ORDER
M.C. Agarwal, Judicial Member
1. This is an appeal by the Revenue arising out of the assessee’s assessment for assessment year 1980-81.
2. We have heard the learned Departmental Representative and the learned counsel for the assessee and have perused the material placed before us.
3. The only point arising in this appeal is whether the profit earned by the assessee on the sale of a plot of land at Chandigarh is a long-term capital gain, as alleged by the assessee, or a short-term capital gain, as assessed by the ITO.
4. The facts are that the assessee was allotted a plot of land bearing No. 129 by the Urban Estate Officer, Punjab at Chandigarh on 28-4-1972. Possession of the said plot was delivered to the assessee on 24-7-73. The total price that the assessee was to pay for this plot measuring 500 sq. yd. was Rs. 13,500 and 15% thereof was to be paid within 30 days of the date of allotment. The allotment letter stated that after 25% of the amount had been paid, the assessee would have to execute a deed of conveyance in the prescribed form in such manner, as may be directed by the Estate Officer. The balance of 75% of the purchase price would be paid either in lump sum or in six equated annual instalments along with interest @ 7% p.a. The allotment was liable to cancellation in case any declaration made in the application for allotment was found to be incorrect and the allotment was also to be subject to the provisions of the Punjab Urban Estates (Development & Regulation) Act, 1964. It was in terms of this letter of allotment that the assessee got “a sale deed executed in his favour on 31-1-1979 and thereafter sold the property on 29th October, 1979. Thus, while according to the assessee, he held the asset sold from 24-7-73, the date on which he took possession of the plot from the Estate Officer, according to the ITO the assessee became the owner of the asset only on 30-1-1979, when the Estate Officer executed a sale deed in his favour.
5. On behalf of the revenue reliance was placed on a recent judgment of the Hon’ble Supreme Court in the case of Nawab Sir Mir Osman All Khan v. CWT [1986] 162 ITR 888/28 Taxman 641. In that case the Nizam of Hyderabad had agreed to sell certain properties to the prospective buyers and having received the, entire consideration of sale, had delivered possession of the properties agreed to be sold to the prospective buyer. A question arose, whether such immovable properties continued to belong to the assessee and could be included in the Nizam’s net wealth for purposes of wealth-tax. The Hon’ble Supreme Court held that mere delivery of possession accompanied by realisation of sale consideration did not divest the assessee of the ownership of the property and, therefore, they continue to belong to the assessee and could be included in his net wealth. The Hon’ble Supreme Court took into account the provisions of Section 53A of the Transfer of Property Act relating to the effect of part performance of contract and held that in spite of the receipt of sale consideration and delivery of possession, the legal title remained with the vendor.
6. On behalf of the assessee reliance was placed on the case of Sunil Siddharthbhai v. CIT'[1985] 156 ITR 509/23 Taxman 14W in which it was observed by Hon’ble the Supreme Court that in its general sense the expression “transfer of property” connotes the passing of rights in property from one person to another. In one case there may be a passing of the entire bundle of rights from the transferor to the transferee. In another case the transfer may consist of one of the estates only out of all the estates comprising the totality of rights in property. In a third case there may be a reduction of the exclusive interest in the totality of rights of the original owner into a joint or shared interest with other persons. Relying on these observations, the learned counsel contended that when in pursuance of the application for allotment the plot in question was allotted to the assessee and possession was delivered to the assessee after payment of a portion of the price, there was transfer of certain rights, i.e., the right to remain in possession subject to certain conditions in favour of the assessee and the same amounted to an asset. Reliance was also placed on another judgment of the Hon’ble Supreme Court in Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471, in which the right of a beneficiary to receive an aliquot share of net income of properties comprising in a waqf-alalaulad created by a Muslim governed by the Hanafi school of Mahomedan law was held to be property and covered by the definition of asset in Section 2(e) of the Wealth-tax Act, 1957. Reliance was also placed on yet another judgment of the Hon’ble Supreme Court in the case of Pandit Lakshmi Kant Jha v. CWT [1973] 90 ITR 97, in which the right to receive compensation under the Bihar Land Reforms Act was held to be an asset within the meaning of the Wealth-tax Act, 1957. On the basis of these rulings, the learned counsel for the assessee contended that in pursuance of the allotment, the payment of a part of the price and the delivery of possession of the plot to the assessee, the assessee’s right to continue in possession of the plot and to get a sale deed executed in his favour was an asset, which the assessee held from 24-7-73 and, it was, therefore, a long-term capital asset.
7. Reliance was also placed on certain provisions of the Punjab Urban Estates (Sale of Sites) Rules, 1965, in which there are certain statutory provisions which have already been included by the Estate Officer in the letter of allotment as terms of allotment. Rule 3 says that the sites in an urban estate shall be sold by the State Govt. by auction or by allotment. Rule 7 provides for delivery of possession after payment of 25% of the price. Rule 8 contemplates the execution of a deed of conveyance. Rule 15 provides that the transferee shall bear the expenses in respect of execution and registration of deed of conveyance, including the stamp duty and the stationery fees. Rule 13 deals with procedure in case of default, which says that the Estate Officer may proceed to have the amount of instalments recovered as arrears of land revenue. Emphasis was laid on the fact that once the land was allotted to a particular person the Rules do not contain any specific provision for the cancellation of the allotment or the recovery of the possession of the land by the Estate Officer. Such provisions, however, are already contained in Section 10 of the Punjab Urban Estates (Development & Regulation) Act, 1964, under which the Estate Officer can resume the land if the transferee fails to pay the consideration or any instalment or commits breach of any other condition of sale.
8. From a perusal of the terms of allotment and of the provisions of the Punjab Urban Estates (Development & Regulation) Act, 1964 and the Rules framed thereunder, it is evident that no complete title passes to the allottee unless the Estate Officer has executed a deed of conveyance in favour of the allottee. By virtue of the allotment the payment of a portion of the price and the delivery of possession of the land to the allottee, the allottee only gets a right to remain in possession of the plot as a licencee subject to his getting a deed of conveyance executed according to the terms of the Act and the Rules. The transaction so arrived at by the payment of a portion of the price and the delivery of possession to the allottee certainly creates some valuable rights in favour of the allottee so as to amount to an asset within the meaning of the Wealth-tax Act and Section 2(14) of the Income-tax Act, 1961. That was an asset held by the assessee up to 30-1-1979, the date on which the assessee got a deed of conveyance executed in his favour. But that is not the capital asset that has been transferred by the assessee on 29-10-1979. On the execution of a deed of conveyance in his favour on 30-1-1979 a material change took place in the nature of the asset. He became the owner of the plot and the capital asset that came into existence on the execution of the deed dated 30-1-1979, was held by the assessee only from 30-1-1979 onwards. It was sold on 29-10-1979 and, therefore, having been held by the assessee for a period of about 9 months only, it remained a short-term capital asset. The asset that was held by the assessee from the date of allotment (28-4-72) or the date of delivery of possession (24-7-73) was different in its nature and scope and it was not that asset that the assessee transferred on 29-10-1979. Therefore, the profit that arose to the assessee was not from sale of asset acquired by him on 28-4-72 or 24-7-73 but from the sale of the asset acquired on 30-1-1979. In our view, therefore, the asset that was transferred was a short-term capital asset and the ITO rightly assessed the profit arising therefrom as a short-term capital gain. The order passed by the learned AAC directing that the same be treated as long-term capital gain, is erroneous and cannot be sustained. The Revenue’s appeal is, therefore, allowed. The order under appeal is set aside and the order passed by the ITO is restored.