- (1.) ON an application filed under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no actual transfer, there being no document in support of the alleged transfer of immovable property to Hindustan Safety Glass Works Ltd., Jaipur, as a going concern ? Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no justification for charging capital gains as well as profit under Section 41(2) of the Income-tax Act, 1961 ?"
(2.) THE assessee is a firm which was carrying on business of manufacture and sale of wind screen glass for automobiles and toughened glass. THE business and the factory was leased out to Auto Glass Industries which lease was also terminated in the accounting year relevant to the assessment year 1979-80. THE relevant assessment year in hand is 1980-81. For the year under review there was no manufacturing operation at all. THE assessee had entered into a financial arrangement with the Rajasthan Financial Corporation by means of a mortgage deed dated June 3, 1971, and received a sum of Rs. 4,60,000 as loan. THE property which was mortgaged includes land and the factory building and also various machineries. On the examination of the records, the Income-tax Officer found that the factory building along with machinery were agreed to be sold to Safety Glass Works Ltd. for a total cost of Rs. 24.5 lakhs through the R. F. C. vide agreement of sale dated September 25, 1979, and possession was also given to the party concerned. Before the Assessing Officer, the assessee submits that for immovable property transfer could be effected only by means of a registered deed which is yet to be effected and, therefore, in view of the provisions contained in Section 54 of the Transfer of Property Act, 1882, the property cannot be said to have been transferred and when the property has not been transferred, there is no question of taxing any profit arising in the year under consideration. The Income-tax Officer did not accept this. According to the Income-tax Officer, the agreement has been entered into for sale through the R. F, C. and the purchaser clearly showed that the assessee has no role to play at all. The agreement between the R. F. C. and the purchaser in question was in the nature of hire purchase, therefore, the assessee is liable to pay the capital gains tax. The Assessing Officer has arrived at an amount of Rs. 5,03,282 as capital gain on the sale of machinery and from that deduction under Section 80T was granted to the tune of Rs. 2,04,313. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has observed that there was no actual transfer, therefore, there is no question of charging profit under Section 41(2) or the capital gains. The view taken by the Commissioner of Income-tax (Appeals) has been upheld by the Tribunal. Heard learned counsel for the parties.
(3.) WHILE allowing the appeal of the assessee, the Commissioner of Income-tax (Appeals) has given a finding of fact and expressed the view that no capital gain as well as the profit under Section 41(2) does arise in this case and observed in para. 6 as under : "I find that there is considerable force in the arguments put forth by the appellant's counsel Shri M.R. Verma. I have gone through the assessment order and I have also gone through the rival submissions. I have also gone through the ratios of various decisions quoted by Shri Verma. Keeping in view the ratio of the Supreme Court decision reported in Alapati Venkata-ramiah v. CIT [1965] 57 ITR 185 ; CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi) and CWT v. Meattles P. Ltd. [1985] 153 ITR 201 (Delhi), I feel that there was no actual transfer as there was no document in support of the alleged transfer of immovable property as well as movable property to Hindustan Safety Glass Works Ltd., Jaipur, as a going concern. Therefore, there was no justification for charging capital gains as well as profit under Section 41(2). Both the grounds raised by the appellant, therefore, succeed. The appellant will, therefore, get resultant reliefs accordingly." In appeal before the Tribunal, the Tribunal affirming the view taken by the Commissioner of Income-tax (Appeals), in para. 6 has observed as under : "From the above three extracts it is clear that in respect of transfer, the Transfer of Property Act is not ousted as per the specific agreement and the loaner Rajasthan Financial Corporation, was obliged to receive the rents, pro- fits and income from the outgoings of the mortgaged premises in capacity of their agent and could appropriate the surplus of the rents, profits and income over the outgoings in payment of the interest accruing to the Corporation. The reliance of the Commissioner of Income-tax (Appeals) on the Supreme Court decision regarding transfer of property that the registration is a must in case where immovable properties are involved is also rightly placed. In the light of the above discussion and for the reasons given by the Commissioner of Income-tax (Appeals) in his order, his action is hereby confirmed." Whether for the purpose of taxing the income, registration of the sale deed is a condition precedent to tax the capital gain or profit under Section 41(2) of the Income-tax Act, 1961, though this issue is not directly considered by their Lordships in the case of CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC), but their Lordships have considered the issue in detail as to who will be the "owner" in case the possession has been given and the amount has been paid. At page 653, their Lordships have observed as under : "We are conscious of the settled position that under the common law, 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of Section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, 'to tax the income', we are of the view, 'owner' is a person who is entitled to receive income from the property in his own right." ;