Income Tax Appellate Tribunal - Madras
C. Vedachala Mudaliar And ... vs Income-Tax Officer on 27 December, 1991
ORDER
1. These appeals raise the issue whether the date of execution or the date of registration is the relevant date for the purpose of assessment of capital gains.
2. The assessecs are two individuals who are co-owners along with another of a property in Taylors Road, Kilpauk, Madras. Pursuant to an agreement dated December 24, 1969, the assessees executed two sale deeds dated February 28, 1970, transferring their shares in the property to C. Ramaswami Mudaliar and Shri C. Srinivasa Mudaliar. The documents were presented for registration before the Sub-Registrar of Madras on March 30, 1970, and they were eventually registered on June 2, 1971, as documents Nos. 2135 and 2136 of 1971. While returning the income for the assessment year 1972-73, corresponding to the previous year ended March 31, 1972, no capital gains as arising from this transfer of property was included and the assessment was completed on that basis. Subsequently, the assessments were reopened by the Income-tax Officer on the ground that the assessees had omitted to disclose assessable capital gains arising from the transfer of this property. The assessee claimed, by letter dated April 8, 1981, that the properties transferred were agricultural lands which were deemed to be capital assets only by the amendment of the Act with effect from April 1, 1970, and since the sale had taken place on February 28, 1970, the capital gain, if any, arising from the transfer of this property was not assessable to tax and, even if it were so assessable, it could not be brought to tax for the assessment year 1972-73 as the transaction related to the earlier assessment year 1971-72. The Income-tax Officer did not accept that the lands were agricultural in nature and he took the view that the transfer took place only on June 2, 1971, when the documents were registered and, accordingly, brought to tax the capital gains arising from the transfer of the property.
3. The assessees appealed and relied on the decision of the Gujarat High Court in the case of Balkrishna Harivallabhdas v. CIT [1982] 138 ITR 245 to contend that the transfer of the property took place when the sale deeds were executed. The Appellate Assistant Commissioner rejected this contention and relied on the decision of the Supreme Court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185 to hold that the transfer of the property took place only on the date of registration and thus confirmed the assessments.
4. When the further appeals to the Tribunal came up for hearing, the Bench was faced with a conflict of views between the decisions of the Punjab and Haryana High Court in the case of Milkha Singh v. Tara Singh, AIR 1973 P & H 445, as well as of the Gujarat High Court in the case of Balkrishna Harivallabhdas v. CIT [1982] 138 ITR 245, where it was held that the transfer of title takes place on the date of execution, and the decision of the Tribunal, Madras Bench 'B'( dated January 20, 1989, in G. T. A. No. 20/Mds of 1988 (see [1989] 33 TTJ (Mad) 177) in the case of S. E. S. Muntganandam [1990] 32 ITD 148 (Mad) following the Gujarat High Court decision in the case of Darbar Shivrajkumar v. CGT [1981] 131 ITR 647, taking the view that the transfer takes place only on the date of registration. The case was, therefore, referred to a Special Bench as it involved a complicated issue.
5. The task before us has, however, become easy because this conflict has now been resolved by the decision of the Supreme Court in the case of Hamda Ammal v. Avadiappa Pathar [1991] 1 SCC 715. That was a case where Hamda Ammal purchased a property from Govindaraju Pathar and others by a sale deed executed on September 9, 1970, and it was registered on October 26, 1970. In between the two dates, the vendor obtained an attachment before judgment on September 17, 1970, and sought to proceed against the property. The Supreme Court held that, under Section 47 of the Registration Act, the 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 and that the vendee gets rights which will relate back on registration from the date of execution of the sale deed and such rights were protected against the others. The law is now settled that the transfer of title in an immovable property relates back to the date of execution even though the sale deed is registered much later. This is the view taken by the Madras High Court in the case of CIT v. Tamil Nadu Agro Industries Corporation Ltd. [1987] 163 ITR 61, where it was observed at page 65 :
" The creation of title in favour of the purchaser is on the date when the document is executed and not only when it is registered."
6. However, the Revenue required us to consider two other decisions of the Supreme Court. The first is the decision in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185. That was a case where, under an agreement dated March 17, 1948, possession of the property was given on the same date but the sale deed was executed only on November 22, 1948. A question arose as to whether capital gains could be assessed in the previous year ended March 31, 1948, relevant to the assessment year 1948-49. The Supreme Court pointed out that a transfer of immovable property could be effected under the Transfer of Property Act only by a registered instrument in writing and since no such instrument existed in the previous year, there could be no assessment to capital gains tax. It will be seen that, in that case, there was no document at all during the previous year and, therefore, the question whether the document takes effect from the date of execution or from the date of registration did not arise for consideration in that case. The second decision of the Supreme Court is Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888. In that case, the question for consideration was whether the liability to wealth-tax arises in respect of certain immovable property where possession was handed over on receipt of consideration but no document had been executed before the valuation date. Here again, the Supreme Court reiterated the decision that transfer of title requires a registered instrument in writing and the provisions of the Wealth-tax Act depended upon legal title and, since there was divestiture of legal title, the property would be liable to wealth-tax in the hands of the original owner until a document is executed and registered. Thus, in this case also, no document had been executed till the valuation date and, therefore, the question facing us did not arise for consideration. But this decision underlines the fact that transfer of title to the property is crucial. In the present case, the transferees have been assessed to wealth-tax on this property as on the valuation date March 31, 1970, which falls after the execution of the sale deed and before registration. Thus, the Revenue has accepted the transfer of title to the transferees as on the date of execution of the document in the cases of the transferees and it is not possible for the Revenue to resile from that position with reference to the assessee-transferors.
7. It was contended on behalf of the Revenue that the decision of the Supreme Court in Hamda Ammal v. Avadiappa Pathar [1991] 1 SCC 715 was not a tax case and could not be an authority for the question as to when the transfer takes place as a taxable event. According to the Revenue, the transfer referred to in Section 45 of the Income-tax Act could mean only a completed transaction and, unless and until registration is completed, it would not be a transfer that could be recognised by the Income-tax Act. Two decisions of the Supreme Court were relied on to underline the point that registration itself is complete only when the transaction is copied in the register under the provisions of the Registration Act. The two decisions of the Supreme Court relied on by the Revenue are Hiralal Agrawal v. Rampadarath Singh, AIR 1969 SC 244, and Ram Saran Lall v. Mst. Domini Kuer, AIR 1961 SC 1747. The first case related to an application for reconveyance under the Bihar Land Reforms Rules which was" to be made after the sale is completed. The Supreme Court had held that such an application was maintainable only after the document was registered. In the second case, the issue was whether a right of pre-emption under the Mohammedan law which was required to be made after the completion of the sale could be done before the sale was registered. Both these cases have been distinguished by the Supreme Court in the latest decision by pointing out that they depended upon the completion of the transaction and not the effectiveness of the same.
8. The decision of the Tribunal in the case of S. E. S. Muruganandam [1989] 33 TTJ (Mad) 177 followed the decision of the Gujarat High Court in the case of Darbar Shivrajkumar v. CGT [1981] 131 ITR 647. That decision was in turn based on the decisions of the Supreme Court in the cases of Ram Saran Lall, AIR 1961 SC 1747 and Hiralal Agrawal, AIR 1969 SC 244, which, as we have seen above, have been distinguished by the latest decision of the Supreme Court. Besides, the order of the Tribunal related to the levy of gift-tax and the question was whether the gift was completed only on the registration of the document or whether the gift took place on the execution of the deed itself when it related to immovable property. Since gift-tax is exigible only when the gift is complete, the view of the Supreme Court that the transaction is complete only when the document is registered would be of significance in that context. However, in the case of capital gains, the levy is at the time of transfer of a capital asset effected in the previous year according to the phraseology of Section 45. Since the Supreme Court has held that in the case of immovable property, in view of the provisions of Section 47 of the Registration Act, the same is effective from the date of execution even though it is registered later, the taxable event would be the date of execution and not the date of registration for the purposes of Section 45 of the Income-tax Act.
9. It was contended on behalf of the Revenue that, since the Revenue is a stranger to the transaction, it cannot take cognisance of the transfer until the registration is completed and, therefore, for the purpose of Section 45 of the Income-tax Act, the transfer must be taken to be complete only when the registration is completed. Reliance was placed on the decision of the Calcutta High Court in the case of CGT v. Smt. Aloka Lata Sett [1991] 190 ITR 556. In that case, the court observed (at page 564) :
" It may be that, as between the donor and the donee, the registered document may take effect from the date of execution but, as regards a third party, the point of time at which the deed becomes effective is when it is registered. If the registered document is held to be effective against the Revenue which is not a party to the deed from the date of execution, it will entail great hardship, because the Revenue will have no knowledge of the date of execution of the document, and the document can only be effective against the Revenue from the date of registration. The date of gift in the present case so far as the Revenue is concerned would, therefore, be not the date when the document was executed but the date when it was registered."
10. However, that was a case of levy of gift-tax and hence it is possible to distinguish that case on the ground that a gift of immovable property can be complete only when the transaction is completed by the registration of the document. On the contrary, our attention has been drawn by the assessee to the decision of the Gujarat High Court in Arundhati Balkrishna v. CIT [1982] 138 ITR 245, under Section 45 of the Income-tax Act. The Gujarat High Court observed that, in so far as the expression "transfer of capital asset effected in the previous year" occurring in Section 45 of the Income-tax Act is concerned, it is not possible to take the view that the transfer is effected on the date on which the document is copied out in the books of the Registrar. The court also pointed out the administrative difficulties in treating the completion of registration as the effective date. In this context, we may recall that even the Supreme Court has observed in S.K. Mohammad Rafiq v. Khalilul Rehman, AIR 1972 SC 2162/2165, that the law relating to completion of registration gave rise to certain difficulties but it was a matter on which legislation may become necessary and that is for Parliament to consider and not for the court. But a reading of the latest decision of the Supreme Court along with the decision of the Gujarat High Court in the case of Arundhati Balkrishna [1982] 138 ITR 245 which is with reference to Section 45 of the Income-tax Act and there being no decision contra, we have to accept the claim of the assessee that the transfer was effective from the date of execution and it fell outside the assessment year under consideration.
11. The Revenue sought to attack the transaction as an attempt to avoid the levy of tax on the ground that the execution of the sale deed on February 28, 1970, which was the date of the presentation of the budget was quite significant. But, we are of the opinion that this attack is farfetched. Firstly, the sale deed itself recites that it was executed in pursuance of an agreement dated December 24, 1969. Secondly, though the announcement of the amendment came on February 28, 1970, it was to take effect only from April 1, 1970, thus giving time for assessees to arrange their affairs. Thirdly, the assessee had taken diligent steps to complete the sale by presenting the document for registration and the delay in registration was not due to the assessee. We may recall the observations of the Privy Council in the case of Commissioners of Inland Revenue v. Challenge Corporation Ltd. [1987] AC 155, 169 ; [1987] 2 WLR 24 that most tax avoidance involves pretence and, in the present case, the transaction did not involve any such pretence. Normally, a question of this type would not have arisen if the document is registered on the date on which it is presented as it used to be in the days gone by. But the present day situation is that, for certain other reasons, such as consideration of stamp duty, the time taken for registration is inexplicably long and as observed by Ayyangar J. in the minority judgment in the case of Ram Saran Lall v. Mst. Domini Kuer, AIR 1961 SC 1747, it would be incongruous to take the view that the transaction would become complete depending on the date on which it was copied out in the books of the Registrar particularly when the intention of the parties was to give effect to it from the earlier date. The vagaries of the situation in the Registrar's office should not be a basis for doubting the genuineness of the assessee's transaction. It may be noted that, by an amendment introduced in Section 2(47) with effect from April 1, 1988, "transfer" has been defined to include any transaction involving the allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. The taxable event has thus been advanced even to a stage earlier than that which existed at the relevant time.
12. In the circumstances, we are of the considered opinion that, for the purpose of Section 45 of the Income-tax Act, the effective date of transfer of an immovable property will be the date of execution of the document as intended by Parliament, It follows that any capital gains arising from the two transactions which are effective on February 28, 1970, cannot be brought to tax in the assessment year 1972-73. In this view, it is unnecessary to consider whether the property was a capital asset with or without reference to the amended definition of "capital asset". Since the reassessments were made only to bring to tax capital gains, the reassessments are annulled. The appeals are allowed.