Ashok Soi Vs. Deputy Commissioner of - Court Judgment

Excerpt:
1. these cross-appeals, one by the assessee and the other by the revenue, are directed against order 7th september, 1998, passed by the cit(a) for asst. yr. 1995-96 and involve consideration of a common point relating to determination of the amount of capital gains liable to tax in the hands of the assessee in relation to sale of property bearing no. 22, darya ganj, new delhi. "1. that the learned cit(a) has grossly erred, both on facts and in law in not deleting the entire addition of rs. 46,08,000 made by the learned dy. cit, under the head 'capital gains'. 2. that the learned cit(a) has failed to appreciate, the factual substratum of the case and has failed to appreciate that the property bearing no. 22, darya ganj, delhi, the transferred property, was before the family settlement the.....

Judgment:
1. These cross-appeals, one by the assessee and the other by the Revenue, are directed against order 7th September, 1998, passed by the CIT(A) for asst. yr. 1995-96 and involve consideration of a common point relating to determination of the amount of capital gains liable to tax in the hands of the assessee in relation to sale of property bearing No. 22, Darya Ganj, New Delhi.

"1. That the learned CIT(A) has grossly erred, both on facts and in law in not deleting the entire addition of Rs. 46,08,000 made by the learned Dy. CIT, under the head 'capital gains'.

2. That the learned CIT(A) has failed to appreciate, the factual substratum of the case and has failed to appreciate that the property bearing No. 22, Darya Ganj, Delhi, the transferred property, was before the family settlement the property of the HUF of which the assessee was a member and as such, the only amount which could be assessed in the hands of the assessee could only be the value of the asset received as a result of family settlement and which asset and was transferred by him. The learned CIT(A) has failed to appreciate that the assessee owned only 16.23 per cent of the aforesaid property and not 25 per cent. The learned CIT(A) has thus erred in directing the AO to compute the capital gain on the aforesaid basis.

3. That the learned CIT(A) has failed to appreciate that it is admitted by the learned Dy. CIT that a separate order under s. 171 of the IT Act had been passed wherein the claim of partition had been accepted and further, the aforesaid property had been subject-matter of family settlement and a decree granting family settlement was passed by the Hon'ble High Court.

4. That the conclusion of the learned CIT(A) that it can be concluded, that Shri B. N. Soi had no title in the property situated at 22, Darya Ganj, Delhi, is in disregard of the evidence i.e., the preliminary and final decree passed by the High Court.

5. That, in any case, assuming that Shri B. N. Soi had no title on the property as alleged, then too, since the property was sold after Shri B. N. Soi has been provided with a share by the HUF as a result of family settlement, the learned CIT(A) has erred in directing the Dy. CIT to compute the capital gain by adopting the assessee's share 25 per cent of the sale consideration.

6. That further, in any case, the learned CIT(A) has failed to appreciate that while computing the capital gain, the value of the property provided to Shri B. N. Soi had to be excluded even in the hands of the HUF and obviously as the sale was made after partition, the net value could only be regarded as the consideration accruing as a result of transfer.

7. That the learned CIT(A) has completely brushed aside the judgment cited by the assessee CIT vs. C. V. Soundararajan & Anr. (1984) 150 ITR 80 (Mad) in the written submissions filed before him and which was directly on the point and as such the order made is arbitrary and vindictive.

8. That further, there was no justification to have sustained the levy of any interest as no interest was leviable. It is, therefore, prayed that the addition sustained to the declared capital gain be deleted as such." "On the facts and in the circumstances of the case, the learned CIT(A) has erred in holding that the assessee had a title of Rs. 96 lakhs of the sale proceeds of the property No. 22, Darya Ganj, New Delhi, as against Rs. 1,07,22,257 as assessed by the AO".

5. The assessee, inter alia, disclosed income from capital gains of Rs. 61,14,257 in respect of sale of property at 22, Darya Ganj, New Delhi.

This property was sold for Rs. 3.84 crores and the assessee has claimed that his share in the said property was 16.67 per cent. After claiming the deduction in respect of indexed cost of acquisition, capital gain of Rs. 61,14,257 has been shown in the return. The aforesaid property No. 22, Darya Ganj, New Delhi, was purchased by Smt. Lachmi Devi, grandmother of the appellant, in the year 1934. The property was gifted by Smt. Lachmi Devi to her two sons, Shri Jag Mohan Soi and Shri Brij Mohan Soi vide gift deed dt. 14th May, 1957. Smt. Lachmi Devi subsequently filed suit for rectification of the deed of gift executed on 14th May, 1957. The Hon'ble High Court of Calcutta vide order dt.

20th December, 1961, in suit No. 1623 of 1959, declared the said gift deed 14th May, 1957, executed by Smt. Lachmi Devi in favour of her sons, Shri Jag Mohan Soi and Brij Mohan Soi to be void and inoperative and the same was cancelled. An award was thereafter passed by the arbitrator on 3rd April, 1965, which, inter alia, provided that Shri Ashok Soi (appellant), alone is the sole owner of the entire Kothi No.22, Darya Ganj, Delhi, on 1,830 sq. yds. as well as the land measuring 1,917 sq. yds. all comprised in and being portion of said Kothi No. 22.

It was specifically mentioned in the said award that inspite of the consent decree dt. 18th May, 1960, of the Calcutta High Court in Suit No. 1623 of 1959, neither Smt. Lachmi Devi nor Shri Kanwal Kumar Soi, Vinjay Kumar Soi, Brijmohan Nath Soi or anyone else had or would have any right, title or interest in this property. In this award, a reference of deed of dissolution of the partnership business in the name of Champion Neonsign at 16, British India Street, Calcutta, with branches at Bombay, Delhi and Calcutta was also given and it was mentioned that the said firm has been dissolved since 31st July, 1964, as per deed of dissolution dt. 23rd July, 1964, and that Delhi business including assets and liabilities have already been fallen to the share of Shri Brij Mohan Soi and the remaining business assets and liabilities have fallen to the share of other partners. Shri Ashok Soi thus became the sole owner of Kothi No. 22, Darya Ganj, New Delhi, on 1,830 sq. yds. as well as land measuring 1,917 sq. yds. by virtue of the said arbitration award dt. 3rd April, 1965. This arbitration award dt. 3rd April, 1965, later became Rule of Court vide order dt. 17th day of April, 1965, passed by Sub-Judge, First Class, Delhi.

6. Shri Ashok Soi was married on 11th December, 1968. Shri Ashok Soi was blessed with two sons, one in the year 1971 and the other in the year 1973.

7. On 31st March, 1969, Shri Ashok Soi voluntarily converted the said property at 22, Darya Ganj, New Delhi, into property of his HUF styled as Ashok Soi (HUF) consisting of himself, his wife and two sons.

8. On 11th December, 1978, Shri Ashok Soi entered into an agreement with M/s. Ansal Properties and Industries (P) Ltd. and agreed to sell the entire Kothi No. 22, Darya Ganj, New Delhi, along with land admeasuring 3,085 sq. yds. to develop and construct on the said premises residential buildings on consideration and other terms and conditions described in details in the said agreement. A copy of the agreement has been placed at pp. 93 to 116 of the compilation. The preamble of the said agreement also indicates that out of total area of the aforesaid property at 22, Darya Ganj, New Delhi, consisting of 1,830 sq. yds. and 1,917 sq. yds. totalling to 3,747 sq. yds., the assessee had earlier sold part of the land vide 4 separate sale deeds covering area of 221.1 sq. yds., 143.25 sq. yds., 304.50 sq. yds. and 122 sq. yds. i.e., an aggregate area covering 661.952 or say 662 sq.

yds. which left the area of the balance land at 3,085 sq. yds. which was the subject-matter of agreement executed with Ansals on 11th December, 1978.

9. After the aforesaid agreement was executed by the assessee with M/s.

Ansal, a dispute arose between the assessee and his wife Smt. Bulbul Soi. The assessee's wife, Smt. Bulbul Soi, filed a suit for partition before the Hon'ble High Court of Delhi which is marked as Suit No. 180 of 1980. This suit was filed on or about 5th day of March, 1980. This suit was filed by Smt. Bulbul Soi w/o Ashok Soi on her own behalf as well as on behalf of her two minor sons Master Aditya Soi and Master Abhey Soi in her capacity as their guardian and next friend. The assessee, Shri Ashok Soi, Shri B. N. Soi, father of the assessee and Smt. Usha Soi w/o Mr. B. N. Soi were made defendants in the said suit.

10. Sometime after filing of the said suit, a joint application by the plaintiffs and defendants was filed in the Hon'ble High Court of Delhi which is marked as IA No. 80 of 1980 in Suit No. 180 of 1980 stating that the parties have arrived at a compromise and desired that the suit be disposed of in terms of the said compromise and a preliminary decree in terms thereof be passed. This joint application is dt. 9th October, 1980. A copy of the said joint application has been placed at pp. 45 to 54 of the paper book. The Hon'ble High Court passed an order dt. 14th October, 1980, by which a decree in terms of the said settlement was passed. The terms of the said settlement, inter alia, clearly provided in cl. 1 that in property at 22, Darya Ganj, New Delhi, equal shares be allotted to the 3 plaintiffs and defendant No. 1, namely, Smt. Bulbul Soi, her two minor sons and Shri Ashok Soi (assessee). It was, inter alia, provided in the said terms of settlement that Shri B. N. Soi (assessee's father) be given by way of compensation, one flat on the ground floor measuring 1,200 sq. ft. and in addition thereto a sum of Rs. 3 lakhs payable in cash on the completion and occupation of the building. The other terms of settlement forming part of preliminary decree passed by the Hon'ble Delhi High Court vide order dt. 24th October, 1980, have been elaborately mentioned in the said joint application dt. 9th October, 1980, and in the Annexure 'A' thereof.

11. Shri Ashok Soi (HUF) submitted application under s. 171 dt. 3rd November, 1982, on 10th Nov., 1982, to the ITO, District IV(a), New Delhi, in which it was stated that the members of the erstwhile Ashok Soi (HUF) agreed for a total partition of the properties of Ashok Soi (HUF) on 9th October, 1980, and order was passed on the same by the High Court of Delhi in Suit No. 180 of 1980 on 14th October, 1980. The properties were partitioned between the members as per the Annexure. A copy of application under s. 171 dt. 3rd November, 1982, has been placed at p. 188 of the paper book but the annexure referred to in the said application under s. 171 has not been submitted in the paper book along with the application under s. 171 dt. 3rd November, 1982.

12. The AO vide order under s. 171 of IT Act, 1961, dt. 24th November, 1983, held that he is not satisfied that a genuine partition had taken place in the family. He accordingly rejected the claim of partition made by the said HUF. A copy of this order has been placed at pp. 122 and 123. An appeal was filed against the said order before AAC. The AAC set aside the ITO's orders under s. 171 vide his order dt. 21st December, 1984, in which he observed that the ITO should examine the matter in more details with reference to the provisions of s. 171.

Notice of inquiry should be issued to all the members of the family as laid down in s. 171(2) and their statements should be recorded. A detailed inquiry should be made whether there has been physical division of the properties as mentioned in the Expln. to s. 171. With these directions, he set aside the ITO's orders under s. 171 for making a fresh order.

13. The CIT(A) at p. 7 of his order has observed that as per record, no separate order under s. 171 is available nor any order is available with the assessee. However, in his order under s. 143(3), dt. 26th March, 1987, the AO mentioned that order under s. 171 had been passed and the partition had been accepted. A copy of the assessment order in the case of Shri Ashok Soi, HUF, for asst. yr. 1981-82 passed under s.

143(3) on 26th March, 1987, has been placed at pp. 129 and 130 which, inter alia, shows that order under s. 171 has since been passed by separate order, the assessment is reframed as per directions of the AAC. The assessee has declared income from property and interest upto the date of partition i.e., 14th October, 1980. Since the claim of the partition has been accepted, the income of HUF was assessed upto that period i.e., 14th October, 1980. It is imperative to mention here that the fresh order under s. 171 passed in pursuance of the directions of learned AAC, which has a very important bearing on the points raised in the present appeal before us, was not produced by the assessee nor that was available in the records of the AO at the time when the CIT(A) passed the impugned order. That order under s. 171 has also not been produced by the assessee or by the Departmental Representative before us during the course of the hearing of the present appeal. It is further noteworthy to state that Shri Abhey Soi in his wealth-tax return for asst. yr. 1993-94 (copy at p. 133 of the P.B.) has shown 1/4th share in self-occupied property at 22, Darya Ganj, New Delhi, under s. 7(2) at Rs. 1,60,500. Likewise, Shri Ashok Soi in his income-tax returns for asst. yr. 1982-83 (p 137 of P.B.) and onwards had declared income from self-occupied property at 22, Darya Ganj, New Delhi, as under : Self-occupied Rs. Rs. Property at 22, Darya Ganj, Delhi 14. Copies of return of income and wealth of Shri B. N. Soi from asst.

yr. 1982-83 and onwards have not been filed by the assessee, nor any material has been placed on records to show whether Shri B. N. Soi had declared the value of his any right, title or interest in the said property at 22, Darya Ganj, New Delhi, in his income-tax/wealth-tax returns filed, if any.

15. All the plaintiffs and defendants in Suit No. 180 of 1980 filed another joint application under O. 23, r. 3, r/w s. 151, CPC, marked as I.A. No. 4898 of 1993 in the High Court of Delhi. A copy of the said joint application has been placed in the paper book at pp. 58 to 62. In this application, it has been stated that in the above suit, a preliminary decree was passed by the Hon'ble High Court. The parties have come to a further understanding between themselves with respect to the disposal of the property No. 22, Darya Ganj, New Delhi. It was prayed that the record of this settlement made vide joint application of 1993 be placed on records. It was further mentioned that the parties agreed that the original collaboration agreement dt. 11th December, 1978, entered into with M/s. Ansal Properties Ltd. be not proceeded with any further as the said M/s. Ansal Properties Ltd. have given notice for cancelling the agreement. Therefore, the order of the Hon'ble Court dt. 10th November, 1981, may be modified. It was further stated that the property No. 22, Darya Ganj, New Delhi, be put to sale at the best available price and the sale consideration shall be divided between the parties as follows :(1.) Plaintiff No. 1, Shri Aditya Soi 23-1/3 per cent(2.) Shri Abhey Soi (Plaintiff No. 2) 23-1/3 per cent(3.) Smt. Bulbul Soi (Plaintiff No. 3) 24-2/3 per cent(4.) Shri Ashok Soi (Defendant No. 1) 16-2/3 per cent(5.) Shri B. N. Soi (Defendant No. 2) 12 per cent 16. The Hon'ble High Court of Delhi passed an order dt. 28th May, 1993, on the said joint application filed by the parties. The Hon'ble High Court observed that it has been prayed in the said application that since parties have compromised the matter, the suit be disposed of in terms of the compromise application. The Hon'ble High Court passed the following order after briefly narrating the fact of filing of the said joint application in its order dt. 28th May, 1983. I have heard learned counsel for the parties. After recording the statement of the parties, I deem it proper in the interest of justice that the suit be disposed of in terms of the compromise application Ex.C-1. Parties are directed to bear their own cost. Compromise application Ex.C-1 shall form part of the decree. The suit and all the pending IAs stand disposed of.

Ordering accordingly." 17. In view of the aforesaid order passed by the Hon'ble High Court on 28th May, 1993, over the joint application submitted by the parties containing the terms of compromise, the assessee claimed before the AO that he is liable to pay tax on capital gains on his share of 16.67 per cent in the aggregate sale proceeds of 3.84 crores for which the property at 22, Darya Ganj, New Delhi, was sold in the year under consideration.

18. The AO after considering the aforesaid facts and submissions made on behalf of the assessee, gave the following findings : "I have considered assessee's submissions and it is seen that the assessee has taken two alternative grounds in support of giving 12 per cent sale proceeds to his father Shri B. N. Soi. Firstly, that 'compensation paid to Sh. B. M. Soi is an allowable expenditure under s. 48 of the Act. And secondly it has been argued 'In the alternative shares of sale consideration be accepted at 16.67 per cent since B. N. Soi had overriding title on the sale consideration of the property.' I have examined the assessee's submissions and I have found that both the grounds taken by the assessee are not tenable in view of the facts on record and provisions of law in respect of the sale proceeds received of HUF property. But before going into the merit of assessee's submissions, it is pertinent to recount the facts again.

It is an undisputed fact that the impugned property was Ashok Soi's individual property under a Court order. This property was however converted into an HUF property of 'Ashok Soi HUF' by voluntary devolution, as stated by the assessee, upto his marriage in 1968 and birth of his two sons in 1971 and 1973. Consequent upon this the property at 22, Darya Ganj, became property of Ashok Soi HUF consisting of Ashok Soi Karta, two coparceners, Shri Abhay Soi and Shri Aditya Soi and one female member Smt. Bulbul Soi.

It is against this background that we have to examine the assessee's argument that sale proceeds were distributed to all family members including his father, as they had overriding title. As per the facts, Shri Ashok Soi entered into an agreement in 1978 with M/s.

Ansal Properties for construction of residential complex on this plot. It is at this time that suit was filed having No. 80 of 1980.

However, before the Court could takeup the matter, a joint application was filed by the so-called plaintiffs and defendants. As per information furnished, plaintiffs were Mrs. Bulbul Soi, Mr.

Abhay Soi and Mr. Aditya Soi and defendants were Ashok Soi, B. N. Soi and Usha Soi. It makes it very clear that Shri B. N. Soi had not filed any suit against Mr. Ashok Soi for a share in this property.

It has no locus standi to claim any share from this property. The share allotted to him was merely and merely a voluntary act on the part of Shri Ashok Soi.

Thus, it can be seen that Shri B. N. Soi had no overriding title to the property and it was only an application of income by an agreement between Ashok Soi and his father. The case laws filed by the assessee is of no help to the assessee as the facts of the assessee's case are totally different. All these case laws filed by the assessee say that when their is a diversion of income by overriding title, no assessment can be made in the hands of transferor. However, in the case of the assessee no diversion of income by overriding title has taken place as we have discussed earlier. On the contrary the case of the assessee is covered by decision of the Hon'ble Supreme Court in the case of CIT vs.

Venugopal Varma Raja (1972) 84 ITR 466 (SC). In this case it was held that the maintenance allowance paid to the widow of the deceased coparceners is not diversion of income. Further, the case of Ramachar K.A. & Anr. vs. CIT (1961) 42 ITR 25 (SC) also makes it very clear that such agreement as entered into by the assessee cannot create overriding title. In that case, the assessee partner of a firm assigned by mutual agreement 25 per cent of the share of profits payable to him to his wife who was entitled to receive directly from the firm. The Hon'ble Supreme Court held that this was merely an application of income. Thus, the assessee's argument fails on this count also.

It should be noted that this property was an HUF property of Ashok Soi HUF and as per the Hindu law only coparceners can demand partition of HUF property and in the case of coparcener being minor, this can be done only in very special circumstances. Therefore, according to the provisions of Hindu law, only someone acting on behalf of Aditya and Abhay Soi could have demanded partition of this property and no one else; not even the spouse of the Karta and certainly no other person like his father particularly when he was not even a member of the HUF. As per Hindu Law on partition of spouse is entitled to equal share but she cannot demand partition on her own. It is, therefore, clear that nobody had any claim on this property in any manner whatsoever except two sons of Shri Ashok Soi and his spouse only after partition. It is further clear that the case for share in property was filed by the wife and the two sons of the assessee and not by his father, Shri B. N. Soi and Smt. Usha Soi, they have been listed in the suit only as defendant. That is why in the original compromise formula, the four persons i.e., assessee his two sons and wife were shown to be equal 1/4th owner of the property. The compensation agreed for his father was at best a voluntary act on behalf of Shri Ashok Soi because he was not plaintiff in the suit. Even in the second compromise deed of 1993 only these three persons were shown plaintiffs. It is, therefore, very much clear that Shri B. N. Soi had not filed any suit against Shri Ashok Soi for a share in the property and under the law he could not have made any claim on the property of Ashok Soi HUF. Thus, both in the law and on, the facts he was not a claimant of the property. The joint application under which this was given to B. N. Soi was a collusive agreement and the issue before Hon'ble Court was not whether Shri B. N. Soi had an overriding title in the property.

Therefore, in view of these facts it cannot be said that Shri B. N. Soi had overriding title over this property.

Now coming to the alternative arguments of the assessee that compensation paid to Shri B. N. Soi was an allowable expenditure.

This argument of the assessee is also not tenable. Shri B. N. Soi was not tenant in the property as admitted by the assessee. He was merely leaving with his son. Therefore, he had absolutely no claim over the property in any manner whatsoever. It is seen that even Smt. Usha Soi who in similar position as Late Shri B. N. Soi and who was also a defendant in the original suit like Shri B. N. Soi but she was not given any compensation though by the same logic she should have been given some percentage of the sale proceed as also other persons living in that house including the tenant and servant, etc. In a family there are several members living together, but it does not create cross-interests in individual property of each other.

It has been informed by the assessee that Shri B. N. Soi has filed his own return of income and has shown capital gains in his return.

In evidence thereof he has filed copy of acknowledgment for asst.

yr. 1997-98, the acknowledgment form showed that the return was filed in Ward 12(7) on behalf of the Late B. N. Soi by Smt. Usha Soi. The matter was taken up with ITO, Ward 12(7), who has informed that no return earlier than 1997-98 was filed. Thus, apparently the sale proceed of this property to the extent it was given to Shri B. N. Soi has not been offered to tax. This fact is important but not significant in so far as the taxability of the amount is concerned.

Even if Late Shri B. N. Soi has filed his return, it would not help assessee's case. Even at the cost of repetition, it is reiterated that even if the amount is offered for tax in the hands of Late Shri B. N. Soi it would not change the character of income in assessee's hand. It has to be assessed in assessee hand.

In view of the above discussion an amount of Rs. 46,08,000 being 12 per cent share of B. N. Soi is added to the income of the assessee.

Penalty under s. 271(1)(c) is also initiated separately on this addition." 19. The CIT(A) has discussed the relevant facts and submissions made on behalf of the assessee at pp 3 to 6 of the order passed by him.

Thereafter, the CIT(A) has recorded his findings at pp. 6 to 8 of his order. It may be relevant here to reproduce the relevant extracts from the findings given by the CIT(A) : "A perusal of the above facts reveals that the immovable property at 22-Darya Ganj was acquired by Shri Ashok Soi appellant as a result of an arbitration dt. 3rd April, 1965, which, inter alia, recognised Shri B. N. Soi as the owner of all assets of Delhi branch of M/s.

Champian Neon Sign. At this stage also Shri B. N. Soi had not made any claim on 22-Darya Ganj, Delhi. Subsequently Shri Ashok Soi converted his individual property into HUF property consisting of self, wife and two sons. Shri B. N. Soi was not made a member of the said HUF. The HUF was assessed to tax subsequently and B. N. Soi was never shown as member of the said HUF. A petition under s. 171 was filed before the ITO, Distt. 4(9), claiming partition of the said property among Shri Ashok Soi, Smt. Bulbul Soi, Master Aditya Soi and Master Abhai Soi. Smt. Bulbul Soi had filed a suit before the Hon'ble Delhi High Court on behalf of Master Aditya Soi and Master Abhai Soi with a request to the Court to make them available their share of the property. Shri B. N. Soi was not the plaintiff but was made a defendant. Shri B. N. Soi had not filed any claim before the Hon'ble High Court claiming any interest in the said property. In the joint application for compromise dt. 9th October, 1990, it was clearly mentioned that "in the property 22-Darya Ganj, New Delhi equal shares be allotted to the petitioners 1, 2, 3 and defendant No. 1" i.e., Master Aditya Soi, Master Abhai Soi, Smt. Bulbul Soi and Sh. Ashok Soi. In view of these facts it can be concluded that Shri B. N. Soi had no title in the said property situated at 22-Darya Ganj the property was sold for Rs. 3,84,00,000 and Shri Ashok Soi, Smt. Bulbul Soi, Shri Aditya Soi and Shri Abhai Soi had title over 1/4th of the sale proceeds each. In other words, Shri Ashok Soi had title over Rs. 96 lakhs of sale proceeds and he can be assessed in respect of the said income only and not Rs. 1,07,22,257.

Other deductions may be allowed as per law. So far as claim of payment made to Shri B. N. Soi is concerned, it cannot be treated to be an expenditure incurred wholly and exclusively in connection with transfer of the said property. It can at best partake the character of gift by the four members of the erstwhile HUF. The AO is free to take action under GT Act. In the course of appeal it also transpired that Smt. Bulbul Soi, Shri Aditya Soi and Shri Abhai Soi have been filed any returns of income for asst. yr. 1995-96 showing income under the head capital gains. The AO is advised to take necessary action as per law. In case the AO does not have jurisdiction over other members of the erstwhile HUF necessary intimation may be passed on to the concerned AO." 20. Both the assessee and the Revenue have filed appeals before the Tribunal against the aforesaid findings given by the CIT(A).

21. Shri C. S. Aggarwal, the learned Advocate appearing on behalf of the assessee, after narrating the facts relating to the aforesaid property invited our attention to the various written submissions submitted before the CIT(A) from time to time. The copies of such written submissions have been submitted at pp. 1 to 35 of the compilation. Shri Aggarwal submitted that the assessee had received only a sum of Rs. 63,97,440 representing 16-2/3 share of the total consideration received on the sale of the said property. On a proper construction of s. 45 of the Act, Shri Aggarwal submitted, that there was absolutely no justification to levy tax on the assessee in respect of 28.273 per cent or in respect of 25 per cent share of the total consideration of Rs. 3.84 crores received as a result of transfer of the property at 22, Darya Ganj, New Delhi. The Hon'ble High Court of Delhi in Suit No. 180/1980 vide order dt. 28th May, 1993, passed a final decree in respect of suit for partition filed by Smt. Bulbul Soi, estranged wife of the assessee on her behalf and on behalf of their two minor sons. The terms of settlement agreed between the parties to the said suit was in the nature of family settlement or family arrangement.

In the alternative and without prejudice, it was submitted that even if it is held that the assessee, as a result of partition, was entitled to 25 per cent share in the property then too, firstly, there was no justification to assess the assessee by adopting share at 28-2/3 per cent and secondly the same would be in disregard of the final decree granted in Suit No. 180/1980, where the assessee's share was settled at 16-2/3 per cent. The learned counsel contended that the share of assessee's father settled at 12 per cent in the final decree granted in Suit No. 180/1980 cannot be added in his hands simply because his 12 per cent share settled by the Court was not got registered in the name of his father. The AO has himself accepted the share belonging to Mrs.

Bulbul Soi at 24-2/3, Master Aditya Soi and Shri Abhay Soi at 23-1/3 per cent share each as belonging to them, regardless of the fact that no registration was effected in their favour also. Shri Aggarwal submitted that s. 45 of the Act does not use the expression "transfer of capital assets owned by the assessee" and, as such, the concept of registered owner for the purpose of s. 45 of the Act cannot be applied.

22. Shri Aggarwal further submitted that rate of tax on capital gains in the year under consideration was a uniform rate prescribed under s.

112 of IT Act, 1961. The rate of tax was 20 per cent. Therefore, it would not make any difference if the capital gains are taxed in the hands of the respective members including in the case of assessee's father. At this stage, the Bench required the learned lawyer to state as to whether his father and other members have paid tax on capital gains arising on their respective shares in the sale proceeds of 3.84 crores fetched on the sale of property at 22, Darya Ganj, New Delhi.

The learned counsel contended that he cannot say anything whether his father has paid any tax on capital gains on his 12 per cent share in the sale proceeds of the said house property. At this stage, the learned Departmental Representative invited our attention towards a copy of return of income submitted by assessee's father Shri B. N. Soi for asst. yr. 1995-96. The revised statement of assessable income furnished by Mr. B. M. Soi for asst. yr. 1995-96 shows that Shri B. N.Soi did not disclose any capital gain on his 12 per cent share in the said proceeds of said house property amounting to Rs. 46,08,000. A copy of this revised statement of assessable income of Shri B. N. Soi has been submitted by the assessee at p. 134 of the compilation. Shri Aggarwal submitted that simply because his father was living with him, he cannot be required to explain as to why his father did not disclose his income from capital gains on his 12 per cent share in the sale proceeds of the said property. He had no control over activities of his father.

23. Shri Aggarwal submitted that assessee's father by virtue of interim order passed by the Hon'ble Delhi High Court in the year 1980 and also by virtue of the final decree passed in the 1993, had acquired an overriding title over the said property at 22, Darya Ganj, New Delhi.

He submitted that the AO has erred in observing that soon after filing the suit in the month of March, 1980, the plaintiffs and defendants filed a joint application containing the terms of compromise in the month of October, 1980. According to the AO, this was a device adopted by the assessee to reduce the tax liability. He contended that after filing of the suit in the month of March, 1980, various actions were taken by the parties which would be evident from the proceedings of the said suit. After the parties presented the joint application in October, 1980, the Hon'ble High Court examined the terms of the compromise and observed that it was in the interest of minors. He drew our attention towards the copy of order dt. 14th October, 1980, placed at pp. 55 to 57 of the compilation to show that the parties were permitted to enter into the said compromise after careful consideration by the Hon'ble High Court. The learned counsel submitted that the claim made by assessee's father in the said property was based on his resident status in the premises for last 52 years. This is evident from cl. 3 of the joint application 9th October, 1980, submitted before Hon'ble Delhi High Court. The preliminary decree passed by the Hon'ble High Court on 14th October, 1980, recognises such a right of Shri B. N.Soi in the said property for which it was agreed that he will be given one flat on the ground floor measuring 1,200 sq. ft. and a further sum of Rs. 3 lakhs, by way of compensation in lieu of his rights in the said property. When the final decree was passed by the Hon'ble High Court on 28th May, 1993, on the basis of another joint application submitted by the parties before the Hon'ble High Court in the year 1993, the share of all the plaintiff and defendants were modified. The share of the assessee was determined at 16-2/3 per cent and the share of his father was determined at 12 per cent. At the time when the capital asset was transferred, the assessee had only 16-2/3 per cent share. Even assuming that this was not a case of family arrangement, at the most it could be treated as a gift by the HUF of Ashok Soi in favour of Shri B. N. Soi in the year 1980 when the interim order was passed by the Hon'ble High Court. The learned counsel submitted that it is a case of partition of the joint Hindu family property by way of family arrangement. It is well settled law that even if a share is allotted to a member of the family who did not have a legal right to such share but merely had semblance of such a right, it would be a valid partition by way of the family arrangement. He relied upon the following judgments to buttress his argument that the said family arrangement was bona fide and genuine arrangement :Kale vs. Dy. Director of Consolidation & Ors. AIR 24. The learned counsel also invited our attention towards decision Addl. CIT vs. U.P. State Agro Industrial Corpn. Ltd. (1981) 127 ITR 97 (All); CIT vs. Poddar Cement (P) Ltd. & Ors. (1997) 226 ITR 625 (SC) and decision of Tribunal 'A' Bench Delhi dt. 13th July, 1999, in ITA No. 3741/Del/1993 to support his contention that the shares allotted to various members of the family arrangement made vide orders dt. 28th May, 1983, does not require any registration.

25. Shri Aggarwal thus strongly submitted that Shri B. N. Soi had a title over his 12 per cent share in the sale proceeds of the said house property at 22, Darya Ganj, New Delhi. The capital gains thereon cannot be added in the hands of the assessee.

26. Shri Agarwal in the alternative also contended that the amount paid to Shri B. N. Soi should be allowed as deduction under s. 48 of the IT Act, 1961. He reiterated the submissions as were made before the learned CIT(A) in support of deduction claimed under s. 48 of the Act.

The learned counsel thus strongly urged that the assessee's appeal should be allowed and the Revenue's appeal should be dismissed.

27. Smt. Preeti Jain, the learned Departmental Representative vehemently supported the order of the CIT(A). She contended that in order to decide the issue as to whether Shri B. N. Soi had an overriding title over 12 per cent share in the said house property at 22, Darya Ganj, New Delhi, the following three aspects require examination in the light of facts, material and evidence existing on records : (a) Whether Shri B. N. Soi had any legal enforceable right, title or claim over the said property (b) Whether Shri B. N. Soi ever staked such a claim against the assessee (c) Whether there is any basis for determination of 12 per cent share in favour of Shri B. N. Soi 28. She submitted that Shri B. N. Soi had no antecedents legally enforceable right, title or claim over the said property. This property was an individual property belonging to Shri Ashok Soi as a result of an award dt. 3rd April, 1965, which became the rule of the Court on 17th April, 1965. A perusal of the said award clearly shows that Shri Ashok Soi (assessee) alone was and is the sole owner of entire Kothi No. 22-D, Darya Ganj, New Delhi, as well as the land adjacent thereto.

It has further been clearly stated in the said award (p. 174 of P.B.) that Shri Brij Nath Soi or any other person had or would have no right, title or interest in this property. This property was thrown by Shri Ashok Soi into HUF consisting of himself, his wife and two sons. The assessee's father Shri B. N. Soi was not a member of the said HUF. The declaration by which the said property was converted into HUF property clearly specifies the names of the members of the said HUF as consisting of Shri Ashok Soi, his wife and two sons only. It is further evident from the sale deed of the said property that some plots of land out of the said property were sold by Shri Ashok Soi in the year 1970.

Even at that time, the assessee did not give any part of the sale proceed to his father. If his father had any right or title over the said property by virtue of his residence for 52 years in the said house, he would have got some share in the sale proceeds of those plots sold by the assessee. She invited our attention towards a decision of Hon'ble Bombay High Court in the case of CIT vs. Crawford Bayley & Co.

(1977) 106 ITR 884 (Bom) to support her contention that a legal right to have enforceable claim is the touchstone for an application of the rule of diversion of income by an overriding charge. The assessee's father had no legally enforceable right, title or claim over the said property. The assessee's wife filed a suit for partition in the month of March, 1980. Sometime thereafter a joint application was submitted by the plaintiffs and defendants in Delhi High Court on 9th October, 1980, and a preliminary decree thereon passed on 14th October, 1980.

The Court's decree is being used for showing that Shri B. N. Soi had a overriding title. This preliminary decree is based on the joint application submitted by the plaintiff and defendants in the said suit for partition. It is a compromise decree. The settlement between the plaintiff and the defendants does not only relate to the properties but it relates to all their marital relations also. The Hon'ble High Court was not adjudicating on the issue of any legal right or title of Shri B. N. Soi in the said property. The Hon'ble Court has not held that Shri B. N. Soi had any antecedent right in the property. The Court did not go into the merits, acceptability and the validity of the title of Shri B. N. Soi over the said property. The Court accepted the terms of compromise contained in the joint application submitted by the plaintiffs and defendants. This order of the Court passed in the year 1980, therefore, did not create any overriding title in favour of Shri B. N. Soi over the said property. She further pointed out that the assessee's counsel had argued before the lower authorities as well as before the Tribunal that since the assessee had to give the vacant possession of the property to its buyers, he had to pay Rs. 46 lakhs to Shri B. N. Soi for handing over vacant possession to the buyers.

29. Smt. Jain pointed out that this property was occupied by two other tenants also. A perusal of the sale deed at p. 83 of the paper book, inter alia, shows that Shri Balraj Sahni was a tenant on monthly rent of Rs. 350 and another portion of the said property was in the possession of Shri Shashi Tandon on a monthly rent of Rs. 500. The buyer agreed to adornment of their tenancy in favour of the vendee and only symbolic possession of the aforesaid portion of the said tenanted premises was handed over to the vendee. No specific portion was under occupation of Shri B. N. Soi and he was not a tenant of any portion of the said property. He was simply residing with his son in the said house, in which he had no legal right or title whatsoever. Likewise, the Court's final decree passed in the year 1993 was also passed on a joint application submitted by the plaintiff and defendants in the said suit in the year 1993 containing the terms of settlement/compromise mutually decided between the plaintiff and the defendants. This also does not establish any antecedent right, title of Shri B. N. Soi in the said property. She pointed out that the assessee has not produced copy of order under s. 171 by which it is claimed that the said partition in terms of compromise decree was accepted by the AO pursuant to the order of the AAC setting aside the earlier order under s. 171 for asst. yr.

1981-82 rejecting the claim of partition under s. 171. She also pointed out that the joint application and the Court's decree dt. 14th October, 1980, in cl. 1 clearly shows that the property at 22, Darya Ganj, New Delhi, has been allotted in equal shares to Smt. Bulbul Soi, her two minor sons and Shri Ashok Soi. Shri B. N. Soi was to be paid compensation by way of one flat on the ground floor measuring 1,200 sq.

ft. and Rs. 3 lakhs on the completion and occupation of the multi-storeyed building proposed to be constructed thereon by M/s.

Ansals. It is not known how it is contended that share of Shri B. N.Soi was determined at 20 per cent in the said preliminary decree dt.

14th October, 1980. Even if it is assumed that the compensation decided to be paid to Shri B. N. Soi comes to approximately 20 per cent as per the said decree passed in the year 1980, it is beyond comprehension as to how that 20 per cent right was reduced to only 12 per cent in the final decree passed in the year 1993. It is further noteworthy to state that the 12 per cent share allotted to Shri B. N. Soi in the final decree passed in the year 1993 came mainly out of the share of the assessee, Shri Ashok Soi. On partition of the HUF property which consisted of 4 members, the share of the assessee comes to 25 per cent as against which his share was determined at 16-2/3 per cent. The share of Shri Ashok Soi was thus substantially reduced while giving 12 per cent share to Shri B. N. Soi, The estranged daughter-in-law, Smt.

Bulbul Soi and her 2 sons have virtually lost very negligible share as their shares have been retained at 24-2/3; 23/1/3 per cent and 23-1/3 per cent, respectively. It will also be pertinent to submit that even after acceptance of the so-called partition under s. 171, the separated members have shown in their wealth-tax returns their share at 1/4th in the said property. She drew our attention to the copy of the wealth-tax return filed by Shri Abhay Soi in which he has declared 1/4th share in house property at 22, Darya Ganj, New Delhi, under s. 7(2) of WT Act at Rs. 1,60,500. Likewise, Shri Ashok Soi in his IT return for asst. yr.

1982-83 onwards has also shown 1/4th share in the rateable value of self-occupied property at 22, Darya Ganj, New Delhi. The contention of the learned counsel that 1/4th of the rights in the property has been shown after excluding 20 per cent share of Shri B. N. Soi is not borne out from the copies of the IT and WT returns of Shri Ashok Soi for asst. yr. 1982-83. 1/4th of the total rateable value of property at 22, Darya Ganj, New Delhi, without deducting any value of share of B. N.Soi has been disclosed in the WT and IT returns of Shri Ashok Soi. She further pointed out that Shri B. N. Soi has not shown any capital gains liable to tax in his return of income for asst. yr. 1995-96. Our attention was drawn to the copy of the revised statement of assessable income of Shri B. N. Soi for asst. yr. 1995-96 to support this contention. The learned Departmental Representative contended that the learned counsel has simply submitted that Shri B. N. Soi was residing with him but he had no control over the financial matters of his father and he is not responsible for non disclosure of capital gains on share of Shri B. N. Soi in the sale proceeds of the house property amounting to Rs. 46 lakhs in his return of income for asst. yr. 1995-96. This clearly shows that Shri B. N. Soi by not disclosing his share of capital gain in the return of income for asst. yr. 1995-96 did not claim any kind of right, title or claim over the said property. The amount of Rs. 46 lakhs paid to Shri B. N. Soi out of the total sale proceeds of the house property of Rs. 3.84 crores was thus an application of income and the same does not constitute any diversion of income at source by any overriding title. No charge was created on the said property in respect of his 12 per cent share in the sale proceeds of the house property. She relied upon the judgments of the Hon'ble Supreme Court in K. A. Ramachar & Anr. vs. CIT (supra) and V.Venugopala Varma Rajah vs. Commr. of Agrl. IT (supra), which have been referred to in the assessment order.

30. The learned Departmental Representative further submitted that Shri B. N. Soi never staked his claim for any title or rights over the said property. He was simply made a defendant in the suit for partition filed by assessee's wife. The assessee's mother was also made one of the defendants and no share was given to her. The so-called right of possession of Shri B. N. Soi and his wife stands on the same footing.

Shri B. N. Soi never made any claim against the assessee's share. The assessee agreed to reduction of his share from 1/4th to 16-2/3 per cent merely for reduction and avoidance of tax liability. This was a collusive act between the assessee and his father. The CIT(A) has, therefore, rightly held the assessee liable to pay capital gains on his 25 per cent share in the said property to which the assessee was legally entitled on partition of the property in question.

31. The learned Departmental Representative further submitted that there is no basis for determination of the share of Shri B. N. Soi at 12 per cent in the said property. She further contended that at the time of obtaining clearance certificate under s. 269C of IT Act, 1961, no mention of any share of Shri B. N. Soi was made. Shri B. N. Soi has not obtained any clearance certificate in respect of acquisition proceedings under s. 269C of the Act. The assessee has also not filed copies of wealth-tax returns of Shri B. N. Soi from asst. yr. 1982-83 onwards which also show that Shri B. N. Soi has not shown his 20 per cent share in the said property even after passing of the preliminary decree by the Court in the year 1980. She relied upon judgments of Hon'ble Madras High Court in CIT vs. Krishnaveni Ammal (1986) 158 ITR 826 (Mad) and contended that the non-furnishing of the copies of the wealth-tax returns of Shri B. N. Soi, non-production of final order under s. 171 and non-disclosure of income by Shri B. N. Soi on his share in the capital gains in asst. yr. 1995-96 clearly shows that the assessee in collusion with his father has resorted to a device to avoid payment of taxation on a substantial amount of Rs. 46 lakhs given out of sale proceeds of the house of Shri B. N. Soi. Such evidence which is in the possession of the assessee and which has not been produced by them should lead to an adverse inference against the assessee by virtue of the judgment of Hon'ble Madras High Court.

32. The learned Departmental Representative further explained the facts of various cases relied upon by the learned counsel for the assessee on the issue of diversion of income/application of income are clearly distinguishable. This is a clear case of application of income and not a case of diversion of income at source by an overriding title. She also submitted that the assessee is not entitled to deduction under s.

48 of the Act and the facts of all the cases relied upon by the learned counsel in this regard are clearly distinguishable on facts. The learned Departmental Representative thus strongly supported the order of the CIT(A).

33. As regards the Revenue's appeal, the learned Departmental Representative submitted that she would simply rely on the reasons mentioned in the assessment order.

34. In the rejoinder, Shri Aggarwal, the learned Advocate reiterated the arguments advanced earlier. He contended that the written submissions submitted before the CIT(A) fully explain as to how the share of Shri B. N. Soi was taken at 20 per cent in view of terms of compromise decree passed in the year 1980 and how it was subsequently reduced to 12 per cent in the final decree passed in the year 1993.

Copies of all the written submissions submitted before the CIT(A) were sent to the AO for his comments. There has been no rebuttal by the AO.He also once again invited our attention towards written submissions dt. 18th July, 1998, submitted before the CIT(A). In para 19, it was specifically stated that the assessee does not have the order of assessment for asst. yr. 1980-81 and a prayer was made that the original records of the Revenue may be summoned for verifying the facts from assessment order for asst. yr. 1980-81 of the HUF and the fact of partition having been accepted under s. 171 of the Act. The non-summoning of the original assessment records or non-availability of the order under s. 171 cannot lead to any adverse inference against the assessee. He further pointed out that the copy of the sale deed executed by the parties also clearly recognises the right of Shri B. N.Soi in the preamble of sale deed itself. The sale deed also clearly shows that a payment of Rs. 43,68,000 was directly made by the buyer to Shri B. N. Soi vide D.D. No. 138170, dt. 26th May, 1994, and a further sum of Rs. 1,20,000 was paid in cash to Shri B. N. Soi. The learned counsel once again urged that the assessee's appeal should be allowed and the Revenue's appeal should be dismissed.

35. We have carefully considered the submissions made by the learned representatives of the parties and have perused the orders of the learned Departmental authorities. We have also gone through the various documents submitted in the compilation to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of both sides.

36. The learned counsel appearing on behalf of the assessee submitted that the preliminary decree passed on 14th October, 1980, and the final decree passed on 28th May, 1993, read along with joint applications submitted by the plaintiffs and defendants in the suit for partition clearly shows that at the time when the property at 22, Darya Ganj, New Delhi, was sold, the assessee had only 16-2/3 per cent share in the said property. The share of 12 per cent allotted to assessee's father Shri B. N. Soi does not belong to the assessee. The total partition so made between the members of the HUF of Shri Ashok Soi through the aforesaid preliminary and final decree passed by the Hon'ble Delhi High Court in terms of the settlement agreed between the parties, was in the nature of family settlement or family arrangement. The principles of law relating to family arrangement or family settlement as enunciated in the various judgments relied upon by the learned counsel for the assessee are briefly as follows. The Hon'ble Supreme Court in Maturi Pullaich vs. Maturi Naresinhan (supra) has held that although conflict of legal claims in present or in future is generally a condition for the validity of family arrangements, it is not necessarily so. Even bona fide disputes present or possible, which may not involve legal claims would be sufficient. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement, if such an agreement is entered into bona fide and the terms thereto are fair in the circumstances of a particular case, the Courts would more readily give assent to such an agreement than to avoid it.Kale vs. Dy. Director of Consolidation & Ors. (supra) laid down important principles relating to family settlement/family arrangements. It would be worthwhile to reproduce the headnote of the said judgment : "The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family.

The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence.

The family arrangement may be even oral in which case no registration is necessary. The registration would be necessary only if the terms of the family arrangement are reduced into writing.

Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already been made either for the purpose of the record or for information of the Court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immovable properties and is, therefore, not compulsorily registrable.

The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement.

Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner then the antecedent title must be assumed and the family arrangement will be upheld and the Court will find no difficulty in giving assent to the same.

Even if bona fide disputes, present or possible which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement.

Where the family arrangement was oral and the mutation petition was merely filed before the Court of the Asstt. CIT for information and for mutation in pursuance of the compromise.

Held, that the compromise was not required to be registered. Even if the family arrangement was not registered it could be used for a collateral purposes, namely, for the purpose of showing the nature and character of possession of the parties in pursuance of the family settlement. Special Appeal No. 640 of 1965, Dt. 17th May, 1966 (All), reversed. AIR 1973 All 382 approved.

Held further (Sarkaria J. reserving opinion) that assuming, that the said document was compulsorily registrable the family arrangement being binding on the parties to it would operate as an estoppel by preventing the parties after having taken advantage under the arrangement to resile from the same or try to revoke it." 38. The various other judgments cited by the learned counsel on the principles relating to family settlement/family arrangement have referred to the aforesaid judgments and the principles laid down are almost on similar lines and, therefore, it is considered unnecessary to reproduce any extract from the various other judgments on the aforesaid point, cited by the learned counsel.

39. The learned counsel also cited various judgments on the issue as to under what circumstances the income can be said to have diverted at source by an overriding title. The gist of such decisions have been given by the assessee in the written submissions dt. 17th October, 1997, submitted to the Dy. CIT, a copy whereof has been placed at pp.

36 to 39 of the compilation. The gist of decisions given in the said written submissions are reproduced hereunder : (i) CIT vs. Crowfard Bayley & Co. (supra)/Smt. Savita Mohan Nagpal vs. CIT (1985) 154 ITR 449 (Raj) Even if an overriding title creates a charge then to the extent of the charge the income of the assessee ceases to be his income and he becomes a collector of another's income because the charge-holder has a paramount right by virtue of his overriding title to recover that amount.

Where income has been diverted by an overriding title even before accrual, then ITO cannot proceed to assess the income thus diverted as income of transferor.

(iii) CIT vs. Imperial Chemical Industries (I) (P) Ltd. (1969) 74 ITR 17 (SC) An obligation to apply the income in a particular way before it is received by the assessee or before it has accrued or arisen to the assessee results in the diversion of income. The true tests for the application of the rule of diversion of income by an overriding title in whether the amount sought to be deducted in the truth never reaches the assessee as his income.

(iv) Official Trustee of West Bengal vs. CIT (1979) 116 ITR 219 (Cal) Where receipt of the amount and not receipt of income is made by a person on behalf of the other with an obligation not to treat that amount as the income of the recipient but it is meant for the person on whose account the amount is received then there would be a diversion of income by overriding charge.

Income - Diversion of by overriding title - M had a share of 25 per cent in a partnership firm constituted in 1961. In event of an outgoing partner, other partners had option to purchase his/her share with retirement of a partner and death of another partner a new partnership was formed on 1st April, 1975, providing, inter alia, that a sum representing 25 per cent of profit would be charged to P&L a/c towards rights of M who by her actions allowed herself to keep out of partnership. Whether amount so credited to account of M was an overriding charge on profit of assessee-firm and was, therefore, not assessable in assessee had-Held yes." 40. The learned Departmental Representative also relied on various judgments relating to the principles of diversion of income by overriding title/application of income. The AO has also relied upon the judgments of Hon'ble Supreme Court reported in (1961) 42 ITR 25 (SC) (supra) and (1972) 84 ITR 466 (SC) (supra). The headnote of the judgment in the case of K. A. Ramachar & Anr. vs. CIT (supra) is reproduced hereunder : "The assessee, who was a partner in a firm, executed three irrevocable deeds of settlement on 22nd September, 1947, in favour of his wife, a married daughter and a minor daughter, assigning to each of them one-fourth of his share of the profits in the firm (but not losses) payable to him during a period of 8 years from the date of the settlement to be enjoyed by them absolutely and exclusively.

They were also entitled directly to receive and collect from the firm their share under the settlement. In the account books of the firm the profits due to the assessee were credited to the assessee's account and one-fourth thereof was transferred to the accounts of each of the three beneficiaries. The assessee claimed that those amounts could not be included in his total income for purposes of assessment to income-tax : Held, (i) on the facts, that the tenor of the deeds of settlement showed that the profits were first to accrue to the assessee and were then applied for payment to the beneficiaries; (ii) that under the law of partnership, it was the partner and the partner alone who was entitled to the profits. A stranger, even if he were on assignee, did not have and could not have any direct claim to the profits. By the deeds in question, the assessee merely allowed a payment to his wife and daughters to constitute a valid discharge in favour of the firm but that was paid was, in law, a portion of his income.

(iii) That the dispositions were, in law and in fact, portions of the assessee's income after it had accrued to him and tax was payable by him at the point of accrual. The amounts had, therefore, to be included in the assessee's total income. - CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC) applied, Raja Bejoy Singh Dudhuria vs. CIT (1933) 1 ITR 135 (PC) distinguished." 41. It may also be relevant to understand the principles of law laid down by the Hon'ble Supreme Court in the case of CIT vs. Sitaldas Tirathdas (supra). In the case of CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC) it was held as under : "The true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income.

Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied." 42. In the case of V. Venugopala Varma Rajah vs. Commr. of Agrl. IT (supra), the Hon'ble Supreme Court explained the decision on the aforesaid point of law relating to diversion of income by overriding title laid down in the earlier judgments in the case of Raja Bejoy Singh vs. CIT (1933) 1 ITR 135 (PC) and CIT vs. Sitaldas Tirathdas (supra). It also considered the law laid down by the Hon'ble Supreme Court in the case of P. C. Mullick vs. CIT (1938) 6 ITR 206 (SC) and CIT vs. Rati Lal Natha Lal (1954) 25 ITR 426 (SC). In order to appreciate the thin but subtle distinction between the diversion of income by an overriding title and application of income, it may be imperative to reproduce the findings given by the Hon'ble Supreme Court at pp. 472 to 475 : "At first sight some of the decided cases on the subject appear to speak in conflicting voices. But, on a careful examination, it is possible to find out the dividing line. The earliest decision on the subject is that of the Judicial Committee in Raja Bejoy Singh Dudhuria vs. CIT. The assessee therein succeeded to the family ancestral estate on the death of his father. Subsequently, his step-mother brought a suit for maintenance against him in which a consent decree was made directing the assessee to make a monthly payment of a fixed sum of his step-mother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee. While computing his income, the assessee claimed that the amounts paid by him to the step-mother under the decree should be excluded. That contention was not accepted by the authorities under the Act as well as by the High Court but the Judicial Committee, reversing their decision, case to the conclusion that though the assessee's liability under the decree did not fall within any of the exemptions or allowances conceded in ss. 7 to 12 of the Indian IT Act, yet the sums paid by the assessee to his step-mother were not "income" of the assessee at all the decree of the Court by charging the appellant's whole resources with a specific payment to his step-mother had to that extent diverted his income from him and had directed it to his step-mother to that extent what he received for her was not his income it was not a case of the application by the appellant of part of his income in a particular way it was rather the allocation of a sum out of his revenue before it became income in his hands. This decision at the first sight appears to lend support to the assessee's contention but in understanding the ratio of the decision, we must bear in mind the fact that in that case the Advocate-General had abandoned before the High Court the contention that the assessee and his step-mother were members of undivided family and accepted the position that the appellant was liable to be assessed as an individual and in no other manner. In view of this concession, the payment that had to be made to the step-mother of the assessee became a charge on the estate even before the estate devolved on him, therefore, what the assessee got was the income of the property minus what he had to pay to his step-mother.

The above conclusion of ours receives support from a later decision of the Judicial Committee in P. C. Mullick vs. CIT. Therein a testator had by his will appointed the appellant his executors and had directed them to pay Rs. 10,000 out of the income of his property on the occasion of his addya sradh for expenses in connection therewith to the person who was entitled to perform the sradh. He had also directed them to pay out of the income of his property the costs of taking out probate of his will. During the year of account the executors had paid Rs. 5,537 for expenses in connection with the addya sradh and a sum of Rs. 1,25,000 for probate duty. The question arose whether those payments were deductible in computing the chargeable income. The Judicial Committee held, affirming the judgment of the Calcutta High Court, that the payments made for the sradh expenses and the costs of probate could not be excluded in computing the chargeable income.

Those were payments made out of the income of the estate coming to the hands of the appellants as executors and in pursuance of obligation imposed by the testator. Their Lordships were of opinion that it was not a case in which a portion of the income was by an overriding title diverted from the person who would otherwise have received it as in Bejoy Singh Dudhuria's case, but a case in which the executors having received the whole income apply a portion of it in a particular way. From this judgment of the Judicial Committee, it is clear that the true test is that if the income in question is an income of the assessee, the application of the same being not relevant for determining its assessability, it is assessable in his hands but if it is not his income then it cannot form part of his assessable income.

The scope s. 16(1)(c) of the Indian IT Act, 1922, came up for consideration by this Court in CIT vs. Sitaldas Tirathdas. Therein, the assessee, Sitaldas Tirathdas of Bombay had many sources of income, chief among them being property, stocks and shares, bank deposits and share in a firm known as M/s. Sitaldas Tirathdas. He followed the financial year as his accounting year. For the asst.

yrs. 1953-54 and 1954-55, his total income was, respectively, computed at Rs. 30,375 and Rs. 55,160. This computation was not disputed by him but he sought to deduct Rs. 1,350 in the first assessment year and a sum of Rs. 18,000 in the second assessment year on the ground that under a decree, he was required to pay these sums as maintenance to his wife and his children. In support of his claim, he relied on the decision of the Judicial Committee in Bejoy Singh Dudhuria's case. This Court rejected that contention observing (at pp. 374 and 375 of the report) : "In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income, obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is the case in which the income never reaches the assessee, who even if he were to collect it, does do, not as part of his income, but for an on behalf of the person to whom it is payable." Counsel for the assessee tried to lay stress on the observation of this Court that the income should reach the hands of the assessee before it can be considered as his income. According to him in the case before us, the income in dispute never reached the hands of the assessee. We are unable to accept this contention as correct. The income is the income of the family. It reached the hands of the family as soon as it reached the hands of any of the members of the family who were entitled to receive it on behalf of the family. The members of the family received that income on behalf of the family, and applied the same in discharge of an obligation of the family.

When this Court spoke of the income reaching the hands of the assessee, it did not refer to any physical act. It was dealing with a legal concept - a receipt in law. Viewed that way, it is quite clear that the income with which we are concerned in this case was received by the family." 43. We may now examine the facts of the present case in the light of the principles of law laid down by the Hon'ble Courts with regard to family arrangement/family settlement as well as with regard to diversion of income by an overriding title/application of income. It is an undisputed fact that Shri Ashok Soi was the sole owner of the property in question, as is evident from the arbitration award dt. 3rd April, 1965, which later became rule of Court vide order, dt. 17th April, 1965. It may be necessary hereto reproduce the relevant extracts from the said award (pp 173 and 174 of P.B.) : "Shri Ashok Soi alone was and is the sole owner of the entire Kothi No. 22, Darya Ganj, Delhi, on 1,830 sq. yds. as well as the lands measuring 1,917 sq. yds. all comprised in and being portion of said Kothi No. 22. The said property is shown in the plan attached to this award and that in spite of the consent decree dt. 18th May, 1960, of the Calcutta High Court in Suit No. 1623 of 1959 (Smt.

Lachhmi Devi vs. Jagmohan Nath Soi & Anr.) neither Shrimati Lachhmi Devi, nor Shri Kanwal Kumar Soi, Viney Kumar Soi, Brij Mohan Nath Soi or any one else had or would have any right, title or interest in this property." 44. Subsequently this property was converted by Shri Ashok Soi by a declaration dt. 31st March, 1969, as property of his HUF styled as Ashok Soi HUF consisting of himself, his wife and two minor sons, as members of the said HUF. Shri B. N. Soi, assessee's father was not a member of the said HUF.45. The joint application submitted by the plaintiffs and defendants before the Hon'ble Delhi High Court in suit for partition on 9th October, 1980, which is part of the preliminary decree passed by the Hon'ble High Court on 14th October, 1980, contains a very first term of settlement as under : 1. In the property 22-Darya Ganj, New Delhi, equal shares be allotted to the petitioners 1, 2, 3 and defendant No. 1." 46. This clause clearly shows that the aforesaid property was allotted in equal shares to the assessee, his wife and two minor sons. No specific share was allotted to assessee's father in the said property.

It was agreed between the parties to pay some compensation to assessee's father Shri B. N. Soi (Defendant No. 2 in the said suit for partition) vide cl. 3 of the terms of settlement, which is also reproduced hereunder (p. 46 of the P.B.) : "3. Defendant No. 2 having preferred a claim on the property of the HUF and by virtue of his resident status in premises for the last 52 years has agreed to a compensation (subject to all taxes payable in respect thereof of one flat on the ground floor measuring 1,200 sq.

ft. In addition thereto, the defendant No. 2 shall be given on the completion and occupation of the building a sum of Rs. 3 lakhs in cash. It is agreed by the said defendant No. 2 that out of the said sum of Rs. 3 lakhs all taxes that may become payable by the plaintiffs and defendant No. 1 on the sale of any floor space in the building undertaken to raise the cash to make him this payment shall be payable by defendant No. 2. Therefore, this sum of Rs. 3 lakhs after deducting therefrom all tax liabilities by way of capital gains, etc., if any payable by the plaintiffs and the defendant No. 1 shall be paid by defendant No. 2." 47. The aforesaid clause indicates that it was inter alia, agreed between the parties that all tax liabilities by way of capital gains, etc., if any, payable by the plaintiffs (Smt. Bulbul Soi, assessee's wife, Shri Abhai Soi, son and Aditya Soi, son) and the liability of Defendant No. 1, namely, the assessee, shall be paid by defendant No. 2 (Shri B. N. Soi, assessee's father) out of the sum of Rs. 3 lakhs receivable as compensation in addition to one flat.

48. It may also be necessary to reproduce cl. 18 and cl. 21 of the terms of said settlement contained in preliminary decree dt. 14th October, 1980 (page 53 of the paper book) : "18. that after the vacant possession of the premises is handed over to Ansal Properties, plaintiffs 1, 2 and 3 and defendants 1 and 2 would bear wealth-tax liabilities on the declared value of the property in equal shares. The Income-tax payable on the interest accruing from their individual fixed deposits would also be borne by each party individually. All penalties and other charges and fees payable to DDA, L&D, Corporation shall be paid equally by the plaintiffs and defendants 1 and 2.

21. Defendants 1 and 2 shall immediately withdraw all suits filed by them against the plaintiff No. 3 and her mother, further, except as stated herein neither party has any claim on the other for any monies or other assets whatsoever. The assets lying in bank locker No. 275 with the Delhi Safe Deposit, Janpath, and in the other lockers belong to the plaintiff No. 3 and defendants have no claim thereto." 49. The plaintiffs and defendants filed another joint application in the year 1993 which is marked as IA No. 4898 of 1993. In this application the parties prayed before Hon'ble Delhi High Court that the revised terms of settlement made between the plaintiffs and defendants may be placed on record and permission to sell the property No. 22, Darya Ganj, New Delhi, be granted. In the said final decree, it was mutually agreed between the plaintiffs and defendants that the sale consideration of the said property No. 22, Darya Ganj, New Delhi, shall be divided between the parties as mentioned in cl. 5 of the said compromise application. It was also clarified that subject to the terms stated in joint application of 1993, the parties shall be bound by all other terms and conditions of the settlement and preliminary decree dt.

14th October, 1980. It is, therefore, clear that only material change so far as compensation payable to Shri B. N. Soi is concerned, was that he was earlier entitled to a flat on ground floor measuring 1,200 sq.

ft. and Rs. 3 lakhs in cash on completion of the construction of proposed multi-storeyed building by M/s. Ansals. Since the agreement with M/s. Ansals was cancelled and permission to sell the said property was sought from the said Court, it was provided in the final decree dt.

28th May, 1993, to inter alia, give 12 per cent share out of the sale consideration of the said property to Shri B. N. Soi. The remaining terms of the preliminary decree dt. 14th October, 1980, so far as those were contained in cls. 1 and 3 of preliminary decree dt. 14th October, 1980, remained unaltered and those were modified only to the extent of specification of the manner and ratio in which the sale consideration was to be divided.

50. The house property No. 22, Daryaganj, New Delhi, was sold vide registered sale deed dt. 30th May, 1994, for a total consideration of Rs. 3,84,00,000. In the said sale deed, Shri Ashok Soi his two sons and his wife have been shown as vendors. Shri B. N. Soi assessee's father, has not been described as one of the vendors but he has been made only a confirming party. This property was sold to M/s. P. Tax Builders (P) Ltd. The sale consideration was paid in the manner indicated in the sale deed to all the 4 vendors and to the confirming party. The amount of sale proceeds divided between the vendors and confirming party was as under :(1.) Ashok Soi 16-2/3 per cent 63,97,440(2.) Bulbul Soi 24-2/3 per cent 94,69,440(3.) Aditya Soi 23-1/3 per cent 89,62,560(4.) Abhai Soi 23-1/3 per cent 89,62,560(5.) B. N. Soi 12 per cent 46,08,000 51. It may also be relevant here to briefly state the circumstances which led to institution of the suit for partition by Smt. Bulbul Soi and her sons against her husband (assessee) and his parents. In the said suit, it has been mentioned that the relationship between the assessee and the assessee's wife got strained soon after their marriage. Smt. Bulbul Soi in the said suit has levelled various charges against her husband and his parents relating to the ill-treatment given by them to her and also about their intention to deprive her and her children of a substantial part of the asset belonging to the HUF by Shri Ashok Soi. In para No. 19 of the said suit, it has been stated that the defendants along with the sister of her husband have been pressurising the assessee's wife for signing a paper to give a substantial part of the HUF assets to Sri B. N. Soi (assessee's father). The objection of Smt. Bulbul Soi to give away anything from the estate of the children/HUF to the Defendant No. 2 (assessee's father) resulted in various kind of harassment including abusing, insulting and pressurising Smt. Bulbul Soi to give a divorce and make a gift of substantial part of HUF properties to assessee's father. It has also been mentioned in para 22 of the said suit that her husband has been advancing large sums of money out of the HUF fund to the assessee's father. In para 24 of the said suit, it has further been stated that the assessee in consultation with his parents is threatening to defeat the interest and claims of the plaintiffs in the HUF properties by creating in favour of the assessee's father a lease/tenancy rights, in respect of the property at 22, Darya Ganj, New Delhi. The preliminary decree dt. 14th October, 1980, vide cl. 24 of the comprise application dt. 9th October, 1980, which is a part of the preliminary decree shows that assessee and his father agreed to withdraw all suits filed by them against Smt. Bulbul Soi and her mother.

52. These facts clearly shows that there was a dispute between the assessee's wife and her husband along with her parent-in-law. However, there was no dispute between the assessee and his father. The claim on the property of HUF at 22, Darya Ganj, New Delhi, made by defendant No.2 by virtue of his resident status in the premises for last 52 years made in the said suit was against the plaintiffs and it was not against defendant No. 1 i.e., the assessee. There is no material on record to indicate that the assessee's father had any differences or dispute nor there was any possibility of any disputes between the assessee and his father, Shri B. N. Soi. Shri B. N. Soi never made a claim against the assessee in relation to the said property. The property at 22, Darya Ganj, New Delhi, after it was thrown into the HUF belongs to Shri Ashok Soi, HUF of which there were only 4 members, namely, assessee, his wife and two sons. On a partition of the said HUF property, all the four members had equal share i.e., 1/4th each. The assessee's father was not a member of the said HUF. Like assessee's father, his mother, Smt. Usha Soi w/o Shri B. N. Soi was also residing in the same house along with the assessee for last number of years. She was also made one of the defendants in the said suit for partition. However, no share in the sale proceeds of the house property was claimed or given to assessee's mother.Kale vs. Dy. Director of Consolidation (supra) has clearly laid down that the members who may be parties to the family arrangement must have some antecedents title, claim or interest or even a possible claim in the disputed property. It has further been held that the family settlement must be bona fide so as to resolve the family dispute. In the present case, Shri Ashok Soi was legally entitled to 25 per cent share on partition of the HUF properties. But he, in fact, voluntarily agreed vide compromise applications submitted in the Court to receive only 16-2/3 per cent share as against his legally due share of 25 per cent. Thus, out of 12 per cent allotted to assessee's father, Shri B. N. Soi in the sale proceeds of the house vide final compromise decree, a major share to the extent of 8-1/3 per cent came out of the share belonging to Shri Ashok Soi. Since there was no dispute between the assessee and his father, it cannot be said that share to the extent of 8-1/3 per cent in the said property was foregone by the assessee in favour of his father with a view to resolve any family dispute. Therefore, it cannot be said that the share of 12 per cent allotted to Shri B. N. Soi in the sale proceeds was a bona fide action on the part of the assessee and his father and that cannot be regarded as a bona fide family arrangement made to resolve the family dispute. Sri B. N. Soi had no legal antecedent title, claim or interest in the disputed property. On the other hand, the award dt. 3rd April, 1965, clearly shows that Shri B.N. Soi neither has nor would have any title, claim or interest whatsoever in the said property. In view of such a specific clause in the award dt. 3rd April, 1965, it is clear that the possibility of Shri B. N. Soi having any semblance of any legal right over the said property does not arise. This fact is further supported by the fact that when the said house property was converted into HUF property by Shri Ashok Soi it was clearly mentioned that the said HUF consists of only four members, namely, assessee, his wife and two sons. The assessee's father was not even a member of the said HUF. The preliminary decree dt. 14th October, 1980, in cl. 1 also clearly shows that the property at 22, Darya Ganj, New Delhi, was allotted in equal shares to the assessee, his wife and two sons. No charge on the said property was created in favour of the assessee's father. Only some compensation was agreed to be paid by way of allotment of one flat and Rs. 3 lakhs in the said preliminary decree without creating any charge over the disputed house property and without assigning any specific share in the title/ownership of the said house property. Therefore, the principles of law as held by the Hon'ble Supreme Court in the case of CIT vs. Sitaldas Tirathdass (supra) which has been relied upon in the decision of the Hon'ble Supreme Court in the case of K. A. Ramachar & Anr. vs. CIT (supra) relied upon by the ITO in the assessment order are applicable on the facts and circumstances of the present case. In that case also, the assessee sought to deduct amounts paid by him as maintenance to his wife and children under a decree of Court passed by consent in a suit. The Hon'ble Supreme Court held that the case is not that of diversion of income by an overriding title but it is a case of application of a portion of the income. In the present case, the allotment of 12 per cent share out of the sale proceed of the house property to Shri B. N. Soi was also a case of application of a portion of the sale proceeds of the house by virtue of a compromise decree passed in the suit for partition in accordance with the terms agreed between the plaintiffs and defendants. Shri Ashok Soi has surrendered his share to the extent of 8-1/3 per cent in the said house property out of his 25 per cent receivable on the partition of the HUF property, without there being any antecedent legal rights, title or claim of Shri B. N. Soi and without there being any dispute between the assessee and his father and without any claim having been staked by Shri B. N. Soi against the assessee in respect of the disputed property. Such renunciation by the assessee of his share in the HUF property to the extent of 8-1/3 per cent (difference between the 25 per cent legally due share receivable on partition - 16-2/3 per cent actually allotted in final decree dt. 28th May, 1993) cannot, therefore, be treated as bona fide one. No charge over the property was created in favour of Shri B. N. Soi. Only 12 per cent share in the sale proceeds was given to him on account of such a voluntary renunciation of assessee's rights over the said properly.

54. It is true that assessee's father and mother were living in the said house property at 22, Darya Ganj, New Delhi, for the last several years. The fact that the assessee's parents were residing with him in house property belonging to his HUF by itself cannot create any tenancy rights, nor it can create any kind of title, right or interest in the said property. Therefore, the amount of Rs. 46,08,000 given out of the sale proceeds to Shri B. N. Soi by no stretch of imagination can be treated as a payment made for getting the premises vacated from Shri B.N. Soi. The alternative contention of the learned counsel for the assessee that the payment made to his father Shri B. N. Soi should be allowed as a deduction under s. 48 of IT Act, 1961, cannot also be accepted. The assessee had relied upon various cases to support such a claim for grant of deduction under s. 48 of IT Act, 1961. He placed reliance on judgment in CIT vs. Shakuntala Rajeshwar (1986) 160 ITR 840 (Del), (1984) 150 ITR 80 (Mad) (supra) and 26 ITD 17 (sic). The facts of all the those cases are clearly distinguishable with the facts of the assessee's case. In all those cases, the payments were made to tenants having tenancy rights over the property in question. It is well known that the tenant of premises covered by the provisions of Rent Control Act, is entitled to various safeguards under the provisions of Rent Control Act. In the present case, the assessee's father had no such tenancy rights nor any kind of right or title was enjoyed by him over the said property. Like Shri B. N. Soi, his wife Smt. Usha Soi was also residing in the same house for last number of years. No amount has been paid to Smt. Usha Soi. The deduction claimed by the assessee under s. 48 of the Act is also, therefore, not allowable.

55. We may also now refer to the facts relating to recognition of partition by the AO under s. 171 of IT Act, 1961. The learned counsel of the assessee in his letter dt. 3rd September, 1998, submitted before the CIT (copy at page 33 of the P.B.), inter alia, submitted that the order under s. 171 passed subsequent to the order of the AAC setting aside the earlier order under s. 171, was not made available to the assessee though income was assessed on substantive basis in the hands of the various members of the HUF individually after its partition. The assessee, therefore, expressed his inability to supply the copy of the order passed under s. 171 of the Act in which the claim for partition is said to have been finally accepted. The assessee, therefore, requested the CIT to summon the records of the HUF. The CIT(A) on p. 7 of his order has observed that "as per record, no separate order under s. 171 is available nor any order is available with the assessee".

However, the assessment order in the case of Shri Ashok Soi HUF for asst. yr. 1981-82 made under s. 143(3) on 26th March, 1987 (copy at pp.

129-130 of P.B.), shows that a separate order under s. 171 was passed and the assessment was reframed as per the directions of AAC. It has also been mentioned that the claim of partition of the HUF from 14th October, 1980, has been accepted. The assessee in his written submissions dt. 18th June, 1998, submitted before the CIT(A) (copy at p. 19 to 32 of P.B.) has submitted the following in para 18.4 (pp 26 and 27 of the P.B.) : "18.4 The order passed under s. 171 as has already been stated was set aside by the AAC and the order passed in pursuance thereafter is not available with the assessee and hence, it is unable to provide the same. It has already been stated that subsequent thereto each member of the family was separately assessed on his 1/4th share of income which establishes that the claim of partition was recognised and accepted. Obviously there could have been no assessment individually till the claim of partition would have been accepted." 56. The copy of IT return of Shri Ashok Soi for asst. yr. 1982-83 shows that after the partition of the HUF in asst. yr. 1981-82, the assessee disclosed 1/4th share of income from self-occupied property at 22, Darya Ganj, New Delhi. The details of such 1/4th share of his income from the said property as shown in his return of income for asst. yr.

1982-83 has already been given at p. 8 of this order. This assessee explained during the course of hearing before us that 1/4th share was shown after excluding the 20 per cent share allotted to Shri B. N. Soi in the preliminary decree dt. 14th October, 1980. The statement of assessable income of Shri Ashok Soi for asst. yr. 1982-83 does not, in any manner, indicate that 1/4th share in the income from self-occupied property at 22, Darya Ganj, New Delhi, was shown after deducting any share of Shri B. N. Soi in the annual letting value of the said property. On the other hand, it is clear that the rateable value of the said property at 22, Darya Ganj, New Delhi, was determined at total amount of Rs. 15,000. After deducting house tax of Rs. 2,633, the balance annual letting value was determined at Rs. 12,367. The 1/4th share of assessee was worked out at Rs. 3,092 from which statutory deductions of 1/2 for self-occupied property and 1/4th for repairs were claimed as deduction. It is thus clear that the assessee in his return of income for asst. yr. 1982-83 had shown his share of 1/4th in the house property at 22, Darya Ganj, New Delhi, without deducting any share of Shri B. N. Soi. In similar manner, Shri Ashok Soi had disclosed his income from the said self-occupied property at 1/4th share. Copies of the statements of his assessable income for asst. yrs.

1982-83 and 1983-84 have been submitted at pages 137 to 143 of the paper book.

57. Shri Abhai Soi 'son' of the assessee, in his wealth-tax return for asst. yr. 1992-93 had also shown value of 1/4th share in property No.22, Darya Ganj, New Delhi, SOP under s. 7(2) at Rs. 1,60,500. This return nowhere indicates that value of his 1/4th share has been determined after excluding the share of Shri B. N. Soi. Shri Aditya Soi has also filed his wealth-tax return for asst. yr. 1993-94 showing value of his 1/4th share in property No. 22, Darya Ganj, New Delhi, at Rs. 1,60,500 in similar manner as was done by Shri Abhai Soi.

58. Clause 14 of the joint application dt. 9th October, 1980, forming part of the preliminary decree dt. 14th October, 1980, shows that the plaintiffs as well as defendant No's. 1 and 2 would bear wealth-tax liabilities on the declared value of their respective shares. The assessee was required by the lower authorities to furnish details of wealth-tax return if any, filed by Shri B. N. Soi. No such details were furnished on the ground that the assessee had no control over his father's activities. He was simply residing with his father. Thus, no material has been brought on record to show that after the partition was recognised under s. 171, the assessee's father Shri B. N. Soi had paid any wealth-tax on his any share in the said property.

59. It is an undisputed fact that the entire sale proceeds of Rs. 3,84,00,000 received by sale of property at 22, Darya Ganj, New Delhi, it liable to tax as capital gains. The learned counsel during the course of hearing pointed out that there will be no loss to the Revenue if the sale proceeds are brought to tax in the hands of the respective persons who received the share in the sale proceeds of the house in terms of the final decree of the Court dt. 28th May, 1993, as the rate of tax on capital gains under s. 112 of IT Act, 1961, was a uniform rate of 20 per cent. It is very interesting to examine the facts connected with the aforesaid aspects. The AO on p. 2 of the assessment order has recorded the following facts : "The assessee also stated that all other persons who have received the sale proceeds have filed their separate return of income. The assessee filed copies of acknowledgment of filing of return for asst. yr. 1997-98 of these persons." 60. The AO has further made the following observations at p. 6 of his order : "It has been informed by the assessee that Shri B. N. Soi has filed his own return of income and has shown capital gains in his return.

In evidence thereof he has filed copy of acknowledgment for asst.

yr. 1997-98. The acknowledgment form showed that the return was filed in Ward 12(7) on behalf of late B. N. Soi by Smt. Usha Soi.

The matter was taken up with ITO Ward 12(7), who has informed that no return earlier than 1997-98 was filed. Thus apparently the sale proceed of this property to the extent it was given to Shri B. N. Soi has not been offered to tax." "In the course of appeal it also transpired that Smt. Bulbul Soi, Shri Aditya Soi and Shri Abhai Soi have not filed any returns of income for asst. yr. 1995-96 showing income under the head 'capital gains', the AO is advised to take necessary action as per law. In case the AO does not have jurisdiction over other members of the erstwhile HUF necessary intimation may be passed on to the concerned AO." 62. The assessee in the written submissions submitted before the CIT(A) vide letter dt. 7th March, 1998, has, inter alia, stated as under (p. 3 of the paper book) : "The learned Dy. CIT further noted in the impugned order that 'other person' who have also received the sale proceeds had filed their separate return of income in respect whereof and the assessee had duly filed copies of the acknowledgment of filing return of income for the asst. yr. 1997-98 of such persons." 63. Again, the assessee vide his written submissions dt. 18th July, 1998, to the CIT(A) has, inter alia, submitted as under (p. 27 of the P.B.) : "18.5 Since the HUF had been already partitioned, the assessee does not have any details in respect of the income returned and taxes paid by the members. However, the learned Dy. CIT has already stated in the order that other members of the HUF has filed the returns of income and have paid the taxes." 64. It is clear from the aforesaid facts that the assessee was trying to show that other members of the family who have received their share out of the sale proceeds of the house property, must have filed their returns of income and have paid the taxes. However, the AO took up the matter with the ITO, Ward 12(7), who informed the AO that no return earlier than return for asst. yr. 1997-98 was filed by Shri B. N. Soi.

It is, therefore, clear that Shri B. N. Soi has not paid any tax on the substantial amount of capital gains on the share from sale proceeds amounting to Rs. 46,08,000 received by him. The assessee's counsel submitted that a copy of return of income filed by Shri B. N. Soi for asst. yr. 1995-96 was supplied to him by the AO, a copy whereof has been placed at p. 134 of the paper book. This revised statement of assessable income of Shri B. N. Soi does not include any income by way of capital gains on his share of sale proceeds amounting to Rs. 46,08,000. It is clear from the aforesaid facts that tax on capital gains on the sale proceeds given to Shri B. N. Soi to the tune of Rs. 46,08,000 has escaped total tax thereon the hands of Shri B. N. Soi also. The contention of the learned counsel for the assessee that the assessee had no control over his father's activities nor he is liable for non-disclosure of such income by his father in his return of income for asst. yr. 1995-96 is indeed strange. Shri B. N. Soi had expired in March, 1996, as is evident from para 2 of assessee's letter, dt. 3rd September, 1998, sent to the CIT, a copy whereof has been placed at pp 33 and 34 of the P.B. The assessee is one of the legal heirs of his father, late Shri B. N. Soi. He cannot, therefore, plead ignorance about the fact and reasons of non-disclosure of such income on capital gains on sale proceeds of Rs. 46,08,000 in the hands of his father.

This fact also justifies the view taken by the learned CIT(A) that there was no diversion of income by overriding title in respect of share of sale proceeds given to Shri B. N. Soi.

65. The sale deed executed on 30th May, 1994, by which the house was sold for Rs. 3.84 crores shows that only four persons, namely, Shri Ashok Soi, Smt. Bulbul Soi (wife), Shri Aditya Soi (son) and Shri Abhay Soi were shown as vendors. Shri B. N. Soi was not one of the vendors but he was made only a confirming party. The four vendors have been referred to as "vendors-party No. 1" in the sale deed. Shri B. N. Soi has been separately described as "confirming party". The relevant extracts from the preamble and some clauses of the said sale deed are reproduced hereunder : "And whereas on account of certain disputes arising amongst the members of the family of Shri Ashok Soi - a suit for the partition of the said property No. 22 and other property No. 23, Darya Ganj, New Delhi, was filed in the High Court of Delhi being Suit No. 180/80 and by a decree dt. 14th October, 1980, passed by the Delhi High Court, it was declared that along with Shri Ashok Soi, his wife Mrs. Bulbul Soi and their two sons namely, Mr. Aditya Soi and Mr.

Abhey Soi were equal owners each having an equal 1/4th undivided share and interest inter alia, in the said property bearing No. 22, Darya Ganj, New Delhi, and that Shri Brij Mohan Nath - the confirming party hereto was entitled to receive a certain payment/share in/out of the property as stated in the said decree and for settlement his claims." "And whereas thus the 'vendors-party No. 1' are the absolute owner of the above-mentioned entire built-up property with its roof with freehold land underneath admeasuring about 3,085.00 sq. yds. known as No. 22, Municipal No. 4735/XI, Darya Ganj, New Delhi, and bounded as above and delineated in the plan annexed herewith." "(5) That in case the titles of the 'vendors-party No. 1' are found defective at any time hereinafter, and the aforesaid property under sale goes out from the possession of the 'vendee-party No. 2' due to any legal defects in the titles of the 'vendors-party No. 1' in that eventuality, the vendors party No. 1 shall indemnify and shall always keep the 'vendee-party No. 2', indemnified/ harmless against all losses, damages and costs, etc. thus sustained/suffered/or incurred by the 'vendee-party No. 2', from their movable and immovable property(s) etc. etc." "(7) That the "vendors-party No. 1" have already obtained the necessary income-tax certificate in Form Nos. 34-A and 37-I, under s. 230A(1) and 269 of the IT Act., 1961, from the IT Department concerned vide ITCC dt. 2nd March, 1994 and 7th March, 1994, Ward 7(1), New Delhi and for the letter Nos. 481, dt. 9th September, 1993, and 611 dt. 28th October, 1993.

(8) that the "vendors-party No. 1" have also obtained an order dt.

13th July, 1979, from the competent authority declaring that there is "No" excess vacant land under Urban Land (C&R) Act, 1976, duly signed by Shri S. K. Mehra." 66. It is clear from the aforesaid facts recorded in the sale deed that Shri B. N. Soi was not one of the vendors. He had no title over any portion of the said property. Shri B. N. Soi was also not in any manner liable to indemnify the vendees in the event of any defect in the title over the said property transferred by "vendors-party No. 1". Shri B. N.Soi did not obtain any income-tax clearance certificate in Forms 34-A and 37-I, which were obtained by the four vendors described as 'vendors-party No. 1". The provisions of sub-s. 269UC(1) of IT Act provides that notwithstanding anything contained in the Transfer of Property Act, 1882, or in any other law for the time being in force, no transfer of immovable property exceeding prescribed limits (which in the present case was Rs. 10 lakhs) shall be effected without complying with the requirements of Chapter XX-C of IT Act. In case Shri B. N. Soi would have any share in the title of the property, which is claimed at 12 per cent, he was under a legal obligation to obtain necessary clearance certificate under the said Chapter. The mere fact that the vendee directly paid 12 per cent share of sale proceeds to Shri B. N.Soi cannot create any antecedent title over 12 per cent portion of the said property. The property, after its partition, by virtue of preliminary and final decree, legally belonged to four separated members of the family having 1/4th share each. The assessee is, therefore, clearly liable to pay capital gains on his 1/4th legal share in the title over the said property. The assessee, his wife and two sons were legally entitled to receive 1/4th share of the sale proceeds, as each one of them were the legal owner of 1/4th share in the ownership of the said property. The mere fact that these four legal owners of 1/4th share each in the said property agreed that the vendee may directly pay 12 per cent of sale proceeds amounting to Rs. 46,08,000 to Shri B. N. Soi, who has no charge or legal share over the title of the property, would not amount to diversion of income by any overriding title, but it was a case of application of income (by way of payment of 12 per cent share of sale proceeds). Such a view is fully fortified by the judgments of Hon'ble Supreme Court in (1961) 42 ITR 25 (SC), 84 ITR 466 (SC) (supra) and (1961) 41 ITR 367 (SC) (supra) discussed in details in earlier part of this order.

67. In view of the aforesaid facts and discussions, we are of the considered opinion that the CIT(A) has rightly held that the assessee is liable to pay tax on capital gains on his 25 per cent share in the total sale consideration of Rs. 3,84,00,000. In other words, Shri Ashok Soi is liable to pay tax on capital gains on Rs. 96,00,000 being 1/4th share of the total sale price of Rs. 3,84,00,000. The CIT(A) has also rightly held that the assessee is not entitled to grant of any deduction under s. 48 of the IT Act, 1961, in relation to the payment made to Shri B. N. Soi. The CIT(A) has also rightly dealt with the issue relating to levy of interest under s. 234B. He has directed the AO to check his calculation of interest under s. 234B. After a deep and thoughtful consideration to the entire relevant facts, material and evidence existing on records and after a careful study of all the judgments cited by the learned representatives of the parties, we are of the view that the order passed by the CIT(A) is perfectly valid and justified. All the grounds raised by the assessee in their appeal have no merit. The assessee's appeal is, therefore, dismissed.

68. Coming to the Revenue's appeal, we have already held that the finding given by the CIT(A) that the assessee is liable to pay tax on 1/4th share of the sale proceeds i.e., on Rs. 96 lakhs being 1/4th of the total sale consideration of Rs. 3,84,00,000 is perfectly valid and justified. Therefore, we do not find any justification to interfere with the view taken by the CIT(A) in relation to the ground raised by the Revenue also. The ground of appeal raised by the Revenue, therefore, has no merit.

69. Before parting, we would like to express our feelings of appreciation for admirable representation made by the learned Departmental Representative, Smt. Preeti Jain.