intending purchaser comes in actual physical possession of the property and starts appropriating its income he must be deemed to be the owner within the meaning of Section 22 of the Act and was assessable with respect to its income. It could not get away from the liability merely because he had not exercised the option of getting the registration done. In the present case, it appears from the order of the Tribunal, that registration could not be completed as certain formalities were required to be observed, such as obtaining permission of the competent authority for which steps had already been taken by the assessee. One can take notice of the fact that under different statutes prior permission of the competent authority in the matter of transfer of immovable property is a must which usually is a time-consuming affair. If, therefore, steps are taken bona fide by the intending seller pursuant to the sale agreement and after receipt of the earnest money he puts the intending purchaser in actual physical possession who thereafter starts appropriating its income, it would be "oppressive" as this court has observed (borrowing the expression used by Hegde J. in R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) to tax the intending seller with respect to its income which in reality he did not receive and was received by the intending purchaser, I, therefore, do not find any material difference in the facts of the two cases.
9. On the facts and in the circumstances of the case, therefore, I do not think the Tribunal committed any error of law in holding that the income from the house property in question should not be assessed in the hands of the assessee even though the transfer has not been effected in favour of the intending purchaser by way of a registered deed. The Tribunal was right in concluding that the decision of this court in Sahay Properties and Investment Co. (P.) Ltd.'s case [1983] 144 ITR 357 is applicable to the present case on all fours.
10. I would, accordingly, answer the question referred to this court for opinion in the affirmative, that is, in favour of the assessee and against the Revenue. I would, however, make no order as to cost.
11. Let a copy of this order be sent to the Income-tax Appellate Tribunal, Patna Bench, Patna.
M.Y. Eqbal, J.
12. I agree.