COMMISSIONER OF INCOME TAX Vs. LALITABEN GULABCHAND

JUDGEMENT

(1.) THIS reference relates to a question relating to taxation of capital gains made by the assessee upon assignment of the leasehold interest in favour of certain persons. Reassessment proceedings under section 34 of the Indian Income -tax Act, 1922, were started against the assessees who are an association of persons for the year 1959 -60, the corresponding accounting year being the year ending March 31, 1958. The facts in brief are as under : Under an agreement with the Governor of Bombay one G. P. Sonawala and one Hirabhai A. Patel agreed to take on lease from the Government certain plots of land in the Reclamation area in Bombay including plot No. 84 admeasuring 1,267 sq. yds. This agreement was entered into with the Governor of Bombay in the year 1942 or 1943. On May 1, 1945, the solicitors of Sonawala and Patel wrote to the Collector of Bombay stating that they had nominated the assessees as the persons by whom separate leases of plot No. 84 would be accepted and, therefore, the lease deeds might be executed by the Government in favour of the assessees. The assessees gave their consent to such leases being executed in their favour. This plot was in the possession of the military authorities and the military authorities handed over possession of this plot to the assessees on December 6, 1946. A draft of the lease of be executed on behalf of the Government of Bombay was prepared in 1949 which refers to the original agreement between Sonawala and Patel on the one hand and the Governor of Bombay on the other and the payment of a premium of Rs. 83,938.

(2.) ON August 23, 1951, an agreement was entered into between the assessees and one Jivan Baliram Revaskar for assignment of the right, title, and interest of the assessees in this plot. Pursuant to this agreement a sum Rs. 50,000 was paid by Jivan Baliram Revaskar to the assessees. The assignment was to be completed on or before December 31, 1955, and the balance of the consideration amount was to be paid on completion of the deed of assignment. Pursuant to clause 9 of the agreement the assessees handed over possession of the plot to Jivan Baliram on or about December 31, 1950, so as to enable him to start construction work on the plot. As purchaser, Jivan Baliram failed to observe the terms and conditions of the agreement, the earnest amount of Rs. 50,000 was forfeited by the assessees and the agreement was cancelled. The assessees filed a suit being Suit No. 317 of 1953 in the High Court of Judicature at Bombay, Original Side, against Jivan Baliram for a declaration that the sum of Rs. 50,000 was rightfully forfeited by the assessees and that they were entitled to vacant and peaceful possession of the plot together with all structures standing thereon and that Jivan Baliram should be ordered to hand over peaceful possession of the said plot forthwith. A decree was passed in the said suit on July 21, 1953, declaring that the forfeiture was legal and Jivan Baliram was decreed to hand over peaceful possession of the plot to the assessees and was directed to pay the costs of the suit to the assessees. Ultimately, an indenture of lease was executed by the Governor of Bombay on May 12, 1954, and it was duly registered on January 24, 1955. The indenture of lease provided that the assessees shall enjoy the property as tenants -in common for a term of 999 years computed from April 19, 1943.

(3.) MR . Joshi on behalf of the revenue contended that as the indenture of lease in respect of plot No. 84 was executed in favour of the assessees by the Governor of Bombay on May 12, 1954, and as the said indenture of lease was duly registered on January 24, 1955, the assessees could not be regarded as the owners of the property as on January 1, 1954, and the Tribunal was not justified in directing the Income -tax Officer to fix the value as on January 1, 1954. Mr. Joshi urged that the Tribunal was not justified in invoking the provisions of section 53A of the Transfer of Property Act, because under that section a passive equity by way of defence is created in favour of a defendant; that section 53A cannot be availed of by the parties to assert their right in a court of law and, therefore, the assessees cannot be regarded as owners of the leasehold interest on January 1, 1954, as the lease the executed on May 12, 1954, and duly registered on January 24, 1955.