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High Court Of Delhi
ADDITIONAL COMMISSIONER OF INCOME TAX - Appellant
Versus
MERCURY GENERAL CORPORATION PRIVATE LIMITED - Respondent
I.T.R. 171 of 1974
Decided On : 08/25/1981
INCOME TAX - CAPITAL GAINS - TRANSFER OF PROPERTY - SALE DEED - REGISTRATION - RELINQUISHMENT OR EXTINGUISHMENT OF RIGHTS - SECTION 2(47) OF THE INCOME-TAX ACT, 1961.
Fact of the Case:
The assessee company entered into agreements of sale with certain shareholders to sell 9 units of a property. The agreements provided for possession to be given to the purchasers from the dates of the agreements and for the purchasers to realize rents from the tenants from 1st July, 1967. However, no regular sale deeds were executed or registered due to a land acquisition notification issued by the Collector. The Income-tax Officer included capital gains in the assessee's assessment for the previous year, but the Appellate Assistant Commissioner and the Tribunal deleted the inclusion.
Finding of the Court:
The Tribunal held that there was no transfer of any part of the property in favor of the vendees in the present year, as the mere execution of agreements of sale or receipt of sale consideration could not operate as completed sales in the absence of registered sale deeds. The Tribunal also found that no possession, either actual or constructive, passed to the vendees under the agreements of sale.
Issues: Whether the Tribunal was in error in holding that there was no relinquishment or extinguishment of the right in the property by the assessee and whether the Tribunal was right in deleting the capital gain assessed by the Income-tax Officer of Rs. 1,26,82,136 ?
Ratio Decidendi: The court held that there was no valid sale of the properties in question during the previous year, as there were no duly registered documents. The court also held that there was no relinquishment of rights by the assessee company, as a registered document is necessary for relinquishment of interest in properties. Further, the court held that there was no extinguishment of rights of the assessee company in the properties during the previous year, as the land acquisition by the Government, which could have resulted in extinguishment of rights, took place subsequently.
Final Decision: The court answered the question in the affirmative, holding that the Tribunal was not in error in holding that there was no relinquishment or extinguishment of the rights of the assessee in the properties in question and that the Tribunal was right in deleting the capital gains assessed by the Income-tax Officer.
( 1 ) THIS reference under the Income-tax Act, 1961 arises out of the assessment of Mjs. Mercury General Corporation Pvt. Ltd. for the assessment year 1969-70 in respect of the previous year which ended on 30th June, 1968. The question referred to this court reads as under:
"whether on the facts and in the circumstances of the case, the Tribunal was not in error in holding I hat as a matter of law there was no relinquishment or extinguishment of the right In the property by the assessee and whether the Tribunal was right in deleting the capital gain assessed by the Income-tax Officer of Rs. 1,26,82,136 ?"
( 2 ) THE assessee company was the owner of a big property known as pili Building situated at Arya Samaj Road, New Delhi. The building consists of 12 units bearing municipal Nos. 411 to 422. It appears that this comprises of 50 shops, 10 offices and about 160 rooms. They are all in possession of various tenants. The property had been purchased by the assessee company on 21-1-1963 for Rs. 4,25,000 from Arya Dharam Seva Sangh, New Delhi.
( 3 ) ON 31-5-1967 and 9-6-1967 the assessee company entered into agreements of sale with certain parties. who were shareholders of the assessee company and who had credit balances in their accounts with the company. By these agreements the assesses agreed to sell to these persons 9 of the units bearing municipal Nos. 411 to 416, 420, 421 and 422 for consideration aggregating to about Rs. 4,42,000. The accounts of the shareholders above- mentioned were debited with the amounts of the consideration in respect of the property agreed to be sold to them, these debit entries being made on 1st July, 1967 relevant for the assessment year 1968-69. The agreements of sale, however, provided that sale deeds would be got registered before 31-12-1967. The agreements also recited that the possession of the properties which was- with the tenants was being given over to the intending purchasers from the dates of the respective agreements and according to the agreements the intending purchasers were entitled to realise rents from 1st July, 1967 directly from the tenants.
( 4 ) NO regular sale deeds were, however, got executed or registered in pursuance of the above agreements of sale. This was principally because a notification under Section 4 of the Land Acquisition Act for the acquisition of the property was issued by the Collector on 30th August, 1967. This we are told followed up by a notification under Section 6 on 23rd July, 1969. Notices under Section 9 were issued in 1970 and the assessee (not the proposed vendee) filed a claim for compensation in respect of the entire property consisting of 12 units. The assessee claimed a compensation of Rs. 1,75,00,000 valuing the land at Rs. 2,500 per sq. yard (the total extent of land was 3117 sq. yards), the building at Rs. 25,00,000, damages for loss due to stoppage of business at Rs. 20,00,000 and in addition to the above a claim for solatium at 15 per cent. As already stated, the intended vendees on their part did not submit any claim for compensation under the Land Acquisition Act. It appears that some of the tenants who were in possession submitted some claims. These acquisition proceedings went on for a long time and we are told by the counsel for the respondent that the award has been made long afterwards on 31-3-1975 determining a compensation of Rs. 4,96,250 (including solatium etc.)-
( ) IT should, however, be mentioned that though the agreements of sale referred to possession of the premises being handed over to the shareholders, such possession either actual or constrctive was not delivered to the intending purchasers. To this aspect we shall revert a little later.
( 6 ) WHILE completing the assessment of the assessee for the assessment year 1968-69 the Income-tax Officer came to the conclusion that the transfer of the 9 units of properties should be deemed to have been effected with effect from 1-7-1967- Pointing out that the c
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