TaxTMI 
TaxTMI 
1987 (9) TMI 82
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....The Government ofIndiadeclared the area where this property was situate to be a commercial area permitting the use of the land and buildings for commercial purposes. In order that the residential property No. 22,Barakhamba Road,New Delhicould be commercially exploited, a firm of builders M/s. Skipper Sales P. Ltd. entered into an agreement to purchase this property from its several co-sharers. Separate agreements dated24th June, 1977were entered between the said builder on the one hand and the respective co-sharers on the other. By agreement dated24-6-1977, the assessee M/s. Atam Prakash & Sons agreed to sell its 1/6th share in the said property for a sum of Rs. 16 lakhs. However, for certain reasons the sale could not materialise and on6-10-1981, there were two agreements between the assessee Ms. Atam Prakash & Sons, HUF and the said M/s. Skipper Sales P. Ltd. The first agreement provided that the agreement to sell referred to above would stand modified so as to convert the same into a collaboration agreement whereby the parties can mutually in furtherance of their objects proceed to construct the property. The agreement provided that a multistoreyed building would be erected on t....
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.... share of this assessee mentioned in these documents as 1/6th. The consideration for the sale is mentioned at Rs. 16 lakhs and like M/s. Atam Prakash & Sons this assessee too by virtue of the collaboration agreement was to get 6000 sq. ft. of covered area and 3 garages in the proposed building. This assessee too entered into another agreement dated24th August, 1981by which like M/s. Atam Prakash & Sons had agreed to sell to M/s. Skipper Sales P. Ltd. 4000 sq. ft. of covered area and 2 garages. This assessee too had received similar amounts and the stipulations mentioned in the case of M/s. Atam Prakash & Sons were provided in the agreement with this assessee as well. 7. The assessee Shri Om Prakash is an individual. In the asst. order it is stated that the assessee had 1/18th share in the aforesaid property. The assessment order goes on to state that there was a partial partition in the HUF headed by the assessee Om Prakash as a result of which he had 1/3rd of 1/6th, i.e., 1/18th share in the property. In both the cases the ITO was of the opinion that there has been a transfer of the property resulting from the aforesaid transactions and both the assessee had made capital gains ....
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.... Rs. Sale consideration as per agreement to sell 16,50,000 While accepting the sale consideration the facts of the assessee's having sold 4000 sq. ft. covered area + 2 garages for Rs. 11,00,000 and the rate of booking in the relevant period, i.e. Rs. 250 sq. ft. has been kept in view. Less cost of acquisition as on 1-1-1964 as per WT order in the case of M/s. Om Prakash Atam Prakash, HUF from where the property has fallen to the share of the assessee 1,66,667 Less : Basic exemption 14,83,33....
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....nbsp; ------------- In the case of assessee Om Prakash however, the ITO determined the taxable amount of capital gains at Rs. 5,87,083 in the following manner: Rs. "Sale price of 1000 sq. ft. Rs. 425 per sq. ft. 4,25,000 Sale price of 5000 sq. ft. at an average rate of Rs. 415 per sq. ft. for 1st to 7th floor 20,75,000 Sale price of there garages at Rs. 10,000 each 30,000  ....
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.... 7,82,777 1,95,694 -------------- Less 25% &n....
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....s. The learned CIT (A) also held that the capital gains arose in the accounting year in question. The assessee's appeals were dismissed with the aforesaid findings. 10. The learned counsel for the assessee contended that in this case no transfer of property has taken place and hence no capital gain could arise. According to him, the assessees have leasehold rights in the land and ownership rights in the building standing registered and these rights could be transferred only through a registered sale deed. Admittedly all the agreements referred to above are unregistered documents. In support of the proposition that in the absence of a registered deed of conveyance no transfer of immovable property takes place he relied upon - Sushi Ansal v. CIT [1986] 160 ITR 308 (Delhi), CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi), Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (Sc), Addl. CIT v. Mercury General Corpn. (P.) Ltd. [1982] 133 ITR 525 (Delhi) and CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC). According to the learned counsel for the assessee, there as contemplated in section 2(47) of the Income-tax Act as the extinguishment must be of all the rights held by the asses....
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.... the transfer of capital asset are chargeable to income-tax.'Capital asset' has been defined in section 2(14) to mean property of any kind held by an assessee. The assessees in question were the lessees of the land forming part of plot No. 22,Barakhamba Roadand they owned the building that stood thereon. These facts are admitted and thus the assessees did own a capital asset being Bungalow No. 22,Barakhamba Road,New Delhi. In the present property, if any, that has been transferred to the so-called builder M/s. Skipper Sales P. Ltd. and whether there is a transfer of 'capital asset', i.e. of property. 'Transfer' has been defined in section 2(47) of the Act as under : "Transfer" in relation to a capital asset, includes : (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;". 13. It was conceded by the learned Departmental Representative that in order to complete a transfer of property No....
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.... an agreement to sell. It is to be remembered that this was not a freehold property. The land belonged to the Government of India and the leasehold right that the assessees possessed could not be transferred without the sanction of the Government. Apparently no such sanction appears to have been granted. The agreement to sell was arrived at in June 1977 and having failed to perform their respective parts under the said agreement for more than 4 years, the parties i.e., the assessees and the builder had to take recourse to another agreement called the collaboration agreement. By this agreement, which is found at pages 35 to 44 of the paper book, in the case of Atam Prakash & Sons, agreement to sell was abandoned as due to diverse circumstances and reasons it had not been possible to execute the sale deed. The collaboration agreement provided that the two parties have agree to sell convert the agreement to sell into an agreement to sell into an agreement of collaboration so that they can mutually in furtherance of their objects proceed to construct the property. it was provided that the parties shall be the joint owners of the said venture though the possession had been handed over t....
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....operty has to be delivered to the lessee while in the case before us what is contemplated is the joint possession of the multi storeyed building inasmuch as the assessees will also occupy parts of the proposed building which were to be given to them in consideration of the right granted to the builders to rais the building. What, in our view, is intened to be granted to the builders is a licence to raise a building on the land in question which would become irrevocable in terms of section 60 of the Indian Easement Act when the licensee (the builders) acting upon licence has executed work of permanent character and incurred expenditure in the execution work of permanent character and incurred expenditure in the execution. The licence remains revocable till the licensee has started construction over the licensed property. The collaboration agreement thus beings about only a licence. Licensee has been defined in section 52 of the Indian Easement Act as under : Where one person grants to another or to a definite number of other persons a right to do or to continue to do in or upon the immovable property of the grantor something which would in the absence of such right be unlawful and s....
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....transfer must be of the entirety of the rights that a particular person possesses and it is with respect to all those rights that the word 'any' has been used. 16. Reliance was placed from both sides on Vania silk Mills [p.] Ltd.'s case. In that case a fire had demanded the assessee's machinery to the extent that it could not any longer be put to use as such. The machinery was insured and no settlement of the insurance claim the assessee received a certain sum on account of the destruction of its machinery which was taken over by the insurance company. it was held that on the settlement of the insurance claim in the aforesaid manner, the assessee's rights in the machinery got extinguished and there was thus a transfer of the machinery within the meaning of section 2[47] of the act by extinguishment of rights therein. The Hon'ble High court observed as below : "Let us proceed to critically examine 'the true import of the expression the extinguishment of any rights therein' bearing in mind this subject and context. The word extinguishment is the kingpin of this expression. It is a word of ordinary usage having the wides import. Usually it connotes the end of a thing, precluding....
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....e earlier observations, otherwise the two observations would be contrary to each other which cannot be reconciled. Capital gains arise out of a transfer of a capital asset and the word transfer has a definite notion. A mere permission to use the property or the mere grant of a certain permissive right over the property cannot amount to a transfer although it does result income reduction in the bundle of rights of the owner of the property. For example, a person may grant to another a right to flow after over his land through a definite channel. He may permit another person to open windows towards his land and receive light and air through them. He may grant a third person a right of way through the said land and grant a fourth one of right to carry over electric wires over the land. All these grants would certainly result in the reduction of the rights that the owner had over the land but they cannot, in our view, amount to transfer of the property by extinguishment of any rights therein. The owner still remains the owners of the property and so long as he continues to be the owner, his rights cannot be extinguished though they may be substantially diminished. 18. In the case be....
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....they had converted their immovable property into stock in trade on6-11-1979but contended that this had not resulted in any transfer within the meaning of the Act. The Tribunal held that on the terms of the agreement (which was identical with those of the cases before us) there was no partnership between the owners and the builders each of them dealt with each other on principal basis. It was also held that the agreement contemplated the continued ownership of the assessee in respect of the immovable property. In the case before us also the extinguishment of the rights of the present assessees as perpetual lessees of the land is not intended to be extinguished except of course when the leasehold rights are actually transferred to someone in accordance with the law. The aforesaid judgment of the Tribunals in accord with the view that we have taken of the nature and effect of the transaction. The learned Departmental Representative referred to Chandrika Prasad Ram Swarup v. CIT [1939] 7 ITR 269 (All.) (FB). It was observed "The question of legality or illegality of transaction entered into by the firm is totally irrelevant in calculating the income, profits or the loss incurred by the....