Commissioner Of Income Tax Tamil Nadu V, Madras v. Shri N.r.bhusanraj

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:27.2.2002 CORAM THE HONOURABLE MR.JUSTICE V.S.SIRPURKARANDTHE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN Tax Case No.241 of 1996 Commissioner of Income TaxTamil Nadu V, Madras. .. Applicant -Vs- Shri N.R.Bhusanraj .. Respondent Petition under Section 256(1) of the Income Tax Act, 1961 against theorder in R.A.No.288(Mds)/1995 in I.T.A.No.517 (Mds)/1989 on the file of theIncome Tax Appellate Tribunal, Madras Bench 'A', Madras. ! For Applicant : Mrs.Chitra VenkataramanSenior Standing Counsel forIncome Tax ^ For Respondent : Mr.P.Veeraraghavan : O R D E R (Order of the Court was made by V.S.SIRPURKAR, J.) The question referred before us is as follows:- "Whether the Tribunal was right in law and had valid materials in holding thatno transfer took place as per the first sale deed dated 11.6.1981 read withanother instrument of resale dated 22.6.1981 for the purpose of levying taxunder the head 'Capital Gains'? 2. Following factual matrix will help us understand the controversy.The assessee sold the property at No.2, Barracks Maidan Road, Vellore forRs.2,00,000/- by a sale deed dated 11.6.1981 to one Smt.D. Narmada. Thissale deed was, however, not presented for registration though it was executedon that date. Instead, another deed came to be executed on 22.6.1981 betweenthe assessee and the said D.Narmada under the heading 'Deed of resaleagreement'. Under this, it was specifically mentioned that there was a saleof the concerned property for Rs.2,00,000/- on 11.6.1981 and since the assessee herein had requested to resell the aforesaid property for theaforesaid amount, the vendee D.Narmada consented and agreed to sell on thefollowing conditions. In those conditions, it was stated that the sale deedshall be got registered at the instance of the assessee after the payment ofthe balance amount of sale consideration of Rs.1,99,500/- as the amount ofRs.500/- was received by the assessee by way of an earnest. It was thenagreed by the said vendee D.Narmada that in default of the payment of the saleconsideration of Rs.1,99,500/-, the resale agreement would be renderedinvalid. It was also agreed that this sale deed was to be got executed aftera period of two years i.e., after 21.6.1983, but within a period of threeyears i.e., before 21.6.1984. It is also agreed that if the vendee Narmadafailed to execute the sale deed, the assessee shall be at liberty to file asuit in the Court and obtain the resale. Both the documents were gotregistered on 22.6.1981. 3. On this basis, the Revenue authorities, treating this to be a transaction inviting capital gains under Section 45 of the Income Tax Act,assessed the assessee. Before the assessing officer, it was tried to bestated that the first document was a conditional sale and since both thedocuments i.e., the sale deed and the agreement of sale were registeredtogether, there was no transfer in the eye of law for the purpose of capitalgains. The assessing officer, however, did not agree and came to theconclusion that the assessee was liable to pay the capital gains tax. Sincewe are not concerned with the calculation thereof, we are not referring to thefigures. Dissatisfied by this, an appeal came to be filed before theCommissioner of Income Tax (Appeals), who took the view that the assessingauthority was correct in taking the view that he did, of treating thetransaction dated 11 .6.1981 registered on 22.6.1981 as a transfer andassessing the assessee to the capital gains tax. Before the Commissioner, adecision of the Punjab and Haryana High Court reported in 122 ITR 461 (HIRALAL RAM DAYAL -VS- C.I.T) was cited. However, the Commissioner, Income Taxcame to the conclusion that the facts in that case were altogether differentand that the transaction in question was nothing else but the transfer, and assuch, invited the application of Section 45 of the Income Tax Act. 4. A further appeal came to be filed before the Income Tax Appellate 4. A further appeal came to be filed before the Income Tax Appellate Tribunal. The Tribunal, however, found in favour of the assessee holding thatthe transaction could not be viewed to be a transfer as there was no intentionbetween the parties to transfer the asset. The Tribunal, more or the less,came to the conclusion that since the sale deed was registered on 22.6.1981,on the very same day when even the agreement of sale was executed andregistered between the parties wherein the vendee had agreed to sell back thesame property for the same consideration within three years, there would be noquestion of any intention on the part of the assessee to transfer theproperty. The Tribunal has held thus, " It has been rightly held by the Punjab and Haryana High Court in 12 2 ITR461 (HIRA LAL RAM DAYAL -vs- C.I.T), that though evidentiary value is to beattached to a registered document, but the said document cannot be taken asbeing conclusive in the matter" The Tribunal, therefore, found that there was no transfer and as such there isno liability for capital gains tax. The Tribunal, therefore, approached thisCourt and ultimately a reference came to be made of the question referred byus earlier. 5. The learned counsel for the Department Mrs.Chitra Venkataraman pointed out that here was a case where there was a complete transfer of theconcerned immovable property for which there was a registered sale deed. Shefurther pointed out that not only was the sale deed executed between theparties on 11.6.1981, but on that date itself the possession of the saidimmovable property was also transferred. The learned counsel further pointedout that the subsequent agreement dated 22.6.1981 wherein the vendee Narmadahad agreed to sell back the property to the assessee was of no consequence, asit could not efface away the effect of transfer which had already taken placeon 11.6.1 981. The learned counsel invites our attention to Section 47 of theIndian Registration Act and points out that it is settled law that even ifthere is an unregistered sale deed earlier, the transfer would take effectfrom the date on which it has been executed, provided there is a subsequentregistration of that document under the required provisions. The learnedcounsel further says that the Tribunal has gone absolutely in error in holdingthat there was no intention to transfer and that there was no circumstancemade available before the Tribunal excepting the so called agreement of sale. 6. The learned counsel also relied heavily on the reported decision in 2001 (7) S.C.C.617 (V.PECHIMUTHU -VS- GOURAMMAL, wherein the Supreme Courthas labeled such subsequent or even contemporary agreement as only anagreement of sale. The learned counsel also invited our attention to Section2(47)(v) of the Income Tax Act and pointed out that under that provision evenwhere there was no complete sale in the strict sense of the term, if there isa delivery of possession by the vendor in favour of the vendee, then thetransaction would be viewed as a transfer. The learned counsel pointed outthat the Revenue was on a strong wicket here, inasmuch as, here was a case ofcompleted transaction in the nature of sale deed, which was later onregistered and even before the registration, on the date of execution of thesale deed itself there was also delivery of possession. According to thelearned counsel, therefore, the subsequent agreement would be of noconsequence insofar as Section 45 of the Act is concerned. 7. As against this, the learned counsel on behalf of the assessee 7. As against this, the learned counsel on behalf of the assessee very strongly suggested that this was not in reality a sale at all. Thelearned counsel goes on the language of Section 45 of the Income Tax Act andpoints out that the Section contemplates transfer of a capital asset by way ofsale. The learned counsel, for that purpose, strongly relies on Section 2(47)and invites our attention to Section 2 (47)(i), which suggests the sale,exchange or relinquishment of the asset. The further argument is that theword 'sale' is not defined in the Income Tax Act anywhere and, therefore, bynecessary implication we would have to go to the Transfer of Property Act andmore particularly Section 54, where sale is defined as follows:- "Sale is a transfer of ownership in exchange for a price paid or promised orpart paid and part-promised." 8. From this phraseology, the learned counsel says that one of the essential ingredients of sale is the transfer of ownership and there could beno transfer of ownership in this case because essentially the vendee hadagreed to sell that property to the assessee within three years. The learnedcounsel has invited our attention to the principles of ownership and suggeststhat the ownership would suggest, 1)Right to possession, 2)Right to enjoy the property, and; 3)Right to dispose of the property. 9. According to the learned counsel, since the assessee had not parted with or at any rate had controlled the rights of the vendee indisposing of the property, it could not be said to be an out and out salewithin the meaning of Section 54 of the Transfer of Property Act. The learnedcounsel wants to read the word 'ownership' with a specific stress on thatword, and wants to contend that in this case the ownership was not intended tobe transferred which was apparent from the agreement dated 22.6.1981. Theother argument is that the agreement dated 22.6.1981 was registered along withthe earlier document dated 11.6.1981 on that day itself. The learned counselfurther suggests a clearest possible intention on the part of the assessee notto part with the ownership. The learned counsel further argues that thetransaction could, at the most, be called as a 'conditional sale'. Thelearned counsel was fair enough to suggest that he did not want to contendthat this was a transaction under Section 58(c) of the Transfer of PropertyAct, as admittedly the resale clause was not the part and parcel of the saledeed. However, the learned counsel wanted to put the transaction on aslightly higher pedestal by naming it as a ' conditional sale', and in thatview the learned counsel argues that a conditional sale meant a clearintention on the part of the vendor i.e., the assessee herein not to part withthe ownership. 10. On these rival backgrounds, we have to see as to whether the concerned transaction amounted to a transfer as contemplated under Section 45of the Income Tax Act. It must be stated at the outset that a transfer whichis coverable under the provisions of Section 45 invites invariably the capitalgains tax unless it is specifically exempted under Section 47. That is theclear scheme of the Act. There is no dispute and there cannot be any that theso called transaction of a 'conditional sale' does not find a place in thatexalted list under Section 47 and, therefore, by itself would not be exemptedfrom the capital gains tax. However, the learned counsel for the respondentseeks to suggest that it will not be necessary for us to go to Section 47 ofthe Income Tax Act, as according to him there is no sale in the sense of Section 54 of the Transfer of Property Act in the transaction and, therefore,Section 47(i) will not itself be attracted and if that is not attracted, thenthere could be no question of a transfer. 11. The learned counsel for the respondent has further tried to suggest that here the execution of the sale deed was on 11.6.1981, however Section 54 of the Transfer of Property Act in the transaction and, therefore,Section 47(i) will not itself be attracted and if that is not attracted, thenthere could be no question of a transfer. 11. The learned counsel for the respondent has further tried to suggest that here the execution of the sale deed was on 11.6.1981, however there was no registration and as such, there was no question of transfer ofthe ownership till such time as the registration was done. He, therefore,suggests that from 11.6.1981 right upto 22.6.1981 it was the assessee whocontinued to be the owner of the premises, and as such, if there was a freshagreement on 22.6.1981, though separate and dehorse of the sale deed, shouldbe read as a part and parcel of the same transaction. 12. Firstly, it is an accepted principle of law that even if the transaction takes place earlier and the deed therefor is executed earlier,unless the said deed is registered, there would be no completion of thetransaction in the legal sense. However, the essential effect of Section 47is that once the registration of that instrument takes place, then thetransaction would necessarily date back to the date of execution of theinstrument. There is no dearth of case law for this proposition. Theproposition is settled. 13. The learned counsel, however, contends that till such time the sale deed dated 11.6.1981 was not registered, the ownership continued to bewith the assessee. In support of his contention, the learned counsel soughtto rely on the reported decisions in,1.G.SRINIVASULU NAIDU AND OTHERS (VS) RAJU NAICKER AND OTHERS (AIR 19 55MADRAS 635) 2.LALTA PRASAD (VS) JAGDISH NARAIN AND OTHERS (AIR 1927 ALLAHABAD 137 ) 3.SITAL CHANDRA KOLLEY AND ANOTHER (VS) HEIRS OF MIHILAL KOLLEY AND OTHERS(AIR 1955 CALCUTTA 21) 4.BAI DOSABAI (VS) MATHURDAS GOVIND DAS AND OTHERS (AIR 1980 SC 1334) From this, the learned counsel sought to argue that the ownership till the date of registration continued with the assessee and, therefore, if the vendeeagreed to sell back the property on the date when the instrument was gotregistered and if the said agreement of sale was also registered along withthe sale deed, then it was clear that the assessee did not intend to sell theproperty or did not intend to transfer the property in favour of the vendee. 14. In the first place, in tax jurisprudence "intention" would be irrelevant. If therefore any action is done with contrary intention but comeswithin the mischief of a taxing statute, it would still apply. A transfer ofcapital asset which is complete in itself cannot escape merely because theintention of the assessee was otherwise. The case law would have to be testedon this backdrop. 14A. Insofar as the first decision reported in AIR 1955 MADRAS 635 (G.SRINIVASULU NAIDU AND OTHERS (VS) RAJU NAICKER AND OTHERS) is concerned, wedo not find that the decision is in any way apposite to the presentcontroversy. The learned counsel wants to rely on the observations made inthe judgment that an agreement to re-convey which was a part of thearrangement under which the sale deed was executed should not be treateddistinct and separate from the sale itself. We have no reason, in fact, to gointo this decision particularly because we are not dealing with a problemunder the Transfer of Property Act. The decision nowhere says that if thereis such a transaction along with the re-conveyance deed, then the transactionitself ceases to be a sale. We are unable to see as to how this decision helps the assessee. (G.SRINIVASULU NAIDU AND OTHERS (VS) RAJU NAICKER AND OTHERS) is concerned, wedo not find that the decision is in any way apposite to the presentcontroversy. The learned counsel wants to rely on the observations made inthe judgment that an agreement to re-convey which was a part of thearrangement under which the sale deed was executed should not be treateddistinct and separate from the sale itself. We have no reason, in fact, to gointo this decision particularly because we are not dealing with a problemunder the Transfer of Property Act. The decision nowhere says that if thereis such a transaction along with the re-conveyance deed, then the transactionitself ceases to be a sale. We are unable to see as to how this decision helps the assessee. 15. The second decision reported in AIR 1927 ALLAHABAD 137(LALTAPRASAD -vs- JAGDISH NARAIN AND OTHERS) cannot possibly apply because the lawlaid down therein was prior to the advent of the proviso to Section 58. Herewas a case of the mortgage by conditional sale and the learned Judges wereconsidering the construction of the instrument as to whether the languageindicating a sale was inconsistent with the transaction being a mortgage byconditional sale. Ultimately, the learned Judges came to the conclusion thatit was a case of the mortgage with conditional sale though the sale deed wascouched in the language which suggested a straight sale. We do not think thatthis decision also would be apposite to the controversy because we are notconsidering as to whether the present sale is a mortgage by conditional saleunder Section 58(c) of the Transfer of Property Act. This is apart from thefact that the language of the sale deed is extremely clear to suggest that theparties meant to transfer the property. 16. The third decision reported in AIR 1955 CALCUTTA 21 (SITAL CHANDRA KOLLEY AND ANOTHER (VS) HEIRS OF MIHILAL KOLLEY AND OTHERS) would alsobe no different. The learned counsel seems to have stressed on theobservations in Para 13, which suggests that the parties were at liberty toenter into simultaneous agreements of sale and resale or into one compact orcomposite agreement for such purposes and the two may be inter-dependent inthe sense that the agreement upon one part of the bargain may well havepromoted agreement as to the rest. The Court's observation therein was asfollows:- "The determining factor lies in the ultimate shape of the agreement ratherthan in the process by which it is reached and, although the agreement forsale and re-sale may have been entered into at one and the same time and beinginter-dependent, as stated above, may be broadly looked at as forming parts ofthe same transaction, if the sale and the re-sale can be separated and can beheld to have been intended to be effected separately or as separate andindependent transactions, namely, an outright sale to be followed by are-conveyance, whether oral or written or registered or unregistered, havingfull effect in law." We have absolutely no difficulty with the liberty of the assessee to enterinto an agreement of sale, but the question really is as to whether such saleis a transfer of ownership. We do not find in this decision anything tosuggest that a transaction of sale which is also accompanied with by anagreement for resale does not convey the title or is not a sale in the senseof sale under Section 54 of the Act. The decision, therefore, is of no use tothe assessee. 17. The last decision is the decision reported in 'BAI DOSABAI (VS) MATHURDAS GOVINDA DAS AND OTHERS (AIR 1980 SC 1334)'. This decision waspressed into service because the learned counsel sought to suggest that theagreement dated 22.6.1981 would create an obligation against the vendee of thenature as to be found in Section 40 of the Transfer of Property Act. Thelearned counsel pointed out that such obligation was recognised by the SupremeCourt in the aforementioned decision. We have no dispute with the proposition 17. The last decision is the decision reported in 'BAI DOSABAI (VS) MATHURDAS GOVINDA DAS AND OTHERS (AIR 1980 SC 1334)'. This decision waspressed into service because the learned counsel sought to suggest that theagreement dated 22.6.1981 would create an obligation against the vendee of thenature as to be found in Section 40 of the Transfer of Property Act. Thelearned counsel pointed out that such obligation was recognised by the SupremeCourt in the aforementioned decision. We have no dispute with the proposition at all. The question still is as to whether because of this obligationcreated vide the agreement dated 22.6.1981, it could be said that there was notransfer of the asset in favour of the vendee as envisaged by Section 45. Wedo not find anything in this decision to suggest that there would be notransfer if the sale deed accompanies any such obligation created by thevendor as against the vendee. In our opinion, the sale would still becompleted. 18. The learned counsel for the respondent also pressed into service a decision in 'INDU KAKKAR -Vs- HARYANA STATE I.D.C. LTD.,' reported in AIR1999 S.C.296. However, we find that the facts in that case are entirelydifferent. That was a case regarding the enforceability of the agreement.There was no question of any complete sale as in the present case. Thedecision is of no consequence. 19. Another decision pressed into service is "SANTAKUMARI (Vs) LAKSHMI AMMA JANAKI AMMA", reported in AIR 2000 S.C.3009, where the questionwas regarding the mortgage by conditional sale. There was also an agreementon the same day of sale to retransfer the property to the close relative ofthe vendor after 10 years. The Supreme Court has held that there was anintention to re-convey the property from the facts in that case. It cannot bedisputed that in this case also, the agreement was on the same day ofregistration, but we cannot forget the fact that the sale deed was executed on11.6.1981 and it was only registered on 22.6.1981 along with the agreement ofsale dated 22.6.1981. Therefore, this case turns on different facts. In ourcase, admittedly the transfer would date back to 11.6.1981, once the sale deedwhich was executed earlier was presented for registration and got registered.That apart, even if there was any such intention to reconvey, it cannot takethe transaction out of the clutches of Section 45 because there is no findingeven in this case that the earlier sale was not a transfer. The decision is,therefore, of no consequence. 20. The learned counsel for the respondent also invited our attentionto the decision in "THAKUR RAGHUNATH JI MAHARAJ (Vs) RAMESH CHANDRA" reportedin AIR 2001 S.C.2340 and suggested that there were two instruments, one a giftand another an agreement binding the donee with a condition that the doneewould construct a particular house within a particular time. We have noquarrel with this proposition also. The Supreme Court ultimately held thatthe two documents could be read together and though the condition was in adifferent document than the instrument of transfer, yet it could be imposedupon the transferee. We have no difficulty in this case that the condition ofresale could be imposed upon the transferee, but that does not stop theearlier sale deed from being a sale deed. This is particularly because in thepresent sale deed, not only is there a clear mention about the valuableconsideration of Rs.2,00,000/- having been received by the vendor, but thereis also a clear cut recital regarding the delivery of possession on the partof the vendor in favour of the vendee. The sale deed, if it is readindependently, would undoubtedly convey a full and absolute title in favour ofthe vendee. Therefore, even if there is a contemporaneous agreement dated22.6.1981, the sale deed cannot be viewed as a bogus and sham transaction. Infact, it has never been the case of the assessee that the sale deed was a bogus and sham transaction. The consideration has actually passed and inpursuance thereof even the possession as well as the ownership have beentransferred by the vendor in favour of the vendee in this case. It is forthis reason that the decision in 122 ITR 461 "HIRA LAL RAM DAYAL Vs- C.I.T."cannot be relied on. There the case pleaded was that of sham and bogus sale.It is not disputed before us that the actual possession has passed to vendeeunder the sale deed and also the consideration was received therefor. 21. The learned counsel tried to argue that the very fact that thesaid agreement dated 22.6.1981 was registered along with the sale deed dated11.6.1981 should be viewed as that the execution of the agreement dated22.6.1981 was a consideration for registration of the sale deed dated11.6.1981. We have gone through the sale deed dated 11.6.1 981, which thelearned counsel made us available. Even reading the said sale deed as widelyas possible, it cannot be said that the agreement dated 22.6.1981 was to betreated as consideration for the registration of the sale deed dated11.6.1981. We cannot persuade ourselves, therefore, to accept the contentionthat the sale deed was presented for registration on 22.6.1981 because thevendee agreed to sell the said property before three years after the sale deedwas executed. If these facts are to be found against the vendor, the assesseeherein, then there would be no question of holding the sale not to be atransfer. 22. The plain language of Section 45 would suggest that there has tobe a transfer of capital asset. The word 'transfer' as has already beenclarified, has been defined in Section 2(47) and more particularly in Section2(47)(i), which means a 'sale' also. It will be going beyond all the canonsof interpretation to hold that the present transaction was not a sale. 23. The learned counsel for the respondent very earnestly argued thatthe said agreement would bring cloud on the right of the vendee to dispose ofthe property. That may be. But, that does not mean that the vendor has nottransferred his interest by way of the sale deed. In fact, according to usthere would be no question of consideration of this aspect of the argumentparticularly because this is a complete sale with effect from 11.6.1981itself. Between 11.6.1981 and 22 .6.1981 there was no agreeent. Therefore,by a subsequent agreement no such cloud could have been brought and even if ithad actually been brought and is considered to be brought in law, even thenthe earlier sale deed does not stop being a transfer or sale, as the case maybe, within the meaning of Section 2(47)(i). Once it is held as a transfer,then there would be no question of this not being covered under Section 45unless and until such a transfer can be covered within the ambit of Section47. That clearly is not the case of the learned counsel for the respondent,who very fairly suggested that he did not wish to go to Section 47 as from thebeginning his case was that the transaction dated 11.6.1981 was not a sale atall. 24. Number of other decisions have been relied upon by the learnedStanding Counsel for the Department to suggest that the subsequentregistration relates back to the execution of the sale deed. We do not findit necessary to refer to them under the circumstances of the present case. We would only refer to one judgment reported in 248 ITR 323 (COMMISSIONER OFINCOME TAX (Vs) MRS.GRACE COLLIS AND OTHERS), by the Supreme Court, whereinthe Supreme Court has held that the expression 'transfer' includes theextinguishment of the right in a capital asset independent of and otherwisethan on account of transfer. Such situation would not arise in our casebecause the extinguishment of the right by way of a sale deed is clear enoughas already found. 25. For all these reasons stated above, we are of the opinion thatthe sale deed dated 11.6.1981 registered on 22.6.1981 cannot be covered assuch within Section 45 of the Income Tax Act. We accordingly answer thereference against the assessee and in favour of the Revenue. (V.S.S, J.) (K.R.P, J.) would only refer to one judgment reported in 248 ITR 323 (COMMISSIONER OFINCOME TAX (Vs) MRS.GRACE COLLIS AND OTHERS), by the Supreme Court, whereinthe Supreme Court has held that the expression 'transfer' includes theextinguishment of the right in a capital asset independent of and otherwisethan on account of transfer. Such situation would not arise in our casebecause the extinguishment of the right by way of a sale deed is clear enoughas already found. 25. For all these reasons stated above, we are of the opinion thatthe sale deed dated 11.6.1981 registered on 22.6.1981 cannot be covered assuch within Section 45 of the Income Tax Act. We accordingly answer thereference against the assessee and in favour of the Revenue. (V.S.S, J.) (K.R.P, J.) 27.2.2002Index : YesWebsite : Yes kst.To: 1.The Assistant RegistrarIncome Tax Appellate TribunalMadras Bench 'A', Madras.2.The Central Board of Revenue, New Delhi.3.The Commissioner of Income Tax (Appeals) IIMadras 600 034.4.The Income Tax OfficerCircle I(2), Vellore.5.The Commissioner of Income Tax, Tamil Nadu V, Madras. V.S.SIRPURKAR, J.andK.RAVIRAJA PANDIAN,J. 27.2.2002