INCOME TAX OFFICER WARD1(2), JABALPUR vs. SMT. RAKHI AGRAWAL, JABALPUR

ORDER

Per Sanjay Arora, AM:

(AY 2014-15) ITO vs. Rakhi Agrawal 3. Before us, the case of either side was principally the same. As per the Revenue, it is well-settled that the title to or ownership of an immovable property (in excess of rupees one hundred) could not be conveyed by an unregistered document, which is not a valid document in law. The same becomes a legally valid document, which could be enforced in law, only on its registration, which is on 24.4.2013. The transfer thus became complete in law only on the said date, so that the assessee’s rights as the owner of the property conveyed thereby get recognized only with effect from that date. As per the assessee, on the other hand, sure, but once registered, it shall relate back to the date of its execution, i.e., 30.3.2013, for which reference is made to s. 47 of the Registration Act, 1908, which reads as under: ‘47. Time from which registered document operates.— A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.’ Section 56(2)(vii)(b), as it stood at the relevant time, i.e., up to the previous year ending 31/3/2013, did not include receipt of an immovable property for a lesser consideration as a taxable event, so that the deeming fiction of section 56(2)(vii)(b), as invoked, would not apply for AY 2013-14. For AY 2014-15, there is no taxable event inasmuch as the transfer and, thus, the receipt of the immovable property has been completed on 30.3.2013, the immediately preceding previous year.

(AY 2014-15) ITO vs. Rakhi Agrawal The respective cases 4.2 The Revenues’ stand is that the decision in Balbir Singh Maini & Ors. (supra) abundantly clarifies that after the coming into force of the 2001 Act, i.e., 24/9/2001, any transfer of immovable property valued above rupees one hundred, shall, on or after the said date, be recognized in law, including the Act, only where it is per a registered document, which in the instant case is only on 24/4/2013, falling in the current year. It is the date of registration that is therefore relevant, and the date of execution of the document is, for the purpose, irrelevant. As per the assessee, the transfer in the instant case is by way of sale, covered u/s. 2(47)(i). The transfer under the Act is therefore complete on 30.3.2013, the date of execution of the sale deed inasmuch as a unregistered document, on registration, relates back to the date from which it would otherwise have effect. Further, the Registration & Other Related Laws (Amendment) Act, 2001, making amendments to section 49 and section 53A of the Registration Act, 1908 and Transfer of Property Act, 1882 respectively, as well as inserting sub-section (1A) to section 17 of the 1908 Act, for which reference was made by the Revenue to the Balbir Singh Maini (supra), shall have no bearing in the matter. This is as section 53A of the TP Act relates to the doctrine of part performance, while the instant transaction is one of sale, covered u/s. 17(1) of the 1908 Act and section 2(47)(i) of the Act, wherein there has neither been any amendment nor are in any manner impacted by the passing of the 2001 Act, so that, where relevant, it shall definitely impinge on the transactions effected on or after 24/9/2001.

Case Law 4.3 We may next examine the case law cited and relied upon by either side.

(AY 2014-15) ITO vs. Rakhi Agrawal 4.3.1 In Podar Cement (P.) Ltd. (supra), the Apex Court examined the scope of the word ‘owner’ occurring in section 22 of the Act, bringing the income from house property to tax in the hands of its’ owner, a matter it had earlier decided in Jodha Mal Kuthiala vs. CIT [1971] 82 ITR 570 (SC) in the context of section 9(1) of the Income Tax Act, 1922, which was substantially the same as section 22 of the Act. This was due to a conflict of view between different High Courts, i.e., as between a ‘legal owner’ and ‘beneficial owner’, in whose hands the income from a house property is to be taxed inasmuch as a property cannot have two owners at the same time. The section, it had earlier explained in Jodha Mal Kuthiala (supra), brings to tax the income from house property and not the interest in the property. The owner u/s. 22 is thus the person who can exercise the rights of an owner, not on behalf of other, but in his own right. Thus, the person who receives the rent in his own right, appropriates the usufructs for his own purposes, having no interference at the instance of the vendor, i.e., the de facto owner, was to be regarded as the owner for the purposes of section 22, having regard to ground realities as well as the object of the Act, i.e., to tax the income. Strength was also drawn by it from the fact of insertion of clause (iiia) to section 27, deeming the person allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred in section 53A of the TP Act, by Finance Act, 1987 w.e.f. 1.4.1988, which it regarded as declaratory and, thus, retrospective. 4.3.2 The next decision referred to and, in fact, heavily relied upon by the assessee during hearing, stated to be covering the matter squarely, is Mormasji Mancharji Vaid (supra). The said case related to transfer of lease-hold rights by a lessee by way of sub-lease, deed for which was executed by the parties on 05.01.1974, and finally registered on 02.3.1974; the two dates falling in AYs. 1974-75 and 1975-76 respectively, so that the issue was of the effective date of transfer u/s. 2(47) for the purpose of charge of capital gains u/s. 45 of the Act. 7 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal The Hon’ble Court noticing the divergent views by the said Court itself, after deliberation at length, held that the transfer as defined u/s. 2(47) of the Act has to be given a simple meaning, taking into consideration the object of the Act. For the purpose of tax on capital gains u/s. 45, transfer of immovable property of value exceeding Rs.100/- is effected on the date of execution of the transfer, and not either on the date of presentation of the document for registration or on the date on which registration of the deed is completed. That is, the capital gains has to be assessed to tax for the assessment year relevant to the previous year within which the date of execution of the deed for transfer falls, and not the subsequent year relevant to the previous year in which the deed is registered. Heavy reliance was placed by it on Podar Cement P. Ltd. (supra). 4.3.3 The third decision referred to during hearing, relied upon by the Revenue, is Balbir Singh Maini (supra). In facts of the case, possession of subject land was given by the cooperative society, for and on behalf of its’ individual members, to the developer, to be conveyed thereto in phases, in lieu of, besides some payment in cash thereto, flats to the individual members of the society. The land, as per the joint development agreement (JDA), was to be conveyed in favour of the developer by way of registered conveyance deeds, piece meal, against payment in defined installments and/or allotment of flats to the members. The project, however, could not be completed and had to be abandoned midway for want of necessary permissions, and was finally interdicted by the Hon’ble Court. The Revenue, however, claimed accrual of capital gains u/s. 45 r/w s. 2(47)(v) qua the entire land on the basis of the JDA, inasmuch as there had been delivery of its’ possession by the society (and its members), attracting sec. 53A of the TP Act. This was repelled by the Hon’ble Court, among others, on the basis that the requirement of registration extended to a contract to transfer, i.e., after coming into force of the 2001 Act, whereby amendments were made to s.17 (by way of insertion of sub-section (1A)) and 8 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal s.49 of the 1908 Act, as also s. 53A of the 1882 Act. The joint development agreement having not been registered under the Registration Act, no protection u/s. 53A of the TP Act was available to the transferee-developer, so there was no transfer u/s.2(47)(v) of the Act. Discussion 4.4 We may now view the transaction with reference to the defining clauses of ‘transfer’ u/s. 2(47), which allows it a wide amplitude, whereby, rather, any arrangement which has the effect of transferring or enabling the enjoyment of any immovable property is regarded as transfer under its residuary clause (vi). It is for such like reasons that the Hon’ble Courts, as in Mormasji Mancharji Vaid (supra), have held that the term ‘transfer’ is to be, given the object of the Act, given a simple meaning. True, the word employed in sec. 56(2)(vii)(b)(refer para 2) is ‘receives’, not separately defined under the Act. The two concepts, i.e., ‘transfer’ and ‘receipt’, are however inextricably linked. It cannot be that a property is received by one without it being transferred thereto by the other, or, correspondingly, there is a transfer of property without it being received by the transferee. Further, the Act, it needs to be appreciated, is to be read as one whole. Reading the word ‘receives’ de hors the word ‘transfer’, as defined under the Act, would not only make it as without a firm legal basis, it would also render the Act as internally inconsistent. In fact, the word ‘receives’ in common parlance connotes putting one in effective charge of the chattel or the thing received, which agrees with the broad definition given to the term ‘transfer’ under the Act.

4.4.1 We shall first examine the transaction under reference from the stand- point of section 2(47)(i), i.e., as ‘sale’ simpliciter, as it actually is, so that there may be no need for travelling to any other clause of section 2(47) for the purpose (refer paras 3, 4.2 & 4.3.2). Section 17(1)(a) of the Registration Act 9 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal requires the sale deed, where the value of the immovable property being transferred is at Rs.100 or more, to be compulsorily registered, failing which, as per section 49, it shall not affect the immovable property comprised therein. Section 47 of the said Act, however, makes it clear that, upon registration, which in the present case takes place on 24/4/2013, the sale deed shall operate from the time it would otherwise have, i.e., had it not been required to be registered. That is, it shall operate from the date the agreement comes into force, being the date of its execution, 30/3/2013, in the instant case. This is also what has been clarified by the Hon’ble Court in Thakur Kishan Singh v. Arvind Kumar, AIR 1995 SC 73 and Hamda Ammal v. Avadiapppa Pathar [1991] SCC 715, referred to in Mormasji Mancharji Vaid (supra)(at pg. 555). In fact, the substituted section 56(2)(vi)(b) of the Act by Finance Act, 2013, w.e.f. 01/04/2014, itself makes it clear per first proviso thereto that where the date of agreement and of its registration is not the same, the stamp value as on the former date shall be adopted for the purpose of the provision. Though exception to the rule is made per the second proviso where a part of the sale consideration has been paid in cash (legal tender), the provision, in substance, seeks to give primacy to the date of the agreement, where it is, as in the instant case, subsequently registered. This also sums up the assessee’s case. The argument, impressive at first blush, is, however, inadmissible. This is for the reason that this aspect has been clarified on more than one occasion by the Apex Court. Per its’ constitution bench (comprising 7 judges) decision in Ram Saran Lall vs. Mst. Domini Kuer, AIR 1961 SC 1747, it was explained that the object of section 47 (of the Registration Act, 1908) is to decide which of the two (or more) registered instruments in respect of the same property shall have effect. It was observed that the said section does not say when the sale would be deemed to be complete. It only permits a document, when registered, to operate from a certain date which may be earlier than the date when it was registered. In sum, a sale which was required to be registered was not complete (AY 2014-15) ITO vs. Rakhi Agrawal until the registration of the deed was completed. The court thus read the section with reference to the object of the provision. How could, then, one wonders, the sale be said to take place prior to its’ registration? The scope of section 47 was again considered by the Apex Court in Hiralal Agrawal vs. Rampadarath Singh, AIR 1969 SC 244. The point canvassed before the Hon’ble Court was that the title acquired under a document which is subsequently registered would relate back to the date of its execution. The argument was in terms repelled by the Apex Court vide para 11 of its decision, placing reliance on its’ earlier decision in Ram Saran’s case. These decisions, referred to in Mormasji Mancharji Vaid (supra)(at pg. 546), hold the field to date and, besides, being by a larger bench, could even otherwise be over-ruled only by a still larger bench. The date of sale as per the law, in the present case, is thus 24/4/2013, and which therefore is the date of transfer u/s. 2(47)(i). In fact, not so construing would amount to one arm of law defeating another, which is impermissible in law, as explained in Jer & Co. v. CIT [1971] 79 ITR 546 (SC) and Bihari Lal Jaiswal v. CIT [1996] 217 ITR 746 (SC). The same, in effect, is also the sum and substance of the decision in Balbir Singh Maini (supra) qua s. 2(47)(v) of the Act r/w s. 53A of the TP Act, wherein again reference has been made by it to other decisions by the Apex Court. (also refer para 4.4.2) 4.4.2 We, next, consider the transfer with reference to section 2(47)(v) (para 4.3.3). The same is clearly inapplicable inasmuch as, even as contended by the ld. counsel, Shri Agarwal, before us, that it is not a case of part performance of a contract to transfer. Reference to the decision in Balbir Singh Maini (supra) is, therefore, to no consequence. There is, however, to our mind, another aspect of the matter. The said decision, contrary to what Shri Agarwal would suggest, has implication for section 2(47)(i) as well. In ratio, the decision clarifies that where a contract to transfer is required to be compulsorily registered (u/s. 17 of 1908 Act), no cognizance thereto under law, including the Act, could be given. This is in view of section 49 of the said Act, which provides for, among others, non- affecting any immovable property comprised in a document unless it has been 11 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal registered, i.e., where required to be so u/s. 17 of the said Act. Sec. 49, after the coming into effect of the 2001 Act, draws no distinction between a document required to be registered u/s. 17(1) or s. 17(1A) of the Registration Act. The amendments to sections 17 (way of insertion of sub section (1A)) and 49 of the said Act and section 53A of the TP Act, only place section 2(47)(v), in-so-far as it relates to transfer of immovable property per the modes defined u/s. 17 of the 1908 Act, and section 2(47)(i) of the Act, at par, i.e., on the same footing. 4.4.3 We may next examine the transaction from the stand-point of section 2(47)(vi) (refer para 4.3.1). The parties have executed the instrument of transfer on 30/3/2013, performing their respective promises, so that the contract is complete between them, i.e., except its registration, and toward which the same was submitted with the office of Sub-Registrar on 30/3/2013 itself. Though it is not clear as to how it was so as 30/3/2013 happens to be a Saturday (whereat the Government offices are generally closed) and, besides, at 6:45 p.m., while the Government offices generally close earlier, i.e., latest by 6 p.m. However, the said date and time, manifest on the document (PB pgs. 39-58), are not in dispute. Could it, therefore, on the basis thereof, be said that the assessee-buyer is the de facto owner of the subject property as on 30/3/2013? We see no reason for it to be not so. True, being not registered, the said instrument is not a valid contract, which is by definition an agreement enforceable in law (s. 2(h) of the Indian Contract Act, 1872). At the same time, we cannot but take cognizance of the fact that the parties intended registration thereof and, in fact, moved with alacrity for the same. Some time, it may be appreciated, would always lapse between the two events, over which time the rights under Specific Relief Act of a transferee for consideration stand protected in terms of s. 49 of the Registration Act itself. Sure, no cognizance can in law be given to the document as on 31/03/2013, the year-end and, thus, the material date, in view of sec. 17 r/w s. 49 of the Registration Act. The import of the same, however, would only 12 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal be that the assessee cannot be regarded as the legal owner of the subject land as at the year-end. However, even as explained in Balbir Singh Maini (supra), relied upon by the Revenue: ‘The object of section 2(47)(vi) appears to be to bring within the tax net a de facto transfer of any immovable property. The expression “enabling the enjoyment of” takes its colour from the expression “transferring”, so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof.’ (pg. 550) We have already noted that both the parties to the conveyance deed have performed their parts of the contract, i.e., giving and taking possession of the land as well as paying and receiving full consideration in its respect. Even earlier, in the context of section 22, i.e., bringing the income from house property to tax in the hands of its’ owner, on being called upon the resolve the conflict between a ‘legal owner’ and ‘beneficial owner’, the Apex Court clarified in Podar Cement Pvt. Ltd. (supra) that though under common law ‘owner’ means a person who has got a valid title legally conveyed to him after complying with the requirements of law, such as Transfer of Property Act; the Registration Act, etc., in the context of section 22 of the Act, having regard to the ground realities and, further, the object of the Act, namely to tax the income, the owner is the person who is entitled to receive the income in his own right. The requirement of registration of the sale deed is, in the context of section 22, not warranted, and affirmed its’ decision in Jodha Mal Kuthiala (supra). Earlier, in CIT (Addl.) vs. Sahay Properties Investment Co. P. Ltd. [1983] 144 ITR 357 (Pat), the Hon’ble Court held as under, which was noted with approval in Podar Cement Pvt. Ltd. (supra): (pg. 364) "The juristic principle from the view-point of each one is to determine the true connotation of the term ‘owner’ within the meaning of section 22 of the Act in its practical sense, leaving the husk of the legal title beyond the domain of ownership for the purpose of this statutory provision. The reason is obvious. After all, who is to be taxed or assessed to be taxed more accurately - a person in receipt of money having 13 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal actual control over the property with no person having better right to defeat his claim of possession or a person in legal parlance who may remain a remainder man, say at the end or extinction of the period of occupation after, again say, a thousand years?" Here it also needs to be noted that in Atmaram Sakharam Kalkaye v. Vaman Janardhan Kashelikar, AIR 1925 Bom 210, again referred to in Mormasji Mancharji Vaid (supra)(pg. 548), the Hon’ble Bombay High Court, per its full bench decision, after an at length consideration of the provisions of the TP Act and the Registration Act, held that the donor was not competent to revoke the gift of an immovable property before the document (gift deed) was registered. The Registration Act, it explained, does not necessitate the consent of the transferor being obtained for registration. Consequently, sections 54 and 59 of the TP Act (which deal with transfers by way of ‘sale’ and ‘mortgage’ respectively) were construed as necessitating two things, viz. (a) transfer executed by the transferor, and (b) registration, which may be effected by either of the parties, but which does not depend on the consent of the transferor. It is thus not possible for the transferor to revoke the transaction, i.e., before its registration, so that the protection of law is available to the transferee. This would enable one to understand, or understand better, as to why it is said that the ‘transferee’ enjoys a better right to the property than anyone else or that there is no person with a better right to defeat his claim. Section 2(47)(vi) recognizes a de facto transfer for the purposes of the Act, and there is accordingly a transfer u/s. 2(47)(vi) of the Act on the execution of the agreement on 30/3/2013.

In conclusion 5. The de facto ownership, recognized in Podar Cement Pvt. Ltd. (supra), is for the purpose of section 22 of the Act. The reason/s therefor is not far to seek, i.e., the object of the Act, being to tax the person who is in the effective control of the asset (property), and who has a better title thereto than anyone else, 14 | P a g e (AY 2014-15) ITO vs. Rakhi Agrawal receiving income therefrom in his own right. We say ‘better title’ inasmuch as though the transferee cannot, pending registration, be regarded as the legal owner, yet has been given possession by the transferor, who is bound to honour his part of the contract, and is constrained not to revoke it nor object to its registration. Though the Apex Court in Jodha Mal Kuthiala (supra) justified its’ decision on, among others, the ground that section 9(1) (corresponding to section 22 of the Act) seeks to tax the income from the house property, and not the interest therein, the two concepts, as would be apparent, merge at one point inasmuch as a de facto transfer would lead to a de facto ownership. That, in fact, is the whole premise of relying on the decision in Podar Cements (P.) Ltd. (supra) by the assessee or, for that matter, by the Hon’ble Court in Mormasji Mancharji Vaid (supra). No doubt, the word employed in section 56(2)(vii) is ‘receives’. The same, again, could only mean receipt in his own right, assuming effective control over and right on the usufruct of the property, implying a de facto ownership. It is only a de facto transfer, which stands recognized u/s. 2(47)(vi) of the Act, that would result in a de facto ownership, fulfilling the requirement of a ‘receipt’ u/s. 56(2)(vii) inasmuch as it enables one to exercise, for all practical purposes, rights in and over the property ‘received’. While the sale, resulting in a de jure ownership, is complete only on 24/4/2013, the de facto transfer, leading to a de facto ownership, gets completed earlier on 30/3/2013 on the execution of the instrument of sale, with each party having fulfilled his part of the contract to transfer. There is thus receipt of the subject land by the assessee on 30/3/2013, i.e., during the previous year relevant to AY 2013-14, the immediately preceding year. The taxable event u/s. 56(2)(vii)(b) thus takes place during the said year, and not the current year. That, for that year, the law did not bring the short consideration to tax, but only where the subject property is received without