JUDGMENT
Raghuvir, J.
1. In this reference Begum Noorbanu Alladin is the assessee. She owned a building “Rock-land House” and a vacant land of five acres at Sanatnagar. The assessee gifted away the two properties. The Rockland House was gifted on 17-9-1963 to her daughter-in-law Sultana and two grandsons-Aziz Noor Mohd. and Asif Noor Mohammad. Three days later a memorandum was reduced to writing confirming the oral gift reduced to writing confirming the oral gift on 20-9-1963. As to the vacant land, the assessee made an oral gift on 1-4-1966 in favour of a charitable trust. Mohd. and Noor Mohammad are the trustees of the trust. The trustees were delivered the vacant land. The two confirmation deeds executed by the donor on 20-9-1963 and on 1-4-1966 were not registered under the Indian Registration Act. Begum Noorbanu Alladin died. Before the authorities of the IT Act, 1961 the legal representatives of the donor asserted that the gifts were true and were made on 17-9-1963 and 1-4-1966. The donor ceased to be the owner of the two properties. The ITO and the appellate authority did not accept the gifts as valid in law though true in fact. The appellate Tribunal accepted the gifts to be true and held that the donor no more held the two properties, therefore, she or her legal representatives cannot be in law taxed for the income of the property derived by the donees.
2. The assessee under her personal law was entitled to make an oral gift of two properties. She did make oral gift. The donees received the properties. In the case of Rockland House the confirmation deed was executed three days later, on 20-9-1963. The document was not compulsorily registerable. Notwithstanding the fact of non-registration, the oral gift made on 17-9-1963 is true and valid in law. The position, however, as respects the vacant land is different. The gift was made on 1-4-1966 and contemporaneously the memorandum of confirmation was drawn. The memorandum, since was not registered under the Indian Registration Act, became inadmissible in evidence. As a result or sequel of non-registration the oral gift cannot be proved for the deed is inadmissible. This position is so clear that it needs no further discussion.
3. The issue that arises is whether ground rent received as of fact by the trustees. Dost Mohammad and Noor Mohammad can be taxed under the Act in the hands of the legal representatives of the assessee for the donor died possessed of title of the vacant land. The donor ceased to hold the land and did not receive any income is not at all doubted. On the other hand the trustees of the donee received is also accepted. It is in this circumstance the question at issue under what classification of s. 14 of the IT Act, 1961 the property has to be computed as the income of the donee if at all such an income is to be taxed.
4. The Appellate Tribunal, at the instance of the revenue referred the following question for the answer of this Court :
“Whether, on the facts and in the circumstances the income of the house property known as Rockland House and also the lease amount on the land measuring 5 acres situated at Sanatnagar are assessable in the hands of the assessee ?”
The question is capable of simple answer so far as the Rockland House is concerned. The income from the house is to be taxed in the hands of the donees. The assessee-donor is not liable to pay the tax on the above house. The question, however, is wrapped up in complexity as respects the lease amount for five acres of land.
5. The ld. counsel for the assessee asserts the donor is still liable in law to pay taxes on the income derived from the vacant land. The donor is liable to account for the income under clauses of s. 14 of the Act – “Income from other sources”. The revenue in this case relied on Supreme Court case Pushpa Devi v. CIT, New Delhi a case from the Delhi High Court. In that case Pushpa Devi was a member of an HUF. She was held not a coparcener of the HUF. This aspect was held by the Delhi High Court as well as the Supreme Court. In the Supreme Court supplemental facts were called for as respects the second question related to blending under Hindu Law affecting some funds. The Delhi High Court held that Pushpa Devi is a member of the joint family. She blended her amounts with the coparcenary of her HUF. Therefore, she could not be assessed on income derived from her blended property. This issue was not considered in the Supreme Court due to supplemental facts as what was blended was accepted as gifted by her to coparceners. The Supreme Court, therefore, did not as of fact decide the question. Therefore, we reject the contention of the revenue that by “implication” the judgment supports the contention raised by the assessee.
6. The next case relates to a promise of gift made in favour of a college [Madhav Prasad Jatia v. CIT, U.P. ] by the assessee. It was held as of fact there was no gift made. What was assessed was a mere promise made by the assessee. Even as to that it was stated as not part of a business transaction, but a personal promise made by the assessee. In that the assessee (a promissor) agreed to gift Rs. 10,000,00 to a college. The Supreme Court considered the facts and held that there was no gift made. The assessee made a promise in favour of a college and the amount of ten lakhs was not parted by the assessee. In view of these facts whether the assessee should not be taxed or should be taxed affecting the gift was not decided in the case. Therefore, the ratio in the above case does not support the contention of the revenue.
7. In the course of the debate, the following observations in two cases are relied upon by the ld. counsel for the assessee. In CIT, Gujarat v. A. Raman & Company , it was observed, “but the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands income which he could, but has not earned, is not made taxable as income accrued on him”. In CIT v. Prafula Kumar Mallic (1969) 73 ITR 119 (Ori), the observation relied on is, “Moreover, it is an elementary principle of income-tax law that a man is taxed only on the profits he actually receives and not on the profits he might have, but has not received”. These observations are emphasised by the ld. counsel to hold the gift of vacant land of five acres even if the donor is not holding the property therefore, the donor is more obliged to pay the tax. We may state as not wish to rest our judgment merely on the extracted observation, of the issue is covered by the decision of this Court to that we return later.
8. In two cases of Patna High Court the question arose as regards house property. Houses are dealt under a special provision under the IT Act, 1961. Therefore, we understand the ratio in the background of law with reference to what is laid down under s. 22 of the Act. In both the cases the transactions were entered to redeem dower in favour of the respective spouses. In CIT v. Syed Saddique Imam & Ors. (1978) 111 ITR 475 (Pat) (FB), it was held there was no transfer made. The document of transfer was not registered… The assessee-spouse ceased to hold the house, therefore, he is not accountable for the income derived from the house. In Syed Saddique Imam And Ors. v. CIT (1979) 117 ITR 62 (Pat) in a like situation, a contention was raised on behalf of the revenue and s. 22 was considered in the sense it was referred. In the two cases the transfers were hit by the provisions of the Indian Registration Act. The transfers were, on facts, invalid in law. The transfers parted the houses. The ratio in the two cases, as stated earlier can be explained from the provisions of s. 22. The Parliament made a special provisions in the Act to hold if the title in the house property does not pass in a gift the donor in such case is liable in law to pay taxes on the income of such houses. This is peculiar to houses. There is no provision in the Act to affect other houses. The instant case is of vacant land and not a house.
9. We may now refer to the decisions of this Court in ITO v. Nizam’s Dependants & Khanzada Trust . In that case the question arose whether Rs. 23.5 lakhs can be excluded from the net wealth of the assessee. Answering the question, the decisions in R.C. No. 59/76 was referred. It was held the amount of Rs. 23.5 lakhs would cease to be the asset of the Nizam, therefore, it was not available for inclusion in the net wealth of Nizam. The judgment of the Rajasthan High Court in CIT v. Motilal Ramswaroop was approved and followed and it was held :
“Once the wealth goes out of the hands of the assessee, that wealth including the interest accrued thereon would not be available for assessment of either wealth-tax or income-tax in the hands of the assessee.”
The ratio in the above case is apposite for application in the facts of the instant case.
10. Following the above case, we hold the income from Rockland house cannot be taxed in the hands of the assessee. The income of ground rent as respects 5 acres of land also cannot be taxed as the assessee ceased to hold the land. The answer is against the revenue. No costs.