Income Tax Appellate Tribunal - Delhi
Acit vs Smt. Pushpa Devi Jain [Alongwith Ita ... on 28 December, 2004
Equivalent citations: [2005]93ITD289(DELHI), (2005)93TTJ(DELHI)590
ORDER
1. These are 26 appeals relating to the same group of assessees. Common facts are involved and common issues are to be adjudicated in these appeals. For the sake of convenience, these are being decided by a combined order.
2. Shri Salil Agarwal, Advocate represented the assessee. Shri Rananjay Singh, DR appeared on behalf of the revenue.
DEPARTMENTAL APPEALS GROUND NOS. 1 TO 3 IN ITA NO. 698/97, 702/97 & 703/97
3. In these three appeals, the revenue have taken the following common grounds :
"1. Ld. CIT (A) has erred in law and on facts in holding that capital gain is not taxable in respect of sale agreement dated 7.9.91 in pursuance of which possession over property was transferred to the buyer who constructed shops and payments of Rs. 55,00,000/- was received through cheques.
2. Ld. CIT (A) has erred in law and on facts in holding that there was no transfer of property whereas A.O. had sufficient material on record to substantiate that there was transfer of property within the provisions of Section 2(47) and 53A of I.T. Act, 1961.
3. Ld. CIT (A) has erred in law and on facts in deleting capital gain without appreciating material available on record."
4. Before dealing with the issues involved in these appeals, we consider it proper to narrate the relevant facts concerning these grounds, which are as under :
(i) Smt. Pushpa Devi Jain, Shri C.P. Jain and Shri V.P. Jain were co-owners of the property bearing Bungalow No. 210-B, West End Road, Meerut measuring about 45,000 sq.yds. (equivalent to about 9 acres) Whereas the share of Smt. Pushpa Devi Jain in the above referred property was one-half, the other two co-owners had the share of one-fourth each. On this property, besides the Bungalow there were some hutments etc. and some portion was rented out.
(ii) Vide Agreement dated 4.7.1974, all the co-owners agreed to transfer the entire property for a sum of Rs. 18 lacs to Shri M.P. Jain, Shri K.C. Verma, Shri Mangal Sain and Shri Manohar Lal. At the time of agreement, the co-owners received advance money of Rs. 2 lacs. As per agreement, a sum of Rs. 6 lacs was further received by the co-owners on the basis of the agreement and possession of the property was handed over to the purchasers on 4.7.1974. The balance payment of Rs. 10 lacs was not paid to the co-owners by the purchasers and thus, the deal remained incomplete.
(iii) From year 1981 to 1984, the owners made attempts to sell the property but the transactions remained incomplete. In 1988, the owners also received a sum of Rs. 2 lacs as advance money from Shri Sudharshan Mittal to sell the property but this deed was also not carried out.
(iv) In October, 1990, the owners entered into agreement with M/s. Agarwal's Associates for transferring the property and received a sum of Rs. 11,111/- in cash. A written agreement in this regard was made on 7.9.1991. As per the following para of this agreement, the property was to be sold for Rs. 55 lacs :
"Whereas total and complete Bungalow No. 210-B, area of which is 40,000 Forty Thousand Sq. Yards or thereabout with complete building outer and inside every type meaning thereby all the property of bungalow No. 210-B shall include in this agreement situated at West End Road, Meerut Cantt., bounded as follows, is the ownership and possession of the first party without any share of other person. Complete property above is free from all king of encumbrances, lien of every kind or without any legal defect etc. etc. and clear without any legal defect and first party have a right to transfer and sale and there is no legal defect in this. Now first party have made this agreement to sale with second party for whole of the above property for a consideration of Rs. 55,00,000/- (Rs. Fifty five lac only) and total consideration of Rs. 55,00,000/- is received by the first party from second party as per details below before the Sub-Registrar at the time of execution of this agreement."
In this agreement, paras 1 to 15 laid down certain conditions regarding modes of payment and responsibility of the purchasers for getting ceiling permission to sale etc.
(v) A search was conducted in November, 1994 in the premises of the assessees and certain documents relating to sale of Bungalow No. 210-B, West End Road, Meerut were found and seized. Besides certain notings about the payments received by the owners etc., a copy of agreement dated 7.9.1991 referred to above, was also found.
(vi) The Assessing Officer has noted the details from the documents seized. The relevant extract of the assessment order in this regard is being reproduced as under :
"Rs. 11,111/- By cheque Rs. 25,000/- By cheque Rs. 50,000/- By five cheques Rs. 2,00,000/- By four cheques Rs. 52,00,000/- By two cheques Rs. 13,889/- By cash."
(vii) On enquiry, the assessee admitted that the deal was for Rs. 84 lacs and out of this amount, a sum of Rs. 21 lacs was left with the purchasers for settling old disputes about the land and for obtaining necessary permission from the concerned authorities. It was also stated that deal was for "as is where is basis". Thus, a total sum of Rs. 63 lacs was to be received by the co-owners as per ratio of their respective shares.
(viii) The Assessing Officer proposed to levy capital gain tax on the basis of the agreement dated 7.9.1991 in the assessment year 1992-93. The contention of the assessee was that since possession remained with the purchasers of 1974, the property was not transferred in 1991 on the basis of the agreement. It was further submitted that till 7.9.1991, only a sum of Rs. 4,50,000/- was received from M/s. Anand Prakash Agarwal's and even up to the date of search, only a sum of Rs. 32,75,000/- was received. It was also submitted that the owners made several attempts to sell the property but in absence of possession, no transfer deed could be executed. It was explained that M/s. Agarwal's Associates had transferred two shops situated on this property in 1995-96 but this transaction was illegal as M/s. Agarwal's Associates were not having possession of the land.
(ix) Ld. Assessing Officer rejected the contentions raised on behalf of the assessee and held that capital gain was leviable on the transfer of the property in assessment year 1992-93. He assigned following reasons in support of this conclusion :
"(i) The assessees i.e. C.P. Jain & Others have been regularly taking money from Agarwal's Associates.
(ii) Agarwal's Associates have sold two shops in A.Y. 1995-96 after development of the land since A.Y. 92-93 and the stay petition disputes etc. before the Court started somewhere in early 1996 only.
That it is amply clear that the assessees simply trying to hoodwink the department by taking recourse to some stay petitions etc. just to avoid capital gain on the property. Without the possession of the land how could be the property sold. In my opinion the possession of the land was given to Agarwal's Associates by the agreements to sell dated 7.9.1991. I, therefore, levy capital gain on this property in A.Y. 1992-93."
(x) The Assessing Officer also worked out the capital gain on the basis of the agreement in the following manner :
"The market value of the land is taken at Rs. 84,00,000/- which is justified because Shri C.P. Jain & Others were to received Rs. 63,00,000/- as per discussion above and Rs. 21,00,000/- was set aside to settle the disputes with old purchasers from whom Shri C.P. Jain & Others have already taken advance money. The price of the land as per agreement in 1974 is Rs. 18,00,000/-. Long Term Capital Gain is, therefore, to be charged in A.Y. 1992-93 on 84 minus 18 = 66 lacs rupees. The name is to be divided in the hands of Smt. Pushpa Devi Jain, Shri C.P. Jain and Shri V.P. Jain in the ratio discussed above.
(Charge long term capital gain on Rs. 66,00,000/-in AY. 1992-93)"
(xi) The assessee challenged the findings of the Assessing Officer before the ld. CIT (A). It was submitted on behalf of the assessee in appeal that as the possession remained with the buyers of 1974 agreement, there was no question of co-owners handing over the possession to the subsequent purchasers, namely, M/s. Agarwal's Associates. It was pointed out that the appellants were still legal owners of the, property as the balance amount has not been paid by M/s. Agarwal's Associates and as possession could not be delivered to M/s. Agarwal's Associates, it could not be said that there was any transfer of the property within the meaning of Section 2(47) of the Income-tax Act for the levy of capital gain. In this regard, reference was also made to the provisions contained under Section 2(47)(v) of the Income-tax Act and it was submitted that agreement dated 7.9.1991 which was only on a stamp paper of Rs. 6/- cannot be treated to be a valid document for transferring the property. Another submission made on behalf of the assessee was that as possession was not transferred to the purchasers at the time of agreement, it cannot be said that the property stood transferred In support of this version, reference was made to the statement of Shri A.P. Agarwal's recorded on 2.3.1996 before the Assessing Officer wherein he stated that he had not taken possession of the property in question. Thus, according to the assessee, M/s. Agarwal's Associates were neither the legal owners of the property nor were in legal possession of the same.
(xii) Ld CIT (A), after referring to the facts and background of the matter, accepted the contentions raised on behalf of the assessee and held that the Assessing Officer was not justified in levying the capital gain on the appellants in the year under consideration. He thus deleted the addition. We consider it proper to reproduce para 4 of his order, which is as under :
"4. I have considered the order of the A.O. and submissions of the learned counsel. It is an admitted fact that in pursuance of agreement by the appellant and other co-owner with Shri Mahavir Prasad Jain & others dated 4-7-1974, the appellant had given the possession of the property to them on 15.6.75. The relevant possession letter was filed before the A.O. during the assessment proceeding as is evident from page 4 of the assessment order. If Section 2(47)(v) of I.T. Act was applicable at the time of said handing over the possession, then the transfer of the property in question could have been considered as having taken place on that date. However, prior to 1.4.88 the transfer of an immovable property was only considered to have taken place when the sale deed was registered. Since no sale deed was executed by the appellant as well as other co-owners with Shri Mahavir Prasad Jain & Others, the appellant and others co-owners remained the legal owner of the property though the possession had been handed over to the said buyers. However, by virtue of the agreement, the said buyers had an enforceable right against the appellant. As per evidence filed before the A.O. the said purchasers are Still pursuing their rights and moved a stay petition against M/s Agarwal's Associates. M/s Agarwal's Associates also entered into an argument, as mentioned earlier, with them to take possession of the property on 2.9.91 for a consideration of Rs. 10,00,000 and paid Rs. 10,000 at the time of agreement. However, this agreement did not materialise as subsequently M/s Agarwal's Associates did not pay the balance of the amount to them. Though the appellant has received substantial amount from Shri Mahavir Prasad Jain & others as well as from certain other persons for sale of plot/lands (referred earlier) yet they did not execute any sale deed with any of the parties. We are not, in the year under consideration, concerned with the taxability of the amount realised by the appellant from the said parties, the precise question in the year under consideration is as to whether it could be said that the appellant had by virtue of agreement to sell with M/s. Agarwal's Associates, transferred the possession of the property to them. It is clear from the agreement to sell that the appellant had agreed to sell the property in question on 'as is where is basis'. It was also agreed between the parties that a sum of Rs. 21 lakhs will not be given to the sellers and will be kept apart for settling the matters with Mahavir Prasad Jain & Others and for clearing other legal hindrance and claims of other parties. There is nothing in the agreement as such which could indicate that the appellant had given the possession of the property to M/s Agarwal's Associates. The appellant's stand that the possession of the property rested with Mahavir Prasad Jain & others has not been rebutted by the A.O. M/s Agarwal's Associates have so far also not been able to complete the entire payment schedule agreed between them and the appellant and other co-owners. There is nothing to hold that they are in possession of the* property. Simply because M/s Agarwal's Associates have made certain payments to the appellant, it can not lead to the conclusion that they have received possession of the property. Even if they have constructed and sold two shops in asst.year 1995-96 the appellant's stand is that they were not authorised to do so by the appellant. The appellant claims that it was not hit by Section 2(47) (v) of I.T. Act which talks of possession of any immovable property to be taken or retained in part performance of the of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. One of the essential ingredients of Section 53A is that the transferee should in part performance of the contract take possession of the property or any part thereof or the transferee being already in possession continue in possession in part performance of the contract. This ingredient is not fulfilled, in the present case. The Transferee i.e. M/s Agarwal's Associates were not handed over the possession of the property and it was left to them to obtain the possession of the property after which the sale deed was to be executed in their favour by the appellant and other co-owners. In view of this, the appellant's case is not hit by the Section 2(47) (v) of I.T. Act. Hence, the A.O. was not justified in levying the capital gain on the appellant in the year under consideration. The addition on account of the same is deleted."
(xiii) Ld. DR assailed the findings of the ld. CIT (A) and placed reliance on the order of the Assessing Officer. The main contention of the ld. Senior DR was that vide agreement dated 7.9.1991 the co-owners transferred their interest in the property to the purchases and on the basis of this agreement, the purchasers made payments also to the owners. According to him, the property was sold or transferred on the basis of "as is where is basis" and, therefore, it cannot be said that in absence of delivery of possession, no transfer took place. According to the ld. DR, by virtue of this deed, all the rights of the co-owners stood transferred to the transferees. He further submitted that the ld. CIT (A) has not properly considered the contents and nature of this agreement and, therefore, the view taken by him is not justified.
(xiv) On the other hand, the ld. Counsel for the assessee, Shri Salil Agarwal supported the order of the ld. CIT (A) and submitted that since, during financial year 1991-92 relevant to assessment year 1992-93, the possession of the property remained with the purchaser of agreement dated 4.7.1974, the question of transferring the possession of the property on the basis of the agreement to M/s. Agarwal's Associates did not arise. He pointed out that the power of attorney given to Shri A.P. Agarwal was also cancelled. According to him, the power of attorney was itself invalid on law on account of following reasons:
(a) A power of attorney holder cannot execute a power of attorney in favour of three persons;
(b) the property could not be transferred since the property had been attached by the Income-tax Department in respect of demand outstanding against the co-owners.
Ld. Counsel further submitted that the conditions set out in Section 53A of the Transfer of Property Act were not satisfied in the present case and, therefore, Section 2 (47)(v) could not be attracted. In support of his submission, the ld. Counsel also made reference to Sardar Govind Mahadik and Anr. v. Devi Sahai and Ors. AIR 1982 (S.C.) 989.
(xv) It was also argued by him that agreement dated 7.9.1991, which was only on a stamp paper of Rs. 6/-, was not commensurate with the provisions of Stamp Act for transferring possession of immovable property, as in the relevant year the stamp duty to be paid was of 50% of the sale deed. The ld. Counsel also submitted that income from the disputed property was also being assessed in the hands of the co-owners in assessment years 1991-92 to 1995-96. In this regard, he made reference to the copies of the acknowledgement of return along with computation of income for assessment year 1991-92 to 1995-96 which documents are available in the paper book. The learned counsel further pointed out that the property has been assessed as the wealth of the assessees for subsequent assessment years. In support of this assertion, he made reference to the Wealth-tax assessment order under Section 16(3)/17 of Wealth-tax Act for assessment years 1992-93 to 1995-96 in the case of Smt. Pushpa Devi Jain. These documents are also filed in the paper book. The ld. Counsel also pointed out that in assessment year 1999-2000, the co-owners had filed return disclosing capital gain and the Department has accepted the return. In support this arguments also, he made reference to copies of acknowledgement of return along with computation of income in the case of the assessees for assessment years 1999-2000.
(xvi) Another submission of the assessee was that the agreement dated 7.9.1991 was a conditional agreement and several conditions of the agreement remained unfulfilled as even the cheques were dishonoured and permission of authorities like MBO and Ceiling Authorities could not be obtained within the specified time. Regarding the sale of two shops by M/s. Agarwal's Associates in assessment year 1995-96, he submitted that firstly such transfer was illegal and secondly this transfer took place in assessment year 1995-96 and not in assessment year 1992-93.
5. In the setting of above background, facts and circumstances of this matter and on considering the entire relevant material on record as well as the submissions of the ld. Senior DR and that of the ld. Counsel for the assessee, we proceed to adjudicate the issues involved. On the basis of the material placed before us, the following are undisputed facts :
(i) Smt. Pushpa Devi Jain, Shri C.P. Jain and Shri V.P. Jain were absolute owners of the property, namely, Bungalow No. 210-B, West End Road, Meerut.
(ii) Although vide agreement dated 4.7.1974, the co-owners agreed to sell the above property to Shri Mahavir Prasad Jain and Others and received a total amount of Rs. 8 lacs from them and also transferred possession vide agreement dated 15.6.1975, rights of ownership were not transferred to them as nothing further was done by the parties in compliance of the said agreement. Thus, the co-owners retained title on this property.
(iii) Vide agreement dated 7.9.1991, the co-owners agreed to sell the property on the basis of "as is where is basis". The sale consideration as well as the modes of payment were set out in this deed.
(iv) After the agreement dated 7.9.1991, neither any further agreement nor any further sale deed was executed by the co-owners.
(v) As is found from the arbitration award dated 12.3.1998, a copy of which has been filed before us by the assessee, and from the order and decree of Additional Senior Civil Division Judge, Meerut, making the award as rule of the court, the purchasers "under 1974 agreement agreed to take total amount of Rs. 10 lacs and delivered the possession of the Bungalow to M/s. Agarwal's Associates. It may be pointed out that in the arbitration proceedings, Smt. Pushpa Devi Jain, Shri C.P. Jain and Shri V.P. Jain i.e. the co-owners were arrayed as Opposite Party No. 2, 3 & 4 and they also did not have any objection to the settlement arrived at by the arbitrator.
6. We now come to the relevant provisions of the Income-tax Act with regard to the levy of capital gain. The capital gain is levied as per Section 45 of the Income-tax Act. The charging provision as contained in Clause (1) of Section 45A is as under :
"Any profits or gains arising form the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place."
In view of the above position, Income tax is chargeable on the profits or gains arising from the transfer of capital asset. The definition of transfer of capital gain as given in Section 2(47) is given as under :
"transfer, in relation to a capital asset, includes, -
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or
(v) any transaction involving the allowing of the 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 (4 of 1882), or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
Explanation - For the purposes of Sub-clauses (v) and (vi), "immovable property." shall have the same meaning as in Clause (d) of Section 269UA."
(i) It may be pointed out that the definition of transfer as contained under Section 2(47) is for a particular purpose and it relates to the transfer of a capital asset. This definition is inclusive definition as it includes several modes of transfer, besides the mode of sale, exchange and relinquishment of the asset, there are other modes also. In Clause (vi) of Section 2(47), a very wide definition of transfer has been given. We repeat this clause for proper analysis and appreciation of the nature of transaction before us :
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
(ii) By virtue of Explanation attached to Clauses (v) and (vi) of Section 2(47), the definition of immovable property as given in Clause (d) of Section 269UA is as under:
"(d) "immovable property" means -
(i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also.
Explanation - For the purposes of this sub-clause, "land, building, part of a building, machinery, plant, furniture, fittings and other things" include any rights therein;
(ii) any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building."
(iii) In view of the above definition, immovable property includes any rights in or with respect to any land or any building. Such rights may accrue or arise from any transaction by way of any agreement or any arrangement of whatever nature.
(iv) On going through various clauses of Section 2(47) and in particulars Clause (v) and (vi), it is clear that the intention of legislature is to cover all such cases and transaction which may not strictly fall within the definition of transfer of immovable property under the Transfer of Property Act, but which have the effect of transferring rights or interest of ownership in such property. The object behind such a wide scheme is to cover all such cases in which the owner receives profit or gain on transferring capital asset by adopting any mode or by making any 'arrangement'. The term arrangement encompasses various steps taken by the parties to transfer the asset. In such arrangement, there may not be requirement of any registered sale deed to convey the title to the property as envisaged under Section 54 of Transfer of Property Act. Otherwise also in view of Section 47 of the Registration Act, a registered document operates 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. In the case of Arundhati Balkrishna 138 ITR 245, Hon'ble Gujarat High Court, taking this view, held that the transfer of capital asset becomes effective under Section 45 of the Income-tax Act from the date on which the document was executed, in case its registration was subsequently admitted before the Registrar. Thus, the court came to the conclusion that the transfer was effected in the previous year in which the document was executed but was presented for registration and was registered in a subsequent year. A similar view was expressed by the Hon'ble Supreme Court of India in the case of Ravi Saran Lall v. Mst. Domini Kuer A.I.R. 1961 S.C. 1747. The Hon'ble Supreme Court explained the meaning of 'owner' for the purposes of Section 22 of Income-tax Act in the case of CIT v. Poddar Cement Pvt. Ltd. 226 ITR 625 and observed; as under:
"Considering the provisions of the Act, English decisions, Jodha Mal Kuthiala's case [1971] 82 ITR 570 (SC) and passages from the G.W. Paton on Jurisprudence, Dias on Jurisprudence, Stroud's Judicial Dictionary and Pollock on Jurisprudence the court expressed the view and pointed out as under (page 642 of 226 ITR):
"The juristic principle from the view-point of each one is to determine the true connotation of the term 'owner' within the meaning of Section 22 of the Act in its practical sense, leaving the husk of the legal title beyond the domain of ownership for the purpose of this statutory provision: The reason is obvious. After all, who is to be taxed or assessed to be taxed more accurately - a person in receipt of money having actual control over the property with no person having better right to defeat his claim of possession or a person in legal parlance who may remain a remainder man, say, at the end or extinction of the period of occupation after, again say, a thousand years?""
(v) Thus, the contention that transfer will be complete only when the possession is delivered cannot be accepted in view of the provisions contained under Clauses (v) and (vi) of Section 2(47). Interpreting these two provisions, the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT 260 ITR 491 has observed as under :
"The above two clauses were introduced with effect from April 1, 1988. They provide that "transfer" includes (i) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property (see Section 269UA(d)). Therefore, in these two cases capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete under the general law. This test is important to decide the year of chargeability of the capital gains."
(vi) In the case of C.I.T. v. Podar Cement Pvt. Ltd. (supra), the Hon'ble Supreme Court of India has observed that in the context of Section 22 of I.T. Act, owner is a person, who is entitled to receive income in his own right. According to Hon'ble Supreme Court, Section 22 does not require registration of sale deed. While considering the provisions of Sections 22 to 27 of I.T.Act, the Hon'ble Supreme Court has held that the owner must be that person who can exercise the rights of the owner, not on behalf of owner but in his own right. Thus, the liability of taxation is fixed on the person who receives and is entitled to receive the income from the property in his own right. Clarifying the concept of ownership for the purpose of Income-tax Act, the Hon'ble Supreme Court has held as under :
"From the memorandum explanation the Finance Bill, 1987, it is clear that the amendment to Section 27 of the 1961 act was intended to supply an obvious omission or to clear up doubts as to the meaning of the word "owner" in Section 22. The amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature so far as it related to Section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation.
Hence, though under the common law "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act etc., in the context of Section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted."
(vii) In the case of CIT v. Mormasji Mancharji Vaid (supra), following the decision of the Hon'ble Supreme Court in the case of CIT v. Podar Cement Pvt. Ltd., 226 ITR 625 (S.C.), the Hon'ble Gujarat High Court held as under :
"One should not forget "that as pointed out by the apex court in the case of CIT vs. Podar Cement Ltd. (1997) 226 ITR 625 the settled position under the common law is that owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But in the context of Section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, "to tax the income", the owner is a person who is entitled to receive income from property in his own right. Thus while interpreting the provisions contained in the taxing statute, the objectives differ and, therefore one will have to look to the provisions contained in the Income-tax Act."
(viii) In the case of C.I.T. v. Vishnu Trading and Investment Co., 259 ITR 724 (Raj.), also the Hon'ble Rajasthan High Court has held that for taxing the capital gains, registration of the sale deed is not necessary under the provisions of Income-tax Act.
(ix) In the present case, the assessees had transferred all the rights and entire interest in the property by the agreement dated 7.9.1991. As the property was transferred on the basis of "as is where is basis" and further as a part of sale consideration was left with the purchasers for settling all the disputes, the delivery of possession of the property was not a requirement for transferring the rights in the property in the present case. It may be pointed out that the transfer of immovable property can be completed even without delivery of possession of the property. What is to be transferred by the owners is the title in the property and their interests in such property? On scrutiny of the agreement, it is found that the owners agreed to sell the property and to transfer their rights to the purchasers under this agreement. The owners have accepted this agreement to be a final deal for the transaction of transfer as they never cancelled this agreement. Hence, this agreement is the sole basis of transferring the rights of ownership in the property. The owners received payment and continued to receive the balance payment only under this agreement. By virtue of this agreement, the transferees took further steps for the recovery of the possession. This was done on the basis of authority given under this agreement by the co-owners. Even in the arbitration proceedings though the co-owners were made party but they did not raise any objection. Had they still treated themselves to be the owners of the property, they would have certainly objected to the delivery of the possession by the 1974 purchases to the purchasers under the agreement of 1991.
(x) At the time of hearing of this appeal, the Bench enquired from the parties and in particular from the assessee, regarding any subsequent deal or document for the transfer of the disputed property. No such deal or transaction regarding sale or transfer of this property could be pointed out. It could also not be pointed out that M/s. Agarwal's Associates were not owners of the property on the basis of this agreement. Thus, this agreement is the only document on the basis of which the rights of ownership and interest in the property were transferred to M/s. Agarwal's Associates. There is no subsequent agreement, assignment or arrangement for transferring any right in relation to this property by the owners. As the parties have acted on the basis of this agreement, it is a final document between them. To repeat, even the possession had been taken by virtue of the provisions and stipulations of this agreement. Thus, the transfer of the property by the co-owners to the purchasers has to be traced, connected and correlated with this agreement alone. It is true that there was delay in payment and also in obtaining permission from Ceiling Department etc. but on the basis of such delay neither the agreement was cancelled nor any claim was made by the co-owners by treating this agreement as revoked. The power of attorney was also executed on behalf of the co-owners for taking further steps and although this power of attorney was cancelled subsequently, the agreement was not cancelled or revoked. Thus, between the parties to this agreement, it remained a valid document. It may be pointed out that on the basis of this agreement, M/s. Agarwal's Associates even sold some shops in subsequent years and this act of M/s. Agarwal's Associates was not challenged by the assessees, which indicates that the assessee treated M/s. Agarwal's Associates as owners of the property by virtue of this agreement.
(xi) On perusal of the main para of the agreement, which has been reproduced above, it is found that the co-owners treated themselves to be absolute owners of the property irrespective of the possession being not with them and declared and represented that they had the right to transfer and sale and that there was no legal defect in this. In this para, it is also mentioned that the total consideration of Rs. 55 lacs was received by the co-owners before the Sub-Registrar at the time of execution of the agreement. In para 2 of the agreement, it was mentioned that first party has received post-dated cheques and nothing is in balance. In para 4 of the agreement, it is stated that the first party will not return any amount to any type to the second party for the above property and in future second party shall be responsible to pay to all the persons, whatsoever amount payable or whatsoever compromise will be and second party shall be responsible to pay all the amounts received by the signatures of the first party. In paras 6 and 7 of the agreement, the second party is made responsible for obtaining the requisite permissions for sale. In para 11, it is clearly mentioned that, "if the first party object to execute and register the sale deed or agreement etc. as per direction of the second party then the second party have a right to sue for specific performance and get the registration through court, in this condition all the expenses of court will be the liability of the first party."
(xii) In view of the various conditions and stipulations in the above agreement and on reading the agreement as a whole, it is found that the owners had done everything on their part to transfer the rights in the property. It may be pointed out again that this agreement has been treated to be binding by the parties and both the parties have acted upon the same. The owners do not deny that the property was not transferred to M/s. Agarwal's Associates. In fact, the version of the assessee is that the transfer took place in the year 1999 when delivery of possession was given to the purchaser, this contention is not acceptable because the only basis for transferring the rights of ownership by the owners is the deed of 1991 and not the delivery of possession and as the possession was not in their hands, it was not to be delivered by them. The owners had already made arrangements for delivery of the possession and for all other necessary acts under the agreement. Thus, the transfer of rights of ownership by the owners stood concluded by this agreement. From the above, it is clear that the transferors i.e. the co-owners had done everything on their part to convey the title to the transferor. The intention of the parties to the agreement has also to be seen while construing the document. In the present case, clear intention of parties was to change hands over the property.
(xiii) So far as the present matter is concerned in view of Clause (vi) of Section 2(47) read with Section 269UA (d) that capital gain would be taxable in the year in which the transaction is made in any manner which has the effect of transferring or enabling the enjoyment of any immovable property even if the transfer of property is not effected or completed under the general law. As the owners made arrangement by irrevocable agreement and gave the transferees complete control over the title to property to the purchasers, the date of contract between the owner of the purchaser becomes relevant and not the date of delivery of possession.
(xiv) The arguments raised on behalf of the ld. Counsel for the assessee that the agreement was not sufficiently stamped and that no sale deed was registered on the basis of this agreement, do not carry force because in between the parties this agreement amounted to final arrangement and as provided in Clause (vi) of Section 2(47) read with Clause (d) of Section 269UA, there was no need for registration of sale deed in view of this arrangement. It has to be observed here that for the purposes of Income-tax Act and in particular for the transfer of capital assets, the definition of terms given in Section 2(47) and Clause (d) of Section 269UA has to be applied and not the definition of 'sale' or 'transfer' as given in the Transfer of Property Act or in other statutes. The other arguments raised by the ld. Counsel for the assessee was that the possession was not delivered at the time of the agreement also does not carry force because as provided in Clause (d) of Section 269UA immovable property includes any rights with respect to any land or building etc. In the present case, the owners did not have physical possession but they had the rights of ownership in the property and by transferring such rights to the purchasers by virtue of 1991 agreement, they transferred immovable property within the meaning of above provision.
(xv) The ld. CIT (A) has considered the provisions of Section 2(47)(v) for holding that as at the time of execution of agreement dated 7.9.1991 the possession was not handed over, no transfer took place under the said agreement or by virtue of the said agreement. He has also considered Section 53A of the Transfer of the Property Act, which relates to part performance of the contract and possession taken under such contract. In our considered opinion, the ld. CIT (A) has mis-directed himself in invoking the provisions of Section 2(47)(v) of Income-tax Act because in the present case the possession was not delivered in pursuance of the agreement.
(xvi) The ld. Counsel for the assessee pointed out that in assessment year 1999-2000, the assessee filed return disclosing the capital gain on transfer of the said Bungalow and the Department had accepted the returns. On perusal of the relevant documents, it is found that these are only acknowledgements and not scrutiny assessments. In any case, on the basis of these acknowledgements, it cannot be said that the Department has applied mind in accepting the return of the assessee.
Nextly, it may be pointed out that in the present cases, we are examining the validity of the assessment made in assessment year 1992-93 and not the validity of assessments made in subsequent years.
7. Ld. Counsel placed heavy reliance on the Wealth-tax assessments made in the case of the assessee in subsequent assessment years. His emphatic submission was that as the Department has charged Wealth-tax in assessment year 1992-93 to 1995-96 in respect of the same property by making under Section 16(3)/17 of the Wealth-tax Act, it has to be taken that the Department has treated the assessee's as owners of the property in subsequent assessment years and on this basis, the approach of the Department in charging capital gain tax in assessment year 1992-93 is self-contradictory and inconsistent. This contention can also not be accepted. It is for the assessee to challenge the legality or otherwise of the Wealth-tax assessment and for this purpose, they may avail available legal remedies. If any assessment has been made incorrectly or illegally under any other act then the assessee may exercise his rights to challenge the same. The assessment correctly made cannot be held to be illegal merely on that basis. In the case of Income-tax Officer v. Ch. Atchaiah 268 ITR 239 before the Hon'ble Supreme Court, it was argued on behalf of the revenue that merely because a wrong person is taxed, it does not operate as a bar to taxing the right person. According to the Hon'ble Court, the Income-tax Officer can and he must, tax the right person and the right person alone. The Hon'ble Court has observed as under :
"He can, and he must, tax the right person and the right person alone. But "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person". Merely because a wrong person is taxed with regard to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Section 183 shows that where Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law, but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer [Income tax Officer] has taxed the said income in the hands of another person contrary to law."
8. On the basis of the above, we are unable to accept the arguments of the ld. Counsel for the assessee and rejecting the same, we uphold the view taken by the Assessing Officer.
9. In view of the above, we are unable to uphold the findings of the ld. CIT (A) and after setting aside the same, we hold that the transfer of the capital asset i.e. Bungalow No. 210-B, West End Road, Meerut, took place by virtue and under the agreement dated 7.9.1991 in the financial year 1991-92 (assessment year 1992-93) and as such, the Assessing Officer was fully justified in levying the capital gain in assessment year 1992-93. The Assessing Officer is directed to compute capital gain accordingly.
10. In view of the above, we allow ground Nos. 1 to 3 taken by the revenue in the above three appeals.
GROUND NO. 4 IN ITA NOS. 698/97, 702/97 & 703/97 and GROUND NO. 1 IN ITA NOS. 4920/99, 4924/99, 699/97, 4921/99, 4925/99, 700/97, 4922/99, 4926/99, 701/97, 4923/99, 4927/99
11. The revenue has taken common ground in these appeals which is as under :
"Ld. CIT (A) has erred in law and on facts in deleting interest charged to tax by the AO on the cash balances as per assessee record but not available at the time of search and seizure operation whereas the assessee failed to furnish details regarding shortage of cash and the AO substantiated that the cash balances were advanced to certain parties."
(i) During the course of search, the Book B-11 was seized. Pages 19 to 26 of this book showed certain loans to Mr. Rashid, Mr. Sadiq, Mr. Sajid and Steel Cop. Engg. Works. On the basis of these entries, the Assessing Officer inferred that Shri C.P. Jain had taken loans from these persons. The details of loans noted by him in the assessment order are as under:
Mr. Rashid : Rs. 8000/- on 25.1.1991 Mohd. Sajid : Rs. 12000/- on 17.11.1990 Mohd. Sadiq : Rs. 30000/- on 17.10.1990 Mohd. Sadiq : Rs. 15000/- on 21.2.1991 M/s. Steel Cop. Engg. Works : Rs. 20000/- on 14.2.1991
(ii) The Assessing Officer made further enquiry and also recorded the statement of Shri Sadiq who stated that the loan about M/s. Steel Cop. Engg. Works was genuine. He also submitted a copy of account. On the basis of his statement, the Assessing Officer inferred that the assessee had taken a loan from these persons. The Assessing Officer also found that in the cash flow statement submitted by the assessee, there was shortage and as the assessee was giving friendly advances from cash balance in hand for every year, due to such shortage he was compelled to take loans when there was shortage of cash. According to him, not much cash was found with the assessee on the date of search. On the basis of statement of Mohd. Sadiq, he therefore concluded that Shri C.P. Jain and others used to give loan to persons on interest and in time of sudden emergency, they took loan from others. On the basis of this conclusion, he estimated the amount of loan given on interest in the relevant assessment years. He also took the interest @ 24% p.a. and worked out the notional interest in the following various assessment years as under :
Assessment Year Amount of Loan Intt. Earned 1991-92 3,97,111/- 95,306/- 1992-93 11,05,489/- 2,65,370/- 1993-94 10,07,906/- 2,41,897/- 1994-95 7,16,828/- 1,72,039/- 1995-96 2,37,575/- 81,018/- (iii) On appeal, it was submitted before the ld. CIT (A) that the Assessing Officer was not justified in working out the notional interest on the basis of presumptions. In this regard, before the CIT (A), following submissions were made :
"7.2 The learned counsel for the appellant submitted that there was no material with the A.O. to come to the conclusion that the appellant, Shri C.P. Jain and Shri V.P. Jain had advanced cash in hand on interest to various parties and had earned the interest. This is a pure presumption on the part of the A.O. and the addition cannot be made on whims and without any material on record. The A.O. has also not rebutted the appellant's stand that the cash was kept with Shri C.P. Jain. Irrespective of this fact, he mentioned that the A.O. had himself mentioned in the order that the appellant gave friendly advances to the parties out of cash balance in hand every year and 'no interest was charged on that' and, therefore, the addition on account of assumed interest was otherwise not justified."
(iv) The ld. CIT (A) accepted the argument reproduced above and deleted the addition by observing as under :
"7.3 I find substance in the above arguments of the learned counsel and hold that in the absence of any specific material with him regarding charging/earning of interest by the appellant, the A.O. was not justified in making the impugned addition in the income of the appellant. The addition is, therefore, deleted."
(v) On going through the relevant material, we are of the considered opinion that the ld. CIT (A) has correctly appreciated the relevant material. The Assessing Officer has not found any evidence of advancing money by the assessees on interest to anybody. Merely because the cash was not found as per cash flow statement, it cannot be presumed that the assessees had advanced the money on interest or given loan out of the cash which should have been available with them. In the absence of any material and documentary evidence, the Assessing Officer was not justified in making the addition on the basis of presumption. Further, he has himself mentioned that the assessee was giving the friendly advances to the parties out of cash balance in hand and he was not charging interest on that. Thus, if the assessee was advancing loan without interest, no addition can be made merely be drawing inferences. We, therefore, uphold the view taken by the ld. CIT (A).
12. Consequently, the ground mentioned above, taken by the revenue in these appeals is rejected.
13. In the result, the appeals of the revenue are partly allowed.
ASSESSEE'S APPEALS GROUND NO. 1 IN ITA NOS. 865/97, 863/97, 864/97, 866/97, 4508/99, 4505/99, 867/97, 4509/99, 4506/99, 868/97, 4510/99 & 4507/99
14. The assessees have taken ground No. 1 to challenge the charging of interest income from Shri Sharad Jain.
(i) The facts concerning this ground are that at the time of search, one Ajanta Quality slip pad was found and on this pad, there was following entries :
"1 to Sharad for Espee Exports on 11.9.1991 at the rate of 24% interest per month."
In reply, it was submitted that Sharad Jain was real brother of Shri C.P. Jain and Shri C.P. Jain might have given some amount to his brother Shri Sharad Jain out of family fund to keep with him and there was no interest charged nor Shri Sharad Jain has paid any interest. It was further contended that the rate of 24% interest per month is not correct and the market rate for lending money could at best be 15% p.a. It was explained that this annexure is memorandum of copy as written over in the diary. In this regard, confirmation from Shri Sharad Jain was also filed regarding non-receipt of any interest.
(ii) The Assessing Officer did not accept the explanation of the assessee in view of the fact that at page 231 of the seized Book B-11, the receipt of interest from Shri Sharad Jain at Rs. 2,000/- from 14.4 to 13.5 and similarly on page 226, the receipt of Rs. 2,000/0- from 13.5.92 to 12.6.92 was mentioned. The Assessing Officer thus correlated Annexure B-l with Annexure B-11 and held that money was definitely advanced to Shri Sharad Jain by the assessees who received interest @ Rs. 2,000/- p.m. for the loan of Rs. 1 lac. On this basis, he applied the rate of 24% p.a. on the loan advanced and worked out the receipt as under :
A.Y. 1992-93 14,000/-
1993-94 24,000/-
1994-95 24,000/-
1995-96 24,000/-
(iii) In appeal, the ld. CIT (A) upheld the view taken by the assessee.
(iv) Before us, the submission of the ld. Counsel for the assessee was that no interest was charged from Shri Sharad Jain by Shri C.P. Jain as it was not probable to charge interest from the real brother.
(v) We have carefully considered the entire material. A copy of the certificate given by Shri Sharad Jain is available on page 16 of the paper book. It is dated 28.2.1996. In this certificate, he has admitted that his brother Shri C.P. Jain gave him Rs. 1 lac only to keep. It has further being mentioned that this amount was given to him out of the advances received by his brother on agreement to sell Bungalow No. 210-B, West End Road, Meerut. He has certified that he had not taken any loan from Shri C.P. Jain and never paid any interest to him nor any other member of the family. It may be pointed out that the Assessing Officer has not examined Shri Sharad Jain or Shri C.P. Jain to confront them against this document. In view of the specific version of Shri Sharad Jain, it was incumbent upon the Assessing Officer to have summoned him and examined him in this regard and to have confronted him and also Shri C.P. Jain against the seized material. A copy of the seized document is available at page 249 of the paper book. On the top of it, the memorandum has been written. As per the version of the assessee, the assessee had simply calculated the interest and did not really charge the same from Shri Sharad Jain. Otherwise also, charging of interest @ 24% p.m. did not appear to be probable in the year 1990-91. In view of the above, we are unable to sustain the view taken by the CIT (A) on this issue and hold that addition on account of charging of interest from Shri Sharad Jain on the amount of Rs. 1 lac cannot be upheld. Hence, on the basis of the above, the addition made by the Assessing Officer and so sustained by the CIT (A) in the hands of the assessees in various assessment years is to be deleted. Consequently Ground No. 2 taken in all the appeals is allowed.
GROUND NO. 2 IN ITA NOS. 865/97, 863/97, 864/97, 866/97, 4508/99, 4505/99, 867/97, 4509/99, 4506/99, 868/97, 4510/99 & 4507/99<
15. Ground No. 2 has been taken by the assessees in their appeals to challenge the charging of interest on the basis of alleged loan from Devband party.
(i) During the course of search on annexure B-1 page 1 of the book, there was following entry :
2 ½ to Babuji on 13.9.91 @ 24% interest p.a. 1 1/2 to Babuji on 28.11.1991 @ 24% interest p.m. In order to explain the above entries, it was submitted on behalf of the assessee that a sum of Rs. 4 lacs was given by Shri C.P. Jain to his relation to invest the same @ 24% p.a. but the relation could not do so and returned the money back later. In support, affidavit of father-in-law of Shri C.P. Jain was also filed. It was further submitted that this money was later on invested in the purchase of a piece of land at Saket, Meerut. To substantiate this version, the purchase deed was also furnished. The Assessing Officer did not accept this version and rejected the same. In doing so, he also made reference to certain alterations on page 231 and 227 of B-11 which related to the charging of interest. On the basis of these entries, he held that the interest was received from Devband party. He thus worked out the interest in various assessment years in the following manner:
A.Y. 1992-93 Rs. 32,500/- plus 13,500/- = 46,000/-
1993-94 Rs. 96,000/- 96,000/-
1994-95 Rs. 96,000/- 96,000/-
1995-96 Rs. 96,000/- 96,000/-
(ii) The above addition was divided in the hands of Shri C.P. Jain, Smt. Pushpa Devi Jain and Shri V.P. Jain in the ratio of their shares in the property and thus, the addition was made in their hands in various years accordingly.
(iii) The action of the assessing officer was upheld by the ld. CIT (A).
(iv) Before us, it was submitted on behalf of the assessee that the ld. CIT (A) was not justified in sustaining the addition. According to the ld. Counsel, the seized material which contained the alleged entry is nothing but a rough memorandum of loose paper in which the assessee did nothing but a day dreaming. It was further submitted that the available cash including the alleged loan was Rs. 3,75,575/- as on 31.3.1995 which was less than Rs. 5 lacs (i.e. Rs. 1 lac of Shri Sharad Jain and Rs. 4 lacs as above) and, therefore, the assessment of alleged presumed interest with reference to Rs. 5 lacs was against the facts on record.
(v) We have gone through the entire relevant material. A copy of the affidavit of Shri Jagbhushan Pd. Jain is available at page 85 of the paper book. In this affidavit, it is deposed by Shri Shri Jagbhushand Pd. Jain who is father-in-law of Shri C.P. Jain that Shri J.P. Jain never advanced any amount on which any interest was paid. It was further deposed in para 2 of the affidavit that Shri C.P. Jain gave Rs. 4,00,000/- on two occasions with the request invest it somewhere on interest and expected interest @ 24% p.a. But, keeping in view the delicacy of his relations, he could not do his work and after sometime requested Shri C.P. Jain to take back the money which he took. This affidavit remained uncontroverted. The Assessing Officer never called Shri Jagbhushan Pd. Jain for cross examination. In view of the uncontroverted affidavit, the version of the assessee deserves to be accepted. It is also to be pointed out that the assessees were not confronted against the entries even on the loose papers which was the incriminatory material, as per the Assessing Officer. It is the settled law that a person is to be confronted against the incriminatory material if the same is to be used or utilized against him. As this has not been done, the incriminatory material cannot be utilized against the assessees. On the basis of the above, the addition made by the Assessing Officer and so sustained by the CIT (A) in the hands of the assessees in various assessment years is to be deleted. Consequently Ground No. 2 taken in all the appeals is allowed.
14. In the result, whereas the appeals of revenue stand partly allowed, all the appeals of the assessees are allowed.