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Judgment
Ramanujam, J.—In the above petitions filed u/s 256(2) of the I.T. Act, 1961 (""the Act""), the revenue seeks a direction from this court to the
Tribunal to refer the following three questions of law :
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital gains arising on the sale of the
properties should be computed by taking the sale price at an aggregate amount of Rs. 1,00,000 and Rs. 2,00,000 for the assessment years 1973-
74 and 1974-75 ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sale consideration in respect of the sale of
properties effected during the relevant accounting years amounted to Rs. 1,00,000 and Rs. 2,00,000 without considering the relevant fact that the
properties had been in adverse possession at the time of the sale in the relevant accounting years and to resume such properties, the consideration
received earlier between 1950 to 1955 had to be returned or adjusted against the actual sale value in 1973 and 1974 ?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO had estimated the sale value over and
above what had actually been received while the ITO had not in fact made any such assumption ?
The assessee is the adopted son of one late Venkatamuthurama Chetty, who died in the year 1909. The wife of the said Venkatamuthurama
Chetty, who is the adoptive mother of the assessee, alienated certain properties during the minority of the assessee. Those alienations were
challenged by the assessee after attaining majority by instituting a suit in this court. The assessee succeeded in the suit and this court by a judgment
dated August 25, 1972, in C.S. No. 12 of 1961 declared the alienations made by the adoptive mother as void and not binding on the assessee. As
a result of the judgment of this court in the said suit, the assessee''s ownership of the alienated items was restored. During the accounting year
relevant to the assessment year 1973-74, the assessee had sold some of the items covered by the said suit under registered deeds for Rs.
1,00,000 as against the sale price of Rs. 75,000 obtained by the adoptive mother while she executed the sale deed. With regard to certain other
properties, he executed sale deeds in the year 1974-75 on receipt of Rs. 2,00,000 as against the sale price of Rs. 1,66,000 obtained by the
adoptive mother while she executed the sales. The ITO while computing the capital gains for the years 1973-74 and 1974-75, respectively, had
included the amounts received by the assessee''s adoptive mother in the full value of the consideration. Thus, he had taken the consideration for the
properties sold in the year 1973-74 as Rs. 1,75,000 and in respect of the sale effected for the subsequent year 1974-75 as Rs. 3,66,000. The
above computation was based on the ITO''s view that the consideration which passed between the assessee''s adoptive mother and the concerned
purchasers should be taken into account for determining the full value of the consideration as the assessee had chosen to enter into fresh
agreements for sale with the very same persons who were in possession of the properties in question under void sale deeds entered into by the
assessee''s adoptive mother instead of executing the decree in his favour for obtaining possession. The assessments made by the ITO were
challenged before the AAC but without success.
The assessee, therefore, took the matter on further appeal to the Tribunal. The Tribunal allowed the assessee''s appeal holding that there was no
material on record to show that he received more than the amount described as sale consideration in the deeds of sale and that the amounts, if any,
that were paid to the adoptive mother in respect of the void sale made by her had nothing to do with the sale consideration for the sales effected by
the assessee. Aggrieved by the decision of the Tribunal, the Revenue is seeking a reference on the questions set out above in this petition.
However, on a due consideration of the matter and on the facts and in the circumstances of these cases, we are satisfied that the Tribunal has come
to the right conclusion. We also feel that the questions sought to be raised are factual ones and the decision of the Tribunal is based on the factual
position.
As already stated, the adoptive mother had received Rs. 75,000 as sale consideration in respect of sales effected in 1973-74 and Rs. 1,66,000
in respect of sales effected in 1974-75. But these sale deeds have been declared void and not binding on the assessee. Therefore, notwithstanding
the sale deeds executed by the adoptive mother, the properties continued to be owned by the assessee as a result of the judgment of this court in
C.S. No. 12 of 1961. In the sale deeds executed by him during the assessment years in question, the consideration actually received by him has
been stated and that is Rs. 1,00,000 for the year 1973-74 and Rs. 2,00,000 in the year 1974-75. The ITO has not gone into the question as to
whether the said sums represented the same market value of the properties sold by the assessee during the assessment years 1973-74 and 1974-
75 and after conducting an enquiry on the market value of the properties sold, he has merely proceeded to aggregate the consideration paid to the
adoptive mother by the purchase and the consideration paid by them t o the assessee for the purpose of determining the fair market value of the
properties. He appears to proceed on the basis that in view of the following three circumstances, the said aggregate value should be taken to be
the fair market value :
The sale has been effected by the assessee to the persons who had purchased the properties from adoptive mother.
Having regard to the price rise in real properties between the date of sale by the mother and the date of sale by the assessee, the consideration
mentioned in the sale deeds executed by the assessee cannot be taken to be the fair market price.
The assessee could have taken possession of the properties from the persons who had purchased from the adoptive mother and could have sold
them to third parties which would have fetched higher prices than what were referred to in the sale deeds executed by the assessee.
As already stated, if the ITO had embarked on an enquiry as to what is the fair market value without accepting the sale consideration mentioned
in the sale deeds, it would have been a different matter. But in this case, merely from the fact that the sales have been effected by the assessee in
favour of the same persons who had purchased them from the mother, the aggregation of the sale consideration cannot be taken to be justified. If,
in this case, the assessee had sold in favour of third parties, the consideration paid to the mother could not clearly be taken as part of the sale
consideration paid to the mother could not clearly be taken as part of the sale consideration received by the assessee, the adoptive son. The mere
fact that the sales were effected in favour of the same persons would not be itself indicate that the price for which the assessee had sold the
properties will include the price paid to the adoptive mother. After the judgment of this court in C.S. No. 12 of 1961, the purchaser from the
mother, who were also parties C.S. No. 12 to 1961, were well aware that the sale deeds executed by the mother have become void and might
have approached the assessee to purchase the property from him. It cannot be disputed that if the assessee had sold the properties to third parties,
he would received a fair price for the same. Therefore, the assessee, with full knowledge of the fact that he will get the full value of the properties if
he sells the same to third parties, would not have agreed to reduce the price payable by the purchasers to the extent of the price which they had
paid to the adoptive mother. There is no reason as to why the assessee should have foregone a portion of the consideration which he would have
received if the properties had been sold to third parties. Therefore, on the facts of this case, there is no reason to assume that the assessee suffered
a detriment by selling the properties to the same persons who had earlier purchased the properties from the adoptive mother by agreeing to forgo a
portion of the price which he would have got if he had sold the properties to third parties. As already stated, the ITO has not determined what will
be the fair market value of the properties sold by the assessee during the assessment years in question. He merely throws a suggestion that the
properties would have gone up considerably in value and the assessee could not have sold for the prices mentioned in the sale deeds, but if the
ITO specifically finds that the consideration of Rs. 1,00,000 and Rs. 2,00,000 in the years 1973-74 and 1974-75, respectively, do not represent
the sale price that the fair market rate is quite different, then it would have been a different matter altogether. But merely because purchasers have
paid earlier consideration to the mother forms part of the consideration paid to the son. The Tribunal specifically found that the sale deeds under
which the assessee had sold the properties do not refer to the consideration paid to the adoptive mother in respect of the earlier sale deeds which
had been struck down by the High Court as void. There is no material on record to show that the assessee received a paisa more than the amount
described in the sale deeds executed by him. The Tribunal has specifically rejected the plea taken by the Revenue that the assessee had merely
perfected the sale executed by the mother and, therefore, the sale consideration paid to the mother should also be taken as consideration received
by the son, the assessee. The Tribunal very rightly points out that there is no question of perfecting the void sales made by the adoptive mother and
that so long as the sale deeds do not proceed on the basis that the consideration paid to the mother on the earlier occasion will form part of the
consideration payable in respect of the sales executed by the assessee, it is not possible to infer that the payments made to the mother were also
taken into consideration by the assessee while arriving at the sale consideration payable to him. It is no doubt true that after the declaration granted
by this court, the sale deeds executed by the mother were void, the amounts paid to the mother are recoverable by the purchasers, but that will not
mean that the said consideration was taken note of by the assessee and given credit to by him while executing the sale deeds in favour of the
purchasers. We, therefore, feel that the Tribunal is right in holding that the amounts that were paid to the adoptive mother in respect of the void
sales made by her have nothing to do with the sale consideration received by the assessee for effecting the sales.
In this view of the matter, we do not see any justification for directing the reference sought for in these cases. The petitions are, therefore,
dismissed.