Delhi High Court

B. Dharam Singh Babek Singh ... vs Asstt. Cit on 29 November, 2001

Equivalent citations: (2001) 72 TTJ Del 930

ORDER

M.K. Chaturvedi, J.M.

This appeal by the assessed is directed against the order of the Commissioner (Appeals), New Delhi, and relates to the assessment year 1988-89.

2. The following four grounds taken in this appeal are reproduced here as under :

"(1). That, on the facts and in the circumstances of the case the action of the learned Commissioner (Appeals) in upholding the findings of the learned Assistant Commissioner that appellant has earned a capital gain of Rs. 3,43,113 is purely on non-appreciation of the factual and legal position in respect thereof and, therefore, unjust, uncalled for and legally untenable."

(2). That without prejudice to the above, the action of the learned Commissioner (Appeals) in also holding that capital gain relates to the year under appeal is again without any basis or material and, therefore, uncalled for and illegal."

(3). That the learned Commissioner (Appeals) has failed to appreciate the facts of the case, evidence filed and explanations rendered and his action culminating in upholding the order that the appellant has earned a capital gain of Rs. 3,43,113 is purely on hypothesis, imagination and surmises and, therefore, deserves to be struck down.

(4). That on the facts and in the circumstances of the case the action of the learned Commissioner (Appeals) in maintaining the following additions and disallowances are unjust, uncalled for and unwarranted :

(a) Rs. 6,000 out of telephone expenses

(b) Rs. 3,200 being fee paid to registered valuer for valuation of property.,

3. The first three grounds relate to the addition of Rs. 3,43,113 on account of long-term capital gains arising out of the alleged sale of property.

4. I have heard the rival submissions in the light of material placed before me and precedents relied upon. The assessed-company purchased a lease hold property from D.D.A. at 49. Community Centre. Friends Colony, New Delhi. It was rented out to M/s. Godfrey Phillips India Ltd. on a monthly rent of Rs. 28,490, as per the terms of the agreement, dated 8-10-1980. Clause (2) of the said agreement stipulated as under :

"In consideration of the lessee depositing with the Lesser the sum of Rs. 8 lakhs as hereinbefore provided the lessee shall at any time during the subsistence of this lease (with the consent of the Delhi Development Authority) or at the expiry of this lease or at any time thereafter during the subsistence of the renewal of this lease (without such consent as aforesaid) be entitled to purchase and acquire the demised premises at or for a total purchase price of Rs. 26,18,000 (Rupees twenty-six lakhs eighteen thousand only),"

5. The lease was for a period of 9 years subject to renewal. In terms of the aforesaid clause M/s. Godfrey Phillips India Ltd. agreed to exercise the option for the purchase of the said property from the assessed in November, 1987. After adjusting the deposit of Rs. 8,00,000 a sum of Rs. 17,18,000 was paid under an agreement to sell. The balance of Rs. 1,00,000 was payable at the time of registration.

6. On this factual backdrop the assessing officer held that the assessed sold the property for Rs. 26,18,000 even though the registration thereof was not completed. After deducting the cost of acquisition and other necessary deductions, the chargeable long-term capital gain was worked out at Rs. 3,43,113.

7. While making this addition the assessing officer also noted that M/s. Godfrey Phillips India Ltd. stopped paying rent on those premises to the assessed soon after entering into the sale agreement. Therefore, the assessed impliedly ceased to be the owner of the property. M/s Godfrey Phillips India Ltd. was in possession of the property as a tenant. Upon entering into this agreement it acquired constructively the possession as owner thereof. The entire sale consideration (except for Rs. 1,00,000) was received by the assessed.

8. The assessing officer took into consideration the prescription of section 2(47)(b) of the Income Tax Act, 1961 (hereinafter referred to as the Act) which prescribes that transfer in relation to capital asset includes transaction involving the allowing of possession of any immovable property to be taken or retained in part-performance of the contract of the nature referred to in section 53-A of the Transfer of Property Act.

9. Learned counsel for the assessed submitted before me that the transfer of ownership in the present case was subject to the consent of the DDA. Such consent was not received. Further, the transfer was also subject to the issue of clearance by the Appropriate Authority of Income Tax Department on Form 37-I. Such a clearance was not applied since the approval of DDA was awaited. It was further submitted that the intention of the party must be carried to the logical end. Reference was also made to the decision rendered in the case of Raj Rani Devi v. CIT (1993) 201 ITR 1032 (Pat). In the case of Raj Rani Devi there was stipulation in sale deeds that only on payment of entire consideration the registration receipt would be handed over and delivery of possession will be given. The Honble High Court held that the date of registration of sale deed could not be considered to be the date of transfer. This decision was rendered prior to the insertion of sub-section (v) in section 2(47). The provision of sub-clause (v) of section 2(47) are substantive in nature and are operative from assessment year 1988-89. It is pertinent to note that section 53A of the Transfer of Property Act deals with the doctrine of part performance. This is an English doctrine and it was partially imported into India. This section does not confer any title on the transferee in possession, but merely put a statutory bar on the transferor. This doctrine is a shield and not a sword. It is a right to protect the transferees position against any challenge to it by transferor contrary to the terms of the contract. By amending section 2(47) of the Act a transaction falling within the provisions of section 53A of the Transfer of Property Act, has been treated as "transfer" in relation to capital assets.

10. In the common law "owner" means a person who has got a valid title legally conveyed to him after complying with the requirements of law, such as, Transfer of Property Act. The Registration, Act etc. The Apex Court in the context of the Income Tax Act, 1961, having regard to the ground realities and the object of Income Tax Act has held that the requirement of registration of sale deed in the context of section 22 of the Act, is not warranted.

11. I have taken into consideration the entire conspectus of the case. The assessed is not offering property income for taxation for that reason he is treating the property as being transferred to M/s Godfrey Phillips India Ltd. I have gone through the stipulation in the agreement. The option given in the said agreement was exercised by M/s. Godfrey Phillips India Ltd. It is evident from the conduct of the parties. The mere fact that registration of the property was not done is not a condition aliunde to which chargeable capital gain can be deferred to a future date. It was conceded by the learned counsel for the assessed that in the subsequent years, also capital gain arising out of the transaction was not offered for taxation. The fact that DDA has not approved the registration is not relevant in view of the aforesaid discussion. I have gone through the reasonings given by the Commissioner (Appeals). I am inclined to agree with the same. Accordingly, I uphold the impugned order on this count.

12. Coming to ground No. 4 I find that Rs. 6,000 was disallowed out of telephone expenses. In the case of a company no disallowance in the hands of directors is possible in view of the decision of the Gujarat High Court in Cellulose Products of India Ltd. v. CIT (1996) 218 ITR 490 (Guj). Accordingly, I direct the assessing officer to delete the addition made on this count.

13. The fee paid to the registered valuer was for revaluation of the fixed assets of the assessed. This is a revenue expenditure in view of the decision of the Calcutta High Court in CIT v. Asiatic Oxygen Acctylene Co. Ltd. (1980) 132 ITR 506 (Cal). Respectfully following the decision I allow the claim of the assessed on this count and direct the assessing officer to delete the addition.

14. In regard to the miscellaneous expenses, the learned counsel filed a comparative chart. The expenses appears to be reasonable. In the preceding and subsequent years there was no addition on this count. Having regard to the facts, I direct the assessing officer to delete the addition.

15. In the result, the appeal of the assessed stands partly allowed.