Per Shri M.C. Agarwal, JM - These are two appeals by the assessee who are similarly placed and raise identical questions. They were argued together by the same counsel and are, therefore, disposed of by this common order.
2. We have heard the learned counsel for the appellant and the learned Departmental Representative and have perused the mate- rial placed before us. The relevant facts are that the two assessees along with several others are co-owners of property No. 22, Barakhamba Road, New Delhi. The property consisted of land measuring 3850 sq. mts. which was granted to their predeces- sor Shri Kamal Narain Singh by the Government of India on perpetual lease vide deed dated 9th October, 1936. The lessee had raised a residential bungalow over the said land. The assessee M/s. Atam Prakash & Sons, HUF, had 1/6th share in the said property, The other assessee Shri Om Prakash had 1/18th share thereof.
3. The Government of India declared the area where this property was situate to be a commercial area permitting the use of the land and buildings for commercial purposes. In order that the residential property No. 22, Barakhamba Road, New Delhi could be commercially exploited, a firm of builders M/s. Skipper Sales P. Ltd. entered into an agreement to purchase this property from its several co-sharers. Separate agreements dated 24th June, 1977 were entered between the said builder on the one hand and the respective co-sharers on the other. By agreement dated 24-6-1977, the assessee M/s. Atam Prakash & Sons agreed to sell its 1/6th share in the said property for a sum of Rs. 16 lakhs. However, for certain reasons the sale could not materialise and on 6-10-1981, there were two agreements between the assessee M/s. Atam, Prakash & Sons, HUF and the said M/s. Skipper Sales P. Ltd. The first agreement provided that the agreement to sell referred to above would stand modified so as to convert the same into a collaboration agreement whereby the parties can mutually in furtherance of their objects proceed to construct the property. The agreement provided that a multistoreyed building would be erected on the said plot No. 22; Barakhamba Road, New Delhi by M/s. Skipper Sales P. Ltd. at their own cost and the assessee M/s. Atam Prakash & Sons, HUF would be given 6000 sq. ft. area and 3 garages in the said building. The agreement provided that the two parties would be equally the joint owner of the said venture with the clear understanding that the said HUF did not owe any liability or assets other than the space agreed to be provided to it on the completion of the project. The agreement mentioned that possession of the property had already been handed over to the builder (M/s. Skipper Sales P. Ltd.) on 24-8-1981. By the same agreement the owner of the property (M/s. Atam Prakash & Sons) granted an irrevocable authority to the builders for obtaining all permissions, sanctions and approvals for the development, construction and completion of the proposed commercial building on the said plot. The builders could sell portions of the proposed building to the prospective buyers.
4. In terms of the initial agreement to sell M/s. Skipper Sales P. Ltd. had paid Rs. 7,50,000 to the assessee-HUF. This amount was to continue to be retained by the assessee as security for the due performance by the builders.
5. On the same date, i.e. , 6th October, 1981, there was another agreement between the assessee and the builders whereby the assessee agreed to sell to M/s. Skipper Sales P. Ltd., 4000 sq. ft. area and 2 garages of the proposed building for a consideration of Rs. 11 lakhs. This agreement provided that out of sum of Rs. 7,50,000 paid to the assessee as security by M/s. Skipper Sales P. Ltd. a sum of Rs. 6,50,000 will be appropriated towards the consideration of Rs. 11 lakhs after the multi-storeyed building has been constructed. The balance of Rs. 1 lakh was to be refunded by the assessee to M/s. Skipper Sales P. Ltd. at the time of handing over the possession of the area allocable to the assessee out of the consideration of Rs. 11 lakhs a further sum of Rs. 4,45,000 was paid to the assessee by M/s. Skipper Sales P. Ltd. as advance and the balance of Rs. 5,000 was to be paid at the time of the execution of the deed of conveyance.
6. Identical agreements were executed between the other assessee Shri Om Prakash and M/s. Skipper Sales P. Ltd. The initial agreement to sell in this case was dated 24th June, 1977. The collaboration agreement was dated 24th August, 1981. The share of this assessee mentioned in these documents as 1/6th. The consideration for the sale is mentioned at Rs. 16 lakhs and like M/s. Atam Prakash & Sons this assessee too by virtue of the collaboration agreement was to get 6000 sq. ft. of covered area and 3 garages in the proposed building. This assessee too entered into another agreement dated 24th August, 1981 by which like M/s. Atam Prakash & Sons had agreed to sell to M/s. Skipper Sales P. Ltd. 4000 sq. ft. of covered area and 2 garages. This assessee too had received similar amounts and the stipulations mentioned in the case of M/s. Atam Prakash & Sons were provided in the agreement with this assessee as well.
7. The assessee Shri Om Prakash is an. individual. In the asst. order it is stated that the assessee had 1/18th share in the aforesaid property. The assessment order goes on to state that there was a partial partition in the HUF headed by the assessee Om Prakash as a result of which he had 1/3rd of 1/6th, i.e., 1/18th share in the property. In both the cases the ITO was of the opinion that there has been a transfer of the property resulting from the aforesaid transactions and both the assessees had made capital gains which were liable to be assessed to Income-tax. He accordingly issued notices to the two assessees to show cause why the profit arising out of the said transaction be not assessed as capital gains.
In their reply to the ITO, the assessees contended that there was no transfer of the capital assets by the assessees and hence no capital gain had arisen to them. It was also contended that by virtue of the collaboration agreement, the immovable property in question ceased to retain the character of the capital asset and on the contrary it stood converted into a trading asset as on the date of the collaboration agreement and according to the judgment of the Hon’ble Supreme Court in CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 the assessee can be subjected to tax in respect of the difference between the sale proceeds realised on a disposal of such asset and the market price prevailing on the date when such asset was converted into a trading asset. According to the assessee, the building was yet to be constructed and hence no income had actually arisen to the assessee. It was contended that the amounts received by the assessees under the various agreements referred to above were merely advances.
8. The Income-tax Officer as well as the IAC to whom a reference was made in terms of section 144B of the Income-tax Act did not agree with the assessee’s contentions. The ITO came to the conclusion that on a close reading of the collaboration agreement, it was clear that the transaction was not short of sale of immovable property. According to the learned ITO, the collaboration agreement was adopted as a via media to overcome the points that were coming in the way for the execution of the agreement to sell. The ITO observed that factually it was a case of barter, i.e., the assessee has surrendered his right in the plot and in turn acquired rights to receive covered area as mentioned above. The ITO concluded that the transfer or rights had taken place in the accounting year relevant to the assessment year under consideration and the assessee had acquired rights in the covered area of the value of Rs. 16,50,000, According to him, this amounted to transfer as defined under section 2(47) of the Income-tax Act and the learned ITO determined the net taxable capital gains at Rs. 8,87,000 as under in the case of Atam, Prakash & Sons, HUF :
| "Capital gain : | Rs. | |
| Sale consideration as per agreement to sell | 16,50,000 | |
| While accepting the sale consideration the fact of the assessee’s having sold 4000 sq. ft. covered area + 2 garages for Rs. 11,00,000 and the rate of booking in the relevant period i.e. Rs. 250 sq. ft. has been kept in view. | ||
| Less cost of acquisition as on 1-1-1964 as per WT order in the case of M/s. Om Prakash Atam Prakash, HUF from where the property has fallen to the share of the assessee | 1,66,667 | |
| 14,83,333 | ||
| Less : Basic exemption | 5,000 | |
| 14,78,333 | ||
| Less: 40% thereof as the property is more than 20 years old as per details given in the collaboration agreement | 5,91,532 | |
| 8,87,001" |
In the case of assessee Om Prakash, however, the ITO determined the taxable amount of capital gains at Rs. 5,87,083 in the following manner :
| Rs. | |
| "Sale price of 1000 sq. ft. Rs. 425 per sq. ft. | 4,25,000 |
| Sale price of 5000 sq. ft. at an average rate of | |
| Rs. 415 per sq. ft. for 1st to 7th floor | 20,75,000 |
| Sale price of three garages at Rs. 10,000 each | 30,000 |
| 25,30,000 | |
| Less : Cost as discussed above | 1,66,667 |
| 23,63,337 | |
| Assessee’s 1/3rd share | 7,87,777 |
| Less: Exemption under section 80T | 5,000 |
| 7,82,777 | |
| Less 25 % | 1,95,694 |
| 5,87,083" |
The sale price of Rs. 425 per sq. ft. and Rs. 415 per sq. ft. have been adopted in respect of the built up area which this assessee was to get on the basis of the rates fixed by the builder M/s. Skipper Sales P. Ltd. for sale to prospective buyers.
9. The assessees preferred appeals to the CIT(A), who vide separate identical orders confirmed the ITO’s action. According to the learned CIT(A), the following issues were involved in the appeals :
(a)Whether there is any capital asset which could be transferred;
(b)Whether the transfer has taken place during the year under consideration ;
(c)Whether the absence of registered documents makes the transfer incomplete.
The learned CIT(A) held that the right to exploit the immovable property by constructing a multi-storeyed building in a capital asset by itself. According to him, the ownership of the land continued to be with the appellant whereas the builder was giving right to erect the superstructure except the built up area earmarked for the owners. Dealing with the question of absence of any registered document conveying any rights to the builders the learned CIT(A) observed that along with the collaboration agreement the assessee executed an irrevocable power of attorney in favour of the builders giving them the right to do all necessary things for the construction of a multi-storeyed complex on the land in question; that the builders were in their turn assuring the prospective buyers that they would get heritable and transferable rights. The learned CIT(A) also observed that after the building is completed, a transfer of a property to a limited company or a society was in contemplation. According to him, deeds of collaboration and power of attorney did not require registration and by these documents, the owners had irrevocably transferred the right of exploiting their immovable property and non-registration of these documents is not fatal to the completion of these documents. The learned CIT(A) also hold that the capital gains arose in the accounting year in question. The assessee’s appeals were dismissed with the aforesaid findings.
10. The learned counsel for the assessees contended that in this case no transfer of property has taken place and hence no capital gain could arise. According to him, the assessees have leasehold rights in the land and ownership rights in the building standing thereon and these rights could be transferred only through a registered sale deed. Admittedly all the agreements referred to above are unregistered documents. In support of the proposition that in the absence of a registered deed of conveyance no transfer of immovable property takes place he relied upon—Sushil Ansal v. CIT [1986] 160 ITR 308 (Delhi), CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi), Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (SC), Addl. CIT v. Mercury General Corpn. ( P.) Ltd. [1982] 133 ITR 525 (Commissioner Of Income Tax v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC). According to the learned counsel for the assessee, there was no transfer of any asset even by extinguishment of any rights as contemplated in section 2(47) of the Income-tax Act as the extinguishment must be of all the rights held by the assessee and not merely a diminution in the totality of the rights held by the assessee. For this proposition he relied upon a judgment of Hon’ble the Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 in which the Hon’ble High Court held that in the phrase ‘extinguishment’ of any rights therein the words ‘any rights’ must include all rights. The learned counsel for the assessee contended that by giving the builders M/s. Skipper Sales P. Ltd., a right to build the assessee had not surrendered or transferred all his rights and the two assessees still continued to be the lessees of the land and with the built up areas that they would get in the proposed building they would continue to use the land directly as well as indirectly by the existence of their respective portions on the land in question. The learned counsel also relied upon a judgment of this Tribunal in the case of Ashok Kapur ( HUF) v. ITO [1985] 12 ITD 520 (Delhi). According to him, that case related to an adjoining property, i.e., No. 21, Barakhamba Road, New Delhi and in that case also the owners of that property had entered into similar agreement with a builder and the Tribunal held that no capital gains arose from the transaction.
11. The learned Departmental Representative on the other hand contended that by virtue of the various agreements the assessee had for all practical purposes transferred the land to the builders with the effect that the assessee’s right to build upon the land was extinguished and, therefore, there was extinguishment of rights in the land within the meaning of section 2(47)( ii) of the Income-tax Act, 1961 and there was thus a transfer of a capital asset. According to him, it was not necessary that the entirety of the bundle of rights in the capital asset should be extinguished. According to him, to effect an extinguishment of a right to build on the land ordinary agreements as entered into between the assessees and the builder were enough and no registered document was necessary. According to him, the transaction should be looked upon with a reference to its real effect and not to the mere form and the fact that the assessees have not completed the transfer as envisaged in the original agreement to sell should not be allowed to avoid taxes on the substantial gain made by him then.
12. Under section 45 of the Income-tax Act, 1961, gains arising from the transfer of capital asset are chargeable to income-tax. ‘Capital asset’ has been defined in section 2(14) to mean property of any kind held by an assessee. The assessees in question were the lessees of the land forming part of plot No. 22, Barakhamba Road and they owned the building that stood thereon. These facts are admitted and thus the assessees did own a capital asset being Bungalow No. 22, Barakhamba Road, New Delhi. In the present case what is in dispute between the parties is the nature of the property, if any, that has been transferred to the so-called builder M/s. Skipper Sales P. Ltd. and whether there is a transfer of ‘capital asset’, i.e., of property. ‘Transfer’ has been defined in section 2(47) of the Act as under :
"Transfer" in relation to a capital asset, includes :
(i)the sale, exchange or relinquishment of the asset ; or
(ii)the extinguishment of any rights therein ; or
(iii)the compulsory acquisition thereof under any law ; or
(iv)in a case where the asset is converted by the owner thereof into or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ;"
13. It was conceded by the learned Departmental Representative that in order to complete a transfer of property No. 22, Bara- khamba Road, New Delhi, a registered deed of conveyance was necessary and since no such document has been executed as was contemplated in the first agreement to sell, this property as such cannot be said to have been transferred to the builder M/s. Skipper Sales P. Ltd. This was so because recently the Hon’ble Supreme Court in the case of Nawab Sir Mir Osman Ali Khan (supra) has reiterated the law that title to an immovable property does not pass to the buyer unless a sale deed is executed and registered according to law. In that case the assessee, the Nizam of Hyderabad owned certain private properties which he agreed to sell to certain purchasers. The Nizam had received the entire sale price and had handed over possession of the properties concerned to the purchasers but no sale deeds were executed in favour of the vendees. The Hon’ble Supreme Court held that the properties continued to belong to the Nizam and were to be included in his net wealth for the purposes of assessment to wealth-tax. In view of the law as laid down by the Hon’ble Supreme Court, in this case and in view of the fact that no sale deed has been executed and registered in favour of the builders it cannot be said that there is a transfer of property No. 22, Barakhamba Road, New Delhi in favour of the said builders.
14. However, the learned Departmental Representative contended that the definition of transfer has been widened in section 2(47) of the Act and "the extinguishment of any rights therein" also amounts to transfer of property. According to him, the right to build on the property gets extinguished by virtue of the various agreements. The owners thus cannot raise any building on this land and that right having got extinguished, there is a transfer within the meaning of section 2(47). The learned counsel for the assessees on the other hand, had contended that extinguishment of rights can amount to a transfer only if all the rights that the assessee has in the property are extinguished and there would not be any transfer if merely by virtue of a grant of some of those rights by the assessee to a third person, there is a diminution in bundle of rights that the assessee possessed. In order to solve this controversy, it would be proper if we have a fresh look at the mutual rights created by the various agreements entered into between the assessee and the said builders. Initially as already stated, there was an agreement to sell. It is to be remembered that this was not a freehold property. The land belonged to the Government of India and the leasehold right that the assessees possessed could not be transferred without the sanction of the Government. Apparently no such sanction appears to have been granted. The agreement to sell was arrived at in June 1977 and having failed to perform their respective parts under the said agreement for more than 4 years, the parties i.e., the assessees and the builder had to take recourse to another agreement called the collaboration agreement. By this agreement, which is found at pages 35 to 44 of the paper book, in the case of Atam Prakash & Sons, agreement to sell was abandoned as due to diverse circumstances and reasons it had not been possible to execute the sale deed. The collaboration agreement provided that the two parties have agreed to sell convert the agreement to sell into an agreement of collaboration so that they can mutually in furtherance of their objects proceed to, construct the property. It was provided that the parties shall be the joint owners of the said venture though the possession had been handed over to the builders on 24-8-1981 and that the builders undertake to develop the sail plot at their own cost, expenses, etc., after procuring requisite permission. The builders were given an authority to obtain such permissions. The details of the consideration have already been described. The builders were given the power to transfer portions of the building under contemplation either before or after the building is ready. Similarly the assessees were also free to transfer the areas allocable to them. It was also provided that the collaboration agreement shall not ever be deemed to constitute any partnership agreement between the owners and the builders and the agreement was subject to force majure clause. The builders expressly undertook not to do any set or be guilty of any omission which may in any manner contravene the terms of the perpetual lease granted by the Govt. The building material of the existing structure was on demolition to be appropriated by the builders to themselves. Thus what was intended by this agreement was to raise a multi-storeyed building on the land forming part of plot No. 22, Barakhamba Road in conformity with the relevant municipal bye- laws and in conformity with the terms of lease granted by the Government in favour of the assessees. The building was to be raised by the builders at their own costs and the owners i.e., the assessees were to be given the specified built up area of the said building which they were free to retain or to transfer to others. There are already agreement to sell by the two assessees in respect of portions of the built up area to be given to them in favour of the builders. But since they continue to be agreements to sell nothing turns upon them.
15. As is evident from the terms of the so-called collaboration agreement what is ultimately brought about is a permission by the assessees to the builders to raise multi-storeyed building on the land held by them (the assessees) on lease. This transaction cannot amount to sale of the property to the builders because there is no registered document. Secondly, no building has yet been raised on the land in question with the result that the right granted to the builders has not actually been exercised. This transaction cannot amount even to a lease because a lease too if it is for indefinite period has to be registered. Further in a lease exclusive possession of the lease property has to be delivered to the lessee while in the case before us what is contemplated is the joint possession of the multi-storeyed building inasmuch as the assessees will also occupy parts of the proposed building which were to be given to them in consideration of the right granted to the builders to raise the building. What, in our view, is intended to be granted to the builders is a licence to raise a building on the land in question which would become irrevocable in terms of section 60 of the Indian Easement Act when the licensee (the builders) acting upon licence has executed work of permanent character and incurred expenditure in the execution. The licence remains revocable till the licensee has started construction over the licensed property. The collaboration agreement thus beings about only a licence. Licensee has been defined in section 52 of the Indian Easement Act as under :
"Where one person grants to another or to a definite number of other persons a right to do or to continue to do in or upon the immovable property of the grantor something which would in the absence of such right be unlawful and such right does not amount to assessment or an interest in the property, the right is called a licence."
The essential distinction between a lease and a licence is that in a lease there is transfer of interest in land while in the case of licence, there is no such transfer that although the licensee acquires a right to occupy the land—Sheo Narayan Chaudhury v. State of Bihar AIR 1957 Pat. 226. Thus under the collaboration agreement the builder M/s. Skipper Sales Pvt. Ltd. got merely a right to occupy the land for the sustenance of the building to be raised therein. We have to see whether the conferment of such right by the assessees to the builder would amount to a transfer within the meaning of section 2(47). As already stated above, the learned Departmental Representative attempted to bring the case within sub-clause (ii) of section 2(47) which speaks of "the extinguishment of any rights therein as a mode of transfer." According to the learned Departmental Representative, a person may have various types of rights in a property and the word ‘any’ refers to any one or more of those rights. According to the learned counsel for the assessee on the other land, the word ‘any’ does not refer to one or more of the various rights that a person may have but it refers to the entirety of the rights that a particular person has in the property concerned. According to him, in respect of a single property various persons may have different types of rights. To illustrate his point, he referred to the facts of the present case. The Government of India is the owner of the land and is, therefore, vested with all those rights connected with the ownership which remain with an owner after he leases out the land to a particular person for a particular purpose. According to him, the assessees were the lessees of the land and their rights were different from that of the Government of India and the builders M/s. Skipper Sales Pvt. Ltd. have a yet different type of right in respect of the land i.e., a permission from the assessees to raise on the land in question a multi-storeyed building and to maintain it. According to him, each of the three persons has a different variety of rights in the same property and those rights constituted a capital asset in the hands of each with the result that each may transfer his rights to the extent permitted by law. According to the learned counsel, a transfer must be of the entirety of the rights that a particular person possesses and it is with respect to all those rights that the word ‘any’ has been used.
16. Reliance was placed from both sides on Vania Silk Mills ( P.) Ltd.’s case (supra). In that case a fire had damaged the assessee’s machinery to the extent that it could not any longer be put to use as such. The machinery was insured and no settlement of the insurance claim the assessee received a certain sum on account of the destruction of its machinery which was taken over by the insurance company. It was held that on the settlement of the insurance claim in the aforesaid manner, the assessee’s rights in the machinery got extinguished and there was thus a transfer of the machinery within the meaning of section 2(47) of the Act by extinguishment of rights therein. The Hon’ble High Court observed as below :
"Let us proceed to critically examine the true import of the expression ‘the extinguishment of any rights therein’ bearing in mind this subject and context.
The word ‘extinguishment’ is the kingpin of this expression. It is a word of ordinary usage having the widest import. Usually it connotes the end of a thing, precluding the existence of future life therein (See Black’s Law Dictionary, fourth edn., p. 696). It has been variously defined as meaning a complete wiping out, destruction, annihilation, termination, cancellation or extinction and it is ordinarily used in relation to right, title, interest, charge, debt, power, contract or estate (See Corpus juris Secundum, Vol. 35, p. 294). In Rawson’s Pocket Law Lexicon, the meaning assigned to it is ‘the destruction or cessation of a right either by satisfaction or by the acquisition of one which is greater.’
In Ramanlal Gulabchand Shah v. State of Gujarat AIR 1969 SC 168 at page 175, the word ‘extinguishment’, which is employed in conjunction with the expression ‘of any such rights’ in article 31A of the Constitution, was interpreted as meaning ‘complete termination of the rights’.
The word ‘extinguishment’ is here used in a similar context namely, in combination with the expression ‘of any rights therein’. This expression again has a wide ambit and coverage. The word ‘therein’ refers to ‘capital assets’ mentioned earlier in the definition. So far as the expression ‘any rights’ is concerned, it was observed by this Court in CIT v. R.M. Amin [1971] 82 ITR 194 at page 201, while interpreting this very provision :
‘. . . the word ‘any’ is a word which ordinarily excludes limitation or qualification and it should be given as wide a construction as possible, unless, of course, there is any indication In the subjectmatter or context, the words ‘any rights’ must include all rights. . .’."
17. The learned Departmental Representative, on the other hand, relied upon another observation at page 312 of the report, which is as below :
"It follows from the foregoing discussion that the Legislature in order to effectuate its intention, has deliberately chosen the language of widest amplitude by using the expression ‘the extinguishment of any rights therein’ in section 2(47). It covers every possible transaction which results in the destruction, annihilation, extinction, termination, cessation or cancellation, by satisfaction or otherwise, of all or any of the bundle of rights—qualitative or quantitative—which the assessee has in a capital asset, whether such asset is corporeal or incorporeal."
In the aforesaid paragraphs the Hon’ble High Court has no doubt stated that extinguishment can be all or any of the bundle of rights which could be interpreted in the manner asserted by the learned Departmental Representative, but we have to read the same with reference to the earlier observations, otherwise the two observations would be contrary to each other which cannot be reconciled. Capital gains arise out of a transfer of a capital asset and the word ‘transfer’ has a definite notion. A mere permission to use the property or the mere grant of a certain permissive right over the property cannot amount to a transfer although it does result in some reduction in the bundle of rights of the owner of the property. For example, a person may grant to another a right to flow water over his land through a definite channel. He may permit another person to open windows towards his land and receive light and air through them. He may grant a third person a right of way through the said land and grant a fourth one of right to carry over electric wires over the land. All these grants would certainly result in the reduction of the rights that the owner had over the land but they cannot, in our view, amount to transfer of the property by extinguishment of any rights therein. The owner still remains the owner of the property and so long as he continues to be the owner, his rights cannot be extinguished though they may be substantially diminished.
18. In the case before us the assessees are the leaseholder in perpetuity of the land. What was granted to M/s. Skipper Sales P. Ltd. is a right to raise a multi-storeyed building on the land in question. All other rights which lessees have as a leasehold right continue to vest in them. The licence given to Skipper Sales P. Ltd. will become effective only when a building is raised thereon and that right will cease as soon as the building ceased to exist. Suppose the builders fail to raise the building the licence given to them can be terminated by the assessee and suppose the building raised by the builders either by lapse of time or other natural causes ceased to exist, the licence may again come to an end and the assessees or their successors’ interest will be able to occupy it again and use it in accordance with the terms of the lease. It cannot, therefore, be said that by the transaction in question, the rights of these assessees in the property in question stand totally extinguished and the transaction amounts to a transfer of the property.
19. The learned CIT(A) has referred to the conduct of M/s Skipper Sales P. Ltd. He has stated that they are convincing the prospective buyers of the flats about their rights in the land. What is the exact nature of the assurance is not disclosed. In any case when a building is raised the right of the person to sustain that building on the land is guaranteed by section 60 of the Indian Easement Act and, therefore, M/s Skipper Sales P. Ltd. can certainly assure the prospective buyers that the property purchased by them is not the result of an act of trespass and would not be removed. If they have been assuring anyone that in due course of time the land in question would be got conveyed to a company or a co-operative society, that too is immaterial. The gains arising to the assessees, if any, would then be determined according to the ultimate transaction that materialises.
20. A similar transaction was the subject of the decision of a Bench of this Tribunal in Ashok Kapur ( HUF)’s case (supra). In that case it was argued on behalf of the revenue that the joint venture between the builders and the owners amounted to a partnership and there was a transfer of the property to the partnership and capital gains had to be calculated on that basis. It was admitted in that case by the assessees that they had converted their immovable property into stock-in-trade on 6-11-1979 but contended that this had not resulted in any transfer within the meaning of the Act. The Tribunal held that on the terms of the agreement (which was Identical with those of the cases before us) there was no partnership between the owners and the builders as each of them dealt with each other on principal to principal basis. It was also held that the agreement contemplated the continued ownership of the assessee in respect of the immovable property. In the case before us also the extinguishment of the rights of the present assessees as perpetual lessees of the land is not intended to be extinguished except of course when the leasehold rights are actually transferred to someone in accordance with the law. The aforesaid judgment of the Tribunal is in accord with the view that we have taken of the nature and effect of the transaction. The learned Departmental Representative referred to Chandrika Prasad Ram Swarup v. CIT [1939] 7 ITR 269 (All.) (FB). It was observed "The question of legality or illegality of transactions entered into by the firm is totally irrelevant in calculating the income, profits or the loss Incurred by the firm in a particular year. For example, if the assessee-firm had entered into a wagering contract which resulted in a loss it would not have been open to the ITO to decline to take that loss into account simply because the contract by way of wager was void in law. The Income assessable to tax is the actual income of an individual or of a firm irrespective of the manner in which the income was derived. Legality or illegality of the transactions culminating in profit or loss is, therefore, foreign to the scope of an enquiry into the income of an individual or of a firm for the purpose of taxing the same." The learned Departmental Representative contended that in this case the parties have skilfully avoided the execution of a deed of conveyance in favour of M/s. Skipper Sales P. Ltd. with the sole object of avoiding capital gains tax and that this could not be permitted. In our view, there is no warrant for such an assumption. The agreement says that for diverse reasons the deed of conveyance could not be executed. The ITO has not proceeded on the line now sought to be set up by the learned Departmental Representative. The assessees had stated in their replies that the property stood converted into a trading asset on the date of the collaboration agreement and offered to be taxed on the profits, if any arising from the transaction. The ITO, however, did not accept that it was a trading venture and wanted to tax what in his view was capital gains. The above principles cannot be applied to a case like this where there is no evidence to cheat the revenue and as held by Hon’ble the Supreme Court in the case of Nawab Sir Mir Osman Ali Khan (supra), the title has not been transferred for want of a proper deed of conveyance.
21. In view of the above discussion, we hold that there was no transfer of property No. 22, Barakhamba Road, New Delhi by the assessees in favour of the builders M/s, Skipper Sales P. Ltd. and hence no capital gains has arisen to them on account of the moneys received by them. It is important to note that in pursuance of the collaboration agreement the assessees were to hold a certain built up area of the proposed multi-storeyed building in consideration of the licence to build granted to the builders. By another agreement the assessees agreed to transfer a part of that area of the said builders for a, certain price. What they received in respect of the. proposed transfer of the built up area was thus merely an advance towards the sale consideration because the property which was the subject-matter of the agreement was yet to come into existence and the sale had to be effected only after the building had been raised. The assessee M/s Atam Prakash & Sons, HUF also received a sum of Rs. 1. lakh as security for, the performance of the act. No amount was received as consideration for the transfer in praesenti of any capital asset and hence no capital gains could arise to the assessee. We, therefore, hold that no capital gains had arisen to any of the two assessees and direct that the amounts included in the income of the two assessees on account of capital gains be excluded.
22. In the ground of appeal the assessee has made a grievance of charge of interest u/s 215/217 of the Act as well. This was agreed to be consequential and the chargeability of interest under the two sections will be looked into again by the ITO while giving effect to the present order. In the result, the appeals of the assessees are allowed.
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