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1982 Supreme(All) 576
IN THE HIGH COURT OF ALLAHABAD
H. N. Seth and R. R. Rastogi, JJ.
COMMISSIONER OF INCOME-TAX - Appellant
Versus
SMT.VIMLA LAL - Respondents
Income-tax Reference 116 Of 1978
Decided On : 08/17/1982
Anoop Sharma, G.C.SHARMA, M.Katju, R.K.GULATI
The relinquishment of a share in a property by a co-owner in favor of other co-owners amounts to a transfer of a capital asset within the meaning of Section 2(47) of the Income Tax Act, 1961, and is subject to capital gains tax unless an exemption applies.
Headnote:
CAPITAL GAINS - TRANSFER OF CAPITAL ASSET - RELINQUISHMENT OF RIGHTS - DISTRIBUTION OF CAPITAL ASSETS - BODY OF INDIVIDUALS - INTERPRETATION OF SECTION 45(1), 47(I) AND (II), 2(47) OF THE INCOME TAX ACT, 1961.
Fact of the Case:
The assessee, Smt. Vimla Lal, received a sum of Rs. 3,94,000 during the previous year relevant to the assessment year 1971-72. The assessee relinquished her share in the disputed property, which had been bequeathed to her under the will by her mother, in favor of her brothers and nephews. In return, she received Rs. 2,10,000 as compensation for loss of residence and Rs. 1,84,000 as liquidated damages.
Finding of the Court:
The Income Tax Officer (ITO) held that the relinquishment by the assessee of her share in the disputed property amounted to a transfer of a capital asset within the meaning of Section 45(1) read with Section 2(47) of the Income Tax Act, 1961 (the Act). The assessee appealed to the Appellate Assistant Commissioner (AAC), who agreed with the ITO. The assessee further appealed to the Income-tax Appellate Tribunal (ITAT), which held that the assessee did acquire a right in the disputed property under the will of Smt. Lilawati Gupta, but that the amount received by the assessee would not form the subject-matter of the assessment to capital gains in view of the provisions of Section 47(ii) of the Act.
Issues: 1. Whether, on the facts and in the circumstances of the case, parting with the share of property by the assessee in favor of her brothers amounted to a transfer of property within the meaning of Section 2(47) of the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the amount received by the assessee would not form the subject-matter of the assessment to capital gains in view of the provisions of Section 47(ii) of the Income-tax Act?
Ratio Decidendi: 1. The definition of "transfer" in Section 2(47) of the Act includes the sale, exchange, or relinquishment of the asset or the extinguishment of any rights therein. The assessee relinquished all her right, title, and interest in the disputed property in favor of her brothers and nephews, which falls within this definition. 2. Section 47(ii) of the Act exempts from capital gains tax any distribution of capital assets on the dissolution of a firm, body of individuals, or other association of persons. The assessee and her co-owners did not constitute a "body of individuals" within the meaning of Section 2(31)(v) of the Act because they did not have a common purpose or object to produce income from the property. Additionally, there was no dissolution of any body of individuals.
Final Decision: The court answered the first question in the affirmative, holding that the assessee's relinquishment of her share in the property amounted to a transfer of a capital asset. The court answered the second question in the negative, holding that the assessee was not entitled to the exemption under Section 47(ii) of the Act.
( 1 ) ONE Sri Gulraj Gupta had purchased a property bearing No. 20, Barakhamba Road, New delhi, in the name of his wife, Smt. Lilawati Gupta; He died some time in 1940 leaving behind his widow, Smt. Lilawati Gupta, two sons, Sarvasri Hans Raj Gupta and Devraj Gupta, and one daughter, Smt. Vimla Lal, who is the respondent-assessee before us. After the death of Sri Gulraj gupta his sons resisted the exclusive claim made to this property by Smt. Lilawati Gupta and one of them, that is, Sri Devraj Gupta, filed a suit for separate possession by partition in respect of this property, being Suit No. 70 of 1966. The defendants in the suit were Smt. Lilawati and Sri hans Raj Gupta After contest a preliminary decree for partition was passed on 11th April, 1967. The property was held to be the joint property of the parties to the suit and each of them was declared to be the owner of one-third share therein. Smt. Lilawati Gupta lived separately in one-third portion of the house. Thereafter, in final decree proceedings an advocate was appointed as Commissioner for effecting partition of the property. The Commissioner made an interim report and his final report was awaited. During the pendency of the proceedings, Smt. Lilawati died on 22nd November, 1969.
( 2 ) SMT. Lilawati Gupta had executed a registered will on January 31, 1968, by which she bequeathed two-thirds of her share in the disputed property to her daughter, Smt. Vimla Lal, and the balance one-third to her daughter-in-law, Smt. Subhadra Devi, wife of Devraj Gupta. Steps were taken to bring her legal representatives on record in the aforesaid proceedings. The genuineness of the will was challenged by Hans Raj Gupta. Pending those proceedings, Smt. Subhadra Devi also died and her two sons, Premraj Gupta and Pradeep Kumar Gupta, were brought on record as her legal heirs. Ultimately a compromise was arrived at in these proceedings on December 15, 1970, and a decree was passed in the suit in accordance with that compromise. A copy of the compromise is annex. C and a copy of the decree is annex. D to the statement of the case.
( 3 ) IN pursuance of the said compromise, " with a view to facilitate the partition by metes and bounds in two equal shares herein L. Hans Raj Gupta on the one hand and L. Devraj Gupta and his sons ", Smt. Vimla Lal relinquished and/or surrendered all her rights, title, interest, claim or share in No. 20, Barakhamba Road, New Delhi, " in a manner that one-sixth share out of the aforesaid two-ninths share in the whole of the property is relinquished and/or surrendered wholly and absolutely in favour of Shri Hans Raj Gupta as the first party herein while the remaining 1/18th share in the whole of the property is relinquished and/or surrendered in favour of Shri premraj Gupta and Pradeep Kumar Gupta jointly called the third party herein. "
( 4 ) ON the said relinquishment or surrender of her rights, title or interest in the disputed property, sri Hans Raj Gupta became the sole owner of half share in the property and Sri Devraj Gupta and his sons and daughters jointly became the absolute owners of the other half share in the said property. Hans Raj Gupta paid a sum of Rs. 1,57,500 to Smt. Vimla Lal " by way of compensation for loss of residence which Smt. Vimla Lal had suffered (Lilawati, the mother of smt. Vimla Lal, was using the premises in question for her own residence throughout her life time)", and Sri Premraj Gupta and Sri Pradeep Kumar Gupta similarly paid a sum of Rs. 52,500. Further, Sri Hans Raj Gupta agreed to hand over possession of 1,380 sq. feet of completed built up area out of the multi-storeyed building that was to be built, upon the said property and this was by way of consideration for the relinquishment of her two-ninths share in the said property which had been bequeathed to her by her mother. This transfer was to be subject to the usual terms and conditions of transfer. Similarly Premraj Gupta and Pradeep Kumar Gupta agreed
