1. This is an appeal by the assessee. Shri Ramkaran, karta of a Hindu undivided family consisting' of himself and his sons Shri Mohan Karan, Shri Dharamvanth Karan and Shri Raj Karan entered into an agreement on 6-8-1975 with Umakaran and Tejkaran, a registered firm carrying on business of real estate developers and builders, whereby the assessee gave possession of about 2310 sq. yards of land with property bearing MOH Nos. 1-2-257 and 1-2-261 (except the property bearing Nos.
1-2-261/2 to 6), in exchange for which the firm agreed to allot two flats in block No. 1 valued at Rs. 60,000 each totalling Rs. 1,20,000 and in' addition to pay Rs. 40,000 in cash. Clause 4 of the agreement dated 6-8-1975 provided that the firm will deliver to the owner two flats in block No. 1 as per the owner's specification and pay the amount as agreed above. The owner agreed to execute all deeds of sale for proper conveyance of the properties built on the said land by the firm in favour of the firm, or their nominees, singly or jointly. In the meanwhile, about 710 sq. yds., being the difference between 2,310 sq. yds. and 1,600 sq. yds., were acquired by the Municipal Corporation of Hyderabad for set back and roads, etc.
2. In accordance with the agreement cited supra, the firm of Umakaran and Tejkaran took possession of the properties governed by the agreement for development and in return allotted two flats bearing Nos.
302 and 304 to the appellant in May 1978. Thereupon, the appellant let out the flats for rent. From the assessment year 1979-80, the appellant had been admitting the income from the said two flats till the date of oral partition (13-10-1980) followed by a memorandum of partition dated 23-10-1984. The flats allotted to the appellant were subject matter of partition along with other immovable properties and an order under Section 171 of the IT Act was passed by the Income-tax Officer, B-Ward, Circle-IV, Hyderabad, on 23-3-1984 according recognition to the oral partition. On 23-4-1980, a sale deed was executed by Shri Ramakaran, Shri Mohan Karan, Raj Karan and Shri Dharamvanth Karan-coparceners of the Hindu undivided family-along with Umakaran representing the firm of Umakaran & Tejkaran, in favour of Malwala Estates and Hotels Pvt. Ltd. in respect of 1,600 sq. yds. of land which was initially the subject matter of agreement between the appellant and the firm of Umakaran and Tejkaran referred to earlier. The recital of the sale deed is as follows : And whereas vendor Nos. 1 to 4 in order to improve and develop the land had approached the vendor No. 5 Messrs Uma Karan & Taj Karan, a partnership firm for the said purpose, and the Vendor No. 5 had developed the land and made constructions on the said land for and on behalf of the vendee herein and the constructions over the said land belonged to the vendee herein ; And whereas the vendee in order to perfect their title had approached the vendors 1 to 5 for the sale of the land admeasuring 1600 sq. yards, over which the constructions were made already by the Vendee and the Vendors have agreed to convey their title in favour of the Vendee for a sum of Rs. 1,60,000 (Rupees one lakh and sixty thousand only) and the Vendee had agreed for the same ; Now this deed of sale witnesseth that in consideration of the said sum of Rs. 1,60,000 (Rupees one lakh and sixty thousand only) well and truly paid to the Vendors by the Vendee (the receipt of which sum the vendors hereby admit, accept and acknowledge) the Vendors hereby sell, convey and transfer in favour of the Vendee all the estate, right title and interest in respect of the said plot of land admeasuring 1,600 sq. yards, forming premises bearing No. 1-2-261/1 situate at Sarojini Devi Road, together with the 'constructions and the structures thereon, more fully described at the foot of this indenture and as delineated in the plan annexed hereto, and hatched red, together with all the rights, and easements that are attached or reputed to be attached thereto.
The Vendor No. 5 had joined in execution of the sale deed at the instance of the Vendee, and in order to convey a better title in respect of the plot hereby convey in favour of the Vendee.
Subsequently on 4-2-1981 a rectification deed was executed by the vendors-Shri Ramakaran and his sons together with the partners of the firm in favour of the vendee Malwala Estates and Hotels P. Ltd. The rectification was for purposes of describing fully and correctly the mode of payment of sale consideration.
3. For the previous year ended 31-3-1981 relevant to the assessment year 1981-82, the Income-tax Officer brought to tax under the head "Capital gains" a sum of Rs. 60,750 on the strength of the deed of sale executed on 23-4-1980 and registered as document No. 1362 dated 26-5-1980 with the Sub-Registrar of Secunderabad. The assessee had not reported any capital gains in his return of income.
4. In the first appeal, it was contended before the Appellate Assistant Commissioner that the sale had taken place when the assessee entered into an agreement on 6-8-1975 with the registered firm of M/s Umakaran and Tejkaran under which about 2,310 sq. yds. of land at Sarojinidevi Road, Secunderabad, with property bearing MCH Nos. 1-2-257 and 1-2-261 (excepting the property bearing MCH Nos. 1-2-261/2 to 6) were given to the said firm in exchange for a promise of allotment of two flats in block No. 1 valued at Rs. 60,000 each to be constructed on the land by the said firm and in addition on payment of Rs. 40,000 in cash.
Therefore, if at all there was any capital gain it ought to have been assessed for the assessment year 1976-77 and not for the assessment year 1981-82. It was also contended that where an agreement was entered into on the strength of which property was transferred containing provisions to obtain another document of sale and ultimately the sale crystallised, the sale relates back to the date of agreement and in the appellant's case, this is exactly what had happened and, therefore, the sale actually took place on 6-8-1975 when the agreement was made out.
It was the further contention of the assessee that the word 'owner' had different meanings in different contexts and one could become owner even without registering the deed executed in his favour and as allotment of flats in block No. 1 was a subject matter of agreement dated 6-8-1975, even though title to the flats was conveyed in August 1978, the purchase of flats is deemed to have taken place when the agreement for purchase was made simultaneously with the agreement to sell the land and, therefore, even for the assessment year 1976-77, no capital gains tax was exigible. The Appellate Assistant Commissioner noticed that though the agreement dated 6-8-1975 governed the transaction of 2,310 sq. yds., actually by sale deed dated 23-4-1980 only 1,600 sq. yds. were sold and the sale took place only on 23-4-1980 when the deed of sale was executed and registered and did not take effect from the date of the original agreement viz. 6-8-1975. He also noticed that an agreement may not be acted upon or may be liable to be amended and unless the terms of the agreement are fully translated into the deed of sale, it was not possible to hold that the deed of sale related back to the date of original agreement. In such view of the matter, the learned Appellate Assistant Commissioner dismissed the appeal of the assessee.
5. Shri Syed Jameeluddin, learned counsel for the assessee, submitted that the sale of land had taken place in the previous year relevant to the assessment year 1976-77 when the agreement between the assessee and the firm of M/s Umakaran and Tejkaran was entered into on 6-8-1975 providing for the allotment of two flats in block No. 1 in exchange for the land. Therefore, capital gains, if any, arose in the assessment year 1976-77. The sale deed dated 23-4-1980 consisted of five parties as vendors. Parties 1 to 4 are the erstwhile coparceners of the disrupted Hindu undivided family. Party No. 4 is the firm represented by one of its partners. In the said deed of sale, there was no reference to the agreement dated 6-8-1975 executed between the assessee and the firm. Thus, the sale deed dated 23-4-1980 is totally an independent and separate deed. Inasmuch as the vendors consisted of the erstwhile coparceners of the disrupted Hindu undivided family, the authorities below erred in taxing the Hindu undivided family on the capital gain, if any, arising from the transaction. He further submitted that there was an error in the sale deed dated 23-4-1980 as the consideration was not properly described and such error was sought to be rectified by a rectification deed dated 4-2-1981 and it is only through this deed dated 4-2-1981 that the conveyance of Property was effected, so much so that, if at all there was any capital gain, it had to be alternatively considered only for the assessment year 1981-82 and not for the assessment year 1980-81. It was his further submission that as a partition had taken place on 13-10-1980 and such partition having been recognised by the revenue by an order under Section 171 of the Act, and inasmuch as the vendors are the erstwhile coparceners of the partitioned Hindu undivided family, if at all there was any capital gain arising out of the transaction, it should be assessed only in the hands of the erstwhile coparceners. In other words, the property had gone out of the hands of the assessee-Hindu undivided family and whoever else might be assessed for capital gains, the assessee-Hindu undivided family could not be assessed qua the sale. In this connection, reliance was placed on the following decisions : Thus, he submitted that in any view of the matter, capital gains tax is not attracted for the assessment year 1980-81.
6. Shri N. Santhanam, learned departmental representative, submitted that this is a case involving the transfer of immovable property viz., land. Under Section 54 of the Transfer of Property Act, the title to the property would pass only through a duly executed document. Section 17(6) of the Registration Act is also attracted in that the value of the immovable property is more than Rs. 100. Therefore, the transfer of property took place only on 23-4-1980 when the sale deed ' was executed and registered on 26-5-1980. Subsequent rectification of the sale deed by a rectification deed dated 4-2-1981 would not alter the position.
The rectification was only in relation to the description of the sale consideration. Whereas in the original sale deed consideration of Rs. 1,60,000 was shown to have been paid presumably in cash, the rectification deed more fully and correctly described the consideration as one by way of allotment of shares in the vendee company. Thus, this rectification was only affecting a part of the sale deed and had the effect of describing the sale consideration fully and correctly. Such rectification, when done, will become part and parcel of the original deed of sale dated 23-4-1980. This rectification deed will not have the effect of postponing the conveyance of title itself which had taken place when the original deed was registered on 23-4-1980. In this view of the matter, Shri Santhanam submitted that the transfer of property had taken place on 23-4-1980 during the previous year relevant to the assessment year 1981-82 and, therefore, capital gain was rightly included in the total income for that year. Besides the Hindu undivided family was partitioned orally on 13-10-1980 that is after the date of sale. Further in the said partition, the flats which the assessee obtained in exchange for the land that was agreed to be transferred, had been allotted among the coparceners ; therefore, it was but natural that all the coparceners joined together to execute the sale deed on 23-4-1980 and that does not mean that it was not the Hindu undivided family but the individual coparceners of the partitioned Hindu undivided family who are parties to the sale deed. In this case, if necessary, the veil must be lifted and the substance of the transaction should be looked at. For the proposition that transfer of immovable property takes place only when the document is executed and registered, he relied on the following decisions : 7. In his reply, Shri Jameeluddin submitted that though a contract for sale does not create any interest in the property, yet, if there is a clear and valid contract for sale, the property is in equity transferred to the purchaser by the contract as the vendor would then become a trustee for him and cannot be permitted to deal with the property so as to defeat the rights of the prospective vendee. In CIT v. T.N. Aravinda Reddy [1979] 120 ITR 46 (SC), the word 'purchase' in Section 54 of the Income-tax Act had been given a common meaning and the term 'owner' has got different meanings and in different contexts.
The department has been assessing to tax the rental income from the fiats which were obtained in exchange for the land given. The deed of sale later written dates back to the date of the agreement. In the circumstances, he submitted that the capital gains, if any, would be assessable for the assessment year 1976-77; alternatively, the same would be assessable for the assessment year 1981-82 when the rectification deed was executed and registered and by the timethe rectification deed was executed, the Hindu undivided family had been disrupted. In any case, the department has no case for taxing the capital gains in the hands of the Hindu undivided family qua the sale for the assessment year 1981-82.
8. Having regard to rival submissions and the materials on record, we uphold the contentions of the revenue. This is a case of transfer of immovable property - land. Originally, the land belonged to the Hindu undivided family. Though possession and enjoyment of the property were given to a firm by an agreement dated 6-8-1975 in exchange for allotment of two fiats, nothing was done till 23-4-1980 to convey the title to the firm as per the agreement. On the other hand, the property upon development was sold to Malwala Estates and Hotels Pvt. Ltd. through the sale deed dated 23-4-1980 in which there was absolutely no reference to the agreement dated 6-8-1975. At the point of sale on 23-4-1980, the Hindu undivided family was not partitioned. It was only a few months later that it was partitioned. The title to the land did not pass to the firm of Umakaran and Tejkaran, the party to the agreement dated 6-8-1975, but Umakaran and Tejkaran had developed the land and made constructions on it for and on behalf of the vendee viz., Malwala Estates and Hotels Pvt. Ltd. At the instance of the vendee, clear title had to be passed. Therefore, the karta of the assessee-Hindu undivided family and his sons along with the partnership firm of Umakaran and Tejkaran represented by one of its partners were described as vendors and these five persons executed the sale deed in favour of the company.
9. Section 54 of the IT Act defines sale as a transfer of ownership in exchange for a price paid or promised or part paid and part promised and such a transfer in the case of tangible immovable property of the value of Rs. 100 and upwards. . . can be made only by a registered document. Under the Registration Act, the sale of tangible immovable property, though of a value less than Rs. 100, must also be effected by a registered instrument unless it is effected by delivery of possession. In this case, the value of the immovable property is more than Rs. 100. Therefore, registration of the sale deed is a sine qua non for the conveyance of title to the property. This had taken place only on 22-5-1980 when the HUF was not partitioned. Therefore, we uphold the contention of the revenue that the transfer took place only in the previous year relevant to the asst. year 1981-82 and capital gains were rightly included in the income of the HUF. Thus, we reject the contention of the assessee's counsel that the sale had taken place the moment possession of the land was given to M/s. Umakaran and Tejkaran in the year 1975 as per the agreement. In fact, the cases relied on by the assessee would rather support the stand of the revenue.
10. In K.C. Pal Chowdhury v. CIT [1962] 46 ITR 1 (Cal.), it was held that delivery of possession pursuant to the agreement for sale before the actual conveyance did not transfer the title to the purchasers. In CIT v. Btvurangya Coal Co. [1958] 34 ITR 802, the Supreme Court held that the title passes only when the sale deed was executed on May 17, 1946, and not when the agreement was concluded on March 16, 1946, so far as the immovable property was concerned.
11. In Ashaland Corpn.'s case (supra), the Gujarat High Court held in the case of a dealer in land that the agreement to sell lands does not create any interest in favour of the purchaser and that only transfer of title to land to the purchaser completes the transaction of sale.
The doctrine of part performance embodied in Section 53(a) of the Transfer of Property Act was held to have a limited application and it afforded only a good defence to the person put in possession under the agreement in writing to protect his possession to the extent provided in the said Section 53(a) of the Transfer of Property Act, but in any case, the agreement in writing to sell coupled with parting of possession would not confer any legal title on the purchaser. Thus, unless the title of the vendors is extinguished or conveyed in favour of the vendee which can take place only under the provisions of Section 54 read with the relevant provisions of the Registration Act, it cannot be said that a transfer had taken place. Therefore, we uphold the contention of the revenue that the transfer really took place only when the sale deed dated 23-4-1980 was registered.
12. Sri Syed Jameeluddin argued that the rectification deed dated 4-2-1981 had the effect of postponing the passing of the title. We are unable to agree with his contention. The rectification was for correcting the description of the sale consideration. The amount of sale consideration was not altered, only the mode of payment of sale consideration was sought to be rectified. The original sale deed gave the impression that the sale consideration of Rs. 1,60,000 was paid as though in cash. The recital in the rectification deed is as follows : And whereas the consideration for the said transfer is stated as Rs. 1,60,000 (Rupees one lakh and sixty thousand only) and it was further stated that the said amount of Rs. 1,60,000 was paid to the vendors by the vendee, whereas the real consideration for the transfer is allotment of 1,600 equity shares of Malwala Estates & Hotels Private Limited of Rs. 100 each at par amounting to Rs. 1,60,000 by the vendee in favour of the vendor No. V and it has become necessary to rectify the original sale deed dated 23-4-1980.
Thus, it will be evident that only the mode of satisfaction of sale consideration was sought to be more correctly and more fully described in the rectification deed. This will not have the effect of postponing the passing of the title itself. Therefore, we reject the alternative argument of the learned counsel that the transfer had taken place in the year 1981 relevant to the assessment year 1982-83.
13. It is true that the rectification deed was executed by the erstwhile coparceners of the assessee-HUF. That was because by the time the rectification deed was executed, the HUF had been partitioned.
Beyond this, it does not have any further implication. Therefore, we are unable to accept the contention of the learned counsel for the assessee that if at all any capital gain arose, it should be considered in the assessment year 1982-83 and that too in the individual hands of the erstwhile coparceners.
14. Sri Jameeluddin heavily relied on the decision of the Tribunal in the case of Mrs. Shahzada Begum v. ITO [1983] 5 ITD 292 (Hyd.), for the proposition that the purchase would relate back to the date of the agreement. It is our considered view that the ratio of the decision in this case is not applicable to the facts of the case on hand. The Tribunal had to deal with the meaning of the word 'purchase' as used in Section 54 of the Act which granted exemption from capital gains in certain circumstances. Liberally construing the word 'purchase' by drawing inspiration from the decision of the Supreme Court in T.N.Aravinda Reddy's case (supra), the Tribunal understood in common parlance the meaning of the word 'purchase' occurring in Section 54.
This decision is relevant only for the interpretation of the word 'purchase' occurring in Section 54. It cannot be stretched so as to envelope the word 'transfer' occurring in Section 2(47) read with Section 45 of the Income-tax Act. Section 2(47) does not include the word 'purchase'.