ORDER
J. Kathuria, Accountant Member
1. These appeals by the assessees for assessment year 1979-80 arise out of two separate orders both dated 31-8-1987, passed by CIT (Appeals) – XII, New Delhi. As identical issues are involved, these appeals are disposed of by a combined order for the sake of convenience.
2. Brief facts of the case arc that the assessces had l/3rd share each in the property at 9-Prithviraj Road, New Delhi. Shri Pramod Kumar is the son and Smt. Bimla Rani is the mother. Shri Vinod Kumar, another son was the owner of the remaining l/3rd’ share of the property. The property in question consisted of a plot of land measuring 1.41 acres. There was a building over the plot. The property in question was inherited by the afore-mentioned three co-owners from late Shri Rameshwar Das who died in 1966. These co-owners floated a company named M/s Ramesh Apartments (P.) Ltd. on 6-11-1978. They relinquished all the rights, claim, titles, interest etc. in the aforesaid property in favour of M/s Ramesh Apartments (P.) Ltd. by Release Deed dated 20-11 -1978. Release deed was, however, not registered. In return, the aforesaid company paid shares of the face value of Rs. 10,000 each to the co-owners and a sum of Rs. 2,75,000 each was shown as a ‘loan payable to the co-owners in the balance-sheet of the aforesaid company. Thus, a consideration of Rs. 8,55,000 in all was paid for the Release Deed.
3. The Assessing Officer held that the Release Deed had resulted in a transfer of the property in question which gave rise to capital gains. He further held that the property in question was transferred at less than the market value. He called for the report of the Departmental Valuation Officer and ultimately held the value of l/3rd share of the property at Rs. 4,50,467 as against the value shown in the books at Rs. 2,85,000 (Rs. 10,000 representing the face value of shares and Rs. 2,75,000 representing the amount of loan). After allowing the cost of acquisition as on 1-1-1964 at Rs. 80,000 and after allowing deduction under Section 80-T of the Act at Rs. 96,366, he computed the capital gains at Rs. 2,74,101 in the hands of each of the assessees in these appeals.
4. The assessee appealed to the CIT (Appeals), who held that this was the case of a transfer. According to him, the transfer did not require registration and even though the Release Deed was not registered, he held that it was the case of a transfer. It was also held by him that Section 53A of the Transfer of Property Act was applicable inasmuch as all the ingredients contained in that section were there in this transaction. It was also held by him that the facts in the case of Addl. CIT v. Mercury General Corporation (P.) Ltd. [1982] 133 ITR 525 (Delhi) were distinguishable. According to him, the assessees had handed over the possession of the property in question and allowed the aforesaid company to construct flats thereon and to enjoy the rental income by letting out all those flats. He, therefore, held that as a result of this transfer, capital gains was exigible in these cases. He examined the valuation reports submitted by the Departmental Valuation Officer and Approved Valuer of the assessees and held that the market value computed by the Departmental Valuation Officer at Rs. 13,82,800 was fair and reasonable. According to this, l/3rd share each of the assessees worked out to Rs. 4,60,933. He accordingly directed the Assessing Officer to adopt this figure of Rs. 4,60,933 in place of the figures of Rs. 4,50,467, adopted by the Assessing Officer.
5. Shri M.S. Syali, Learned Counsel for the assessees raised only two legal issues and wanted us to decide the present appeals in the light of the same. According to him, the first issue was whether there was a transferor not which resulted in a capital gains. The second issue according to him was whether Section 52(2) could be attracted on the facts and circumstances of the case when the admitted consideration was Rs. 8,55,000 for the entire property (Rs. 2,35,000 in respect of l/3rd share) had passed. According to the Learned Counsel for the assessee, there must be registration under the Registration of Immovable Property Act before a property could be said to have been transferred. Reliance in this regard was placed on the Supreme Court decision in Alapati Venkataramiah v. CIT [ 1965] 57 ITR 185 for the proposition that title to the land and building would not pass till the conveyance was executed and registered. It was fairly admitted by Shri Syali that the aforesaid case related to Section 12B of the Indian Income-tax Act, 1922 where the transfer was by three modes, namely, sale, exchange, or transfer. According to him, however, the principle remained the same even in respect of the 1961 Act where the definition was inclusive and an enlarged one. The Learned Counsel for the assessee relied on the decision of the Delhi High Court in Mercury General Corporation (P.) Ltd.’s case (supra) where the Delhi High Court had held that even for the purpose of relinquishment of interest in property there was as much necessity for a registered document as there was for the completion of a valid sale. Reliance was also placed on the Delhi High Court decision in CIT v. Meatles Ltd. [1972] 84 ITR 37, in which the term ‘sale’ was explained. It was also submitted that the definition of ‘transfer in relation to capital asset’ contained in Section 2(47) of the Act was enlarged by insertion of Sub-clauses (v) & (vi) and Explanation, of the said section by the Finance Act, 1987 w.e.f. 1-4-1988. The thrust of the argument was that if a transaction involving the allowing of possession of the immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53 A of the Transfer of Property Act was to be included in the definition of transfer for the purposes of Section 2(47) then there was no necessity of inserting Sub-clauses (v) & (vi) and Explanation to Section 2(47). Reliance was also placed on the Supreme Court decision in Nawab Sir Mir Ostnan Ali Khan v. CWT [1986] 162 ITR 8881 and of Delhi High Court in Sushil Ansal v. CIT [1986] 160 ITR 3082 for the proposition that equitable title in Indian laws was unknown and that only legal ownership which was by conveyance of title deed was accepted under the Indian laws. Relying on Kerala High Court decision in CIT v. FX. Periera & Sons (Travancore) (P.) Ltd. [1990] 184 ITR 461, it was submitted that in order to attract Section 45 of the Income-tax Act, 1961, it should be established that, by the transfer, the title to the property stood passed to the purchaser. It was vehemently argued that the mere fact that the assessees had entered into a Release Deed which was not registered it could not be said that their l/3rd share in the said properly had been transferred. It was also submitted that the facts narrated by the CIT (Appeals) were also not correct in certain respect. For instance, it was submitted that the flats were constructed only in the year 1982-83 and that rental income was enjoyed by the Company only thereafter and that too when two fresh deeds were executed and the earlier entries in the books of the aforesaid company were reversed.
6. Another point made by Shri Syali was that under Section 27 of the Urban Land (Ceiling & Regulation) Act, there was a prohibition on transfer of urban property except with the previous permission in writing of the competent authority. The submission was that in the instant case, no such permission had been taken and in that view of the matter the contract against the Statute was void ab initio. Referring to the Report of the Assessing Officer submitted to the CIT (Appeals), it was further pointed out by Shri Syali that the property in question had not been mutated in the name of the aforesaid company or its directors and that the property continued to be in the name of the three co-owners. In a nutshell, Shri Syali’s submission was that execution of Release Deed did not amount to a transfer for the purposes of capital gains and so capital gains was riot exigible in the case of the assessees. 1,28 Taxman 641.2.25 Taxman 218A.
7. The next submission of Shri Syali was that the admitted consideration that had passed in mis transaction was Rs. 8,55,000, 1/3rd of which carne to Rs. 2,85,000. Relying on the Supreme Court decision in K.P. Varghcse v. ITO [1981] 131 ITR 597, it was submitted that Sub-section (2) of Section 52 of the Act could be invoked only where the consideration for the transfer of a capital asset had been understated by the assessee or, in other words, the full value of the consideration in respect of the transfer was shown at a lesser figure than that actually received by the assessee and the burden of proving such understatement or concealment was on revenue. Reliance was also placed on the Supreme Court case in CIT v. Shivakami Co. (P.) Ltd. [1986] 159 ITR 711 for the proposition that unless there is evidence that more than what was stated was received no higher price can be taken to be the basis for computation of capital gains. Relying on these two authorities aforesaid, the learned Counsel for the assessee submitted that simply because according to the Departmental Valuation Officer, the market value of the property in question was more than what was decided upon, Sub-section (2) of Section 52 of the Act could not be invoked. Thus according to the learned Counsel for the assessee, there was no question of enhancing the quantum of capital gains.
8. The learned D.R., Smt. Sheba Bhattacharya, on the other hand, made valiant efforts to support the order of the CIT (Appeals). It was submitted that the definition of “Transfer” even in Section 2(47) of the Act was an inclusive definition. According to her, the relinquishment of right or extinguishment of right in a property would also amount to transfer of property. It was also submitted that first of all a Release Deed was executed. Then the aforesaid company gave shares of the face value of Rs. 10,000 each to the three co-owners and credited their accounts with the loan of Rs. 2,75,000 each. According to her, the possession of she property was also handed over and the enjoyment of the property became the exclusive preserve of the aforesaid company. According to the learned D.R., the conduct of the parties clearly showed that for all intents and purposes the property had been transferred to the aforesaid company and that capital gains arising there from was exigible in the hands of the assessees. It was also submitted that in the case of the third co-owner, namely, Shri Vinod Kumar, the appeal before the Tribunal was not pressed and according to her it would indeed be strange that while capital gains from the transfer of the property in question had been computed in the case of one co-owner, it should not be so computed in the hands of the other two co-owners who have come up in further appeal before the Tribunal. According to her, the mutation in the record could not take place because of the assessces’ default. It was also submitted that reversal of entries in the books of the aforesaid company did not make any difference when the Release Deed had already been executed and the transfer had become irrevocable. It was also submitted that reference to part performance of the contract as per Section 53 A of the Transfer of Property Act was a supporting argument of the CIT (Appeals) and that the main argument was that the transfer had taken place as a result of the Release Deed. Ali Khan (supra) were in a different context and the principles discussed in those cases did not apply to the instant case. It was also submitted that the cases of Alapati Venkataramiah (supra) and Mealies Ltd. (supra) were under the old Act whereas 1.25 Taxman 80K. Section 2(47) of the 1961 Act had enlarged the definition of “Transfer”. It was again emphasised that the facts contained in the case of Mercury General Corporation (P.) Ltd. (supra) were altogether different. It was emphasised again and again that the property in question had definitely been transferred by the assessees to the aforesaid company and that the non-registration of the Release Deed did not take any difference. According to her, capital gains was exigible.
9. As regards the non-applicability of Section 52(2) of the Act, it was submited that this point was raised by the learned Counsel for the assessee before the CIT (Appeals) who had not dealt with the same. According to her, this matter could go back to the first appellate authority for consideration and disposal at his end.
10. We have carefully considered the rival submissions as also the facts on record. This is common ground that the Release Deed dated 20-11-1978 was not registered. The Delhi High Court in the case of Mercury General Corporation (P.) Ltd. (supra) has clearly held that even for purposes of relinquish merit of interest in property there was as much necessity for a registered document as there was for the completion of a valid sale. Delhi High Court is the jurisdictional High Court in the present cases. We must, therefore, bow down to the said judgment. On the basis of this alone, we hold that there was no relinquishment of the asset or the extinguishment of any rights therein, in law. There is also substance in the arguments of the learned Counsel for the assessee that if Section 53 A of the Transfer of Properly Act regarding part performance of the contract was already included in the definition of transfer then there was no point in amending Section 2(47) of the Act by the Finance Act, 1987 w.e.f. 1-4-1988. It may be that the execution of the Release Deed, the giving of credit of Rs. 2,85,000 to each of the three co-owners by the aforesaid company, and the conduct of parties, were circumstances whereby a transfer could be factually inferred. We have, however, to go by the definition of the word “transfer” as per the Income-tax law. The Indian laws only accept legal ownership and not beneficial ownership. In the absence of registered Release Deed, we hold that there was no transfer of the property by the assessees to the aforesaid company in law and hence no capital gains was chargeable in these cases. It may also be mentioned that this was a case where the provisions of the Urban Land (Ceiling & Regulation) Act were clearly applicable. Section 27 of the said Act prohibits the transfer of any such property without the previous approval of the competent authority. No previous approval of the competent authority in the present case was obtained when the Release Deed was executed. Any transfer which was contrary to the provisions of the Urban Land (Ceiling & Regulation) Act was ab initio void as there could be no contract against the Statute. This is another reason for holding that no capital gains was exigible in this case. The first submission of the learned Counsel for the assessees, therefore, succeeds.
11. As regards the second submission, we also find considerable merit in the arguments of Shri Syali. The Supreme Court in the cases of K.P. Varghese (supra) and Shivakami Co. (P.) Ltd. (supra) has held that unless there is evidence that more than what stated was received, no higher price can be taken to be the basis for computation of capital gains. The only ground in assessing the capital gains at a higher figure in the present cases is the report of the Departmental Valuation Officer which has been found to be fair and reasonable by the first appellate authority. There is no evidence that over and above the consideration as shown by the aforesaid company anything was paid to the co-owners, simply because there was a wide valuation between fair market value of the property in question as per the Departmental Valuation Officer and the amounts for which credit has been given by the aforesaid company, provisions of Section 52(2), in our opinion, cannot be invoked. We hold accordingly. This submission of the learned Counsel for the assessees also succeeds.
12. In the result, the appeals are allowed.