High Court Of Rajasthan : Jaipur Bench
CIT vs. Rajasthan Mirror Mfg. Co.
Sections 2(47), 41(2), 45(1)
Asst. Year 1980-81
Y.R. Meena & Shashi Kant Sharma, JJ.
DB IT Ref. Appln. No. 68 of 1987
29th July, 2002
R.B. Mathur, for the Revenue : T.C. Jain, for the Assessee
In an earlier decision dt. 1st Feb., 2002, similar view has been taken by the Rajasthan High Court itself in the case of CIT vs. Vishnu Trading & Investment Co. (2002) 176 CTR (Raj) 169
BY THE COURT :
On an application filed under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no actual transfer, there being no document in support of the alleged transfer of immovable property to M/s Hindustan Safety Glass Works, Ltd., Jaipur, as a going concern ?”
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no justification for charging capital gains as well as profit under s. 41(2) of the IT Act, 1961 ?”
2. The assessee is a firm which was carrying on business of manufacture and sale of wind screen glass for automobiles and toughened glass. The business and the factory was leased out to Auto Glass Industries which lease was also terminated in the accounting year relevant to asst. yr. 1979-80. The relevant assessment year in hand is 1980-81. For the year under review there was no manufacturing operation at all. The assessee had entered into financial arrangement with Rajasthan Financial Corporation (RFC) by means of a mortgage deed dt. 3rd June, 1971, and received a sum of Rs. 4,60,000 as loan. The property which was mortgaged includes land and the factory building and also various machineries.
3. On the examination of the records ITO found that factory building along with machinery were agreed to be sold to M/s Safety Glass Works Ltd. for a total cost of Rs. 24.5 lacs through R.F.C. vide agreement of sale dt. 25th Sept., 1979, and possession was also given to the party concerned. Before AO, assessee submits that for immovable property transfer could be effected only by means of registered deed which is yet to be affected and, therefore, in view of the provisions contained in s. 54 of Transfer of Property Act, the property cannot be said to have been transferred and when the property has not been transferred, there is no question of taxing any profit arising in the year under consideration. ITO did not accept this. According to the ITO, the agreement has been entered into for sale through the R.F.C and purchaser clearly showed that the assessee has no role to play at all. The agreement between R.F.C and purchaser in question was in the nature of higher purchase, therefore, assessee is liable to pay the capital gain tax. The AO has arrived at an amount of Rs. 5,03,282 as capital gain on the sale of machinery and from that deduction under s. 80T was granted to the tune of Rs. 2,04,313. In appeal before the CIT(A), the CIT(A) has observed that there was no actual transfer, therefore, there is no question of charging profit under s. 41(2) or the capital gains. The view taken by the CIT(A) has been upheld by the Tribunal. Heard learned counsel for the parties. While allowing the appeal of the assessee, CIT(A) has given a finding of fact and express the view that no capital gain as well as the profit under s. 41(2) does arise in this case and observed in para 6 as under : “I find that there is considerable force in the agreements put forth by the appellantâs counsel Shri M.R. Verma. I have gone through the assessment order and I have also gone through the rival submissions. I have also gone through the ratios of various decisions quoted by Shri Verma. Keeping in view the ratio of Supreme Court decision reported in (1965) 57 ITR 185 (SC) : TC 20R.154, (1982) 28 CTR (Del) 92 : (1982) 137 ITR 195 (Del) : TC 40R.336 and (1984) 40 CTR (SC) 281, I feel that there was no actual transfer as there was no document in support of the alleged transfer of immovable property as well as movable property to M/s Hindustan Safety Glass Works Ltd., Jaipur, as a going concern. Therefore, there was no justification for charging capital gains as well as profit under s. 41(2). Both the grounds raised by the appellant, therefore, succeed. The appellant will, therefore, get resultant reliefs accordingly.”
7. In appeal before the Tribunal, the Tribunal affirming the view taken by the CIT(A), in para 6 has observed as under : “From the above three extracts it is clear that in respect of transfer, Transfer of Property Act is not ousted as per specific agreement and the loaner Rajasthan Financial Corporation was obliged to receive the rents, profits and income from the outgoings of the mortgaged premises in capacity of their agent and could appropriate the surplus of the rents, profits and income over the outgoings in payment of the interest accruing to the Corporation. Then reliance of the CIT(A) on Supreme Court decision regarding transfer of property that the registration is a must in case where immovable properties are involved is also rightly placed. In the light of above discussion and for the reasons given by the CIT(A) in his order, his action is hereby confirmed.”
8. Whether for the purpose of taxing the income, registration of the sale deed is condition precedent to tax the capital gain or profit under s. 41(2) of the IT Act, 1961, though this issue is not directly considered by their Lordships in the case of CIT vs. Podar Cement (P) Ltd. & Ors. (1997) 141 CTR (SC) 67 : (1997) 226 ITR (SC) 625 : TC S40.3564, but their Lordships have considered the issue is detail that who will be the âownerâ in case the possession has been given and amount has been paid. At p. 653 their Lordships have observed as under :
“We are conscious of the settled position that under the common law, owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of s. 22 of the IT Act, having regard to the ground realities and further having regard to the object of the IT Act, namely, to tax the income, we are of the view, owner is a person who is entitled to receive income from the property in his own right.”
9. In the case in hand, CIT(A) as well as the Tribunal both have gone with the provisions of Transfer of Property Act and both the authorities have taken the view that in absence of registration the capital gain or the profit under s. 41(2) cannot be taxed.
10. Following the latest view of their Lordships in the case of CIT vs. Podar Cement (P) Ltd. & Ors. (supra), in our view both the authorities have committed error for the purpose of taxing income under the scheme of IT Act, 1961. The âownerâ is a person who is entitled to receive income from the property in his own right, when the possession has been handed over, amount has been paid, though the deed is not registered. In our view, in such cases, transfer is complete for the purpose of income-tax and the profit or gain or income should be taxed treating it as a transfer. Mr. Jain, learned counsel for the assessee, submits that as the agreement of sale has not been considered on merits, the CIT(A) as well as the Tribunal have taken the view in favour of the assessee stating that provisions of Transfer of Property Act cannot be ousted and, therefore, allowed the appeal. In the interest of justice, we deem it proper to remit the matter back to Tribunal to consider whether on reading the document as a whole, if it constitutes a transfer, in the light of the observations of their Lordships in the case of CIT vs. Podar Cement (P) Ltd. & Ors. (supra). If Tribunal comes to the conclusion that it is a transfer, in that case, the capital gain, or as the case may be, profits under s. 41(2), be taxed. In the result, we answer question No. 1 in negative
i.e., in favour of the Revenue and against the assessee. However, the Tribunal shall consider the issue whether agreement to sale constitutes a transfer, in the light of the guidelines laid down by their Lordships in the case of CIT vs. Podar Cement (P) Ltd. & Ors. (supra). The question No. 2 is consequential to question No. 1, therefore, we leave it to the Tribunal to decide the issue in question No. 2 also, after taking into account the decision of their Lordships in the case of CIT vs. Podar Cement (P) Ltd. & Ors. (supra). The reference so made stands disposed of accordingly.
[Citation : 260 ITR 503]