Punjab-Haryana High Court
Commissioner Of Income-Tax vs Ved Parkash And Sons (Huf) on 28 July, 1993
Equivalent citations: [1994]207ITR148(P&H), (1993)105PLR569
JUDGMENT N.K. Kapoor, J.
1. The following question of law has been referred to by the Tribunal, vide order dated August 28, 1980, for adjudication :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that capital gain of Rs. 32,390 should be treated as long-term capital gains ?"
2. The assessee filed a return for the assessment year 1973-74 on November 1, 1973, declaring income at Rs. 19,737. The Income-tax Officer completed the assessment on March 23, 1976, at Rs. 37,750. The assessee had shown a capital gain of Rs. 32,390 arising from the sale of house property and claimed the same to be a long-term capital gain. The dispute arose as to the nature of the capital gain between the assessee and the Department. The Department taking a cue from the agreement entered into by the assessee with Messrs. Ansal and Seigal Properties (P.) Ltd., New Delhi, the builder, took the view that, in fact, the assessee became the owner of the property on February 13, 1973, when the last instalment was paid and so construing the capital gain could not be termed a long-term capital gain. On the other hand, the assessee claimed that by virtue of an agreement entered into with the builder on May 29, 1970, the flat was held by him for more than 24 months and this way the capital gain was liable to be treated as a long-term capital gain.
3. The Income-tax Officer rejected the contention of the assessee and treated the same as a short-term capital gain. For this, reliance was placed by the Income-tax Officer on clause 35 of the agreement which reads as under :
"No right, title or interest would pass to the buyer unless all the monies due and payable under this agreement have been paid and valid receipts obtained from the builders. In the event of failure to pay money due and payable, all monies already paid to the builders shall stand forfeited to the builders."
4. The appeal filed by the assessee too was dismissed by the Appellate Assistant Commissioner. Still not satisfied, the assessee challenged the impugned order before the Tribunal who reversed the order of the authorities and held that the capital gain in question should be assessed as a long-term capital gain in the hands of the assessee. For holding this, the Tribunal relied upon the decision of the Income-tax Appellate Tribunal, Delhi Bench, Camp Chandigarh, in the case of Surjit Singh v. ITO [1979] Tax 53(6)-28 decided on January 27, 1979, wherein the word "held" as mentioned in Section 2(42A) of the Income-tax Act was interpreted implying beneficial ownership of the property. The Tribunal, relying upon the various terms of the agreement and the fact that the assessee was put in possession way back on May 29, 1970, and was enjoying the property held him to be the beneficial owner of the property, treated the capital gain as a long-term capital gain. Learned counsel for the applicant has challenged this conclusion of the Tribunal terming it to be against the provisions of the Income-tax Act and otherwise contrary to the judicial pronouncements of the various High Courts.
5. The precise submission of learned counsel for the applicant is that the assessee became the owner of the property on February 10, 1973, when the last instalment of Rs. 5,000 was paid by him to the builder. Before this date, he was in possession of the property on the basis of the agreement dated May 29, 1970. Referring to Clause 35 of the agreement, counsel urged that the vendee, in fact, had no right, title or interest in the property and acquired the same only when the last instalment due was paid by him. This being the admitted position, the Tribunal indeed erred in law in coming to the conclusion that the assessee was the beneficial owner of the property from the time when he was put in possession of the same, i.e., from May 29, 1970. In support of his contention, counsel relied upon the following judgment in the cases of Sushil Ansal v. CIT [1986] 160 ITR 308 (Delhi), R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC), Arundhati Balkrishna v. CIT [1982] 138 ITR 245 (Guj) and CIT v. Smt. R.R. Sood [1986] 161 ITR 92 (Bom).
6. Before examining the contentions raised by counsel for the applicant, it may be mentioned that none has put in appearance on behalf of the respondent.
7. The sole question which needs scrutiny is whether the capital gain can be termed a short-term capital gain or long-term capital gain.
8. Section 2(42A) as it stood during the relevant assessment year reads as follows :
"'Short-term capital asset' means a capital asset held by an assessee for not more than twenty-four months immediately preceding the date of its transfer, but does not include a capital asset, being a certificate issued by an authorised dealer as defined in Clause (ai) of Section 2 of the Foreign Exchange Regulation Act, 1947 (7 of 1947), as evidence of the remittance of foreign currency or other foreign exchange (as defined respectively in Clause (c) and Clause (d) of the said section) to India from a country outside India in accordance with the provisions of the said Act and any rules made thereunder, during the period commencing on the 26th day of October, 1965, and ending on the 28th day of February, 1966, or such later date as the Central Government may, by notification in the Official Gazette, specify in this behalf, notwithstanding that such capital asset has been held by the assessee for not more than twenty-four months immediately preceding the date of its transfer."
9. From a perusal of the above section of the Income-tax Act, it becomes clear that a capital asset/capital gain would be deemed to be a short-term capital asset in case such a capital asset is held by the assessee for not more than 24 months immediately preceding the date of its transfer. Emphasis is upon the word "held by an assessee". Mr. Sawhney's contention is that word "held" implied legal ownership of the property only. Since in the instant case the assessee became the owner on February 10, 1973, and admittedly sold the same on the same day, such a gain would come within the purview of a short-term capital asset as defined in Section 2(42A) of the Act. In support of his above contention, counsel referred to Sushil Ansal's case [1986] 160 ITR 308 (Delhi). In the cited case, the court was examining the provisions of sections 22 and 23 of the Act which envisages a tax on the "owner" of the property. The facts leading to the present case were that a piece of land belonging to the Government had been given on perpetual lease. A company known as Ansal and Seigal Properties P. Ltd. entered into an arrangement with the lessee and constructed a multi-storeyed building on this piece of land. The assessee claimed that he is the owner of three of these flats since he paid the entire price thereof and got possession of them as well. Since the assessee had been deriving income, he had shown the same in his income-tax return as the income from the property. This nomenclature of the income was the subject-matter of adjudication. The Income-tax Department was of the view that since registration of the property had not been effected, such an income would be deemed to be an income from "other sources". Though the court noticed various decisions of the other High Courts taking a contrary view, notably Kala Rani v. CIT [1981] 130 ITR 321 (P & H), C1T v. Steelcrete (P.) Ltd. [1983] 142 ITR 45 (Cal), and a few others, yet it chose to follow the view of its own High Court. This authority does not apply to the facts of the present case. In the instant case, we have to examine the provisions of Section 2(42A) of the Act. Sections 22 and 23 of the Act referred to income from the house property owned by the assessee.
10. In R.B. Jodha Mal's case [1971] 82 ITR 570 (SC), the court examined the provisions of Section 9 of the Indian Income-tax Act, 1922, which envisages ownership of property. Accordingly, it was held that the property remained vested in the Custodian of Evacuee Property as an evacuee property and the assessee was not an owner for the purpose of Section 9 of the Act.
11. Similarly, the decision in Arundhati Balkrishna's case [1982] 138 ITR 245 (Guj) has no bearing on the point in controversy. In the instant case, the court was examining the date on which the transfer of a capital asset became effective under Section 45 of the Act, i.e., the transaction became effective from the date on which the documents were effected or when the same was registered by the Registrar. In these circumstances, it was held that in case registration of the document has been done subsequently, the transfer would be complete between the parties and would be effective from the date on which the same was executed.
12. The decision in Smt R.R. Sood's case [1986] 161 ITR 92 (Bom) lends support to the view canvassed by Mr. Sawhney. The assessee entered into an agreement for purchase of a plot vide agreement dated May 25, 1963, and was put in possession of the same as well. As per agreement it was the duty of the assessee to guard the same against trespassers or squatters. On September 24, 1964, the assessee paid the balance price and the conveyance deed was thus executed on September 25, 1964, and registered on September 29, 1964. On April 3, 1965, the assessee sold a portion of the plot to the co-operative society. It is a gain so made which became the subject-matter of determination before the income-tax authorities. The Income-tax Officer assessed the gain as a short-term gain holding that sale of plot was within 12 months from its purchase. On appeal by the assessee, the Appellate Assistant Commissioner took the view that the capital gain made by the assessee was a long-term gain and his decision too was affirmed by the Tribunal. The question of law as to whether on the facts of the case the gain from the sale of plot can be treated as a long-term capital gain was referred to the High Court by the Tribunal. The court without dilating upon the terminology used in Section 2(14) and Section 2(42A) of the Act held that mere agreement to purchase did not convey any title to the land or create any interest in the land. It was further held that at best the intending purchaser acquired a right in equity to get the agreement specifically enforced.
13. In the instant case, the assessee entered into the agreement on May 29, 1970, with Messrs. Ansal and Seigal Properties (P.) Ltd. for purchase of Flat No. 2 in a multi-storeyed building at New Delhi. Pursuant to this agreement, the assessee was put in possession and was also being assessed on its income by the Department. As per stipulation, the assessee was to pay the amount due in instalments and the final amount was paid on February 10, 1973. The fact that he was in the enjoyment of this property and was also being assessed to income-tax being its beneficial owner has not been disputed. Much emphasis has been laid by learned counsel for the applicant that the assessee became the owner of the property at the time its full payment was made on February 10, 1973, and since transfer was effected by him in favour of another person on the same day such a capital gain ought to have been construed as a short-term capital gain.
14. We find no merit in this contention of learned counsel. As is clear from a bare reading of Section 2(42A) of the Act, the word "owner" has designedly not been used by the Legislature. The word "hold", as per dictionary meaning, means to possess, be the owner, holder or tenant of (property, stock, land ....). Thus, a person can be said to be holding the property as an owner, as a lessee, as a mortgagee or on account of part performance of an, agreement, etc. Conversely, all such other persons who may be termed as lessees, mortgagees with possession or persons in possession as part performance of the contract would not in strict parlance come within the purview of "owner". As per the Shorter Oxford Dictionary, edition 1985, "owner" means one who owns or holds something; one who has the right to claim title to a thing.
15. The apex court in the case Jagdish Chand Radhey Shyam v. State of Punjab, AIR 1972 SC 2587 ; [1972] PLJ 566, while examining the provisions of the Capital of Punjab (Development and Regulation) Act (27 of 1952) held that the event of some default with regard to payment of instalments which might have been committed by an allottee does not give a right to the Government to resume the land or building and at best it is entitled to recover the amount due on account of non-payment of some of the instalments. The court held that the stipulation in the agreement that in the event of default in making the payment the Government shall have the right to resume the property was an unreasonable restriction on the enjoyment of the property and declared the same ultra vires. In the instant case, the sale though made by a private entrepreneur appears to be in identical terms as normally stipulated in various auction sale/sales by Government agencies where there is stipulation in the agreement to the effect that in the event of default in payment monies already paid shall stand forfeited. Thus, even if it be taken that some amount was yet to be paid by the assessee in terms of the agreement, all the same it cannot be construed that he had no right or interest in the property but was a licensee as sought to be projected by counsel for the applicant. The assessee in terms of the agreement having been put in possession in May, 1970, remained in occupation as of right and thus for all intents and purposes was its beneficial owner from the start. The judgment of the Income-tax Tribunal, Chandigarh Bench in the case of Surjeet Singh v. ITO [1979] Tax 53(6)-28, though not binding upon this court, has all the same a persuasive value. The point in dispute is squarely covered by this judgment. Thus, we are of the view that the Appellate Tribunal was right in law in holding that the capital gain was a long-term capital gain. Thus the question of law referred is answered in the affirmative.