Income Tax Appellate Tribunal - Jaipur
Income-Tax Officer vs Ajit Kumar Arya on 26 August, 1987
Equivalent citations: [1988]25ITD37(JP)
ORDER
A. Kalyanasundharam, Member
1. This is an appeal by the revenue and the cross-objection by the assessee. The grievance of the revenue is that the CIT(A) was wrong in coming to the conclusion that the sale of the land took place in 1975 and not in 1972 and that the amount of Rs. 1,54,360 was not liable to capital gains tax. The learned Senior Departmental Representative Mr. Dave referred to the order of the Tribunal in the case of the assessee passed under the wealth-tax dated 12-5-1982 and submitted that the issue regarding when the agricultural land of about 9 bighas was sold to the Housing Co-operative Society was considered and it was decided that the sale did take place in 1972. As against this finding by the Tribunal, the learned CIT(A) was carried away by the arguments of the learned counsel that in view of a small provision in the sale deed wherein an amount of Rs. 40,350, which was received in the shape of a postdated cheque was paid finally in 1975 and as per the deed the property was to be deemed to have been transferred only after the payment of this sum, though knowing fully well that the land was already registered in favour of the society in the year 1972 itself. He referred to the sale deed, copy of which has been filed by the assessee and submitted that it clearly provided that the transfer of the said land had taken place in 1972. It is also clearly specified in the sale deed that full consideration had been recovered and by means of note it has been mentioned that in case the amount of Rs. 40,350 is not paid by 30th of November, 1972, then in that event the sale deed would be treated as effective only from the day the payment is made. He submitted that the sale deed is dated 7th August, 1972 and it was registered with the Sub-Registrar's office on the 13th of September, 1972. He placed reliance on Mulla's Transfer of Property Act, 1973 Edition and submitted that the note regarding payment of Rs. 40,000 is only to accommodate the Society to defer its payment. He placed reliance on Mulla's Transfer of Property Act, pages 303, 304, 305, 330 and 343 regarding the proposition when the ownership is transferred. Referring to the assessee's paper book, he submitted that the various cases that have been cited by the assessee are all distinguishable and, therefore, the learned CIT(A) was clearly in error in coming to the conclusion that the sale tools place only in 1975. The further plea that was raised was that under the Wealth-tax proceedings the affidavit of Shri Ramkishan that he had carried out an agricultural activity for the assessee till 1975 was never filed during wealth-tax appeals for the same years. Shri Ramkishan was, no doubt, examined but he admitted to have carried out the agricultural activity solely for the assessee and also admitted that he never carried out any such similar activity for any one either before or after. Considering all this, the plea of the Senior Departmental Representative was that the claim of the assessee was wrongly accepted that it was agricultural land. Referring to the cross-objection of the assessee, the learned Senior Departmental Representative submitted that B.S. Jayachandra v. ITO [1986] 161 ITR 190 (Kar.), had taken a contrary view with that of the Bombay High Court in Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 and that the Jaipur Bench of the Tribunal had observed that the intention of the purchaser would have to be looked into while deciding whether the land is an agricultural land or otherwise.
2. The plea of the assessee, on the other hand, was that the said sale of agricultural land was a conditional sale and the condition being the encashment of the amount of Rs. 40,350 after which only the sale would be said to be completed. Referring to page 25 of the paper book, it was submitted that the amount was received on 15th of October, 1975 and therefore, only on that day the sale could be held to be complete. Reference was also made to page 26 wherein the affidavit of the Deputy Manager of the Rajasthan State Cooperative Bank Limited, who was the President of the Society, who had purchased the land wherein it was clearly stated that the possession was given only on 15th of October, 1975. The plea further was that the order of the Tribunal passed under the Wealth-tax Act in the case of the assessee contained certain factual errors. It was pleaded that transfer does not mean only registration of a property but includes transfer of all bundle of rights. In the instant case, the bundle of rights included physical possession which remained with the assessee till 15th of October, 1975. Therefore, to hold that the transfer was effected on 13th of September, 1972, i.e., the day on which it was registered in favour of the assessee would be wrong on facts of the case. The assessee pleaded that he would have no objection if the proceedings in respect of assessment year 1976-77 are taken for bringing into tax the capital gains, if any. Reliance was also placed on CIT v. Motilul Ramswa-roop [1970] 76 ITR 43 (Raj.) wherein it was observed that department cannot question the veracity of a transaction. On the issue of the conditional sale, reliance was placed on Panchoo Sahu v. Janki Mandar AIR 1952 Pat. 263 and also Ghanshyamdas Kishan Chander v. CIT [1980] 121 ITR 121 (AP), Addl. CIT v. Mercury General Corporation (P.) Ltd. [1982] 133 ITR 525 (Delhi). Reference was also made to the returns of wealth as were filed by the assessee wherein the entire agricultural land was shown as wealth of the assessee and that the amount received as sale consideration was treated as debt due by the assessee. Reference was made to the Rajasthan High Court decision in the case of the assessee taken under the Wealth-tax. In this order, their Lordships had specifically observed that under the Income-tax proceedings an independent finding has to be given without considering the finding arrived at by the Tribunal in the wealth-tax. As regards the nature of the agricultural land in question, the plea of the assessee was that there was no dispute under the wealth-tax that its nature was that of agriculture and this evident from the order of the Tribunal wherein exemption had been allowed. In addition, reliance was also placed on CIT v. Manilal Somnath [1977] 106 ITR 917 (Guj.), Gordhanbhai Kahandas Dalwadi v. CIT [1981] 127 ITR 664 (Guj.) and 871 (sic), Gemini Pictures Circuit (P.) Ltd. v. CIT [1981] 130 ITR 686 (Mad.), Sercon (P.) Ltd. v. CIT [1982] 136 ITR 881 (Guj.), CIT v. Borhat Tea Co. Ltd. [1982] 138 ITR 783 (Cal.) and CWT v. H. V. Mungale [1984] 145 ITR 208 (Bom.), regarding transfer of agricultural land resulted only in agricultural income. Reliance was placed on Manubhai A. Sheth's case (supra), H.V. Mungale's case (supra), Nadirshah Rustamji Mulla v. ITO [1985] 154 ITR 629 (Bom.), 14 TTJ 510, Gurjit Singh Mansahia v. ITO [1983] 5 ITD 125 (CM.), 1984 Tax World Section 4, page 18, R. Krishnarjunan v. ITO [1986] 18 ITD 350 (Coch.) 18 TTJ 362 and 26 TTJ 270. Reliance was also placed on CIT v. Golcha Properties (P.) Ltd. regarding charging of interest under Section 139(8).
3. We have given very careful considerations to the arguments that have been advanced by the parties and also the various materials that have been brought on record. In the sale agreement dated 7th August, 1972, which was registered on 13th September, 1972, it has been so mentioned that the purchaser has been given possession of the property. In the later part of the deed it has been mentioned that the sale was with a free consent of the seller and that out of the total consideration of Rs. 2,45,175, an amount of Rs. 2,04,825 was paid in cash and the balance amount of Rs. 40,350 was given by means of a cheque drawn on Jaipur Central Cooperative Bank dated 30th of November, 1972. A note has been added in the deed in which it is mentioned that if the cheque is not honoured on 30th of November, 1972, then the sale would be treated as ineffective and that only on encashment of the said cheque, the sale would be treated as valid.
4. The plea of the counsel for the assessee on the basis of the note on the sale deed was that since the balance amount of Rs. 40,350 was paid on 15th of October, 1975, the sale became a valid sale only from that date for which purpose reliance was placed on the Patna High Court decision in Panchoo Sahu's case (supra). The assessee placed reliance on Rajasthan High Court decision in Motilal Ramswaroop's case (supra) for the proposition that when the parties to the transaction, namely, the assessee, who is the seller and the society, which is a purchaser, have no dispute to the fact that the sale was treated as valid only on payment of the balance on 15th of October, 1975, the department, which is third party, to the contract, cannot dispute the date of sale and, rather, that the department may not have jurisdiction.
5. Basically, the transfer of an immovable property is governed by Section 54 of the Transfer of Property Act. According to this section, a contract for sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. The issue that needs to be decided is whether on the basis of the sale deed the intention of the parties was to treat it. as a complete sale on the date of agreement or as a conditional sale only. In the case laws relied on by the assessee decided by the Patna High Court, the dispute was between the purchaser and the seller where the purchaser did not pay the balance amount in accordance with the deed and the deed having provided for that the sale would be deemed as complete only on payment of the full consideration. Their Lordships of the Patna High Court had observed that in this kind of situation due to the non-fulfilment of the contract the seller would be liable to refund the entire amount of part consideration receipt together with such cost. This particular case may not have any direct applicability to the case before us. The reason being between the time of the signing of the deed, followed by its registration on 13th of September, 1972, which is followed by the date, 30th of November, 1972 by which the amount of Rs. 40,350 should have been encashed and the actual date of payment, which is 15th of October, 1975, there are no such evidence as regards any dispute between the assessee and the purchaser either for non-giving of possession or for non-payment of the balance amount or for invalidation of the sale deed. There are no correspondences and there are also no evidence available of the assessee having modified the conditions of non-fulfilment of the deed at the request of the purchaser. Therefore, what it comes to is to gather the intention of the parties. In accordance with the Transfer of Property Act, there are several rulings wherein Courts have held that mere registration of property in favour of the purchaser does not necessarily lead to the conclusion that there was a transfer effected provided it can be shown that the intention of the parties were as such and it would be for the parties to establish that notwithstanding such registration the property has not been transferred. In the case before us on this basis, the salient feature of the agreement that was brought out in the earlier paragraphs followed by the conduct of the assessee it could be held in spite of whatever was mentioned about the sale being treated as not valid incase of dishonouring of the cheque of Rs. 40,350, since it was not acted upon or that there being no evidence on record that this was so intended and acted upon by the parties, for all purposes the only probable conclusion would be to hold that the sale got concluded on the 13th of September, 1972 when the property was registered in favour of the Society. While coming to this conclusion that the sale was complete on 13th of September, 1972, we are alive to the deicsion of the Rajasthan High Court in the case of Motilal Ramswaroop's case (supra). In this case, the karta of HUF had made large gifts out of the funds of the HUP to which gifts the coparceners had no objection. The Department made a claim that the gift was either void or voidable as it was made without keeping into consideration the interest of the coparceners. On this, their Lordships observed that since the coparceners did not raise any objection to the gift made, it is not for the department to raise a dispute as, it is not a party and that it is definitely not a party which would be affected by such a gift. In the instant case, this particular ruling of the Rajasthan High Court had been relied upon on the basis of the statement of the assessee as well as the affidavit of the President of the Society wherein both had categorically stated that the sale was concluded only on 15th of October, 1975, i.e., the date on which the amount of Rs. 40,350 was paid and that possession was given only on that day and, therefore, Department being a third party should not raise any dispute on the date of sale. We have already observed that whatever was written in the sale deed was, in fact, not acted upon by the parties. Implying thereby that when the parties themselves do not act in accordance with the deed, then the statements, that the land was given possession of in 1975 would be in the category of the self-serving statement, that is, they would have no evidentiary value. In case, the assessee and the purchaser had evidences available which would go to establish that they did act upon the deed, then positively in accordance with the Rajasthan High Court decision the claim of the assessee would necessarily be needed to be upheld. For the reasons mentioned above, on the facts of the present case, the assessee himself is on a weak ground to establish that the sale was completed ''only on 15th of October, 1975, on which facts the assessee's case is clearly distinguishable from the one considered by their Lordships of the Rajasthan High Court (supra).
6. The other evidence which the assessee wanted relied upon, namely, the statement of Shri Ramkishan as well as the Land Revenue records for purposes of establishing the fact that the land was in possession of the assessee is not reliable in view of the observations made in the above paragraphs. One of the arguments that was advanced by the assessee was that he invested the sale proceeds in 1975 to claim exemption under Section 54B so that no capital gains is attracted and did not do so soon after the substantial amount of sale consideration was received only for the reason that in case the sale has to be cancelled consequent to the purchaser's non-fulfilment of his part of the contract and, therefore, it was pleaded that the sale was concluded only in October 1975. These are, no doubt, valid submissions but are not supported with any evidence in the shape of purchaser claiming the refund of the amount paid or the assessee making a counter claim for compensation or for payment immediately, etc. Therefore, even this particular argument is of no avail to the assessee. The assessee also placed reliance on Ghanshyamdas Kishan Chander v. CIT [1980] 121 ITR 121 decided by the Andhra Pradesh High Court and Mercury General Corporation (P.) Ltd.'s case (supra) for deciding the issue of the date of sale. The case before their Lordships of the Andhra Pradesh High Court is on a situation where certain property was mortgaged for certain debts which was subsequently sold to the mortgagee. The question was whether the sale was complete when the mortgage was made or only when it was sold. The ruling of their Lordships was that the sale took place at a subsequent point of time when the sale was made and not on the day of which the mortgage was effected. The issue before their Lordships of the Delhi High Court was in the absence of sale deed being effected and possession not being given whether it would be right to treat the property as sold on the basis of an agreement entered into by the Company with its shareholders. The ruling of their Lordships was that no sale was effective. These two cases, we are afraid, have no relevance to the issue before us for the reason that in the case before us the sale deed has been registered and on the facts it appears that the possession could also be said to have been given immediately thereafter as there was no evidence regarding any dispute between the assessee and the purchaser for repossession or refund of the amount and also for not acting in the manner specified in the deed. Therefore, we have only to conclude that the sale was complete on 13th of September, 1972 and action in respect of capital gains, if any, is rightly relatable to assessment year 1973-74 only and not 1976-77 as was pleaded by the assessee.
7. The other issue that arises is regarding the nature of the capital asset as to whether it was agriculture or otherwise and if it is agriculture in nature, then it would have necessarily to be decided whether it would be exempt from the provisions of the Income-tax Act or not. The undisputed fact in this connection is that the land was used for agriculture and as a consequence of the expansion under the Master Plan the said land had come within the limits of the municipality but for which it would remain to be classified as an agricultural land. There are several authorities, which support the contention of the assessee that the character of an agricultural land would not get modified merely for the reason that it comes within the limits of municipality. The several rulings relied on by the assessee go only to support the contention of the assessee. There are rulings in Manubhai A. Sheth's case (supra), H.V. Mun-gale's case (supra) and Nadirshah Rustamji Mulla's case (supra) and several Tribunal decisions, which have considered the sale of such agricultural land and the nature of the receipt. The view had been that the receipt on sale of agricultural land, is of the nature of agricultural income only and would be exempt under Section 2(1)(&) of the IT Act. There are views of certain Courts which are contrary to the above ones including B.S. Jayachandra's case (supra) where they have specifically dissented from the decision in Manubhai A. Sheth's case (supra). In view of the divergent views on the matter, the view that is favourable to the assessee is to be taken, as held by the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 and, accordingly, we hold that the amount received on the sale of agricultural land resulted in agricultural income only and, therefore, from capital gains tax. This disposes of the departmental appeal as well as Ground Nos. 1 & 2 of the cross-objection filed by the assessee.
8. In the cross-objection, the assessee had also raised the plea that cost of the agricultural land which was taken as on 1-1-1954 at Rs. 3,999 was wrong and that the cost of improvement up to 1970 should have been added and that the computation of capital gain at a figure of Rs. 1,53,515 was wrong and that interest under Section 139(8) should not have been levied.
9. The issue regarding what was the cost and whether the cost of improvement up to 1970 is to be considered for purposes of working out the capital gains tax or not has not been given a finding by the CIT(A) and, therefore Ground Nos. 2, 3 & 5, as raised by the assessee cannot be said to arise out of the order of the Tribunal. The interest under Section 139(8) is only a consequential matter and since the income has been held to be exempt there would be no levy of interest under Section 139(8).
10. In the result, the departmental appeal and the cross-objection are allowed in part.