Income Tax Appellate Tribunal - Delhi
B.K. Chadha vs Income-Tax Officer on 29 July, 1986
Equivalent citations: [1986]19ITD158(DELHI)
ORDER
B. Gupta, Accountant Member
1. In this appeal by the assessee relating to the assessment year 1979-80, the controversy centres around the question as to whether the surplus of Rs. 98,000 realised by the assessee on sale of a property situate at 142, Raja Garden, New Delhi was exempt from the assessment under the head 'Capital gains' under the provisions of Section 54E of the Income-tax Act, 1961 ('the Act') or not.
2. An agreement to sell the property had been executed and duly registered on 25-1-1979. The vendor-assessee received the agreed sale consideration of Rs. 1,50,000 and the possession of the property is said to have been given to the vendee who was a tenant in a part of that property. He had also executed a power of attorney in favour of the vendee's wife in order that the sale could be executed even when the vendor was abroad. The ITO held that the surplus of Rs. 98,000 was not assessable under the head 'Capital gains' but was assessable as 'Income from other sources'. According to him, there was no valid transfer of the property by the assessee-vendor and, therefore, the surplus of Rs. 98,000 could not be assessed as capital gains. On an appeal being filed before the Commissioner (Appeals), the latter held that the receipt of Rs. 98,000 fell under the head 'Capital gains'. At the same time he held that since the sale of the property actually took place on 29-3-1979 when the sale deed was executed and registered and not on 25-1-1979 when merely an agreement to sell was executed and registered and since in accordance with the amended provisions of law as contained in Explanation 1(b) to Section 54E(1) the net amount of consideration had not been invested in National Rural Development Bonds, the exemption under Section 54E was not available. The assessee's case was that on the execution of the sale deed, the sale related back to the date of agreement to sell, i.e., 25-1-1979 and that, therefore, when in accordance with the unamended provisions of Explanation 1(a) to Section 54E(1) the net consideration stood invested in deposit with a nationalised bank for a period of three years, the exemption under Section 54E was available. The contention thus taken having been rejected by the Commissioner (Appeals), the assessee is in appeal contending as follows :
1. That the learned Commissioner (Appeals) has wrongly treated the longterm capital gain of Rs. 98,000 as arising on 29-3-1979 when sale deed was registered and not 15-1-1979 when full consideration was received and power of sale transferred.
2. That the learned Commissioner (Appeals) has wrongly not accepted the plea that effective date of transfer as 15-1-1979.
Over and above, the assessee has taken the following additional grounds :
The order of the learned Commissioner (Appeals) in not allowing exemption of capital gain under Section 54E of the Income-tax Act, 1961 as it stood on 25-1-1979 is against law.
This additional ground has been admitted by us as it arises out of the order of the Commissioner (Appeals) and as the learned departmental representative has no objection to the admission of the ground.
3. In support of the contentions taken in the grounds of appeal Shri S.P. Arora, advocate, the learned authorised counsel of the assessee, has taken us through the agreement to sell dated 25-1-1979, the sale deed dated 29-3-1979 and Circular No. 359 dated 10-5-1983 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1985 edn., p. 431] issued by the Board. He has also furnished before us evidence regarding the investment of net consideration received on the sale of the abovementioned property with the Syndicate Bank, East Patel Nagar, New Delhi. According to the learned counsel the agreement to sell virtually amounted to sale and in any case when the sale deed had been executed on 29-3-1979, the sale became operative with effect from 25-1-1979, i.e., the date on which the agreement to sell was executed and registered. In support of these contentions Shri Arora has referred to us a decision of the Tribunal, Hyderabad Bench 'B' [1983] Taxation Vol. 71(6) at page 39 and a decision of the Hon'ble Bombay High Court in CIT v. Lalitaben Gulabchand [1977] 108 ITR 764. Shri Arora has also insisted that Circular No. 359 issued by the Board also squarely supports the case of the assessee.
4. On the other hand, Smt. Sushma Trivedi, the learned departmental representative, has contended that the transfer of the capital asset having been made only on 29-3-1979, when the sale deed was executed and registered the provisions contained in Explanation 1(b) to Section 54E(1) applied and that since the net consideration received on sale of the property was not invested in National Rural Development Bonds, the exemption under the provisions of Section 54E was not available. Elaborating the point, the learned departmental representative submits that in case the transfer of the asset could be said to have been made on any date prior to 28-2-1979, the assessee would have been entitled to exemption as the net consideration stood invested in one of the categories of specified assets enumerated in Explanation 1(a) of Section 54E but since the transfer of the asset had not taken place on a date before 28-2-1979, but on a date which fell after 28-2-1979, and since net consideration was not invested in the National Rural Development Bonds, the exemption was not available. She has further submitted that under the provisions of the Indian Registration Act, 1908, the sale of the property could not be related back to 25-1-1979 when just an agreement to sell was executed.
5. We have given our very thoughtful consideration to the submissions made on either sides. We have gone through the agreement to sell dated 25-1-1979, the sale deed dated 29-3-1979 and the circular of the Board relied upon by the learned authorised counsel of the assessee. We have also gone through the decision cited by the learned counsel Shri Arora. First of all, we notice that even though the assessee had received the agreed sale consideration and the property agreed to be sold had been put in constructive possession of the vendee and the assessee had further specifically agreed to execute necessary notices of attornment to the various tenants of the property with a direction that the tenants shall pay the rent of the premises occupied by them to the vendee, the agreement executed on 25-1-1979 was not a sale deed but only an agreement to sell. It was provided in clause 6 of the agreement that in case the vendor fails to execute the requisite sale deed for any reason whatsoever, i.e., for the reason of any defect in the title or for the reason of permission being not granted by any of the Government authorities, the vendor would be liable to refund the money that he had received by way of agreed sale consideration. Similarly it was provided in the same clause that if the vendee fails to get the sale deed executed in his favour, the vendor would be entitled to claim loss and damages which may be suffered by the vendor on that account. In the face of this clause in the document executed on 25-1-1979, it cannot be described as a deed of sale. This document had no doubt provided that the vendor was leaving the country and that in his absence the sale deed will be executed by his general attorney who was nobody else than the wife of the vendee but that also does not make any difference inasmuch as the document cannot be equated with a sale deed. The execution of the sale deed on 25-3-1979 also does not have the effect of relating back the sale to 25-1-1979. If a sale deed had been executed on 25-1-1979 and had been registered on 29-3-1979 then it could be said that the sale related back to 25-1-1979 but that is not the case in the present case. Here it is only an agreement to sell which was executed on 25-1-1979 and, therefore, when the sale deed was executed on 29-3-1979, the sale could not be said to relate back to 25-1-1979. This according to us is the position of law under Section 47 of the Indian Registration Act. It would not, therefore, be possible for us to say that the sale had taken place on 25-1-1979. The sale had taken place only when the sale deed in respect of immovable property in question had been executed and registered on 29-3-1979. When we hold so we are following the law as laid down by the Hon'ble Delhi High Court in its decisions in CIT v. Meatles Ltd. [1972] 84 ITR 37, CIT v. Hindustan Cold Storage & Refrigeration (P.) Ltd. [1976] 103 ITR 455 and Sushil Ansal v. CIT [1986] 25 Taxman 218A. The transfer by way of sale could not thus be said to have been effected on any day before 29-3-1979.
6. Even though the learned counsel of the assessee has not referred to us to the definition of the word 'transfer' in relation to a capital asset as contained in Section 2(47) of the Act, we have examined the position under that section in order to find out as to whether the transfer of the abovementioned property or interest therein had taken place on 25-1-1979 when agreement to sell was executed. The provisions of Section 2(47) as these prevailed in the relevant assessment year provided that 'transfer' in relation to a capital asset includes the sale, exchange or relinquishment of an asset or the extinguishment of any rights therein. At the first blush we thought that the agreement to sell dated 25-1-1979 would amount to relinquishment of the asset by the assessee in favour of the intended purchaser or at least amount to the extinguishment of rights in the property but then when we consulted the law on the subject we found that we would not be entitled to hold that way. It had been held by their Lordships of the Hon'ble Delhi High Court in the case of Addl. CIT v. Mercury General Corporation (P.) Ltd. [1982] 133 ITR 525 that in a case where an agreement to sell was executed, it could not be said that the vendor-to-be had relinquished its rights in the property. Their Lordships further held that even for the purposes of relinquishment of interest in property, there was as much necessity for a registered document as there was for the completion of a valid sale. Their Lordships of the Delhi High Court have further held in the case of Sushil Ansal (supra) that the execution of an agreement to sell coupled with the handing over of possession of an immovable property would not amount to a transfer of that property and would not confer the rights of ownership on the intended purchaser despite the provisions of Section 53A of the Transfer of Property Act, 1882. These pronouncements of law by the Hon'ble Delhi High Court are based on some of the decisions of the Hon'ble Supreme Court. In the case of CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 their Lordships of the Supreme Court held that title to immovable properties covered by a sale deed would pass to the transferee on the date when the sale deed was executed and not on the date of agreement to sell. Similarly, their Lordships of the Hon'ble Supreme Court held in the case of Alapati Venkataramaiah [1965] 57 ITR 185 that title to land and buildings would not pass to the transferee till the conveyance was executed and registered. Having thus understood the law and having once again looked into clause 6 of the agreement to sell to which we have adverted earlier, it cannot be said that there was a relinquishment of right in property or extinguishment of rights therein at any time before 29-3-1979. Till that date the transaction was conditional and dependent upon the grant of permission by the concerned authorities under the ceiling and other laws. We, therefore, would not be able to hold that the agreement to sell dated 25-1-1979 amounted to transfer of property within the meaning of the provisions of Section 2(47). In other words, the conclusion that we reach is that transfer of the property actually took place on 29-3-1979 when the sale deed was executed and that, therefore, the exemption under Section 54E was not available to the assessee as the provisions contained in Section 54E(1), Explanation 1(b) were not complied with. The assessee had no doubt deposited the net consideration received on sale of property with a nationalised bank but since the law had been amended, the deposit made could have been withdrawn and invested in the National Rural Development Bonds. Since that was not done and since the amended provisions of law which applied to a transfer made after 28-2-1979 were not complied with, the assessee was rightly denied exemption under the provisions of Section 54E.
7. Being of the above views in the matter and being bound by the law laid down by the Hon'ble jurisdictional High Court and by the Hon'ble Supreme Court we find it difficult to subscribe to the views expressed by the Tribunal, Hyderabad Bench 'B' in the case of Shahzada Begum (supra) on which reliance has been placed by the learned authorised counsel of the assessee. The decision of the Hon'ble Bombay High Court in the case of Lalitaben Gulabchand (supra) on which reliance has been placed by the learned authorised counsel of the assessee also does not help in dissuading us from the view that we have taken as above. In the case decided by the Hon'ble Bombay High Court the facts were entirely different. In that case it had been agreed between the assessees on the one hand and the Governor of Bombay on the other that a certain plot of land would be leased to the former by the latter. That agreement/arrangement had been made on 1-5-1945. The assessees were put in possession of the plot of land in question in the year 1946. An indenture of lease was executed by the Governor of Bombay in the year 1954 and was registered in the year 1955. Their Lordships of the Bombay High Court held that once a document which is required by law to be registered is registered, it will relate back to the date of its execution. It is exactly what we have said in an earlier portion of this order after instructing ourselves with the law as is contained in Section 47 of the Indian Registration Act. In the present case also if the sale deed had been executed in January 1979, and then if it had been registered in March 1979, we would have said that the sale actually took place in the month of January 1979, but that is not the case in the present case. Here, the deed which was executed on 25-1-1979 was not the deed of sale but was merely an agreement to sell the property which was contingent on certain happenings. The decision of the Hon'ble Bombay High Court, therefore, does not advance the case of the assessee. Circular No. 359 issued by the Board on 10-5-1983 also does not help the assessee's case. That circular applies to a situation where a part of net consideration received on sale of property is invested in a specified asset prior to the date of the execution of the sale deed. It has been stated by the Board that even when the investment in specified assets is made on a date prior to the date of the execution of the sale deed the exemption under Section 54E should not be denied on the ground that the investment is not made within a period of six months after the date of transfer. That situation does not obtain in the present case. As has been stated by us earlier, the question involved in this case is as to whether the sale/ transfer of the property in question took place on a date prior to 28-2-1979 or on a date falling after 28-2-1979 and as to whether the net consideration received on transfer/sale of the property was invested in the specified asset so as to enable the assessee to obtain exemption from assessment of capital gains under the provisions of Section 54E. Since we have held that the transfer/sale did not take place on any date before 28-2-1979 and since according to us the sale/transfer took place only on 9-3-1979, the assessee could have got the exemption under Section 54E, if it had employed/invested the net consideration of sale in National Rural Development Bonds as per requirements of Clause (b) of Explanation 1 to Section 54E(1) and that since that was not done by the assessee, the exemption was rightly denied by the Commissioner (Appeals).
8. In conclusion, the appeal fails and is hereby dismissed.