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2002 DIGILAW 1322 (RAJ)

C. I. T. v. Rajasthan Mirror Mfg. Co. , Jaipur

2002-07-29

SHASHI KANT SHARMA, Y.R.MEENA

body2002
Honble MEENA, J.–On an application filed u/Sec. 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions 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 jurisdiction for charging capital gains as well as profit u/Sec. 41(2) of the I.T. 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 learned out to Auto Glass Industries which lease was also terminated in the accounting year relevant to assessment year 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 by means of a mortgage deed dated 3.6.1971 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 alongwith 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 dated 259.1979 and possession was also given to the party concerned. (4). Before Assessing Officer, assessee submits that for immovable property transfer could be affected only by means of registered deed which is yet to be affected and therefore in view of the provisions contained in Sec. 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 I.T.O., 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. ITO did not accept this. According to the I.T.O., 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 RFC and purchaser in question was in the nature of higher purchases, therefore, assessee is liable to pay the capital gain tax. The Assessing Officer has arrived at an amount of Rs. 5,03,282/- as capital gain on the sale of machinery and from that deduction u/Sec. 80 T was granted to the tune of Rs. 2,04,313/-. (5). In appeal before the C.I.T.(A), the C.I.T.(A) has observed that there was no actual transfer, therefore, there is no question of charging profit U/Sec. 41(2) or the capital gains. The view taken by the CIT (A) has been upheld by the Tribunal. (6). Heard learned counsel for the parties. (7). 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 U/Sec. 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 appellants 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 rations of various decisions quoted by Shri Verma. Keeping in view the ratio of Supreme Court decision reported in 57 ITR 185, 137 ITR 195 and (1984) 40 CTR 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 Words Ltd., Jaipur, as a going concern. Therefore, there was no jurisdiction for charging capital gains as well as profit U/Sec. 41(2). Both the grounds raised by the appellant, therefore, succeed. The appellant will, therefore, get resultant reliefs accordingly. (8). Therefore, there was no jurisdiction for charging capital gains as well as profit U/Sec. 41(2). Both the grounds raised by the appellant, therefore, succeed. The appellant will, therefore, get resultant reliefs accordingly. (8). 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 outsted as per specific agreement and the loaner Rajasthan Financial Corporation was obliged to receive the rents, profits and income from the outgoing of the mortgaged premises in capacity of their agent and could appropriate the surplus of the rents, profits and income over the outgoing 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 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. (9). Whether for the purpose of taxing the income, registration of the sale deed is condition precedent to tax the capital gain or profit U/Sec.41(2) of the Income Tax Act, 1961, though this issue is not directly considered by their Lordships in the case of CIT (A) vs. Podar Cement Pvt. Ltd. and (2), but their Lordships have considered the issue in detail that who will be the `owner in case the possession has been given and amount has been paid. At page 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 section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, ``to the tax income, we are of the view, ``owner is a person who is entitled to receive income from the property in his own right. (10). But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, ``to the tax income, we are of the view, ``owner is a person who is entitled to receive income from the property in his own right. (10). 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 U/sec. 41(2) cannot be taxed. (11). Following the latest view of their Lordships in the case of CIT vs. Podar Cement Pvt. Ltd. and Ors. (supra), in our view both the authorities have committed error for the purpose of taxing income under the scheme of Income Tax Act, 1961.The `owner 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 of gain or income should be taxed treating it as a transfer. (12). 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 outsted and, therefore, allowed the appeal. (13). 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 C.I.T. vs. Podar Cement Pvt. Ltd. and Ors. (supra). If Tribunal came to the conclusion that it is a transfer, in that case, the capital gain, or as the case may be, profits U/Sec. 41(2), be taxed. (14). In the result, we answer question No. 1 in negative i.e. in favour of the revenue and against the assessee. (supra). If Tribunal came to the conclusion that it is a transfer, in that case, the capital gain, or as the case may be, profits U/Sec. 41(2), be taxed. (14). 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 C.I.T vs. Podar Cement Pvt. ltd. and 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 C.I.T. vs. Podar Cement Pvt. Ltd. & Ors. (supra). (15). The reference so made stands disposed of accordingly.