1. The assessee is common in both these appeals. The point at issue is also common. In the income-tax appeal the question to be decided is whether the property in question, viz., D. No. 6-2-953/A1, Khairatabad, is a transferred asset within the meaning of Section 64 and whether the income derived over the property can be considered in the hands of the assessee. The question in the WT appeal is whether the asset, viz., D.No. 6-2-953/A1, Khairatabad, constitutes the wealth of the assessee.
2. The following few facts are relevant for the disposal of these appeals. There is a plot of land measuring 587.2 sq. yards situated in Khairatabad, Hyderabad. It was conveyed to the assessee by his mother through a settlement deed dated 29-3-1972 which was registered as document No. 867/1972 by Khairatabad Sub-Registrar. In that plot the assessee constructed a house consisting of ground floor and first floor. The ground floor bears D. No. 6-2-953/A whereas the first floor bears D. No. 6-2-953/A1. For purposes of constructing the first floor, the assessee raised a loan of Rs. 85,000 from the Syndicate Bank. Now the first floor only is the asset with which we are concerned in these appeals. The wealth-tax appeal relates to the assessment year 1976-77 for which the valuation date was 31-3-1976. The construction of the first floor was in progress during the assessment year 1975-76. In the assessment relating to that assessment year, viz., 1975-76, the assessee showed an investment of Rs. 60,000 for construction and claimed exemption of the same towards the loan to the Syndicate Bank.
However, in the return filed for the assessment year 1976-77, he did not disclose any value for the first floor on the ground that it was transferred to one Miss Hema Mohan by way of settlement deed executed on 5-11-1975 in consideration of his love and affection towards her. By the date of execution of the settlement, dated 5-11-1975, except there was an understanding that the settlor and the settlee are going to marry on a future date there is no other relationship. Copy of the settlement deed was filed before us. The recitals of the deed disclosed that the donee accepted the gift and was also delivered possession of the property gifted. However, the settlement deed was not registered though it was presented to the Sub-Registrar at Khairatabad. The date on which the document was presented for registration is not exactly known. However, the Sub-Registrar of Khairatabad under date 2-8-1976 drafted proceedings giving time to the assessee to produce income-tax clearance certificate under Section 230A of the Income-tax Act, 1961 ('the Act') in respect of the property covered by the gift deed, dated 5-11-1975, on or before 15-8-1976. The proceedings of Sub-Registrar were extracted in the assessment order of the WTO for 1976-77. However, as there was delay in submitting income-tax clearance certificate under Section 230A the settlement deed presented to the Sub-Registrar, Khairatabad lay in the office without any action and ultimately it was registered only on 5-6-1982. The marriage between the assessee and the settlee, Miss Hema Mohan, took place on 14-12-1976. During the time of the wealth-tax assessment for 1976-77 the assessee raised the plea that the provisions of Section 16(3)(a)(ii) of the Indian Income-tax Act, 1922, corresponding to Section 4(1)(a) of the Wealth-tax Act, 1957, applies only where relationship of husband and wife subsists not only at the time of accrual of income from the assets transferred but also when transfer of assets took place. The assessee relied upon the Supreme Court decision reported in Philip John Plasket Thomas v. CIT [1963] 49 ITR 97 where it was held that the transfer of assets to a lady whose engagement was over but not actually married cannot attract the provisions of Section 16(3)(a)(ii) of the 1922 Act, and that it was actually after the completion of the wedding ceremony and any transfer after that date only would be attracted by those provisions. So the assessee raised the objection that because on the date of execution of the settlement deed he and Miss Hema Mohan were not man and wife, the asset in question cannot be taken to be the wealth of the assessee and the income derived over the transferred asset cannot be included in his hands as Section 64 of the Act does not apply in those circumstances.
The WTO appeared to have accepted the legal position taken up by the assessee as correct. But he wanted to verify how far the legal position applies to the facts of the assessee's case. The WTO directed the assessee to produce before him the original of the registered document.
The authorised representative for the assessee at that time expressed his inability to produce the original document inasmuch as the document was withheld by the Sub-Registrar for want of certificate under Section 230A of the Act. Then the WTO ascertained the stage at which the document was lying with the Sub-Registrar. He also asked the assessee to give the exact date on which the document was presented and further asked him to produce the acknowledgement in token of filing the settlement deed. It is recorded in the assessment order that the assessee could not enlighten him on those points due to lapse of time.
The WTO held that there was no valid registered document transferring the property before 14-12-1975, the date on which the assessee married Miss Hema Mohan and so she did not become the owner of the property before her marriage under any circumstances. Therefore, he included the value of this asset in the wealth of the assessee and completed the assessment by his order dated 28-3-1981.
3. Aggrieved by the said order, the assessee went in appeal before the AAC, 'C' Range, Hyderabad who following his order dated 6-7-1982 in the appeal of the assessee relating to previous assessment year held that the transfer of property at Khairatabad was complete on 5-11-1975 which falls within the assessment year 1976-77 for which the valuation date was 31-3-1976, the value of the above property was ordered to be excluded from the hands of the assessee for purposes of wealth-tax for the assessment year 1976-77. Therefore, he allowed the appeal and set aside the order of the WTO on the point.
4. The facts of the income-tax appeal relating to the assessment year 1978-79 are briefly as follows. The assessee did not disclose any income derived on this property in his income-tax return for 1978-79, on the ground that this property was settled on his wife before the date of their marriage. He adopted the same position as he did in wealth-tax appeal for 1976-77 for claiming exemption from the assessment of this income in his hands. The ITO did not agree with the contention of the assessee for the reasons which he has stated in his wealth-tax assessment order for 1976-77. He held that the wife did not become the owner of the transferred asset before the date of her marriage. Hence, the ITO included the income derived on the transferred asset in the hands of the assessee. Aggrieved by the assessment order dated 28-3-1981, the assessee went in appeal before the AAC, 'C' Range, Hyderabad. The AAC passed his appellate order dated 6-7-1982 allowing the appeal. He stated that when once the document is registered on 5-6-1982 it takes effect from the date of execution, i.e., 5-11-1975 under the clear provisions of Section 47 of the Indian Registration Act, 1908, and, hence, the transfer of property dakes back to the date of execution. He relied upon the view expressed in Mulla's Transfer of Property Act, 6th edition, p. 225 as well as the judgment of the Calcutta High Court in CIT v. Ganga Properties Ltd. [1970] 77 ITR 637.
So when once he had taken the transfer to have come into effect from 5-11-1975, the wife should be deemed to have received the property on gift prior to her marriage and, therefore, inasmuch as by the date of gift she was not the wife of the assessee he held that Section 64(1) does not come into operation and the income from the property cannot be assessed in the hands of the assessee. Aggrieved both against the appellate orders mentioned above, the revenue came up in second appeal before this Tribunal and thus both matters stand for our consideration.
5. According to the department the matter was concluded by the decision of the Gujarat High Court in the case of Darbar Shivrajkumar v. CGT [1981] 131 ITR 647. As per the head note of the decision the Gujarat High Court held the law as to the incidence of gift-tax liability as follows: On a combined reading of Sections 122 and 123 of the Transfer of Property Act, 1882, it is evident that a transaction of a gift of immovable property would be complete only by executing a registered document subject to other conditions being fulfilled. The transaction would not be complete and a gift in the eye of law cannot be made by the donor to the donee prior to the registration of the document by which the gift was made. The title of the transferee does not relate back to the date of the execution of the gift deed. Therefore, the liability to pay tax on the gift must be determined as on the date on which the gift deed was registered under Section 47 of the Registration Act, 1908, and not the date on which the deed of gift was executed.
It is admitted that if the above ratio laid down by the Gujarat High Court is applicable to the facts of the case then the assessee has no case. However, the assessee disputes that the above ratio does not apply to this case. Therefore, we have to see intensively whether the above Gujarat High Court decision applies to the facts of this case.
The said Gujarat High Court decision is rendered under the Gift-tax Act. The question with which their Lordships of the Gujarat High Court were confronted with was stated in the opening para of the judgment itself which is as follows: "Does a gift of immovable property become complete as soon as the gift deed is executed or only upon its being registered When does the transaction become complete so as to be eligible to gift-tax under the provisions of the Gift-tax Act, 1958 (hereinafter referred to as 'the Act') ?" They have further clarified as to in what connection the questions posed by them became relevant. Their Lordships stated that they became relevant in order to determine as to on which date in a particular year the assessee would be liable to pay tax on the gift made by him. A question arises as to when the transaction of gift is complete within the meaning of Section 3 of the Gift-tax Act so as to attract the liability of gift-tax in a particular year. So in that connection the above ratio was laid down. It is argued by Shri M.J. Swamy, the learned Counsel for the assessee, that we should always keep in mind a distinction between the event of transfer and the consequences of such an event. He further develops his argument by submitting that the date of completion of a transfer can be taken to be the date of the event.
He says that the date of completion of transfer is quite different from the date of the effect of the transfer. He further submits that under the provisions of the Gift-tax Act in order to levy gift-tax, the date when the transfer became complete was relevant. That transfer becomes complete only after the document is being registered. That is all what was decided in the above stated Gujarat High Court decision. However, this case before us the learned Counsel argues that we are not concerned with the date of completion of the transaction. On the other hand, we are very much concerned with the date from which the completed transaction takes effect. In this case he submits that both the parties proceed on the basis that the ratio of the Supreme Court decision in Philip John Flasket Thomas's case (supra), wherein it was laid down that the relationship of husband and wife must subsist not only at the time of accrual of income from the assets but also when the transfer of assets takes place in order to attract the application of Section 64(1)(iv) is unexceptionable.
Therefore, the date of transfer becomes very much relevant in this case. The learned Counsel refers us to the latest decision of the Gujarat High Court in Arundhati Balkrishnav. CIT [1982] 138 ITR 245. In that case the vendors had signed the sale deed before 1-3-1970 but the sale deeds were not presented for registration before 1-3-1970. A great deal turned on the question whether the transaction of sale was effected prior to 1-3-1970 or subsequent to 1-3-1970. Two questions which were referred to the Gujarat High Court in that case are as under: 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the transfers in question were not transfers effected before March 1, 1970, as contemplated in Section 47(vii) of the Income-tax Act, 1961 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in not accepting the assessee's contention that in view of the provisions of Section 47 of the Registration Act, the transfer was effected on the dates of execution of the sale deeds It is most significant to note that the very same two Judges who had decided the Darbar Shivrajkumar's case (supra) also decided the Arundhati Balkrishnd's case (supra). The term 'transfer was effected' was taken to mean by their Lordships as meaning only one thing, viz., the date on which the transfer became operative or complete or the date on which the transfer was brought about. Their Lordships of the Gujarat High Court duly considered the provisions of Section 54 of Transfer of the Property Act, Section 47 of the Registration Act and the decision of the Supreme Court in Ram Saran Lall v. Domini Kuer AIR 1961 SC 1747, the decision of K.J. Nathan v. S.V. Maruthi Rao AIR 1965 SC 430, the decision in Hiralal Agrawal v. Rampadarath Singh AIR 1969 SC 244 and observed significantly of the reported decision about the abovesaid Supreme Court decisions as follows: ... What needs to be clearly comprehended is that in none of these cases the Supreme Court was concerned with the vital question as regards the inter se rights of the vendor vis-a-vis the vendee in relation to the property sold by the vendor to the vendee. In other words, the question as to when the transaction of sale became complete as between the vendor and the vendee in the sense of extinguishment of the right of the vendor and the creation of the right of the vendee was never in issue . . . .
They further observed a question when did the vendor cease to be the owner of the property and when did vendee become the owner of the property. Is it on the date of execution of the sale deed which was subsequently registered or is it when the deed was presented for registration or is copied in the registration book, is a vital question from the standpoint of the Income-tax Act and the Wealth-tax-Act because the date of transmission of title from the vendor to the vendee is extremely relevant for determining who is liable to bear the tax burden. After thus observing that the previous decisions of the Supreme Court cited before them were not of any real help to solve the problem before them, they went on considering two Privy Council decisions reported in T.V. Kalyanasundaram Pillai v. Karuppa Mooppanar AIR 1927 PC 42 and Venkat Subba Srinivas Hegde v. Subba Rama Hegde AIR 1928 PC 86. The ratio found out from those two decisions was stated to be that a transaction of gift made by a document, which is subsequently registered, becomes operative from the date on which the document of gift was executed. The Gujarat High Court was considering the date of transfer for purposes of capital gains under Section 45 of the Act.
Therefore, the question in which previous year the transaction was effected was felt important for decision. Interpreting the meaning of the expression 'effected' their Lordships held as follows: ... In other words, the expression 'effected' in the context in which it is used would mean the previous year in which the transfer of a capital asset became complete or operative in the sense of the title of the transferor being extinguished and the title of the transferee being created . . . .
Even for purposes of the Wealth-tax Act their Lordships felt that the date on which the transaction is effected would be extremely relevant even under the provisions of the Wealth-tax Act. Their Lordships elaborated that either the transferor or the transferee should be owner of particular property but under no circumstances both the transferor and the transferee can be considered to be owners of a particular property. However, their Lordships categorically found that if one were to take the view that a transaction is complete when the document is copied in the books of the Registrar, the date would remain uncertain for it may so happen that the document may be copied after a very long time since no time limit is provided by the Registration Act. In such an event, neither the transferor nor the transferee would know whether a transfer has been effected and the transferor would not be able to compute his profits or gains or to include such profits or gains in the return under the head of capital gains. They also felt that the transferor must know on the date of filing of the return whether his title is extinguished and he has to include the income yielded by the sale for being taxed as capital gains and to exclude the property from his net wealth. The purchaser must be able to include the property in his net wealth. The date on which the transfer of the capital asset takes place must be a certain date which is capable of being ascertained. They also found that there is no time limit for copying out the document in the books of the Registrar. They held that the decisions in the cases of Ram Saran Lall (supra), K.J. Nathan (supra) and Hiralal Agrawal (supra) were rendered in the context of the right of pre-emption claimed under the Mohammadan law and the dispute arising under the Tenancy Act and in the context of competing documents executed and registered on different dates, respectively. The ratio of those decisions will not be attracted so far as the provisions contained in Section 45 of the Act are concerned. Ultimately, they held as follows: ... In interpreting the expression 'transfer of capital asset' it would not be possible to take the view that the transfer is effected on the date on which the document is copied. We are, therefore, of the opinion that Section 47 would be attracted even in respect of a transaction of sale when the question arises in the context of the decisive date for ascertaining the date on which the transfer of a capital asset becomes effective under Section 45 of the Income-tax Act. Once we take this view, the transaction must be treated as having become effective from the date on which the document was executed, in case its registration is subsequently admitted before the Registrar and eventually it is registered . . .
Therefore, it is urged before us that it is the latter decision of the Gujarat High Court in Arundhati Balkrishna's case (supra) which should govern the disposal of these two appeals rather than the former decision of the Gujarat High Court in Darbar Shivrajkumar's case (supra). Further, in order to buttress the arguments that by dint of Section 47 of the Registration Act, a transfer which was executed on one date and registered on a different date takes effect from the date of execution or becomes operative from the date of execution, the learned Counsel for the assessee relied upon the decision in Ramananda Paul v. Pankaj Kumar Ghosh AIR 1938 Cal. 417 where it is held that the period of three months under Section 54 of the Provincial Insolvency Act in the case of mortgage deed which is compulsorily registrable commences from the date of execution of the deed and not from that of registration as the deed of registration takes effect from the former date under Section 47 of the Registration Act. On the other hand, the learned departmental representative argues that as far as the gift deeds are concerned they should be governed by the earlier decision of the Gujarat High Court in Darbar Shivrajkumar case (supra). He also relied upon the case of Kanhaiyalal v. Sadashiv Rao Ganpat Rao AIR 1934 Nag. 171 where it is held that the starting point of limitation for purposes of Section 9(1)(c) of the Provincial Insolvency Act is the date of registration of the deed of transfer, and not the date of execution. So also, he relies upon the decision of the Madras High Court in Sarvathada Iswarayya v. Kunibasubbanna AIR 1934 Mad. 637 and in N.R.M.M.M. Muthiah Chettiar v. Official Receiver of Tinnevelly AIR 1933 Mad. 185 for the same proposition as mentioned above. Therefore, he contended that in view of those decisions as the transfer was not complete by 31-3-1976 relevant for purposes of the assessment year 1976-77, it should be held that the transfer was completed only on the date of registration, viz., 5-6-1982 by which time Miss Hema Mohan was married to the assessee and, hence, the property in question should be deemed to be a transferred asset within the meaning of Section 64(1)(iv) and the income derived therefrom should be assessed in the hands of the assessee. So also, he argues on the same lines for the purposes of wealth-tax for the assessment year 1976-77. Thus, we heard both sides fully and completely.
6. We are of the view that the arguments advanced on behalf of the asses see should prevail over those advanced on behalf of the revenue.
Our reasons are as follows. Under Section 64(1)(iv) we have to first determine as to when it can be said that assets were transferred to the spouse directly or indirectly. We need apply the provisions of Section 64(1)(iv) only when Miss Hema Mohan was the spouse of the assessee both on the date of transfer of the asset as well as when income was derived during the previous year relevant to the assessment year 1976-77 over that transferred asset. Settlement deed in this case was executed on 5-11-1975 and it was registered on 5-6-1982. By the date of the execution, Miss Hema Mohan was admittedly not the wife of the assessee.
The assessee married Hema Mohan only on 14-12-1975. Their marriage took place tnearly 1 month 9 days after the execution of the settlement deed. If the transfer in favour of Miss Hema Mohan is deemed to have taken place on 5-11-1975 by means of the effect of Section 47 of the Registration Act by applying the test laid down by the Supreme Court in Philip John Flasket Thomas's case (supra) the transfer in her favour had taken effect when she was not the wife of the assessee. Then in such a case Section 64(1)(iv) does not apply. But, on the other hand, if the transfer is deemed to have taken place on 5-8-1982 on which date the settlement deed, dated 5-11-1975, was registered, Miss Hema Mohan had already become the wife of the assessee by that time and, hance, the transfer is squarely governed by the provisions of Section 64(1)(iv). This position holds good even for wealth-tax purposes relevant for the assessment year 1977-78. We have thoroughly gone through the two decisions of the Gujarat High Court in Darbar Shivrajkumar's case (supra) and Arundhati Balkrishnd's case (supra) as well as all the decisions cited and explained in the latter Gujarat High Court decisions. We are of the firm opinion that the ratio of the latter Gujarat High Court decision aptly governs this case. The ratio of the latter Gujarat High Court decisions was already extracted in the above paras and we need not reiterate it here again. In view of the said decision, we hold that the earlier decision of the Gujarat High Court in Darbar Shivrajkumar's case (supra) does not apply to the fact's of the case inasmuch as the question to be considered in that case is as to the date when the gift was complete for purposes of determining the incidence of gift and for purposes of levying gift-tax under Section 3 of the Gift-tax Act. In that case their Lordships were not concerned with the date from which the gift deed takes effect after its being registered. In fact, they were concerned only with the completion of the gift but not with the effect of the completion of the gift. Whereas in the latter Gujarat High Court decision for purposes of computation of capital gains and for purposes of determining as to whether transfer of asset had taken place before 1-3-1970 or subsequently, their Lordships of the Gujarat High Court had occasion to dertermine the effect of a registered deed. In this case, we are also concerned with the date from which the settlement deed takes effect after it is being registered. In this case we are concerned with the date of transfer of the asset under Section 64(1)(iv) and also about the ownership of the asset under Section 3 of the Wealth-tax Act. As per the latter Gujarat High Court decision when once the settlement deed was registered the document takes effect from the date of its execution, viz., 5-11-1975. Therefore, it should be held that from 5-11-1975 Miss Hema Mohan should be considered to be the owner of the property in question (first floor bearing D. No. 6-2-953/A1, Khairatabad, Hyderabad) which was let out to the Syndicate Bank on a monthly rent of Rs. 2,170. If she became the owner on 5-11-1975 by which date she did not become the wife of the assessee in view of the Supreme Court decision in Philip John Plasket Thomas's case (supra), the provisions of Section 64(1)(iv) did not govern though she became wife of the assessee in the previous year in which income was derived over the property. Thus, in our considered opinion, the income derived over the property cannot be brought to tax in the hands of the assessee under Section 64(1)(iv) in the assessment year 1976-77. So also as the assessee was not the owner on 31-3-1977 which is relevant for the purpose of the assessment year 1977-78, the value of the property cannot be computed as part of the wealth of the assessee for the assessment year 1977-78. Therefore, in our opinion, both the income-tax as well as the wealth-tax appeals brought by the revenue are found to be without force, devoid of merits and hence, they are dismissed.