1991 (8) TMI 143 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Release Deed constituted a transfer resulting in capital gains.
2. Applicability of Section 52(2) of the Income-tax Act regarding the consideration for the transfer.

Issue-wise Detailed Analysis:

1. Whether the Release Deed constituted a transfer resulting in capital gains:

The primary contention was whether the unregistered Release Deed dated 20-11-1978 resulted in a transfer of property, thereby giving rise to capital gains. The assessees argued that there must be registration under the Registration of Immovable Property Act before a property could be said to have been transferred, citing the Supreme Court decision in Alapati Venkataramiah v. CIT. They also relied on the Delhi High Court decision in Mercury General Corpn. (P.) Ltd., which held that even for the relinquishment of interest in property, a registered document was necessary. The Tribunal noted that the Delhi High Court is the jurisdictional High Court in the present cases and thus adhered to its judgment. Consequently, the Tribunal held that there was no relinquishment of the asset or extinguishment of any rights therein in law due to the lack of a registered Release Deed. Additionally, the Tribunal observed that if Section 53A of the Transfer of Property Act regarding part performance of the contract was already included in the definition of transfer, there would have been no need to amend Section 2(47) by the Finance Act, 1987. Furthermore, the Tribunal noted the applicability of the Urban Land (Ceiling & Regulation) Act, which prohibits the transfer of such property without prior approval from the competent authority. Since no such approval was obtained, the transfer was void ab initio. Thus, the Tribunal concluded that there was no transfer of the property by the assessees to the company in law, and hence no capital gains were chargeable.

2. Applicability of Section 52(2) of the Income-tax Act regarding the consideration for the transfer:

The second issue revolved around whether Section 52(2) could be invoked given the admitted consideration for the transfer. The assessees contended that the consideration for the transfer was Rs. 8,55,000, and 1/3rd of which amounted to Rs. 2,85,000. They relied on the Supreme Court decisions in K.P. Varghese v. ITO and CIT v. Shivakami Co. (P.) Ltd., which held that unless there is evidence of receiving more than what was stated, no higher price could be taken as the basis for computing capital gains. The Tribunal found merit in these arguments, noting that the only basis for assessing higher capital gains was the report from the Departmental Valuation Officer, which was deemed fair and reasonable by the CIT (Appeals). However, there was no evidence to suggest that the assessees received more than the stated consideration. Therefore, the Tribunal held that the provisions of Section 52(2) could not be invoked simply because of a wide variation between the fair market value and the amounts credited by the company. This submission of the assessees also succeeded.

Conclusion:

The Tribunal concluded that due to the lack of a registered Release Deed and the absence of prior approval from the competent authority under the Urban Land (Ceiling & Regulation) Act, there was no legal transfer of the property, and hence no capital gains were chargeable. Additionally, the Tribunal held that Section 52(2) could not be invoked in the absence of evidence indicating that the assessees received more than the stated consideration. Consequently, the appeals were allowed.