Income Tax Appellate Tribunal - Hyderabad
R.S. Rangadas vs Wealth-Tax Officer on 29 December, 1986
Equivalent citations: [1987]21ITD627(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. These are two appeals by the assessee against the common revisionary orders passed by the Commissioner of Wealth-tax dated 28-3-1985 relating to assessment years 1982-83 and 1983-84. Brief facts leading to the present appeals are as follows.
2. D. No. 3-5-1119/15 to 21, Raj Mohalla, Hyderabad, originally belonged to Sri R.S. Rangadas. Sri Rangadas had got five daughters and no son. The above property is popularly called as Raj Mohalla property. It has got a ground floor and a first floor. Originally, Sri Rangadas promised in 1978 that he would settle the above property in favour of his daughters. However, he did not do so on one pretext or the other. He promised to offer them cash instead of gifting the property as promised earlier. His five daughters were not agreeable to receive cash instead of the property and thus there arose a dispute between Sri Rangadas and his five daughters. On 2-1-1980 an agreement to refer to an arbitration was entered into between Shri Rangadas and his daughters. The daughters filed their claim before the Arbitrator Sri Narasimha Rao on 12-2-1980. The assessee filed his claim on 18-2-1980. Thereupon, the Arbitrator Sri Narasimha Rao gave an award on 28-8-1980. In the award he directed the assessee to transfer the property (Raj Mohalla property) for education of his grand-children and ultimately the award was filed into the Court on 31-3-1980 with a request that it may be made into a rule of the Court. The Court of Fifth Additional Judge, City Civil Court, passed the decree in terms of the award on 23-4-1980. The learned 5th Additional Judge also recognized that as per the award it was decreed that the Raj Mohalla property is awarded to the five daughters of Sri Rangadas who shall hold it jointly and the income from rents and profits of this property shall be utilized for their education and welfare. The learned Judge also recognized the right of Sri Rangadas to have any construction put on the terrace of the first floor upon which the right, title and interest exclusively belonged to Sri Rangadas.
3. In pursuance of the award passed, gift-tax returns were filed and gift-tax was paid also. From assessment year 1982-83 the gifted properties were included in the respective wealth-tax assessments of the donees. Two out of the five donees are minors and therefore for wealth-tax assessment year 1982-83 for which the valuation date was 31-3-1982 the assessee included only 2/5th share of Raj Mohalla property as part of his assets. However, for assessment year 1983-84 for which the valuation date ended by 31-3-1983 no share in Raj Mohalla property was included in his wealth and no reasons also were assigned in his wealth-tax statement as to why no part of his property was shown in his wealth-tax assessment. Originally the wealth-tax assessment for 1982-83 was passed on 31-10-1982 and for assessment year 1983-84 it was passed on 22-8-1984. The returned wealth was accepted in those assessments. The learned Commissioner felt that the assessments completed by the Wealth-tax Officer are both erroneous and prejudicial to the interests of revenue and so he gave notice under Section 25(2) of the Wealth-tax Act to the assessee as to why they should not be .revised.
4. It was contended! on behalf of the assessee that the Arbitrator's award read with Court's decree constituted transfer of property within the meaning of Sections .122 and 123 of the Transfer of Property Act and the award of the Arbitrator became the rule of the Court. The assessee ceased to have any control over the property gifted and the donees have "obtained possession and were enjoying the benefits thereof. Under the circumstances, though the prospector was not transferred by any registered deed the character of the transaction should be taken, to be a gift and reliance is placed, upon, the Andhra Pradesh High Court decision in Bhubaneswar Naik Santoshrai v. Special Tahsildar Land Reforms Tekkali AIR 1980 AP 139 wherein at page 142 of the reported decision the following is held :
What becomes manifest from the conspectus of above case law is that a daughter under Hindu Law had at the time of 'Manu' a right to share in the father's property along with her brothers. After a considerable passage of time, the ultimate remanant is that a father is under an obligation to maintain her within the meaning of Section 3 of the Hindu Adoptions and Maintenance Act which includes the reasonable expenses of her marriage and therefore any property moveable or immoveable, given to her for or at the time of marriage cannot be termed as a 'gift' within the meaning of Section 122, T.P. Act as the essential ingredients of gift are conspicuous by their absence in this transaction of giving the property to the daughter by way of 'Pasupukumkuma' which is both involuntary as well as for consideration. Once the said transaction is taken out of the ambit of Section 122 of T.P. Act, it is not at all obligatory that the said document, if it is in writing, requires any registration within the meaning of Section 123, T.P. Act and under Section 17 of the Registration Act. In fact, it is quite apparent that the transaction of giving away the property by way of 'pasupukumkuma' could very well be done orally and if any instrument in writing has been brought into existence, the same does not require any registration as the said instrument can be used for the proof of transaction by way of evidence. There is yet another angle : The unregistered instrument can be used for the purpose of Section 53A, T.P. Act as proof of part performance. In this case, admittedly, possession has been given to daughters and in order to attract the provisions of Section 53-A, T.P. Act, it is needless that the instrument should have been registered.
On the strength of the Madhya Pradesh High Court decision in Moolchand v. Magarilal AIR 1965 MP 75 (FB) it was argued that a decree passed by the Court having requisite jurisdiction cannot be treated as nullity and. executing Court cannot question the validity of the decree on the ground that it is not in accordance with the provisions of law. Once an award is made into a rule of the Court even though it is not properly registered or not properly stamped the parties are bound by it and the award is not a waste paper. In any case the award can be read as a family arrangement in which case registration is not necessary. These arguments advanced were of no avail before the learned Commissioner. He held that Raj Mohalla property is a self-acquired property of Sri Rangadas in which the daughters have no right to claim share. If the provision for education and welfare was not provided as he did now under the award the daughters cannot agitate their rights in a Court of law.
5. The first question to be seen according to the learned Commissioner is whether there was a transfer of the property in favour of the daughters under Sections 122 and 123 of T.P. Act so as to enable the assessee to claim exclusion of this item of property from his net wealth. He further felt that the award merely stated that the five daughters would jointly hold the property and the income from rents and profits of this property shall be utilized for their education and welfare. According to the reading of the Commissioner the award does not give any right of alienation or disposal to any of his daughters over the property. The ownership rights have not been conferred on them. Simply because Sri Rangadas bound himself to use the income from the property for his daughters' education and welfare it cannot be said that the ownership of the property has been transferred. Under Section 17(b) of the Indian Registration Act, any non-testamentary instrument which purport or operate to create, declare any right, title or interest, whether vested or contingent of the value of one hundred rupees and upwards, to or in immovable property shall be registered. He considered the question whether the award can be said to have effectively transferred the title and ownership of the property to the children of the assessee and he concluded that the so-called dispute between the father and the daughters, the reference of the dispute to the Arbitrator were all created and the award which was later on decreed by the Court does not confer a valid title or ownership of the property in the daughters of the assessee. The claim that it is a family arrangement cannot be considered as the so-called dispute is only contrived one and as the children had no antecedent title to the property. Ultimately, he held that there was no valid and effective transfer of title and ownership of Raj Mohalla property from the assessee to his children.
6. For assessment year 1983-84 additionally it may be said that the assessee did not include even the 2/5th share of his minor daughters in his net wealth. On 2-1-1980 Kum. Umamaheswari, Kum. Sharada and Kum. Brahmaramba were aged 17, 15 and 11 years respectively. He concluded that by 31-3-1983 Kum. Brahmaramba should still be a minor even if the assessee's stand is taken to be wholly correct. There is no justification to exclude the whole value of Raj Mohalla property from the net wealth of the assessee. At least the minors' share is includible in the assessee's net wealth and even on that ground -the order of the Wealth-tax Officer for assessment year 1983-84 is erroneous and prejudicial to the interests of the revenue. Therefore, he ultimately, had set aside the assessments for assessment years 1982-83 and 1983-84 and directed the Wealth-tax Officer that the said assessment should be redone in accordance with his discussion found in his order.
7. Against the said common order the assessee came up in appeal before this Tribunal. It is contended by Shri S,E. Dastur that the possession of the property was already handed over to the daughters on 26-4-1981. The tenants in that property were attorned to the daughters and the daughters returned income derived over that property in their respective income-tax assessments and they were also assessed thereafter. M/s Geoffrey Manners was one of the tenants in a part of that building. Two rent suits were filed but they were dismissed and the rent is being paid to the daughters only. A suit was filed by one of the daughters in respect of the right to construct on the terrace of the first floor on 21-3-1983. In that suit a judgment was passed on 3-7-1983 holding that the rights of parties were governed by the decree dated 23-4-1980. The assessee is an A-Class PWD Contractor. Bajmohalla property was released from the security offered to the Government. The assessee had got several other properties, residential house and various other movable properties also.
8. While defining the net wealth under Section 2(m) of the WT Act it is stated that the asset should belong to the assessee on the valuation date. Similar wording is used in Section 33(1)(n) of the Estate Duty Act. The Andhra Pradesh High Court in CED v. Estate of Late Sanka Simhachalam [1975] 99 ITR 370 while interpreting the true meaning of the words 'belonging to' occurring in Section 33(1)(ii) of the Estate Duty Act held as follows according to the head note at page 371:
The deceased had executed a settlement retaining life interest in the residential house and conveyed the vested remainder to his son, the accountable person. Since he had only a life interest in the house the estate duty authorities took the view that the house did hot 'belong' to the deceased and consequently Section 33(1) did not apply to exempt the house from estate duty. The Appellate Tribunal held that the section applied and the house was exempt. On a reference at the instance of the Controller of Estate Duty :
Held, that the words 'belonging to' in Section 33(1) of the Estate Duty Act, though, no doubt, they denote absolute ownership, signify even possession of an interest less than that of full ownership, if the context so requires. Under Section .2(75) of the Estate Duty Act, any interest in the property itself is property. Thus, the word 'property' in Section 33(1)(ii) of the Estate Duty Act, read with Section 2(75) includes not only the properties wherein the deceased possessed absolute ownership in the corpus of any property, but also any interest in the property. Hence, the house property in which the deceased had a life interest and in which he resided at the time of his death is not liable to be included in the estate of the deceased for estate duty.
9. It is contended by Shri Dastur that if an award which is not registered is filed into the Court and a decree is invited then the Court may or may not pass a decree. Once a decree is passed then the decree operates from the date of the award and it becomes fully efficacious. On the strength of the Madhya Pradesh High Court decision in Moolchand's case (supra), para 7, it is argued that till the decree dated 23-4-1980 is set aside it will be binding against Sri Rangadas. Sri Dastur argues that can the revenue say in the face of the decree Sri Eangadas is the owner of the Raj Mohalla property. It is not the case of the Commissioner, he submitted, that there is a collusive transfer. No suit was filed in this case by the revenue to declare the decree invalid. In Bansilal Bansidhar v. Nandlal AIR 1975 MP 25. It is stated that a decree on the basis of an unregistered award is not a nullity and cannot be challenged in execution. In the same judgment it is stated that if the Court passes a decree in terms of an award before expiry of limitation the decree cannot be treated as a nullity so as to permit raising of the ground at the stage of execution. Such a defect, if any, may amount at the highest to an irregular exercise of jurisdiction curable by consent and the same does not tantamount to an inherent lack or want of jurisdiction rendering the judgment and decree a nullity. Their Lordships followed an Andhra Pradesh High Court decision in Perayya v. Subba Rao AIR 1961 AP 159 to reach the above conclusion. To the same effect and proposition, the learned advocate for the assesses relied upon the decisions reported in AIR 1972 Raj. 151 (sic) and Jani Jayantilal Keshavji v. Lakha Mula AIR 1954 Saurashtra 22. The learned Advocate for the assessee also relied upon Singh's Arbitration Act, 6th Edn. page 111. In that it is stated that an award, like a decree speaks from its date and the rights of respective parties come into existence with ; the award. An award operates as a transfer and a party was entitled to maintain a suit on its basis. Substantiating the plea that there is a dispute between the father and the daughters the learned Advocate submitted that dispute between them both was whether cash or property should be given. The relevant portion of the award is provided at page 9 of paper book No. 1 which states as follows :
I, therefore, allot house No. 3-5-1119/15 to 21, a double storeyed building i.e. ground floor and first floor situated at Raj Mohalla, Hyderabad, to Kum. R. Kamaleshwari, Kum. R. Andal, Kum. R. Umamaheswari, Kum. R. Sharada, Kum. Bhramaramba, daughters of Sri R.S. Rangadas, who shall hold it jointly and the income from rents and profit of this property shall be utilized for their education and welfare.
A fair reading of the above portion of the award which was later translated into the order of the court clearly reveals that the property belongs to the daughters as tenants-in-common and they are also entitled to the income there from for their education and welfare. So we do not agree with the learned Commissioner that they are entitled only to the income derived from the property but not to the property itself. As they are tenants-in-common, we are of the opinion that the assessee is correct in including 2/5th share of Raj Mohalla property in his net wealth for assessment year 1982-83 as so much undivided share of the property only belongs to the minor daughters of the assessee. So also, for assessment year 1983-84 the assessee ought to have shown at least l/5th of the property as part of his net wealth as by 31-3-1983 at least his last daughter would remain a minor. However, this was not done and no part of Raj Mohalla property was included in the assessee's net wealth and no reason was also assigned as to why it was not included.
10. The learned departmental representative, on the other hand invited our attention to pages 10, 28 and 29 of paper book No. 1. At page 10 part of the award of the Arbitrator Sri P. Narasimha Rao, was found. It states that the space covered by the terrace of the first floor would always remain the property of Sri R.S. Rangadas and he shall have the right to construct floors on the terrace and on such construction they belong to Sri Rangadas. Page 28 is a portion of the judgment of 1st Additional Judge, City Civil Court in O.S. No. 229 of 1986 filed by all the daughters against Sri R.S. Rangadas. Contents at pages 28 and 29 of paper book No. 1 represent nothing but averments made by the defendant Sri Rangadas in his written statement. One of the averments made was that however this defendant is bound by the award and decree passed in O.S. No. 284 of 1980 on the file of the V Additional Judge, City Civil Court, Hyderabad. He has right of common use of stair cases and parking place on the ground floor cannot De denied. The Income-tax Department raised the dispute regarding the no registration of the award proceedings and did not accept the said award as per the decree in O.S. No. 284 of 1980. The learned departmental representative then invited our attention to Section 4(5) and 4(7) of the WT Act 1957. Section 4(5) is as follows :
The value of any assets transferred under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor as and when the power to revoke arises to him.
Section 4(7) is to the following effect:
Where the assessee -Is a member of an association of persons, being cooperative housing society, and building or a part thereof is allotted or leased to him under a house building scheme of the society, the assessee shall, notwithstanding anything contained in this Act or and other law for the time being in force, be deemed to be the owner of such building or part and the value of such building or part shall be included in computing the net wealth of the assessee ; and, in determining the value of such building or part, the value of any outstanding instalments of the amount payable under such scheme by the assessee to the society towards the cost of such building or part and the land appurtenant thereto shall, whether the amount so payable is described as such or in any other manner in such scheme, be deducted as a debt owed by him in relation to such building or part.
The words 'irrevocable transfer' are defined under the Explanation to Section 4(7) as follows :
(7) the expression 'irrevocable transfer' includes a transfer of assets which, by the terms of the instrument effecting it, is not revocable for a period exceeding six years or during the life time of the transferee, and under which the transferor derives no direct or indirect benefit, but does not include a transfer of assets if such instrument-
(i)** ** **
(ii) in any way gives the transferor a right to resume power, directly or indirectly, over the whole or any part of the assets or income there from ;
It is the case of the revenue that because the stair-case as well as the garage can be commonly used even by Sri Bangadas as a common passage in case he constructs further stairs over the upstairs then it should be deemed to be an asset and it should be included in his net wealth. In our opinion, this contingency does not arise for these two assessment years under consideration and so we need not consider this aspect of the matter in these appeals.
11. The main contention which has to be tested is whether the award dated 28-3-1980 giving Raj Mohalla property to all the five daughters of the assessee requires registration as it contemplated transfer of immovable property of more than one hundred rupees in favour of each of the daughters under Section 1V(1)(&) of the Indian Registration Act, 1908 and it not having been registered should not have been received into Court either under Section 14 to 17 of the Indian Arbitration Act, 1940 and no decree should have been passed in pursuance thereof. Sri Dastur, learned counsel for the assessee contended that the position of law followed by the learned Commissioner is not valid or correct in view of what has been stated in Sanjiva Row's Registration Act, 7th Edn. at page 295 as follows:
In other words, where an award required registration under Section 17(1)(&) of the Act, the fact of its registration is not 'jurisdictional fact' which must first be established for giving to the Court jurisdiction to proceed further in the matter of the filing of the award. If the Court is one competent and having jurisdiction to deal with the matter of filing of the award intended to be filed, then no matter whether the award is registered or unregistered, the Court gets jurisdiction to proceed with the matter of filing of the award when an application for that purpose is made.
It is thus plain that if an award requires registration under Section 17(1)(6) of the Act and has not been registered and the Court still files it and passes a decree on its basis, then the decree cannot be said to be one passed by a court having no jurisdiction. The decree may be invalid, it may not be according to law, but once it is passed it is binding and conclusive between the parties until it is set aside either in appeal or in revision. If such a decree is not a nullity, then clearly an executing court cannot refuse to execute the decree on the ground that the court passing it ignored certain provisions of law.
On the other hand, the learned Departmental Representative on the strength of the Full Bench decision in M. Venkataratnam v. M. Chelamayya AIR 1967 AP 257 argued that it is the award but not the decree which creates the right. In the said decision it is held that the crucial document which creates the rights and liabilities between the parties to Arbitration is the award and the Court can find a decree upon it under Section 17 of the Arbitration Act only if it is qualified under Section 17 and 49 of the Registration Act for being received in evidence and acted upon by the court. On the strength of the said decision it is argued that the award now before us creates rights in favour of all the five daughters in immovable properties of the value of more than Rs. 100 each and therefore it should have been qualified under Section 17 and 49 of the Registration Act for being received in evidence and it should be eligible to be acted upon by the court before any decree is passed on the strength of such award. In the case before us the award is admittedly an unregistered one and therefore the award is not receivable into court and is not entitled to be acted upon and a valid decree cannot be founded upon it and cannot be passed in pursuance thereof under Section 17 of the Arbitration Act. When a document cannot be looked into and cannot be acted upon is still acted upon contrary to the provisions of law any decree passed on the strength of such document would be a nullity. A decree would not only be merely irregular but would become illegal perse. In support of the said contention we came across a later decision of the Andhra Pradesh High Court in Arlyar Mohammad Habeebur Rahman v. Ansuri Varamma AIR 1974 AP 113. At page 117 the learned Single Judge held as follows :
I, therefore, hold that the Award in this case was inadmissible in evidence for want of stamp duty, and the Subordinate Judge could not pass a decree in terms of that Award.
So also we come across the decision of the Hon'ble Supreme Court in Baton Lal Sharma v. Purushottam Harit AIR 1974 SC 1066. At page 1068 their Lordships of the Supreme Court having regard to the terms of the Award held as follows in para 6 of their judgment:
... So in express words it purports to create rights in immovable property worth above Rs. 100 in favour of the appellant. It would accordingly require registration under Section 17, Registration Act. As it is unregistered, the Court could not, as we hold, look into it, the Court could not pronounce judgment in accordance with it. Section 17, Arbitration Act presupposes an award which can be validly looked into by the Court. The appellant cannot successfully invoke Section 17.
Another decision which we come across is a Bombay High Court decision in Shah Hansraj Veljee v. Shah Maganlal Veljee AIR 1980 Bom. 237. After reviewing most of the case law on the subject they summed up the legal position at page 246 as follows :
The propositions which, therefore, emerge on a survey of these decision are that an award under the Registration Act on a private reference, which creates, declares, assigns or extinguishes any right, title or interest in any immovable property in the value of one hundred rupees or upwards, is required to be registered under the provisions of Section 17(1)(&) of the Registration Act .... However, if the award is compulsorily registrable under the circumstances as stated above and is not registered it cannot be looked into and the Court cannot pronounce judgment in terms of the award under Section 17 of the Arbitration Act, as it presupposes an award which can be validly looked into. Unregistered award, a part of which only requires registration, can be given effect to in respect of that part which does not require registration, provided the latter part is separable or severable from the former. However, if the two are inseparable such an award cannot be enforced. It is on these principles that the admissibility of an award which deals with immovable property has to be judged.
12. In the case before us the award is already provided at pages 8-10. Under the award only Raj Mohalla building was dealt with. In the revised voluntary return filed for gift-tax purposes the value of Kaj Mohalla property was shown at Rs. 5 lakhs. Two fifth share in Eaj Mohalla property was returned at Rs. 1,18,000 for wealth-tax purposes by this very assessee for assessment year 1982-83. Therefore, these will conclusively prove that the value of the share of each of the daughters in Raj Mohalla property would be certainly more than Rs. 100 and therefore, we hold that in view of the above authorities that the award is clearly registrable under Section 17(1)(&) of the Registration Act and unless it is registered it cannot be looked into and neither a decree nor a rule of a court can be passed on the strength of the award dated 28-3-1980. Further as we have already stated that though 2/5th value of the Raj Mohalla property was never returned as part of the net wealth of the assessee for assessment year 1983-84 and though no reason was assigned for not including any part of it the Wealth-tax Officer accepted the returned wealth for assessment year 1983-84 which, in our opinion is clearly erroneous and prejudicial to the interests of the revenue.
13. Speaking on the ambit of the re visionary powers which can be exercised by the Commissioner of Income-tax the Andhra Pradesh High Court in Kanigicherla Anemia Kotaiah & Sons [Reference case No. 70 of 1971 dated 1-3-1973] held as follows:
Even on a casual reading of this section it would be found that the power conferred on the Commissioner to call for and examine the record of any proceeding under the Act. The power to make an order under that section is perceptibly wide. He is entitled to pass any order as the circumstances of the case justified. This broad phrase includes an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. What is thus plain is that he has power to remand the case for fresh assessment to the Income-tax Officer. Two things, however, are necessary before the exercises his revisionary powers. He must firstly consider that the order of the ITO is erroneous and secondly that such an erroneous order must show that it is prejudicial to the interest of the revenue. When both these things are found by him, it is only then that he can pass an order including an order of remand for the purpose of making a fresh assessment.
14. Here, in the case before us we are satisfied that the learned Commissioner is quite justified to hold that the wealth-tax assessments of the assessee for assessment years 1982-83 and 1983-84 are both erroneous and prejudicial to the interests of revenue and therefore according to the above decision rendered by the Andhra Pradesh High Court he is entitled to direct the Wealth-tax Officer to frame fresh assessments for both these years. We are unable to find any misappreciation of facts or misapplication of law and therefore we dismiss both these appeals.