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TMI Blog1983 (11) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... me its owners. The flat has been sold by the assessee and his mother to Mr. V. B. Dalal and Mrs. B. V. Dalal for Rs. 1,80,000 with vacant possession in May, 1976. 2. The ITO computed the surplus at Rs. 1,31,213 by deducting Rs. 46,287 being the legal expenses incurred in connection therewith from the sale consideration. The assessee's share in the flat being half and the sale having taken place within four five months of the purchase he included Rs. 66,606 (half of Rs. 1,31,213) as the assessee income from short term capital gains. Before the CIT (A) the assessee's contention was that the assessee had sold the flat with vacant possession that this comprised of two 'capital assets' namely, occupancy right and the remaining right of the owner including title that these two, capital assets were asset were acquired by the assessee in 1962-63 and in January, 1976, and that, therefore, both the computation of the profits and gains and its treatment as income from short term capital gains were not justified. However, the CIT (A), rejected the contentions for reasons given in para 3 of his order. According to him, the fact that the assessee was a tenant in possession before he purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Ors. vs. CWT (1970) 76 SC 471 (SC), (ii) Bombay Corporation vs. Pancham AIR 1965 SC 1008, (iii) A. Gasper vs. CIT (1979) 12 CTR (Cal) 149 : (1979) 117 ITR 581 (Cal), (iv) Arshad Walliullah vs. CED (1972) 83 ITR 150 (All), (v) A. R. Krishnamurthy & A. R. Rajagopalan vs. CIT 1981 21 CTR (Mad) 320 : (1982) 133 ITR 922 (Mad), (vi) Baijnath Chaturbhuj & Anr. vs. CIT (1957) 31 ITR 648 (Bom), (vii) Traders & miner Ltd. vs CIT (1955) 27 ITR 341 (Pat). According to Sri Patil full ownership in case of immovable property means acquisition of bundle of rights which, in turn, means a number of rights culminating into full ownership. This bundle of rights can be purchased or acquired by a person ordinarily by means of one transaction. It can also be purchased/acquired in stages, i.e., by means of more than one transaction so much so that when ultimately the full ownership is transferred, what is transferred is the bundle of rights acquired/purchased in stages which blossomed into the full ownership over the property. Reference in this context has been made to a Tribunal's decision in the case of ABC vs. ITO (1982) 1 ITD 724 (Bom) wherein a similar case, it was held that the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the tenancy right has not value would be most unrealistic and inequitable. In other words, his contention is that if it is held that after the fusion of the tenancy right into the ownership right what is transferred is the ownership of the flat which of course, included the tenancy right i.e., the right of occupation, the value of the right of occupation will have to be estimated and then only the short term capital gain should computed. 8. In order to appreciate the rival contention, it is desirable to refer to s. 45 of the IT Act, 1961, which reads as under: "45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss. 53, 54, 54B, 54D and 54E be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of the previous years in which the transfer took place." The section evidently makes the profits or gains arising from the transfer of capital asset chargeable to income-tax under the read has 'capital gains' in certain circumstances. The crucial expression used in the section is "transfer of a capital asset". "Capital asset" has been defined in s. 2(14) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel do not really support the Department's case. On the contrary, they also show that the right to occupy a flat is also a species of property: "We therefore, unhesitatingly come to the conclusion that this species of property, namely, the right to occupy a flat of this type, assumes significant importance and acquires under the law a stamp of transferability in furtherance of the interest of commerce. We have seen no fetter under any of the legal provisions against such a conclusion. The attachment and the sale of the property in this case in execution of the decree are valid under the law." In view of so many authorities, it must be stated in fairness to sri Joshi the ld. counsel for the Revenue that he did not seriously dispute the proposition that the right of occupation as a tenant is a valuable right and therefore, is a property and is a capital asset within the meaning of s. 3(14) of the IT Act, 1961. 10. Ordinarily, therefore, there should be no difficulty in accepting that the assessee acquired one "capital asset" in the shape of right of occupation as a tenant in the year 1962-63. He acquired another "capital asset" in January, 1976, when he purchased the remaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gger estate simpliciter. To our mind, after the merger, the asset became a full estate, i.e., composite estate, which is different from the smaller estate as well as the bigger estate, referred to above. It is pertinent to mention that it is this composite estate or full estate which has been sold by assessee in May, 1976. 11. The nest question that arises for consideration is whether the sale consideration for the aforesaid composite or full estate is one sum. It can be apportioned into what is attributable towards the smaller estate, i.e., the right of occupation as a tenant, and the bigger estate, i.e., the remaining interest of the landlord over the flat. In this connection it is desirable to refer to the decision of the apportionment of the sale price does not appear to be legally possible in view of what the Supreme Court has held in the cases of CIT vs. Mugneeram Bangur & Co. (1965) 57 ITR 299 (SC), CIT vs. West Coast Chemical & Industries Ltd. (1962) 63 ITR 224 (SC). These were cases of slump sale, i.e., where for the business was sold lock, stock and barrel. Separate values for each asset were not fixed in the agreement of sale. A question was posed whether any portion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the cost of the composite estate sold herein is computed by taking into account the market value of the smaller estate as on the date of acquisition of the bigger estate. Since the ITO has not considered the issue from this point of view, we set aside the order of assessment and direct the ITO to recompute the surplus liable to short term capital gain afresh after allowing the assessee an opportunity of being heard. 15. In our above view, we find support from a Calcutta High Court decision in the case of Mrs. A Ghosh vs. CIT (1983) 33 CTR (Cal) 179 : (1983) 141 ITR 45 (Cal). The assessee in that case, held debenture bounds of a company in Dec., 1962, under the second mortgage debenture trust deed executed in Sept., 1963, the debenture holders had an option to exchange the debenture into fully paid up acuity shares. The assessee exercised debenture for equity shares. In March, 1964 she sold the equity shares. The ITO treated the surplus of such sale as a short term capital gain and this was upheld by the Tribunal. However, it was held by the Hon'ble High Court that the cost of acquisition of the debentures could not be taken as the cost of acquisition of the shares and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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