1979 (3) TMI 32 - HC - Income Tax

Four buyers purchasing separate plots under one deed doesn't create association of persons for tax purposes

The Kerala HC dismissed revenue appeals regarding property acquisition and fair market value determination. The court held that when four persons purchase ... Acquisition Of Immovable Property - Determination of Fair Market Value and Apparent Consideration - Term 'Association of persons' - Whether the transfer to four different persons under one deed constituted a transfer to an 'association of persons' or a 'body of individuals' - HELD THAT:- A body of individuals is different from individuals and if they are treated as a person because they are a 'body' there must be jointness by volition. When four persons take sale deeds for different plots of land from the same vendor and when each one of the transferees get absolute title to the property transferred to him there is no jointness in the purchase of the transferees. The fact that they may make or put to common use the property purchased by them is a factor which will have no bearing on the purchase itself. We are concerned here with the purchase only and that purchase is conceded to be in favour of four persons of four different properties for different considerations. In ' A ' schedule the first of the transferees alone has right and the three others have no right. So is the case with the other three schedules. If so, there is no conveyance of the property to all the four persons. Had the sales been effected by four different instruments it is agreed that the case now urged by the revenue may not have arisen. It would make no difference merely because the four sales are covered by one instrument. This is what has been said by the Tribunal in its order. The section, as we have already pointed out, speaks of a transfer by a person to another person. If the transfer in this case is not by the two joint transferors in favour of the four purchasers of the entire property so that each one of them got rights to, that property under the transfer, s. 269C will have no application. This is what the Tribunal has said. We are in agreement with the Tribunal. In this view the appeals are to be dismissed. We do so. No costs. ISSUES PRESENTED and CONSIDEREDThe primary legal issue under consideration was whether the transfer of distinct plots of land to four different individuals under a single deed of transfer should be treated as a transfer to an 'association of persons' or a 'body of individuals' under Section 269C of the Income Tax Act, 1961. This determination would affect the applicability of acquisition proceedings under the Act.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe case primarily revolves around the interpretation of Section 269C of the Income Tax Act, 1961, which allows for acquisition proceedings if a property is transferred for an apparent consideration less than its fair market value, with the intent to evade tax liabilities. The section requires the transfer to be between a 'transferor' and a 'transferee,' where both terms include individuals and associations of persons as defined under Section 2(31) of the Act.The court referenced several precedents to interpret the term 'association of persons,' including:In re B. N. Elias, where the term was defined as individuals joining in a common purpose or action.CIT v. Indira Balkrishna, which emphasized the need for a common purpose to produce income for forming an association of persons.G. Murugesan & Brothers v. CIT, reaffirming that an association of persons requires voluntary combination for a common purpose.CGT v. R. Valsala Amma, where the court held that joint ownership does not automatically constitute an association of persons.Commr. of Agl. LT. v. Raja Ratan Gopal, which determined that joint assessment does not imply an association of persons.Court's Interpretation and ReasoningThe court examined whether the four transferees, who were brothers, constituted an 'association of persons' or a 'body of individuals.' It noted that the transfer involved distinct plots sold to each brother, with each having absolute rights over their respective plots. The court emphasized that the term 'association of persons' implies a voluntary combination for a common purpose, which was absent in this case as each transferee acted independently.Key Evidence and FindingsThe evidence considered included the fact that the transfer was executed under a single deed, the transferees were brothers, and there was a single agreement preceding the transfer. Additionally, one brother paid the advance, and the property was developed for a single building. However, the court found these factors insufficient to establish a joint purpose at the time of purchase.Application of Law to FactsThe court applied the legal principles to the facts, concluding that the purchase was not by an association of persons, as each transferee had independent rights to their respective plots. The court distinguished between joint ownership for a common purpose and mere joint acquisition under a single deed.Treatment of Competing ArgumentsThe revenue argued that the circumstances indicated a joint purpose, suggesting the transferees formed an 'association of persons' or 'body of individuals.' The court rejected this, stating that the purchase was independent, and subsequent joint use of the property did not retroactively create an association at the time of purchase.ConclusionsThe court concluded that the transfer did not constitute a sale to an association of persons or a body of individuals. Therefore, Section 269C was not applicable, and the acquisition proceedings were not justified.SIGNIFICANT HOLDINGSThe court held that:'An association of persons must be one in which two or more persons join in a common purpose or common action.''The reality of the transfers is not in dispute. Therefore, the position was the same as that where four transfer deeds had been executed.''If the transfer in this case is not by the two joint transferors in favour of the four purchasers of the entire property so that each one of them got rights to, that property under the transfer, s. 269C will have no application.'Core Principles EstablishedThe judgment reinforced the principle that for a group to be considered an 'association of persons,' there must be a voluntary combination for a common purpose at the time of the transaction. The mere fact of joint acquisition under one deed does not suffice.Final Determinations on Each IssueThe court determined that the transfer was not to an association of persons or a body of individuals, thus dismissing the appeals and upholding the Tribunal's decision to reassess the acquisition proceedings based on individual transactions rather than as a collective entity.