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. The only ground raised is as below :–
On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in directing the allowance of Rs. 2,40,160 and Rs. 1,04,720 on account of ‘registration charges’ i.e. a liability which has not been quantified and paid during the accounting period.
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 assessee is a builder. It acquired Plot Nos. 79, 80 and plot No. 58 in Nehru Place from the Delhi Development Authority (D.D.A.) through an auction. The formal letters of allotment were issued by the D.D.A. on 30-8-1973. Relevant portion of the allotment letter in respect of Plot Nos. 79 and 80 reads as under :–
Dear Sir(s)/Madam,
With reference to the auction held on 20-8-1973 for the purchase of the lease hold rights of the abovementioned plot, I am directed to inform you that your bid for Rs. 13,09,000 has been accepted by the authority.
2. You are now requested to deposit within 120 days from the date of issue of this letter a sum of Rs. … as detailed below by demand draft in favour of the DDA. Please note that no part payment will be accepted :
1. Total premium of the plot Rs. 13,09,000 2. Cost of preparation of lease Rs. ... deed 3. Less earnest money already paid vide receipt No. 13166/70 dated 20-8-1973 Rs. 3,27,250 4. Balance amount to be paid Rs. 9,81,750 (Rupees Nine Lakhs eighty one thousand seven hundred fifty only). 3. Besides the above point the ground rent payable in advance up to -- will be required to be paid by the separately at the time of execution of the lease deed. The cost of stamping and registration of the lease deed and also of the corporation duty on the transfer of immovable property etc. will also be borne by you. 4. Please note that if the amount demanded above is not paid within the prescribed period, it will be treated as breach of condition No. 11(6) of the conditions of auction and the earnest money deposited will be forfeited as provided under condition No. 11(4) of the above conditions.
4. It is not necessary to reproduce the contents of the other allotment letters because apart from the variations in Plot numbers and price etc., the other details are the same. As a matter of fact, both the allotment letters are on cyclostyled forms. The assessee started constructing multistoreyed building on the said plots and the flats/ shops so constructed were sold to prospective buyers. In the year under consideration, the whole of the buildings so constructed are claimed to have been sold. The allotment by the D.D.A. was on lease hold basis. No lease deed was, however, executed till the end of the accounting period nor the same seems to have been executed till 18-4-1988 when the order under appeal was passed.
5. In the trading and profit and loss account for the year under consideration, the assessee debited Rs. 2,40,160 in respect of Plot No. 58 and Rs. 1,04,720 in respect of Plot Nos. 79-80 as registration charges. This expenditure was admittedly not incurred and the assessing officer has disallowed the same. The Assessing Officer noted that although a large span of time had elapsed, the registration of the plot was not got done and it was uncertain when the actual liability for incurring the said registration expenses will actually arise. The assessee appealed to the CIT (Appeals). It was contended that registration charges were compulsorily payable in every instance of registration of transfer property and that it was irrelevant that there had been delay in the execution and the registration of the lease deed. It was also contended that profits have to be determined in a commercial sense and reliance was placed on Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC). The learned CIT (Appeals) accepted the assessee’s claim observing as below :–
2.7 On a consideration of the facts and circumstances as also the arguments of the appellant I find that the ITO has not been able to make a justifiable case for disallowing the registration charges claimed by the appellant firm. The ITO has failed to bring out any material to show that the compulsory payment of registration charges at 8% of the cost of the land was not to be allowed in the instant case and there was, therefore, no justification for him to disallow the registration charges. The appellant’s case is also fully covered by the decision of the Hon’ble Supreme Court in the case referred to above. I accordingly direct the ITO to allow the deduction in respect of the registration charges amounting to Rs. 2,40,160 and Rs. 1,04,720.
6. The learned departmental representative contended that since the lease deed has not been executed the expected expenditure thereon could not be allowed as an expenditure in the year under consideration. The learned counsel for the assessee on the other hand contended that the assessee could have debited the registration charges to the cost of the land in the year 1973 itself when the land was acquired but this was not done and the estimated expenditure was debited in the year under consideration because the buildings which were intended to be raised on the plots in question had been completed and were entirely sold out. Therefore, according to the learned counsel for determining the profit arising from the transaction of acquisition of plots, raising of buildings thereon and the sale of such building, the estimated expenditure in respect of the assessee’s obligation to get the lease deed executed and registered according to law was allowable as an expenditure for the year under consideration. In support, reliance was placed on the aforesaid judgment of the Hon’ble Supreme Court in the case of Calcutta Co. Ltd. (supra).
7. We have given our careful consideration to the facts of the case. Admittedly, the expenditure in question had not been actually incurred. Though the lands were allotted to the assessee in auctions in August 1973, yet even till 1988, the documents were not executed and registered according to law. It was stated by the learned counsel for the assessee at the bar that the documents have since been executed and registered. In the case of Calcutta Co. Ltd., the assessee had bought land and sold them in plots fit for building purposes. The assessee had undertaken to develop the plots by laying out road, providing a drainage system and installing lights etc. When the plots were sold, the purchasers paid only a portion of the purchase price and undertook to pay the balance in instalments. The assessee in its turn, undertook to carry out the development in 6 months. The assessee claimed a sum of Rs. 24,809 as estimated expenditure for the development it had undertaken to carry out even though no part of that amount was actually spent. It was in the circumstances that the Hon’ble Supreme Court held that the sum of Rs. 24,809 represented the estimated amount which would have to be expended by the assessee in the course of carrying out its business and was incidental to the business and having regard to the accepted commercial practice and trading principles was a deduction which, if there was no specific provision for it under the Income-tax Act, was certainly allowable as a deduction. The assessee in that case was maintaining account on mercantile basis. The Hon’ble Supreme Court held that the liability to carry out developments, as agreed, was an accrued liability. The Hon’ble Supreme Court observed as under:–
There is no doubt that the undertaking to carry out the developments within six months from the dates of the deeds of sale was incorporated therein and the undertaking was unconditional, the appellant binding itself absolutely to carry out the same. It was not dependent on any condition being fulfilled or the happening of any event, the only condition being that it was to be carried out within six months which in view of the fact that the time was not of the essence of the contract meant a reasonable time. Whatever may be considered a reasonable time under the circumstances of the case, the setting up of that time limit did not prescribe any condition for the carrying out of that undertaking and the undertaking was absolute in terms. If that undertaking imported any liability on the appellant the liability had already accrued on the dates of the deeds of sale though that liability was to be discharged at a future date. It was thus an accrued liability and the estimated expenditure which would be incurred in discharging the same could very well be deducted from the profits and gains of the business.
8. We have thus to see whether in the present case, there is an accrued liability and if so, whether it can be allowed in the year under consideration.
9. What is the method of accounting adopted by the assessee, is not mentioned in any of the documents placed before us. If there was an obligation to get the lease deed executed and registered according to law then according to the mercantile system of accounting, this amount should have been debited to the account in the year in which the land was acquired and should have formed part of the cost of the land. This was, however, not done. If what the assessee contends is correct then the liability arose as soon as the letters of allotment were issued to the assessee and it cannot be said to have accrued for the first item in the year under consideration.
10. Let us however see whether there was any accrued liability in respect of the estimated stamp duty and registration charges in respect of the lease deeds which were yet to be executed. Section 107 of the Transfer of Property Act provides that a lease of a immovable property from year to year or for any term exceeding one year or reserving a yearly rent can be made only by a registered document. The leases under contemplation were for a term of 99 years and a perfect legal transaction could, therefore, take place only through a lease deed registered and according to law. But in spite of this legal position, the parties to the transaction, i.e., the D.D.A. and the assessee did not execute any lease deed. The letters of allotment dated 30-8-1973 did not say that it was a condition that the auction bidder would have to get a lease deed executed and registered according to law. What it merely stated was that the cost of such document would be borne by the assessee. The recital in the letter of allotment, therefore, merely mean that if and when a document is executed, the assessee will bear the cost. In pursuance of the auction, the D.D.A. delivered possession of the plots to the assessee after the assessee had already paid the premium. Not only this, the DDA also allowed the assessee to raise construction on the said plots and the assessee according to its accounts spent about Rs. 65 lakhs on the constructions on Plot No. 58 and about Rs. 10 lakhs on the constructions on Plot Nos. 79-80. A transaction without getting a lease deed executed and registered is not totally invalid, the only effect is that a person was in possession of the property without un-registered lease deed is merely a tenant at will. He is not a trespasser. Further when the owner of a land allows another to raise a building, he may be deemed to have allowed a permanent licence for the continuation of that building on the said land. (See Section 60(b) of the Indian Easement Act).
11. There is no provision in the Transfer of Property Act under which if the parties do not wish to execute documents and get them stamped and registered according to law, any public functionary may force them to do so or do those acts himself on their behalf and recover the cost from them.
12. Section 17 of the Indian Registration Act specifies documents that are compul-sorily registrable. It is conceded on both sides that a lease deed of the type contemplated between the parties would require registration to become legally effective. Section 49 of the Registration Act mentions the effect registration of document required to be registered. It reads as under:–
49. Effect of non-registration of documents required to be registered. — No doubt required by Section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall–
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power unless it has been registered.
13. Section 3 of the Indian Stamp Act provides that certain documents shall be chargeable with the stamp duty. It is also conceded on both sides that a lease deed if duly executed between the DDA and the assessee would require a certain amount of stamp duty.
14. What is, however, important to note is neither in the Registration Act nor in the Indian Stamp Act, there is any provision under the authority of which any public functionary may force the parties to execute a particular type of document and get it stamped and registered as per provisions of these Acts. As a matter of fact, registration of a document under the Indian Registration Act cannot be enforced by any public authority. It is at the choice of the party and they usually get it done to protect their own interest and to guard against breach of contract and fraud etc. If the conveyance deed is not executed and registered, there are certain deficiencies which may hamper the enforcement of once’s rights in course of law or before the other public functionary. Under the Indian Stamp Act, Section 33 authorises every public officer before whom an unstamped or under-stamped document is produced to impound the same and send it to the Collector. The Collector had under Section 40 authority to determine the amount on stamp duty payable and to require the person concerned to pay the same. On failure Jo pay the same, Section 48 permits the recovery thereof as arrears of the land revenue. Thus, Stamp Duty Act so levied become a statutory liability. As regards the Indian Registration Act, there is no provision under which registration fee and other charges can be recovered. Section 80 of the Registration Act requires that all fees for the registration of documents under the Act shall be payable on the presentation of document for registration, thus all fees have to pay in advance and on non-payment thereof, the only option that is available to the registrar is to refuse registration under Section 71.
15. Thus, a perusal of the provisions of the two Acts, would show that none of them compels the parties to execute a document or if a document is executed to get it stamped or registered according to law. Before any of these acts can become operational, a document has to come into existence and has to be presented for registration before any public functionary who has the authority to impound the same for want of proper stamp duty. People get the documents executed, stamped or registered only to protect their titles, protect themselves against fraud and deceit and create legal admissible evidence on their rights. Parties may choose to take risk and not execute a document or if they execute one, may not stamp it and get it registered according to law. That such is the law is evident from the fact that nothing of the sort was done between the DDA and the assessee for so many years. That people do take risk is also evident from the fact that the DDA delivered possession of the plots to the assessee without getting a lease deed executed and even allowed the assessee to raise buildings thereon. Similarly, the assessee on its part invested huge sums of money in raising multistoreyed buildings on the plots in question without getting its title to the land legally perfected. In such circumstances, we hold that in the present case, there was neither any contractual nor any statutory liability regarding the payment of a stamp duty and registration charges in respect of documents which were yet to come into existence and, therefore, the estimated expenditure thereon was not allowable as an expenditure in computing the income of the assessee. The judgment of the Hon’ble Supreme Court in the Calcutta Company’s case is of no help to the assessee. In that case the assessee had a liability towards buyers of plots. In case before us theassessee has no such liability qua any one. It may get a lease deed executed, stamped and registered according to law. But it cannot be termed as a liability to a third person. We, therefore, set aside the order passed by the CIT (A) and restore the addition as made by the Assessing Officer. The appeal is allowed.