G.K.MITTER, J. - (1.) THE main question for determination in this reference is whether there was a sale by the assessee of its immoveable properties to Hall and Anderson Ltd., a public company, on 1st Dec., 1946, within the meaning of s. 12B(1) of the Indian IT Act, 1922.
(2.) THE assessee bearing the name, Hall and Anderson Limited, is a private company incorporated under the Indian Companies Act, 1913. It used to carry on business as general drapers, outfitters, furnishers and warehouse owners in Calcutta. On 29th Nov., 1946, it entered into an agreement for sale of all its properties and assets in Calcutta and Darjeeling to a new public company also bearing that name. THE document executed in this connection shows that the vendors agreed to sell and the new company agreed to purchase w.e.f. 1st Dec., 1946, all the freehold land lying at 31, Chowringhee Road, and 1, Russell Street, Calcutta, together with all buildings, fixtures, furniture and other moveable property and the monthly tenancy of the premises at Commercial Road, Darjeeling, and all cash, bank and other balances, stock-in-trade, books debts, etc., belonging to the vendors including the benefit of any EPT refund and the advantages of all contracts with assistants and other and generally the whole of the undertaking and assets of the vendors including its goodwill and the right to use the name "Hall and Anderson". THE price was fixed at Rs. 80,00,000 apportioned in the manner following, namely, Rs. 20,00,000 for the freehold land, Rs. 30,00,000 for the buildings and other immoveable properties and Rs. 30,00,000 for the moveable properties. Possession was to be given to the new company on the execution of the agreement for sale or at any rate within two weeks thereof. THE vendors undertook to execute a conveyance and any other documents which might thereafter be considered necessary in respect of the portions of the premises agreed to be sold but which did not pass by delivery of possession. THE new company agreed to accept such title as the vendors had, as also all existing liabilities and debts of the vendors. THE new company further agreed to retain the services of any member of the vendors' staff who wished to remain on the same terms as before. It will be noticed from the above that the intention of the parties was that the public company would step into the shoes of the assessee as soon as possible and within a fortnight from 29th Nov., 1946. As a matter of fact possession of the entire properties was delivered to the new company on 1st Dec., 1946. There can be no doubt again that the parties intended that whatever properties or assets the assessee had would be put into possession of the new company immediately and the assessee would execute a sale deed or any other document which might be required by the new company to perfect its title. For some reason or other, there being no suggestion that it was with the intention of avoiding payment of any tax, the sale deed in respect of the immoveable properties was not executed until 26th Feb., 1949. The deed of sale recites that the vendors, on being called upon to execute a conveyance "for the purpose of formally transferring the lands, hereditaments and premises" mentioned in the agreement for sale, were granting, selling and conveying unto the new company free from incumbrances all the immoveable properties mentioned in the agreement for sale. The question is whether the sale for the purpose of s. 12B(1) of the Indian IT Act was effected on 1st Dec., 1946, as claimed by the Revenue or on 26th Feb., 1949, as claimed by the assessee. If the sale be held to have been effected in December, 1946, the assessee will have to pay tax on the capital gains but will be exempt therefrom, if the date of sale be in February, 1949. This reference turns on the interpretation of s. 12B(1) and s. 12B(2) of the Indian IT Act as they stood until repealed by the Indian Finance Act, 1949. The portions of the sections with which we are concerned in this case are as follows : "12B. Capital gains.--(1) The tax shall be payable by an assessee under the head 'capital gains' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st March, 1946, and before the 1st April, 1948, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place... Provided further that the tax shall not be payable by an assessee in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset, being property the income of which is chargeable under s. 9 and which has been possessed by the assessee or a parent of his for not less than seven years before the date on which the sale, exchange or transfer took place; and the amount of such profits or gains shall not be included in his total income.... (2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made namely :... Provided further that where the capital asset became the property of the assessee... before the 1st day of January, 1939, he may, on proof of the fair market value thereof on the said date to the satisfaction of the ITO, substitute for the actual cost such fair market value which shall be deemed to be the actual cost to him of the asset, and which shall be reduced by the amount of depreciation, if any, allowed to the assessee after the said date and increased or diminished, as the case may be, by any adjustment made under cl. (vii) of sub-s. (2) of s. 10."
(3.) THE questions which have been referred to this Court are as follows : "(1) Whether, on the facts and in the circumstances of the case, the sale by the assessee of its immoveable properties to Hall and Anderson Ltd., a public company, was a sale effected on 1st Dec., 1946, within the meaning of s. 12B(1) of the Indian IT Act ? (2) If the answer to the aforesaid question be in the affirmative whether by virtue of the second proviso to sub-s. (1) of s. 12B, the entire sum of capital gains was exempt from charge and not merely 1/6th portion thereof being the value of 1/6th portion of the premises let out to tenants ? (3) In arriving at the actual cost of the premises as on 1st Jan., 1939, is the assessee entitled to claim under the third proviso to sub-s. (2) of s. 12B to deduct the whole of the depreciation allowed in the assessments since 1st Jan., 1939, i.e., Rs. 1,44,642, from out of the fair market value, before allocating the actual cost between the 5/6th portion of the premises occupied and 1/6th portion let ?" The Indian IT Act does not purport to define a sale or exchange or transfer of property. So far as immoveable property is concerned these expressions have been defined in various sections of the Transfer of Property Act. In this case we are only concerned with "sale" which has been defined by s. 54 of the Transfer of Property Act to mean a transfer of ownership in exchange for price paid or promised or part paid and part promised. Such transfer in the case of tangible immoveable property of the value of one hundred rupees and upwards can be made only by a registered instrument. The said section further shows that a contract for the sale of immoveable property does not of itself create any interest in or charge on such property. Ownership in moveable property may pass by mere delivery of possession but in the case of immoveable property a buyer who is put in possession thereof in furtherance of the contract of sale on payment of the entire purchase price does not acquire title to the property so long as an instrument of transfer is not executed and registered by the vendor. It is true that a transferor or any person claiming under him may be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken possession and has done some act in furtherance of the contract and is willing to perform his part of it. In this case the public company had paid the full price agreed upon and had gone into possession of the property on 1st Dec., 1946. It was not, therefore, open to the assessee to enforce any right in respect of the property against the public company. It may therefore be said that, in substance, though not in law, the public company had become the owner of the property on 1st Dec., 1946. On behalf of the Revenue it was contended that the substance of the transaction has got to be considered for income-tax purposes and that the only thing remaining outstanding on 1st Dec., 1946, being the execution and registration of a formal document to record the transfer, the sale should be treated as having been effected on the said date for income-tax purposes. In support of this, our attention was drawn to the recital in the agreement for sale that the public company was being incorporated for the purpose of acquiring and taking over the whole of the undertaking and assets of the assessee immediately, that the agreement for sale was a composite document executed for the purpose of giving effect to the said intention, that the public company was not even entitled to investigate into the title of the assessee, but had to accept such title as the assessee had, that the public company was to take over all existing liabilities and to continue employment of members of the assessee's staff who wished to serve the new company and in short to replace the assessee with regard to the whole of its undertaking and assets as from the date of the agreement or at least from a period within two weeks thereafter. Reference was also made to the recital in the conveyance executed on 26th Feb., 1949, that the sale deed was executed merely for "formally transferring the lands, hereditaments and premises mentioned in the agreement for sale. Reliance was also placed on the facts that the balance-sheet of the assessee as on 31st March, 1947, disclosed that all the assets of the assessee had been sold away, that the assessee had not claimed any depreciation on the assets from 1st Dec., 1946, and that the public had shown the same assets as purchase from the assessee in his balance-sheet and as owned by it from 1st Dec., 1946, claiming depreciation thereon.;