S. Sainuddin vs Commissioner of Agricultural Income Tax

K.P. Balanarayana Marar, J.—At the instance of the assessee, the Agricultural Income Tax Appellate Tribunal, Thiruvananthapuram, has referred the following questions of law for a decision of this court :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in coming to the conclusion that the agreement entered into between the applicant and his children on August 23, 1976 is not a valid and genuine document ?

Whether, on the facts and in the circumstances of the case, the Tribunal has misconstrued the documents produced before it, viz., the agreement dated August 23, 1976, the release deed dated February 28, 1985, plantation tax assessment, compromise order of the sub-court in arriving at the conclusion that they do not disclose the transfer of possession of the property by the applicant to his children ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not deciding the issues regarding the yield estimated, price of produce fixed and adequacy of expenses raised before it ?"

The assessee, Sri S. Sainuddin, was assessed to agricultural Income Tax for the assessment years 1978-79 to 1985-86. He is engaged in rubber plantation at Nedumangad. The only issue that was canvassed before the Appellate Tribunal is the legality of the inclusion of income from 7.6 acres of agricultural land which was alleged to be owned by his children. This property, held by the assessee in usufructuary mortgage rights, is alleged to have been released to his children who had obtained assignment of the equity of redemption. The release of the mortgage rights was made by means of an agreement in 1976, but the registered document was executed only in 1985. The properties having been released by the assessee in 1976 itself, he disclaimed ownership over the extent of 7.6 acres of land.

The Agricultural Income Tax Officer, on a perusal of the relevant documents produced by the assessee, held that the document on the strength of which the property was alleged to have been transferred to the children of the assessee was not legally enforceable, the document not having been registered and that it was also not genuine. On that basis, the assessments for the years 1978-79 to 1985-86 were completed. On appeal, the Appellate Assistant Commissioner concurred with the findings of the Assessing Officer and it was observed that the property was in the actual possession and enjoyment of the assessee during the relevant years. The assessee carried the matter in second appeal to the Agricultural Income Tax Appellate Tribunal. By a common order dated September 1, 1987, the Tribunal declined to interfere, holding that no transfer was effected by the agreement made in 1976, that possession and enjoyment continued with the assessee and that the properties were released to the children of the assessee only in 1985. The Tribunal, therefore, held that there was no infirmity in the inclusion of the income from this area of 7.6 acres of land in the assessment of the appellant. It was thereafter that the questions of law formulated above were referred to this court for a decision thereon.

Heard counsel for the assessee and the Government Pleader for the respondent.

Before proceeding to examine the contentions raised on both sides on the questions referred, we have to mention that the questions do not cover an important finding of the Tribunal on which also it had rested its conclusion. The Tribunal is of the view that the property has been transferred without adequate consideration and that directly calls for application of the provisions regarding inclusion of deemed income. The Tribunal observed thus : "even if we examine the case from the angle of Section 9 of the Agricultural Income Tax Act, the consideration declared, viz., Rs. 2,200 for 7.6 acres of rubber plantation, is grossly inadequate." This observation is seen to have been made while answering the contentions advanced by the Additional State Representative on behalf of the Revenue who had invited the attention of the Tribunal to the provision contained in Section 9 of the Agricultural Income Tax Act. No request is seen to have been made for a reference on the question of the applicability of the provisions of Section 9 to the transfer effected by the assessee, nor is that aspect covered by any of the questions referred to this court. Section 9(2) of the Agricultural Income Tax Act, 1950, directs computation of the total agricultural income of any individual for the purpose of assessment by including so much of the agricultural income of a minor child of such individual as arises directly or indirectly from assets transferred directly or indirectly to the minor child not being a married daughter by such individual otherwise than for adequate consideration. On the basis of the materials available, the Tribunal held against the assessee on this aspect. A specific finding was rendered that the property was transferred without adequate consideration and that directly calls for application of all the provisions regarding inclusion of deemed income.

Sri Nagendran, learned counsel for the assessee, strenuously contends that this observation of the Tribunal does not amount to a finding whereas it is only one of the circumstances relied on to come to the conclusion that no transfer was effected by the agreement executed in 1976. True, the Tribunal has observed that no transfer of property was effected in the circumstances mentioned. The finding that no transfer was effected in 1976 and the finding that the transfer was without adequate consideration are entirely different. There can be a case where adequate consideration had been paid but the document being inadmissible in evidence, no claim can be made on the basis of that document. On a reading of the order of the Tribunal, it is clear beyond doubt that a definite finding has been rendered by the Tribunal regarding the applicability of Section 9 of the Agricultural Income Tax Act, 1950. The finding is that the property has been transferred without adequate consideration. The Appellate Tribunal was not required to refer this aspect as a question of law arising out of the order. A definite finding having been rendered by the Tribunal, a question of law actually arises. If aggrieved, the assessee should have required a reference on that aspect and that not having been done, the finding stands and the assessee is bound by the finding.

So long as that finding has not been challenged, we are of the view that no error has been committed by the Tribunal in finding that there was no infirmity in the inclusion of the income in the appellant''s assessment.

We now proceed to decide the questions of law raised in the referred cases. Learned counsel for the assessee submitted that the agreement executed by the assessee and his wife, Saina Beevi, on August 23, 1976, does not require registration and is admissible in evidence. Counsel draws attention to Section 17(2)(v) of the Registration Act and contends that only a right to obtain another document was created under the agreement. Section 17(1) of the Registration Act, inter alia, stipulates that any non-testamentary instrument which purports or operates 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 Rs. 100 and upwards to or in immovable property shall be registered. By the provision of law relied on by counsel, Section 17(1) will not apply to any document not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of Rs. 100 and upwards to or in immovable property but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest. In order to bring the transaction u/s 17(2)(v), the document by itself should not create any right whereas it should only create a right to obtain another document in future. It is therefore clear that a document creating a right, title or interest in immovable property of the specified value is outside this clause even though it may create a right to obtain a document in future. In other words, what has to be looked into is as to whether a right over immovable property has been created or extinguished by the document or whether it creates only a right to obtain a document in future. A reading of the agreement makes it clear that extinguishment of the usufructuary mortgage right was created under that document. An amount of Rs. 2,200 is stated to have been received by the assessee and his wife and the properties are stated to have been surrendered or released to their four children of whom three are minors. Possession is stated to have been handed over to the major son on behalf of the minors also. He was directed to keep possession of the property and to hand over possession to the minors as far as their rights are concerned on attaining majority. What was postponed is only execution of a release deed. The document contains recitals manifesting the intention of the assessee and his wife to create interest in their children by surrendering or releasing their usufructuary mortgage right in their favour. There has thus been an extinguishment of the right of the assessee in favour of his children. The value of the property is admittedly more than Rs. 100. The consideration received is stated to be Rs. 2,200. If that be so, the release or extinguishment of the right can only be by a registered document. Section 17(2)(v) is, therefore, not attracted to the present case. The document being a compulsorily registrable one having not been registered is inadmissible in evidence. The Tribunal was right in finding that no transfer has been effected by this document as per the provisions of law. No error has been committed by the Tribunal in coming to this conclusion.

In this connection, learned counsel for the assessee placed reliance on a Division Bench decision of the Bombay High Court in Sandu Valji Vs. Bhikchand Surajmal, . The principles enunciated therein cannot be made applicable to the present case since the interpretation of the document in that case depended on the recitals contained therein. Even on the question whether the document considered by the Bench was an agreement which created rights in property, there was difference of opinion between the two judges. Whatever that be, the recitals in the agreement executed by the assessee have to be read and understood in order to ascertain whether a right over immovable property has been extinguished thereby. As observed earlier, there has been an extinguishment of right in clear terms. The decision cited by counsel is, therefore, of no assistance to the assessee.

Payment of plantation tax and the order of the sub-court recording the compromise are also pressed into service by the assessee. During the pendency of the appeal against the decision in the redemption suit, the children of the mortgagee obtained assignment of the right of the mortgagor and the appeal was dismissed on the dispute being compromised between the assignees and the respondents in the appeal, namely, the mortgagees. Mention is no doubt made therein that the mortgage right was discharged. That could have been only on the basis of the agreement dated August 23, 1976. When no valid transfer could have been effected by that document for the reasons mentioned earlier, the compromise between the parties and the order of the court recording that compromise will not confer any right on the assessee. For the same reason, the payment of plantation tax, if any, will not also clothe the transferee with ownership. The transfer by a registered document took place only in 1985. A valid transfer had taken place only then. The Tribunal has, therefore, not committed any error in finding that possession and enjoyment of the property continued with the assessee and that the property was released to his children only in 1985.

For the reasons aforesaid, the questions referred to this court are answered in favour of the Revenue and against the assessee.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Agricultural Income Tax Appellate Tribunal, Trivandrum.