1973 (8) TMI 8 - HC - Wealth-tax

Assessee paid security to allottee of a plot of land and erected building on it - allottee did not pay a stipulated amount of building charges and return deposited within time - release deed was executed, even though not registered - Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the right created by the release deed dated November 13, 1967, was not a right on the relevant valuation date, within the meaning of sub-paragraph (c) of Paragraph A of Part I of the Schedule to the Wealth-tax Act, 1957 ? - Question reframed and answered in the negative

Summary

Issues Involved:

1. Whether the Tribunal was legally correct in holding that on the valuation date, the assessee had acquired no rights in the land or the building within the meaning of sub-paragraph (c) of Paragraph A of Part I of the Schedule to the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Acquisition of Rights in the Property:

The primary issue revolves around whether the assessee had any rights in the land and building on the relevant valuation date, December 31, 1967, under the Wealth-tax Act, 1957. The initial question was reframed to clarify the scope, focusing on whether the assessee had acquired any rights in the property within the meaning of sub-paragraph (c) of Paragraph A of Part I of the Schedule to the Wealth-tax Act, 1957.

Facts and Agreements:

- The society agreed to allot a plot to Smt. Gurdevi on March 14, 1962. Smt. Gurdevi entered into an agreement with the assessee for constructing a house on the plot, with a condition that if she failed to pay the construction cost within ten days of receiving the completion certificate, she would convey her allotment rights to the assessee.
- Smt. Gurdevi failed to comply and executed a deed of release on November 13, 1967, releasing her rights in favor of the assessee. However, this release deed was not registered.
- The land was registered in the assessee's name on May 4, 1968, after the relevant valuation date.

Tribunal and Appellate Findings:

- The Wealth-tax Officer considered the construction cost as an investment in property and charged additional tax.
- The Appellate Assistant Commissioner upheld this, stating that rights had accrued to the assessee under the agreements, falling within the scope of the Wealth-tax Act.
- The Tribunal, however, held that since the release deed was not registered by the valuation date, the assessee had no rights in the property, and his only remedy was to seek specific performance of the contract.

Legal Analysis:

- The agreement dated March 14, 1962, was not merely a construction agreement but an agreement of conveyance, subject to certain conditions.
- The release deed dated November 13, 1967, required registration under section 17 of the Registration Act. Without registration, it could not limit or extinguish Smt. Gurdevi's rights or create any rights in the assessee.
- However, under section 55(6)(b) of the Transfer of Property Act, the assessee, having paid the purchase money and being in possession, was entitled to a charge on the property against Smt. Gurdevi and all persons claiming under her.

Charge vs. Mortgage:

- A charge, as defined in section 100 of the Transfer of Property Act, makes the property security for payment without transferring an interest as a mortgage does.
- A simple mortgage, defined in section 58(b), involves a transfer of interest allowing the mortgagee to cause the property to be sold.
- The distinction between a charge and a simple mortgage is minimal, both providing a right to payment out of the property.

Conclusion:

The assessee, under section 55(6)(b) of the Transfer of Property Act, had a charge on the property, which constituted a right within the meaning of sub-paragraph (c) of Paragraph A of Part I of the Schedule to the Wealth-tax Act, 1957. The Tribunal erred in holding that sub-paragraph (c) was inapplicable. Thus, the reframed question was answered in the negative, favoring the revenue and against the assessee.

Judgment:

The court concluded that the Tribunal was incorrect in its interpretation, and the assessee did have rights in the property on the valuation date. No order as to costs was made. The question was reframed and answered in the negative.