1971 (5) TMI 8 - HC - Income Tax

Balancing allowance - agreement to sell the mill for consideration below written down value - claim for deduction u/s 10(2)(vii) of the Income-tax Act, 1922

Summary

Issues Involved:
1. Entitlement to deduction under Section 10(2)(vii) of the Indian Income-tax Act, 1922.
2. Definition and interpretation of the term "sale" under Section 10(2)(vii).
3. Legal implications of the transfer of ownership without a registered sale deed.

Detailed Analysis:

1. Entitlement to Deduction under Section 10(2)(vii) of the Indian Income-tax Act, 1922:
The primary issue was whether the assessee-company was entitled to the deduction of a loss amounting to Rs. 3,58,783 under Section 10(2)(vii) of the Act. The assessee-company had transferred its Crown Flour Mills to its subsidiary, Hindustan Cold Stores and Refrigeration Ltd., and claimed the deduction for the loss incurred from this transfer. The Income-tax Officer disallowed this claim on the ground that no registered sale deed had been executed, and thus the business of the Crown Flour Mills was still considered to be that of the assessee-company.

2. Definition and Interpretation of the Term "Sale" under Section 10(2)(vii):
The court had to determine the meaning of "sale" within the context of Section 10(2)(vii). The Tribunal initially interpreted "sale" in its popular and commercial sense, suggesting that the passing of property was not essential for the completion of a sale. However, the court disagreed, stating that the term "sale" must be interpreted in its legal sense as defined by law, specifically under Section 54 of the Transfer of Property Act, 1882. This section stipulates that the transfer of ownership in exchange for a price paid or promised must be made by a registered instrument for tangible immovable property of the value of one hundred rupees and upwards.

3. Legal Implications of the Transfer of Ownership without a Registered Sale Deed:
The court examined whether the execution of an agreement and the transfer of possession constituted a "sale" in the absence of a registered sale deed. The assessee-company argued that the transaction should be considered a sale based on the doctrine of part performance under Section 53-A of the Transfer of Property Act. However, the court noted that this doctrine does not affect the rights of a transferee for consideration who has no notice of the contract of sale or part performance. Therefore, without a registered sale deed, the transaction could not be considered a sale, and the assessee-company had not legally divested itself of the ownership of the Crown Flour Mills.

Conclusion:
The court concluded that the assessee-company had not sold the Crown Flour Mills to the subsidiary company within the meaning of Section 10(2)(vii) of the Act. Consequently, the assessee-company was not entitled to claim the deduction of the loss of Rs. 3,58,783. The answer to the reframed question was in the negative, in favor of the revenue and against the assessee. There was no order as to costs.