Sree Visalam Chit Funds Ltd. Vs. Commissioner of Income-tax and ors. - Court Judgment

R. Jayasimha Babu, J.

1. The petitioner has sought a direction to the respondents, the Commissioner of Income-tax, the District Registrar, Pondicherry, and the Inspector-General of Registration, to register the documents of discharge or release deed, cancelling or releasing the security over the properties offered for payment of future chit instalments without insisting on the production of income-tax clearance certificate under Section 230A of the Income-tax Act, 1961.

2. The petitioner is a chit fund company. It obtains from its prized subscribers or their guarantors security, documents charging their immovable properties in favour of the petitioner, to secure the amount of the prized chits. Such documents are registered with the sub-registrar.

3. As and when the amounts payable to the petitioner are received in full, the petitioner executes discharge receipts which are also registered. The petitioner claims that Section 230A of the Income-tax Act is inapplicable to the registration of such discharge receipts.

4. It is the case of the petitioner that it acquires no right over the property when the security documents are registered and, consequently, there is no extinguishment of any right in or over any immovable property, when it registers a discharge receipt.

5. Section 100 of the Transfer of Property Act defines 'charge'. It provides that where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the, property, and all the provisions hereinbefore contained which apply to, a simple mortgage shall, so far as may be, apply to such charge.

6. Section 17 of the Registration Act sets out the documents which are cpmpulsorily registrable. Section 17(l)(b) refers to non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property. Section 17(1)(c) of the said Act refers to non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest.

7. When a charge is created over a property by a registered deed, a declaration is made of the charge over the immovable property in favour of the charge-holder. When the charge thus created in favour of the charge-holder is sought to be put an end to by a non-testamentary instrument, there is an extinction of the right of the charge-holder over the property.

8. Section 230A of the Income-tax Act in Sub-section (1) as it stood prior to April 1, 1988, provided thus :

'Notwithstanding anything contained in any other law for the time being in force, where any document required to be registered under the provisions of Clause (a) to Clause (e) of Sub-section (1) of Section 17 of the Indian Registration Act, 1908 (16 of 1908), purports to transfer, assign, limit, or extinguish the right, title or interest of any person to or in any property valued at more than fifty thousand rupees, no registering officer appointed under that Act shall register any such document, unless the Assessing Officer certifies that-

(a) such person has either paid or made satisfactory provision for payment of all existing liabilities under this Act, the Excess Profits Tax Act, 1940 (15 of 1940), the Business Profits Tax Act, 1947 (21 of 1947), the Indian Income-tax Act, 1922 (11 of 1922), the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1957 (29 of 1957), the Gift-tax Act, 1958 (18 of 1958), the Super Profits Tax Act, 1963 (14 of 1963), and the Companies (Profits) Surtax Act, 1964 (7 of 1964), or

(b) the registration of the document will not prejudicially affect the recovery of any existing liability under any of the aforesaid Acts.'

9. Section 230A overrides the provisions contained in all other enactments in respect of the matters dealt with in that Section. It makes it mandatory for the registering officer acting under the Registration Act not to register documents which are required to be registered under Clauses (a) to (e) of Sub-section (1) of Section 17 of the Registration Act, unless the certificate provided for in Section 230A of the Income-tax Act is first obtained.

10. The object of that provision is to ensure that persons who are in arrears of tax under the enactments referred to in Section 230A(1) of the Income-tax Act have made satisfactory provision for payment of their liabilities, or the Revenue is satisfied even in a case where such provision has not beenmade, that the registration of the document will not prejudicially affect the recovery of any existing liability under any of those enactments.

11. The obligation to register the document under Section 17 of the Registration Act will arise, so far as receipts evidencing the discharge of charges created under registered instruments are concerned, when such receipts are reduced to writing. Section 100 of the Transfer of Property Act no doubt does not provide that a charge can be said to be discharged only when a receipt is executed by the charge-holder, and such a receipt is registered. However if such a receipt is executed, such a receipt being in the nature of a non-testamentary instrument which declares the extinction of a charge created under a registered document, would require registration in view of Section 17(1)(c) of the Registration Act.

12. In this respect, a receipt discharging the charge is similar to a receipt evidencing discharge of a mortgage deed. The Transfer of Property Act in Section 59 makes it obligatory to register mortgages other than mortgage by deposit of title deeds. The Transfer of Property Act does not in Section 60, which deals with the right of the mortgagor to redeem provide that any acknowledgment in writing regarding the discharge, unless registered will not extinguish the mortgage. As held by the apex court in the case of Prithi Nath Singh v. Suraj Ahir : [1963]3SCR302 , a mortgage comes to an end with the payment of mortgage money. Similarly, a security given which is to be enforceable in the event a future default occurring, comes to an end when the transaction in respect of which the charge was created has been completed by the repayment of the monies for securing which, the charge was created. However, as in the case of an acknowledgment in writing regarding the extinguishment of the mortgage, so also in the case of a registered security document by which a charge is created, when a receipt is executed by the charge-holder acknowledging' that the charge has come to an end, the document would require registration.

13. The Supreme Court in the case of Raghunath v. Kedarnath, : [1969]3SCR497 , after referring to Sections 4 and 54 of the Transfer of Property Act, and Sections 17 and 49 of the Registration Act held that Section 49 of the Registration Act will apply to documents which are required to be registered under the Registration Act, as also to those required to be registered under the Transfer of Property Act, except as evidence of part performance under Section 53A of the Transfer of Property Act.

14. A mortgage as also a charge can be brought to an end without the execution, by the mortgagee or the charge-holder acknowledging the extinction of the mortgage or charge. But, if they choose to execute such acknowledgments in writing, such acknowledgments would be compulsorily registrable under Section 17(1)(a) of the Act.

15. That such documents are compulsorily registrable is placed beyond any doubt by Section 17(2)(xi) of the Registration Act. Section 17(2) sets out inClauses (i) to (xii), the documents to which Clauses (b) and (c) of Section 17(1) will not apply. Clause (xi) in Section 17(2) of the Act reads thus :

'any endorsement on a mortgage-deed acknowledging the payment of the whole or any part of the mortgage-money, and any other receipt for payment of money due under a mortgage when the receipt does not purport to extinguish the mortgage',

16. It is evident from this that an acknowledgment in writing which purports to extinguish the mortgage is compulsorily registrable. What is true for the mortgage is also true in case of a charge. Acknowledgment evidencing the extinction of the charge is registrable.

17. Learned senior counsel for the petitioner referred to several old decisions, which are not required to be referred to, as those decisions were rendered prior to the amendment of the Transfer of Property Act in the year 1929.

18. It was also the submission of learned counsel that Section 230A of the Income-tax Act would not have any application in the case of registration of acknowledgments of discharge of mortgage or charge, as there is no likelihood of any liability arising under the Income-tax Act in respect of such transaction. When a mortgage/charge is extinguished, it is due to the consideration for securing which the documents had been created having been repaid. Whether the receipt of such amount would result in liability to tax under the enactments mentioned in Section 230A(1)(a) of the Income-tax Act is a matter which would require the consideration of the officer exercising powers under Section 230A of the Income-tax Act. It cannot, therefore, be said that such documents are not meant to be covered by Section 230A of the Act. The express language used in the Section is clear. It gives overriding effect to that provision and specifically mandates that the certificate provided for therein, is an essential pre-requisite for the registration of documents which fall within the scope of Section 17(1) (a) to (e) of the Registration Act. The petitioner, therefore, is not entitled to the declaration sought. The writ petition is dismissed. No costs. Consequently, W.M. P. No. 19869 of 1994 is dismissed.