Joint Development Agreement

    Atam Prakash And Sons (Huf) vs Income-Tax Officer on 22/9/1987  ORDER     M.C. Agarwal, Judicial Member     1. These are two appeals by the assessee who are similarly placed and    raise identical questions. They were argued together by the same    counsel and are, therefore, disposed of by this common order.     2. We have heard the learned counsel for the appellant and the learned    Departmental Representative and have perused the material placed before    us. The relevant facts are that the two assessees along with several    others are co-owners of property No. 22, Barakhamba Road, New Delhi.    The property consisted of land measuring 3850 sq. mts. which was    granted to their predecessor Shri Kamal Narain Singh by the Government    of India on perpetual lease vide deed dated 9th October, 1936. The    lessee had raised a residential bungalow over the said land. The    assessee M/s. Atam Prakash & Sons, HUF, had 1/6th share in the said    property, The other assessee Shri Om Prakash had 1/18th share thereof.     3. The Government of India declared the area where this property was    situate to be a commercial area permitting the use of the land and    buildings for commercial purposes. In order that the residential    property No. 22, Barakhamba Road, New Delhi could be commercially    exploited, a firm of builders M/s. Skipper Sales P. Ltd. entered into    an agreement to purchase this property from its several co-sharers.    Separate agreements dated 24th June, 1977 were entered between the said    builder on the one hand and the respective co-sharers on the other. By    agreement dated 24-6-1977, the assessee M/s. Atam Prakash & Sons agreed    to sell its 1/6th share in the said property for a sum of Rs. 16 lakhs.    However, for certain reasons the sale could not materialise and on    6-10-1981, there were two agreements between the assessee M/s. Atam    Prakash & Sons, HUP and the said M/s. Skipper Sales P. Ltd. The first    agreement provided that the agreement to sell referred to above would    stand modified so as to convert the same into a collaboration agreement    whereby the parties can mutually in furtherance of their objects    proceed to construct the property. The agreement provided that a    multistoreyed building would be erected on the said plot No. 22,    Barakhamba Road, New Delhi by M/s. Skipper Sales P. Ltd. at their own    cost and the assessee M/s. Atam Prakash & Sons, HUP would be given 6000    sq. ft. area and 3 garages in the said building. The agreement provided    that the two parties would be equally the joint owner of the said    venture with the clear understanding that the said HUP did not owe any    liability or assets other than the space agreed to be provided to it on    the completion of the project. The agreement mentioned that possession    of the property had already been handed over to the builder (M/s.    Skipper Sales P. Ltd.) on 24-8-1981. By the same agreement the owner of    the property (M/s. Atam Prakash & Sons) granted an irrevocable    authority to the builders for obtaining all permissions, sanctions and    approvals for the development, construction and completion of the    proposed commercial building on the said plot. The builders could sell    portions of the proposed building to the prospective buyers.     4. In terms of the initial agreement to sell M/s. Skipper Sales P. Ltd.    had paid Rs. 7,50,000 to the assessee-HUF. This amount was to continue    to be retained by the assessee as security for the due performance by    the builders.     5. On the same date, i.e., 6th October, 1981, there was another    agreement between the assessee and the builders whereby the assessee    agreed to sell to M/s, Skipper Sales P. Ltd, 4000 sq. ft, area and 2    garages of the proposed building for a consideration of Rs. 11 lakhs.    This agreement provided that out of sum of Rs. 7,50,000 paid to the    assessee as security by M/s. Skipper Sales P. Ltd. a sum of Rs.    6,50,000 will be appropriated towards the consideration of Rs. 11 lakhs    after the multi-storeyed building has been constructed. The balance of    Rs. 1 lakh was to be refunded by the assessee to M/s. Skipper Sales P.    Ltd. at the time of handing over the possession of the area allocable    to the assessee out of the consideration of Rs. 11 lakhs a further sum    of Rs. 4,45,000 was paid to the assessee by M/s. Skipper Sales P. Ltd.    as advance and the balance of Rs. 5,000 was to be paid at the time of    the execution of the deed of conveyance.     6. Identical agreements were executed between the other assessee Shri    Om Prakash and M/s. Skipper Sales P. Ltd. The initial agreement to sell    in this case was dated 24th June, 1977. The collaboration agreement was    dated 24th August, 1981. The share of this assessee mentioned in these    documents as 1/6th. The consideration for the sale is mentioned at Rs.    16 lakhs and like M/s. Atam Prakash & Sons this assessee too by virtue    of the collaboration agreement was to get 6000 sq. ft. of covered area    and 3 garages in the proposed building. This assessee too entered into    another agreement dated 24th August, 1981 by which like M/s. Atam    Prakash & Sons had agreed to sell to M/s. Skipper Sales P. Ltd. 4000    sq. ft. of covered area and 2 garages. This assessee too had received    similar amounts and the stipulations mentioned in the case of M/s. Atam    Prakash & Sons were provided in the agreement with this assessee as    well.     7. The assessee Shri Om Prakash is an individual. In the asst. order it    is stated that the assessee had 1/18th share in the aforesaid property.    The assessment order goes on to state that there was a partial    partition in the HUF headed by the assessee Om Prakash as a result of    which he had 1/3rd of 1/6th, i.e., 1/18th share in the property. In    both the cases the ITO was of the opinion that there has been a    transfer of the property resulting from the aforesaid transactions and    both the assessees had made capital gains which were liable to be    assessed to income-tax. He accordingly issued notices to the two    assessees to show cause why the profit arising out of the said    transaction be not assessed as capital gains.     In their reply to the ITO, the assessees contended that there was no    transfer of the capital assets by the assessees and hence no capital    gain had arisen to them. It was also contended that by virtue of the    collaboration agreement, the immovable property in question ceased to    retain the character of the capital asset and on the contrary it stood    converted into a trading asset as on the date of the collaboration    agreement and according to the judgment of the Hon'ble Supreme Court in    CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 the assessee can be    subjected to tax in respect of the difference between the sale proceeds    realised on a disposal of such asset and the market price prevailing on    the date when such asset was converted into a trading asset. According    to the assessee, the building was yet to be constructed and hence no    income had actually arisen to the assessee. It was contended that the    amounts received by the assessees under the various agreements referred    to above were merely advances.     8. The Income-tax Officer as well as the IAC to whom a reference was    made in terms of Section 144B of the Income-tax Act did not agree with    the assessee's contentions. The ITO came to the conclusion that on a    close reading of the collaboration agreement, it was clear that the    transaction was not short of sale of immovable property. According to    the learned ITO, the collaboration agreement was adopted as a via media    to overcome the points that were coming in the way for the execution of    the agreement to sell. The ITO observed that factually it was a case of    barter, i.e., the assessee has surrendered his right in the plot and in    turn acquired rights to receive covered area as mentioned above. The    ITO concluded that the transfer or rights had taken place in the    accounting year relevant to the assessment year under consideration and    the assessee had acquired rights in the covered area of the value of    Rs. 16,50,000, According to him, this amounted to transfer as defined    under Section 2(47) of the Income-tax Act and the learned ITO    determined the net taxable capital gains at Rs. 8,87,000 as under in    the case of Atam Prakash & Sons, HUF :  Capital gain :                  Rs. Sale consideration as per agreement to sell            16,50,000 While accepting the sale consideration the fact of the assessee's having sold 4000 sq. ft. covered area+ 2 garages for Rs. 11,00,000 and the rate of booking in the relevant period i.e. Rs. 250 sq. ft. has been kept in view. Less cost of acquisition as on 1-1-1964 as per WT order in the case of M/s. Om Prakash Atam Prakash, HUF from where the property has fallen to the share of the assessee  1,66,667                               14,83,333 Less : Basic exemption        5,000                               14,78,333 Less: 40% thereof as the property is more than 20 years old as per details given in the collaboration agreement                     5,91,532                               8,87,001     In the case of assessee Om Prakash, however, the ITO determined the    taxable amount of capital gains at Rs. 5,87,083 in the following manner    :                              Rs. Sale price of 1000 sq. ft. Rs. 425 per sq. ft.           4,25,000 Sale price of 5000 sq. ft. at an average rate of Rs. 415 per sq. ft. for 1st to 7th floor              20,75,000 Sale price of three garages at Rs. 10,000 each                             30,000                               25,30,000 Less : Cost as discussed Above                          1,66,667                               23,63,337 Assessee's 1/3rd share        7,87,77 Less : Exemption under Section 80T                     5,000                               7,82,777 Less 25%                     1,95,694                              5,87,083     The sale price of Rs. 425 per sq. ft. and Rs. 415 per sq. ft. have been    adopted in respect of the built up area which this assessee was to get    on the basis of the rates fixed by the builder M/s. Skipper Sales P.    Ltd. for sale to prospective buyers.     9. The assessees preferred appeals to the CIT(A), who vide separate    identical orders confirmed the ITO's action. According to the learned    CIT(A), the following issues were involved in the appeals:       (a) Whether there is any capital asset which could be transferred ;       (b) Whether the transfer has taken place during the year under      consideration ;       (c) Whether the absence of registered documents makes the transfer      incomplete.     The learned CIT(A) held that the right to exploit the immovable    property by constructing a multi-storeyed building in a capital asset    by itself. According to him, the ownership of the land continued to be    with the appellant whereas the builder was giving right to erect the    superstructure except the built up area earmarked for the owners.    Dealing with the question of absence of any registered document    conveying any rights to the builders the learned CIT(A) observed that    along with the collaboration agreement the assessee executed an    irrevocable power of attorney in favour of the builders giving them the    right to do all necessary things for the construction of a    multi-storeyed complex on the land in question ; that the builders were    in their turn assuring the prospective buyers that they would get    heritable and transferable rights. The learned CIT(A) also observed    that after the building is completed, a transfer of a property to a    limited company or a society was in contemplation. According to him,    deeds of collaboration and power of attorney did not require    registration and by these documents, the owners had irrevocably    transferred the right of exploiting their immovable property and    non-registration of these documents is not fatal to the completion of    these documents. The learned CIT(A) also held that the capital gains    arose in the accounting year in question. The assessee's appeals were    dismissed with the aforesaid findings.     10. The learned counsel for the assessees contended that in this case    no transfer of property has taken place and hence no capital gain could    arise. According to him, the assessees have leasehold rights in the    land and ownership rights in the building standing thereon and these    rights could be transferred only through a registered sale deed.    Admittedly all the agreements referred to above are unregistered    documents. In support of the proposition that in the absence of a    registered deed of conveyance no transfer of immovable property takes    place he relied upon Sushil Ansal v. CIT [1986] 160 ITR 308 (Delhi),    CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi), Nawab Sir Mir Osman    Ali Khan v. CWT [1986] 162 ITR 888 (SC), Addl. CIT v. Mercury General    Corporation (P.) Ltd. [1982] 133 ITR 525 (Delhi) and CIT v. Bhurangya    Coal Co. [1958] 34 ITR 802 (SC). According to the learned counsel for    the assessee, there was no transfer of any asset even by extinguishment    of any rights as contemplated in Section 2(47) of the Income-tax Act as    the extinguishment must be of all the rights held by the assessee and    not merely a diminution in the totality of the rights held by the    assessee. For this proposition he relied upon a judgment of Hon'ble the    Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR    300 in which the Hon'ble High Court held that in the phrase    'extinguishment' of any rights therein the words 'any rights' must    include all rights. The learned counsel for the assessee contended that    by giving the builders M/s. Skipper Sales P. Ltd., a right to build the    assessee had not surrendered or transferred all his rights and the two    assessees still continued to be the lessees of the land and with the    built up areas that they would get in the proposed building they would    continue to use the land directly as well as indirectly by the    existence of their respective portions on the land in question. The    learned counsel also relied upon a judgment of this Tribunal in the    case of Ashok Kapur (HUF) v. ITO [1985] 12 ITD 520 (Delhi). According    to him, that case related to an adjoining property, i.e., No. 21,    Barakhamba Road, New Delhi and in that case also the owners of that    property had entered into similar agreement with a builder and th6    Tribunal held that no capital gains arose from the transaction,     11. The learned Departmental Representative on the other hand contended    that by virtue of the various agreements the assessee had for all    practical purposes transferred the land to the builders with the effect    that the assessee's right to build upon the land was extinguished and,    therefore, there was extinguishment of rights in the land within the    meaning of Section 2(47)(ii) of the Income-tax Act, 1961 and there was    thus a transfer of a capital asset. According to him, it was not    necessary that the entirety of the bundle of rights in the capital    asset should be extinguished. According to him, to effect an    extinguishment of a right to build on the land ordinary agreements as    entered into between the assessees and the builder were enough and no    registered document was necessary. According to him, the transaction    should be looked upon with a reference to its real effect and not to    the mere form and the fact that the assessees have not completed the    transfer as envisaged in the original agreement to sell should not be    allowed to avoid taxes on the substantial gain made by him then.     12. Under Section 45 of the Income-tax Act, 1961, gains arising from    the transfer of capital asset are chargeable to income-tax. 'Capital    asset' has been defined in Section 2(14) to mean property of any kind    held by an assessee. The assessees in question were the lessees of the    land forming part of plot No. 22, Barakhamba Road and they owned the    building that stood thereon. These facts are admitted and thus the    assessees did own a capital asset being Bungalow No. 22, Barakhamba    Road, New Delhi. In the present case what is in dispute between the    parties is the nature of the property, if any, that has been    transferred to the so-called builder M/s. Skipper Sales P. Ltd. and    whether there is a transfer of 'capital asset', i.e., of property.    'Transfer' has been defined in Section 2(47) of the Act as under :       Transfer" in relation to a capital asset, includes :       (i) the sale, exchange or relinquishment of the asset ; or       (ii) the extinguishment of any rights therein ; or       (iii) the compulsory acquisition thereof under any law ; or       (iv) in a case where the asset is converted by the owner thereof      into or is treated by him as, stock-in-trade of a business carried      on by him, such conversion or treatment ;     13. It was conceded by the learned Departmental Representative that in    order to complete a transfer of property No. 22, Barakhamba Road, New    Delhi, a registered deed of conveyance was necessary and since no such    document has been executed as was contemplated in the first agreement    to sell, this property as such cannot be said to have been transferred    to the builder M/s. Skipper Sales P. Ltd. This was so because recently    the Hon'ble Supreme Court in the case of Nawab Sir Mir Osman Ali Khan    (supra) has reiterated the law that title to an immovable property does    not pass to the buyer unless a sale deed is executed and registered    according to law. In that case the assesses, the Nizam of Hyderabad    owned certain private properties which he agreed to sell to certain    purchasers. The Nizam had received the entire sale price and had handed    over possession of the properties concerned to the purchasers but no    sale deeds were executed in favour of the vendees. The Hon'ble Supreme    Court held that the properties continued to belong to the Nizam and    were to be included in Ms net wealth for the purposes of assessment to    wealth-tax. In view of the law as laid down by the Hon'ble Supreme    Court, in this case and in view of the fact that no sale deed has been    executed and registered in favour of the builders it cannot be said    that there is a transfer of property No. 22, Barakhamba Roa.d, New    Delhi in favour of the said builders.     14. However, the learned Departmental Representative contended that the    definition of transfer has been widened in Section 2(47) of the Act and    "the extinguishment of any rights therein" also amounts to transfer of    property. According to him, the right to build on the property gets    extinguished by virtue of the various agreements. The owners thus    cannot raise any building on this land and that right having got    extinguished, there is a transfer within the meaning of Section 2(47).    The learned counsel for the assessees on the other hand, had contended    that extinguishment of rights can amount to a transfer only if all the    rights that the assessee has in the property are extinguished and there    would not be any transfer if merely by virtue of a grant of some of    those rights by the assessee to a third person, there is a diminution    in bundle of rights that the assessee possessed. In order to solve this    controversy, it would be proper if we have a fresh look at the mutual    rights created by the various agreements entered into between the    assessee and the said builders. Initially as already stated, there was    an agreement to sell. It is to be remembered that this was not a    freehold property. The land belonged to the Government of India and.    the leasehold right that the assessees possessed could not be    transferred without the sanction of the Government. Apparently no such    sanction appears to have been granted. The agreement to sell was    arrived at in June 1977 and having failed to perform their respective    parts under the said agreement for more than 4 years, the parties i.e.,    the assessees and the builder had to take recourse to another agreement    called the collaboration agreement. By this agreement, which is found    at pages 35 to 44 of the paper book, in the case of Atam Prakash &    Sons, agreement to sell was abandoned as due to diverse circumstances    and reasons it had not been possible to execute the sale deed. The    collaboration agreement provided that the two parties have agreed to    sell convert the agreement to sell into an agreement of collaboration    so that they can mutually in furtherance of their objects proceed to    construct the property. It was provided that the parties shall be the    joint owners of the said venture though the possession had been handed    over to the builders on 24-8-1981 and that the builders undertake to    develop the said plot at their own cost, expenses, etc., after    procuring requisite permission. The builders were given an authority to    obtain such permissions. The details of the consideration have already    been described. The builders were given the power to transfer portions    of the building under contemplation either before or after the building    is ready. Similarly the assessees were also free to transfer the areas    allo-cable to them. It was also provided that the collaboration    agreement shall not ever be deemed to constitute any partnership    agreement between the owners and the builders and the agreement was    subject to force majure clause. The builders expressly undertook not to    do any set or be guilty of any omission which may in any manner    contravene the terms of the perpetual lease granted by the Govt. The    building material of the existing structure was on demolition to be    appropriated by the builders to themselves. Thus what was intended by    this agreement was to raise a multi-storeyed building on the land    forming part of plot No. 22, Barakhamba Road in conformity with the    relevant municipal bye-laws and in conformity with the terms of lease    granted by the Government in favour of the assessees. The building was    to be raised by the builders at their own costs and the owners i.e.,    the assessees were to be given the specified built up area of the said    building which they were free to retain or to transfer to others. There    are already agreement to sell by the two assessees in respect of    portions of the built up area to be given to them in favour of the    builders. But since they continue to be agreements to sell nothing    turns upon them.     15. As is evident from the terms of the so-called collaboration    agreement what is ultimately brought about is a permission by the    assessees to the builders to raise multi-storeyed building on the land    held by them (the assessees) on lease. This transaction cannot amount    to sale of the property to the builders because there is no registered    document. Secondly, no building has yet been raised on the land in    question with the result that the right granted to the builders has not    actually been exercised. This transaction cannot amount even to a lease    because a lease too if it is for indefinite period has to be    registered. Further in a lease exclusive possession of the lease    property has to be delivered to the lessee while in the case before us    what is contemplated is the joint possession of the multi-storeyed    building inasmuch as the assessees will also occupy parts of the    proposed building which were to be given to them in consideration of    the right granted to the builders to raise the building. What, in our    view, is intended to be granted to the builders is a licence to raise a    building on the land in question which would become irrevocable in    terms of Section 60 of the Indian Easement Act when the licensee (the    builders) acting upon licence has executed work of permanent character    and incurred expenditure in the execution. The licence remains    revocable till the licensee has started construction over the licensed    property. The collaboration agreement thus beings about only a licence.    Licensee has been defined in Section 52 of the Indian Easement Act as    under :       Where one person grants to another or to a definite number of other      persons a right to do or to continue to do in or upon the immovable      property of the grantor something which would in the absence of such      right be unlawful and such right does not amount to assessment or an      interest in the property, the right is called a licence.     The essential distinction between a lease and a licence is that in a    lease there is transfer of interest in land while in the case of    licence, there is no such transfer that although the licensee acquires    a right to occupy the land-Sheo Narayan Chaudhury v. Stale of Bihar AIR    1957 Pat. 226. Thus under the collaboration agreement the builder M/s.    Skipper Sales Pvt. Ltd. got merely a right to occupy the land for the    sustenance of the building to be raised therein. We have to see whether    the conferment of such right by the assessees to the builder would    amount to a transfer within the meaning of Section 2(47). As already    stated above, the learned Departmental Representative attempted to    bring the case within Sub-clause (ii) of Section 2(47) which speaks of    "the extinguishment of any rights therein as a mode of transfer."    According to the learned Departmental Representative, a person may have    various types of rights in a property and the word 'any' refers to any    one or more of those rights. According to the learned counsel for the    assessee on the other land, the word 'any' does not refer to one or    more of the various rights that a person may have but it refers to the    entirety of the rights that a particular person has in the property    concerned. According to him, in respect of a single property various    persons may have different types of rights. To illustrate his point, he    referred to the facts of the present case. The Government of India is    the owner of the land and is, therefore, vested with all those rights    connected with the ownership which remain with an owner after he leases    out the land to a particular person for a particular purpose. According    to him, the assessees were the lessees of the land and their rights    were different from that of the Government of India and the builders    M/s. Skipper Sales Pvt. Ltd. have a yet different type of right in    respect of the land i.e., a permission from the assessees to raise on    the land in question a multi-storeyed building and to maintain it.    According to him, each of the three persons has a different variety of    rights in the same property and those rights constituted a capital    asset in the hands of each with the result that each may transfer his    rights to the extent permitted by law. According to the learned    counsel, a transfer must be of the entirety of the rights that a    particular person possesses and it is with respect to all those rights    that the word 'any' has been used.     16. Reliance was placed from both sides on Vania Silk Mills (P.) Ltd.'s    case (supra). In that case a fire had damaged the assessee's machinery    to the extent that it could not any longer be put to use as such. The    machinery was insured and no settlement of the insurance claim the    assessee received a certain sum on account of the destruction of its    machinery which was taken over by the insurance company. It was held    that on the settlement of the insurance claim in the aforesaid manner,    the assessee's rights in the machinery got extinguished and there was    thus a transfer of the machinery within the meaning of Section 2(47) of    the Act by extinguishment of rights therein. The Hon'ble High Court    observed as below :       Let us proceed to critically examine the true import of the      expression 'the extinguishment of any rights therein' bearing in      mind this subject and context.       The word 'extinguishment' is the kingpin of this expression. It is a      word of ordinary usage having the widest import. Usually it connotes      the end of a thing, precluding the existence of future life therein      (See Black's Law Dictionary, fourth edn., p. 696). It has been      variously denned as meaning a complete wiping out, destruction,      annihilation, termination, cancellation or extinction and it is      ordinarily used in relation to right, title, interest, charge, debt,      power, contract or estate (See Corpus juris Secundum, vol. 35, p.      294). In Rawson's Pocket Law Lexicon, the meaning assigned to it is      the destruction or cessation of a right either by satisfaction or by      the acquisition of one which is greater.'       In Ramanlal Gulabchand Shah v. State of Gujarat AIR 1969 SC 168 at      page 175, the word 'extinguishment', which is employed in      conjunction with the expression 'of any such rights' in Article 31A      of the Constitution, was interpreted as meaning complete termination      of the rights'.       The word 'extinguishment' is here used in a similar context namely,      in combination with the expression 'of any rights therein'. This      expression again has a wide ambit and coverage. The word 'therein'      refers to 'capital assets' mentioned earlier in the definition. So      far as the expression 'any rights' is concerned, it was observed by      this Court in CIT v. R.M. Amin [1971] 82 ITR 194 at page 201, while      interpreting this very provision :       ...the word 'any' is a word which ordinarily excludes limitation or      qualification and it should be given as wide a construction as      possible, unless, of course, there is any indication in the      subject-matter or context, the words 'any rights' must include all      rights....     17. The learned Departmental Representative, on the other hand, relied    upon another observation at page 312 of the report, which is as below :       It follows from the foregoing discussion that the Legislature in      order to effectuate its intention, has deliberately chosen the      language of widest amplitude by using the expression 'the      extinguishment of any rights therein' in Section 2(47). It covers      every possible transaction which results in the destruction,      annihilation, extinction, termination, cessation or cancellation, by      satisfaction or otherwise, of all or any of the bundle of rights      qualitative or quantitative-which the assessee has in a capital      asset, whether such asset is corporeal or incorporeal.     In the aforesaid paragraphs the Hon'ble High Court has no doubt stated    that extinguishment can be all or any of the bundle of rights which    could be interpreted in the manner asserted by the learned Departmental    Representative, but we have to read the same with reference to the    earlier observations, otherwise the two observations would be contrary    to each other which cannot be reconciled. Capital gains arise out of a    transfer of a capital asset and the word 'transfer' has a definite    notion. A mere permission to use the property or the mere grant of a    certain permissive right over the property cannot amount to a transfer    although it does result in some reduction in the bundle of rights of    the owner of the property. For example, a person may grant to another a    right to flow water over his land through a definite channel. He may    permit another person to open windows towards his land and receive    light and air through them. He may grant a third person a right of way    through the said land and grant a fourth one of right to carry over    electric wires over the land. All these grants would certainly result    in the reduction of the rights that the owner had over the land but    they cannot, in our view, amount to transfer of the property by    extinguishment of any rights therein. The owner still remains the owner    of the property and so long as he continues to be the owner, his rights    cannot be extinguished though they may be substantially diminished.     18. In the case before us the assessees are the leaseholder in    perpetuity of the land. What was granted to M/s. Skipper Sales P. Ltd.    is a right to raise a multi-storeyed building on the land in question.    All other rights which lessees have as a leasehold right continue to    vest in them. The licence given to Skipper Sales P. Ltd. will become    effective only when a building is raised thereon and that right will    cease as soon as the building ceased to exist. Suppose the builders    fail to raise the building the licence given to them can be terminated    by the assessee and suppose the building raised by the builders either    by lapse of time or other natural causes ceased to exist, the licence    may again come to an end and the assessees or their successors'    interest will be able to occupy it again and use it in accordance with    the terms of the lease. It cannot, therefore, be said that by the    transaction in question, the rights of these assessees in the property    in question stand totally extinguished and the transaction amounts to a    transfer of the property.     19. The learned CIT(A) has referred to the conduct of M/s Skipper Sales    P. Ltd. He has stated that they are convincing the prospective buyers    of the flats about their rights in the land. What is the exact nature    of the assurance is not disclosed. In any case when a building is    raised the right of the person to sustain that building on the land is    guaranteed by Section 60 of the Indian Easement Act and, therefore, M/s    Skipper Sales P. Ltd. can certainly assure the prospective buyers that    the property purchased by them is not the result of an act of trespass    and would not be removed. If they have been assuring anyone that in due    course of time the land in question would be got conveyed to a company    or a co-operative society, that too is immaterial. The gains arising to    the assessees, if any, would then be determined according to the    ultimate transaction that materialises.     20. A similar transaction was the subject of the decision of a Bench of    this Tribunal in Ashok Kapur (HUF)'s case (supra). In that case it was    argued on behalf of the revenue that the joint venture between the    builders and the owners amounted to a partnership and there was a    transfer of the property to the partnership and capital gains had to be    calculated on that basis. It was admitted in that case by the assessees    that they had converted their immovable property into stock-in-trade on    6-11-1979 but contended that this had not resulted in any transfer    within the meaning of the Act. The Tribunal held that on the terms of    the agreement (which was identical with those of the cases before us)    there was no partnership between the owners and the builders as each of    them dealt with each other on principal to principal basis. It was also    held that the agreement contemplated the continued ownership of the    assessee in respect of the immovable property. In the case before us    also the extinguishment of the rights of the present assessees as    perpetual lessees of the land is not intended to be extinguished except    of course when the leasehold rights are actually transferred to someone    in accordance with the law. The aforesaid judgment of the Tribunal is    in accord with the view that we have taken of the nature and effect of    the transaction. The learned Departmental Representative referred to    Chandrika Prasad Ram Swarup v. CIT [1939] 7 ITR 269 (All.) (PB). It was    observed "The question of legality or illegality of transactions    entered into by the firm is totally irrelevant in calculating the    income, profits or the loss incurred by the firm in a particular year.    For example, if the assessee-firm had entered into a wagering contract    which resulted in a loss it would not have been open to the ITO to    decline to take that loss into account simply because the contract by    way of wager was void in law. The income assessable to tax is the    actual income of an individual or of a firm irrespective of the manner    in which the income was derived. Legality or illegality of the    transactions culminating in profit or loss is, therefore, foreign to    the scope of an enquiry into the income of an individual or of a firm    for the purpose of taxing the same." The learned Departmental    Representative contended that in this case the parties have skilfully    avoided the execution of a deed of conveyance in favour of M/s Skipper    Sales P. Ltd. with the sole object of avoiding capital gains tax and    that this could not be permitted. In our view, there is no warrant for    such an assumption. The agreement says that for diverse reasons the    deed of conveyance could not be executed. The ITO has not proceeded on    the line now sought to be set up by the learned Departmental    Representative. The assessees had stated in their replies that the    property stood converted into a trading asset on the date of the    collaboration agreement and offered to be taxed on the profits, if any    arising from the transaction. The ITO, however, did not accept that it    was a trading venture and wanted to tax what in his view was capital    gains. The above principles cannot be applied to a case like this where    there is no evidence to cheat the revenue and as held by Hon'ble the    Supreme Court in the case of Nawab Sir Mir Osman Ali Khan (supra), the    title has not been transferred for want of a proper deed of conveyance.     21. In view of the above discussion, we hold that there was no transfer    of property No. 22, Barakhamba Road, New Delhi by the assessees in    favour of the builders M/s. Skipper Sales P. Ltd. and hence no capital    gains has arisen to them on account of the moneys received by them. It    is important to note that in pursuance of the collaboration agreement    the assessees were to hold a certain built up area of the proposed    multi-storeyed building in consideration of the licence to build    granted to the builders. By another agreement the assessees agreed to    transfer a part of that area of the said builders for a certain price.    What they received in respect of the proposed transfer of the built up    area was thus merely an advance towards the sale consideration because    the property which was the subject-matter of the agreement was yet to    come into existence and the sale had to be effected only after the    building had been raised. The assessee M/s Atam Prakash & Sons, HUF    also received a sum of Rs. 1 lakh as security for the performance of    the act. No amount was received as consideration for the transfer in    praesenti of any capital asset and hence no capital gains could arise    to the assessee. We, therefore, hold that no capital gains had arisen    to any of the two assessees and direct that the amounts included in the    income of the two assessees on account of capital gains be excluded.     22. In the ground of appeal the assessee has made a grievance of charge    of interest Under Section 215/217 of the Act as well. This was agreed    to be consequential and the chargeability of interest under the two    Sections will be looked into again by the ITO while giving effect to    the present order. In the result the appeals of the assessees are    allowed.