Assistant Commissioner Of Income ... vs Harish Jain.
1997 Latest Caselaw 109 Del

ORDER

SMT MOKSH MAHAJAN, A.M. :

In an appeal filed it is contended by the Revenue that the learned CIT (A) erred in law and on facts in holding that the assessee is entitled to relief under s. 54F of the IT Act.

2. The facts in brief are that the assessee along with his wife entered into an agreement on 8th April, 1981, to purchase property at B-3, Maharani Bagh, New Delhi. As per agreement the total consideration was at Rs. 14 lakhs. While a sum of Rs. 12.30 lakhs was paid in advance at the time of execution of agreement for sale, the balance of Rs. 1.70 lakhs was to be paid at the time of registration of sale deed. The assessee along with his wife received vacant possession of the property as provided for in the agreement. As no sale deed could be executed for non-availability of requisite certificate of clearance from the IT Department, the assessee and his wife occupied the premises, namely, B-3, Maharani Bagh, New Delhi, on a monthly rent of Rs. 500. The amount of Rs. 12.30 lakhs as paid was to be adjusted against such rent. On 29th November, 1986, Raja Malvinder Singh who was the owner of the property entered into an agreement for sale of the same with another purchaser Shri S. V. Muzumdar of Bombay. This was for a consideration of Rs. 64 lakhs. The assessee and his wife were cited as confirming parties for the reason that they were in possession and occupation of the property. They in turn agreed to relinquish their right to purchase the property in favour of the purchaser for a consideration of Rs. 60 lakhs to be paid by the purchaser to them. The remaining Rs. 4 lakhs were payable by the purchaser to Raja Malvinder Singh who was also to retain the already paid amount of Rs. 12.30 lakhs by the assessee and his wife. The payment of Rs. 58 lakhs was made subject to the condition that the vacant and peaceful possession of the property would be handed over to the purchaser and the balance of Rs. 2 lakhs to be paid at the time of registration of the sale deed. While according to the AO the capital gain arose on 29th November, 1986, the date on which the agreement was signed between Raja Malvinder Singh and Shri S. V. Muzumdar, according to the learned CIT(A) the same arose on the date when the possession was handed over by the assessee to the purchaser which was 6th May, 1987. Reliance was placed on the letter addressed by the assessee to Shri Muzumdar wherein the property was stated to have been vacated on 6th May, 1987. As the assessee purchased another property at 5-A, Malcha Marg, which was registered on 5th May, 1989, in favour of himself and his wife, the purchase having been made within two years of the transfer of the assessees valuable right the claim under s. 54F of the Act was accepted by the learned CIT(A). Against this, the Revenue is aggrieved.

3. According to the learned Departmental Representative the assessee acquired valuable right on the basis of agreement for sale of property B-3, Maharani Bagh, on 8th day of April, 1981. This was relinquished on 29th November, 1986, when the assessee was made a confirming party to the agreement executed between Raja Malvinder Singh and Shri S. V. Muzumdar. Since the property at 5-A, Malcha Marg, was purchased on 5th May, 1989, the period between the two being more than 2 years, the assessees case was not covered under s. 54F of the Act. As per the arguments advanced as held by the AO the capital gain arose in asst. yr. 1987-88 and the exemption could not have been allowed as claimed by the assessee. This was also for the reason that in his wealth-tax return, the assessee had claimed that he had no right and interest in the property at B-3, Maharani Bagh, New Delhi, which was accepted upto the level of Tribunal. The learned authorised representative on the other hand, strongly supported the order of the learned CIT(A) wherein on interpretation of the document it was held that as the right of the assessee extinguished on the date of vacation of the premises and not on the date of agreement as entered into the assessees claim was rightly accepted. Our attention was also drawn to the dates on which the payment of Rs. 58 lakhs was received by Shri Harish Jain. It was submitted that the payments received through bank drafts were on two dates namely 5th May, 1987 and 6th May, 1987. This further proved the assessees stand that as per the stipulation the vacation of the premises was made after receipt of the amount of Rs. 58 lakhs.

4. We have carefully considered the rival submissions and have also gone through the material as placed on record to which our specific attention was drawn. The short issue in dispute relates to the date on which the transfer of asset has taken place. For this we would turn to the terms of agreements vide which the stated right in the property was acquired by the assessee and the manner in which it was transferred. As per the terms of agreement for sale executed with Raja Malvinder Singh on 8th day of April, 1981, the assessee paid Rs. 12.30 lakhs to the vendor. On receipt of the aforesaid amount the vendor delivered the vacant and peaceful possession of the premises No. B-3 Maharani Bagh, New Delhi, to the assessee (cl. 3). The vendor was to obtain necessary certificates, sanctions and permissions in order to hand over good and marketable title in the said property to the purchaser (cl. 6). It was after this that the document was to be registered. As per cl. 8 of the agreement in case the vendor is not able to give a good and marketable title, the purchaser would become the lessee of the said premises No. B-3, Maharani Bagh on a monthly rent of Rs. 500 which would be adjusted against the sum of Rs. 12.30 lakhs and the purchasers would have the full right to sublet or assign the tenancy in any manner whatsoever they like. Thus, the assessee was put in possession of the premises namely 2-Maharani Bagh in part performance of the contract. This transaction allowing the assessee the possession of immovable property as referred to in s. 53A of the Transfer of Property Act stands included within the definition of transfer in relation to capital asset as a result of insertion of sub-cl. (v) in s. 2(47) of the Act. The assessee as also given a tenancy right and he could sublet the premises was he desired. Under s. 53A of the Transfer of Property Act, the assessee acquired a right to defend his possession though not having a registered title deed in his favour. He could also assign that right as acquired under the agreement for sale and this was covered under the definition of s. 2(14) of the Act under the expression "property of any kind held by an assessee". The assessee agreed to give up his rights in an agreement for sale executed between Raja Malvinder Singh and Shri S. V. Muzumdar to which agreement he was made a confirming party. The rights listed were to purchase the said property as well to give up tenancy by handing over vacant and peaceful possession of the premises. This was on receipt of Rs. 58 lakhs from the party. Thus, transfer of rights was made subject to certain conditions. It is on fulfillment of these conditions that transfer could have taken place as envisaged in the definition of contract for sale as laid down in s. 54 of the Transfer of Property Act. Sec. 54 of the Transfer of Property Act reads as under :

"54. "Sale" defined - "Sale" is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised.

Sale how made. Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument.

In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.

Contract for sale - A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties.

It does not, of itself, create any interest in or charge on such property."

The above very well brings out the distinction between sale and contract for sale. The term sale as defined in s. 54 of the Transfer of Property Act clearly stipulates that it is a transfer of ownership in exchange for a price. In a sale there is a transfer of all rights in the property sold. Contract for sale, on the other hand, takes place on terms as settled between the parties. Unless these conditions are fulfillled there takes place no transfer as envisaged in the definition of Contract for Sale.

5. As stated earlier the assessee was to give up his right of possession on receipt of Rs. 58 lakhs. As per information the amount was received as detailed below :

Bank Draft No.

"Payment received by the assessee

Drawn on Amount

031325

Vijay Bank, Connaught Circus, New Delhi

11,50,000

031326

Vijay Bank, Connaught Circus, New Delhi Payment received by the assessees wife

4,00,000

379244

Indian Bank, Parliament Street Branch, New Delhi

30,00,000

031319

Vijay Bank, Connaught Circus, New Delhi

3,00,000

031321

Vijay Bank, Connaught Circus, New Delhi

9,50,000

Aggregate amount

58,00,000

The vacant possession was handed over on 6th May, 1987 (p. 25 of the paper book). Thus, it was on 6th May, 1987, that transfer of asset took place and not on the date of agreement for sale. Reckoning from this date the property having been purchased within a period of 2 years, the assessee is entitled to exemption under s. 54F of the Act as rightly held by the learned CIT(A) whose order we upheld.

6. While parting, we would deal with the objection of the WTO in regard to acceptance of assessees claim by the Tribunal for non-inclusion of value of right possessed by the assessee in the wealth of the assessee. In this context we find that both the ss. 4 and 2(m) of the WT Act at the relevant period of time read as under :

"4. (1) "In computing the net wealth of an individual, there shall be included, as belonging to that individual -"

"2(m) "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than -

(i) xx xx xx

(ii) xx xx xx

(iii) xx x x xx"

The expression belong refers to the rightful possession of property. In other words, liability to wealth-tax arises out of ownership of the asset and not otherwise. Mere possession without right to or ownership of property as is the case of the assessee would therefore, not bring the property within the definition of net wealth of the assessee; so the decision rendered in the case of assessee in wealth-tax proceedings in no way holds against the assessee.

7. In the result, appeal filed by the Revenue stands dismissed.