M.D. Joseph (Legal heir of Late M.V. Dominic) vs Commissioner of Income Tax

K.S. Paripoornan, J.—At the instance of an assessee to Income Tax, the Income Tax Appellate Tribunal has referred the following question of law for the decision of this court:

"Whether the Tribunal was right in finding that the unregistered written agreement dated January 26, 1973, is a sale itself and that, therefore, the capital asset was transferred on January 26, 1973, for a specified price of Rs. 6,25,000 and was the Tribunal right in finding that the capital gains is to be assessed on that basis ?"

The respondent is the Revenue. We are concerned with the assessment year 1973-74 for which the accounting period ended on March 31, 1973. One Shri M.V. Dominic and his daughter-in-law purchased 403 acres of coffee plantation at Nelliampathi in Pollachi on March 26, 1968. Mr. Dominic was entitled to half share. The daughter-in-law was entitled to half share, On January 26, 1973, an agreement was entered into between the said persons and one S. K. Abdul Wahab for the sale of shade trees and old coffee plants in an area of 225 acres for Rs. 6,25,000. The question as to whether any capital gains arose to the assessee by virtue of the said deed is the subject-matter in issue. According to the Revenue, the deed dated January 26, 1973, though purporting to be an agreement to sell, is really a deed of sale. The assessee agreed to sell specific trees in an identified area for the price mentioned in the deed, namely, Rs. 6,25,000. The assessee contended that the deed dated January 26, 1973, is only an agreement and that the sale of the goods contracted for will be completed only on payment of the entire instalments. The Income Tax Officer declined to accept this plea. However, he held that the sale value, though stated to be Rs. 6,25,000 in the deed dated January 26, 1973, stood reduced in view of subsequent litigation by a sum of Rs. 70,000. The order of assessments dated March 6, 1976. In the appeal filed by the assessee, the Appellate Assistant Commissioner of Income Tax, Ernakulam, held that only a sum of Rs. 2 lakhs was received by the assesses for the transfer of the capital asset during the previous year relevant to the assessment year 1973-74 and there should be recomputation of the actual capital gains. The Income Tax Officer was directed to recompute the capital gains in the light of the findings of the Appellate Assistant Commissioner contained in his order dated April 23, 1976. The assessee, as well as the Revenue, took up the matter in appeal before the Income Tax Appellate Tribunal. The above appeals were disposed of by a common order dated December 18, 1978. Construing the deed dated January 26, 1973, the Income Tax Appellate Tribunal held that the deed dated January 26, 1973, is a sale itself and the capital asset dealt with in the said deed was transferred on that day. The Appellate Tribunal further held that though the consideration for the transfer was mentioned as Rs. 6,25,000, the Income Tax Officer himself held that, in view of subsequent compromise in a suit, it stood reduced by Rs, 70,000. There is a further plea before the Tribunal that another Rs. 55,000 was also reduced from the consideration stated in the deed. Holding that there was no proper or definite material on that score, the Appellate Tribunal held that the question as to whether a further sum of Rs. 55,000 was reduced from the consideration mentioned in the deed should be investigated by the Income Tax Officer and the matter will stand referred or remitted to the assessing authority for that limited question. The Appellate Tribunal also held that though many items were claimed for deduction u/s 48 of the Act, only the expenditure incurred on four items is permissible. In view of the paucity of material to indicate the nature of the litigation for which expenses were claimed, the Appellate Tribunal held that the matter requires a fresh look and appraisal by the Income Tax Officer. So, in order to examine the eligibility as well as the quantum of the relief u/s 48 of the Act, the four items mentioned in paragraph 5 of the appellate order were directed to be examined. It is thereafter at the instance of the assessee that the question of law, formulated hereinabove, has been referred for the decision of this court, in pursuance of a direction given by this court to the Appellate Tribunal u/s 256(2) of the Income Tax Act.

We heard counsel for the assessee as also senior standing counsel for the Revenue who appeared for the respondent. Counsel for the assessee, Mr. Santhalingam, argued that there was no transfer of the asset as per the deed dated January 26, 1973, to say that any capital gains arose exigible to tax and even so what was transferred was an interest in immovable property and the consideration being more than Rs. 100, in the absence of registration of the document, no valid title passed to the vendee. The Appellate Tribunal was in error in construing the deed dated January 26, 1973, as a sale of the assets (trees specified in the schedule to the deed). We see no force in this plea. The above plea was not taken up before the Appellate Tribunal. The Appellate Tribunal had not adjudicated on the said question So, it cannot be said that the said question arises out of the order of the Appellate Tribunal. It is not open to the assessee to raise a new and different question for the first time in this court.

It was next argued that, until all the instalments are paid, the transfer is not complete as per the deed dated January 26, 1973, and since the last of the instalments is payable only in January, 1974, then only the transfer will become complete. That day is outside the accounting period relevant for the accounting year 1973-74, and in this view, there was no transfer of an asset attracting liability to tax for the capital gains during the relevant accounting period. We are afraid that the above plea overlooks the salient features of the deed dated January 26, 1973. Under Clause 2 of the deed, the vendor has agreed to sell the shade trees and the old coffee plants in the old coffee area more specifically shown in the schedule. Under Clause 3 of the deed, the purchaser satisfied himself of the area boundaries and the description of the estate where the trees are standing and the quality and quantity of the trees for sale. Under Clause 4 of the deed, the purchaser shall cut and remove the trees within the period of 12 months from the date of the deed. As stated, Clause 2 itself states that the parties agreed to sell the shade trees and the coffee plants in the old coffee area, at that time standing in the estate, which is shown more specifically in the schedule. A fair and proper reading of the various clauses in the deed clearly shows that the deed dated January 26, 1973, is a sale itself. This is the finding of the Appellate Tribunal also. We concur with the said decision. The first limb of the question referred to us, namely, whether the Tribunal was right in finding that the unregistered written agreement dated January 26, 1973, is a sale itself is answered in the affirmative. The sale was of the trees specifically mentioned and ascertained as situate within a specified area mentioned in the schedule. We answer the first limb of the question referred to us in the affirmative, against the assessee and in favour of the Revenue.

The further question was whether the capital asset was transferred for a specified sum of Rs. 6,25,000. That is the amount shown in the deed. The Income Tax Officer himself reduced the consideration by Rs. 70,000. That was so in view of a compromise arrived at in court proceedings. There was a further plea that the consideration stood reduced by another Rs. 55,000. There was no material to determine whether the said plea is tenable or justified. There was paucity of material on that score. So, the Appellate Tribunal, expressing the view that necessary and proper materials are not before it, directed the Income Tax Officer to decide whether the value stood reduced by a further sum of Rs. 55,000. On the aspect regarding the total consideration or the price, the matter requires further evaluation and determination by the Income Tax Officer. So, the latter part of the question referred to us on the assumption that a capital asset was transferred on January 26, 1973, for Rs. 6,25,000 seems to have been made under a misapprehension. There is no concluded decision of the Tribunal on that score. We decline to answer the question referred to us in the said limb of the question.

The third limb of the question is : was the Tribunal right in finding that the capital gains were to be assessed on that basis (on the basis of the specified price--Rs. 6,25,000.) ? The plea as to whether the consideration for the transfer was still reduced by Rs. 55,000 more, apart from the sum of Rs. 70,000 reduced by the Income Tax Officer, has to be evaluated in the light of the directions of the Tribunal contained in the appellate order dated December 18, 1978. Moreover, as to whether the assessee is entitled to the relief u/s 48 of the Act on the four items claimed by it has been directed to be investigated by the authority, by the Appellate Tribunal in its order dated December 18, 1978. That also requires investigation. Only after finding whether the assessee is entitled to say that the consideration mentioned in the document is reduced not only by Rs. 70,000 as mentioned by the officer in his original assessment order dated March 6, 1976, but also by a further sum of Rs. 55,000 as pleaded and after adjudicating the plea of the assessee that the assessee is entitled to relief u/s 48 in respect of the four items mentioned by the Tribunal, the computation of the capital gains can be made. We decline to answer the third limb of the question since that cannot be answered in the light of the directions given by the Appellate Tribunal remitting two important aspects for a fresh consideration.

So, the only part of the question that is relevant at this stage and which we are called upon to answer is whether, by the written deed dated January 26, 1973, there was a transfer of the asset. In our opinion, a reading of the written agreement dated January 26, 1973 as a whole, particularly, clauses 2 and 3 thereof, decisively points to the conclusion that the deed dated January 26, 1973, is not an agreement to sell but a sale deed itself. We concur with the Appellate Tribunal in that view. We answer the first limb of the question referred to us in the affirmative, against the assessee and in favour of the Revenue.

The Income Tax Officer will give effect to the order of the Appellate Tribunal dated December 18, 1978, in the light of the answer given by us hereinabove. The reference is answered accordingly.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.