DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY
VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE : Section 46 & 47 Of TP Act

SUBJECT : Transfer of Property Act

NAME OF THE FACULTY : Prof. Jogi Naidu Sir

NAME OF THE CANDIDATE : SHANTANU SHARMA

ROLL NO. : 2016092
SEMESTER : 4TH SEMESTER
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 ACKNOWLEDGEMENT

Before, we get into thick of things, i like to add a few words of appreciation for the people who
have been a part of this project right from its inception. The writing of this project has been one of
the significant academic challenges i have faced and without the support patience, and guidance of
the people involved, this task would not have been completed. it is to them i owe my deepest
Gratitude.

It gives me immense pleasure in presenting this project report on “Section 46 and 47 of TP Act“. It
has been my privilege to have a team of project is a result of sheer hard work, and determination put
in by me with the help of my project guide. I herby, take this opportunity to add a special note of
thanks for “Prof Jogi Naidu Sir“, who undertook to act as my mentor despite her many other
academic and professional commitments. her wisdom, knowledge, and commitment to the highest
standards inspired and motivated me. without her insight, support, and energy, this project wouldn’t
have kick-started and neither would have reached fruitfulness.

I also feel heartiest sense of obligation to my library staff members & seniors, who helped me in
collection of data & resource material & also in its processing as well as in drafting manuscript. The
project is dedicated to all those people, who helped me while doing this project.

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 TABLE OF CONTENT

1. Introduction
2. Section 46 of Transfer of Property Act
3. Case Analysis 1
4. Case Analysis 2
5. Case Analysis 3
6. Section 47 of Transfer of property Act
7. Case Analysis 1
8. Case Analysis 2

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 INTRODUCTION

Section 46 :-
Where immoveable property is transferred for consideration by persons having distinct interests
therein, the transferors are, in the absence of a contract to the contrary, entitled to share in the
consideration equally, where their interest in the property were of equal value, and, where such
interests were of unequal value, proportionately to the value of their respective interests.

Illustrations
(a) A, owing a moiety, and B and C, each a quarter share, of mauza Sultanpur, exchange an eighth
share of that mauza for a quarter share of mauza Lalpura. There being no agreement to the contrary,
A is entitled to an eighth share in Lalpura, and B and C each to a sixteenth share in that mauza.

(b) A, being entitled to a life-interest in mauza Atrali and B and C to the reversion, sell the mauza
for Rs. 1,000. A's life- interest is ascertained to be worth Rs. 600, the reversion Rs. 400. A is entitled
to receive Rs. 600 out of the purchase-money. B and C to receive Rs. 400.

Case Analysis

1. Case Name :- Monahar Naik and anr. Vs. Brajamohan Bhoi and anr. 1
2. Citation :- AIR 1952 Ori 239; 18(1952)CLT161

Brief Facts :- The plaintiffs are the sons of one Mukteswar Bhoi of village Tildzega in Gangpur
State. The suit land appertains to Khata No. 35 of the village. The revenue laws of Gangpur State
did not permit the transfer of an occupancy holding by the rayat in favour of any other person. But
with a view to get round this ban on such transfer the recognised practice in the State (prior to the
merger) was for the transferor to apply to the State authorities for mutation of the name of the
transferee in the Ruler's records. On such application a regular revenue case used to be started,
enquiries made by the usual way through the local authorities concerned and after consulting the

1 AIR1952Ori239; 18(1952)CLT161
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wishes of the heirs of the transferor the mutation would be allowed or rejected as the case may be.
The transferee pays the stipulated money to the transferor which may for all purposes be treated as
sale price and when mutation is allowed by the Ruler a separate Parcha is issued in the name of the
transferee who is thus recognised as the new rayat.

3. On 29-10-34 Mukteswar filed a petition (Ext. 2) before the State authorities stating that he had
transferred the disputed land measuring 4.24 cents to defendant No. 2, the son of defendant No. 1,
for a sum of Rs. 100/- and requesting them to recognise the transfer after due enquiry. As regards
the necessity for such transfer he alleged that the money was required for (1) household expenses
(2) payment of arrears of rent and (3) payment of criminal fine imposed on him in a case. On receipt
of that petition mutation case No. 176/361 of 1934/35 was started in the State office and after due
enquiry and payment of mutation-fee to the Ruler the transfer was allowed and a new Parcha was
granted in the name of the transferee on 21-11-38.

For the purpose of this appeal it is necessary to describe in detail the various incidents that took
place during the pendency of that mutation case. It is sufficient to note that the Tahsildar who made
a preliminary enquiry reported to the State authorities on 18-4-35 that Mukteswar had transferred
the disputed land because he had run into debts (see Ext. E). The defendants after thus getting the
transfer recognised and obtaining a Parcha in their names applied to the State authorities for
permission to excavate a tank in a portion of the holding and permission was also granted in due
course (see Ext. D). A tank was also excavated after incurring expenditure to the extent of Rs.
1,000/-.

4. Mukteswar is still alive, but he has discretely kept himself in the background. His two sons filed
the suit for setting aside the alienation of their father alleging that there was no legal necessity for
the transfer. Both the Courts concurrently held that out of the sale price of Rs. 100/-, Rs. 30/-was
utilised towards payment of the fine imposed on Mukteswar on his conviction in a criminal case and
as such fine was an avyavaharika debt; payment for such purpose would not be legal necessity as
recognised in the Hindu Law. They further held that no payment was made towards arrears of rent
and that there was no other evidence showing legal necessity. The alienation was therefore set aside
as invalid.

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Point of Law :- Mr. Misra raised the following interesting points of law in support of this second
appeal.

(i) Under the revenue laws in force in Gangpur State before the merger the right of an occupancy
rayat in his holding was a personal right and his sons had no right of survivorship or any right by
birth so as to challenge the alienations made by their father.

(ii) Both the Courts had committed a serious error of record on the question of legal necessity and
had they carefully scrutinised the evidence adduced in the case they would have found that a
substantial portion of the sale price was applied for legal necessity.

(iii) Both the Courts had wrongly construed the expression 'good faith' occurring in Section 51 of
the T. P. Act as including not only honest belief but also absence of due care in making the enquiry
as regards legal necessity for the transfer.

Point No. (i).' The revenue laws in force in Gangpur State prior to the merger are not easy to
ascertain: But the parties appear to have fought out this litigation on the ground that the record of
rights of Gangpur State, a copy of which was sent to this Court by the Board of Revenue, contains
most of the provisions of the revenue laws. The residue remained presumably as the prerogative of
the Ruler which was exercised frequently by issue of orders on appropriate occasions. Paras 1, 4
and 11 of the record-of-rights may be quoted in full.
' 'Para 1.' A rayat has a right of occupancy in all lands entered in his name at the present settlement.

'Para 4.' No transfer by a rayat of a right in his holding or any portion thereof by mortgage, sale, gift
or any other contract or agreement shall be valid to any extent.

'Para 11.' The consent of the Chief or Zamindar must be obtained to make tank or bandha or to
construct a pucca building…..'

Issues Raised :-
(a) What area of land a man wants to transfer and why and for what amount?

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(b) After transfer what area will be left in his possession and will it be sufficient for his
maintenance?

(c) Does the Gountia of the village agree to the transfer?

(d) Cannot the transfer be stopped and the applicant directed to settle his need in some other ways.
What hardship it will cost?

(e) Are the applicant's heirs willing to accept the transfer?

Judgement :-
I am fully satisfied that the defendants acted with ordinary prudence in accordance with their
conception of what the law was at the time of the transfer. The best piece of evidence on this aspect
is their application to the State authorities themselves for sanctioning the improvement.

I would therefore modify the judgment of both the Courts as follows.

The plaintiffs are entitled to recover possession of 'A' schedule lands from the defendants on a
declaration that the transfer made by their father was invalid. But they should pay Rs. 100/-, the sale
price, and also the sum of Rs. 1,000/- to the defendants being the cost of excavation of the tank
before they apply for ejecting the defendants from the suit lands. The plaintiffs are given the option
of paying the said sums and then applying for eviction of the defendants or of selling their interest
to the defendants at the market value excluding the cost of excavation of the tank. Both the parties
will bear their own costs throughout.

Case Analysis

1. Case Name :- Manglu Meher and ors. Vs. Sukru Meher and ors.
2. Citation :- AIR 1950 Ori 217
3. Brief Facts :- Defendants 1 to 3 are the appellants in this second appeal. It arises out of a suit
filed by the plaintiffs to set aside and alienation and to recover the property comprised therein
from the possession of the defendants. Defendant 4 and plaintiff 1 are the sons of one Bhuban
Meher. Plaintiff 2 is the son of plaintiff 1. Defendants 5, 6 and 7 are the sons of defendant 4.
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The alienation sought to be impeached is a sale-deed, Ex C, dated 1st March 1933 of lands of
the extent of 1-5 acres (it may be noted that the plaint mentions lands of 1.26 decimals) which
admittedly are the joint family property of the plaintiffs and defendants 4 to 7. The sale-deed
purports to have been executed by Bhuban and his two sons defendant 4 and plaintiff 1.
Defendant 4 has signed it also for his minor sons 6 to 7 and plaintiff 1 for his then minor son,
plaintiff 2. The alienees under the sale-deed are the brothers of Bhuban Meher, viz., defendant 3
and the father of defendants 1 and 2. The consideration for the sale deed is a sum of Rs. 155.
The case for the plaintiffs was that plaintiff 1 did not execute the sale deed either for himself or
as guardian of his minor son, plaintiff 2 and that he was not a consenting party to the alienation.
The signature of plaintiff I appearing on the sale deed, Ex. C, was alleged to be forgery. Both
the Courts below have found it to be genuine and that finding having become conclusive, it
must now be taken that the plaintiff was also an executant of the sale-deed for himself and his
son. Since, however, the sale-deed has been executed on behalf of the then minor plaintiff 2 (as
also on behalf of minor defendants 5, 6 and 7 who are still minors, though they have not come
forward to challenge the alienation), the question as to whether the Bale deed is valid and
binding as being justified by legal necessity has been raised in the Courts below and is the
subject-matter of issue 3 The Courts below have found that Rs. 106-7-3 out of the Bale
consideration was for the purpose of discharging the decree amount due to one Narain Gountia
from the plaintiff's family and that the said sum was actually utilised for payment of the said
decree, as appears from the endorsements on the decree, marked as Exs. B and B-1. Both the
Courts however set aside the alienation on the ground that neither the actual necessity nor a
bona fide inquiry as to the existence of necessity for the balance amount of about Rs. 50 has
been made out by the alienees. They accordingly passed the decree in favour of the plaintiffs for
possession of the suit property on condition of the contesting defendants 1 to 3 paying up the
sum of Rs. 1C6-7-3 found to have been applied for legal necessity out of the consideration for
the same. It is against this decree that defendants 1 to 3 have come up in second appeal. The
fact that the sale-deed, EX. c is not registered, raised another difficulty for the contesting
defendants, namely, that no title as such has passed to them under the sale deed. They are,
however, entitled to rely on Section 63A, T. P. Act, inasmuch as it has been definitely found by
both the Courts below and virtually admitted by defendant 4 who is an executant of the sale-
deed that the vendees have been in possession of the property sold from the date of the sale in
pursuance of the same. The question that has been raised is whether Section 53A would avail
the contesting defendants as against plaintiff 2 (and defendants 5 to 7), who were minors at the
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 time of the execution of the sale deed. It may plausibly be contended that since Section 53A, T.
P. Act, is a statutory recognition of the principle of estoppel embodied in the doctrine of part
performance, the same would not avail as against minors since there can be no estoppel against
a minor. There is. however, no scope for any such contention in view of the recent decision of
the Privy Council in Subramanyan v. Subba Rao, A.I.R. (35) 1948 P. C. 96: (I.L.R. (1949) Mad.
141) which has authoritatively decided that if a minor is a party to a sale-deed, through his
guardian he is as much a transferee within the meaning of Section 53A and that therefore the
statutory protection given to the alienee under Section 63A is equally applicable against him.
4. Point Of Law :- Section 46 (3), Central Provinces Tenancy Act, such a transfer is not valid
except as covered by the proviso thereto and that the registration of a transfer not covered by
the proviso to Sub-section (3) is prohibited under Sub-section (5). This point, however, is not a
substantial one, because it is clear from that subsection itself as also from Section 47 that such a
transaction is only voidable and can be avoided, not by the very transferors themselves, but by
the persons who are indicated in Section 47 and that too within two years from the date on
which the alienees obtained possession under the transfer. Admittedly the alienees have been in
possession from the date of the sale in 1933 and are also themselves the persons being brothers
of Bhuban Meher, who might have been entitled to avoid the transfer under Section 47 if the
alienation had been in favour of the strangers. This contention has therefore no merit also their
Lordships pointed oat that it is not the law that the sale will be invalidated whenever part of the
consideration is not accounted for which cannot be described as small. It is noteworthy that
their Lordships referred in Sri Kishun Das v. Nathu Ram, A.I.R. (14) 1927 P.C. 37: (49 ALL,
149) with approval to the earlier case of Privy Council in Thirumalaiyappa v. Nainar Tevan, A.
I. R. (9) 1922 P. C. 307 : (74 I. C. 604). A perusal of this case shows that the sale therein was for
Rs. 5,300 and the necessity was made out for Rs. 4588. It was proved that the balance of about
Rs. 712 was appropriated by the widow to a purpose which did not constitute legal necessity.
All the same the sale was upheld by the Privy Council and there was nothing to show that there
was any inquiry as to the necessity for the balance. Their Lordships say in the case at p. 309 as
follows : 'He (the Sub-Judge) overlooked the fact that Rupees 711-13-10 merely represented the
balance of the sale price of Rs. 5300 and that it was not to raise that Rs. 711-13-10 that the
property was sold. The sale would not have been invalid no matter what may have been the
purpose for which the defendants applied Rs. 711-13-10.’
5. Issues :- Whether the sale deed was a valid sale deed or not ?

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6. Judgement :- The present being a case of an alienation by way of sale, what therefore requires
to be proved is not that every portion of the consideration is required foe legal necessity or that
inquiry as to necessity has been made out in respect of that portion not covered by legal
necessity. What has to be judged broadly is whether for raising the amount for which legal
necessity has been made out, the particular transaction by way of sale of the extent comprised
therein was in fact reasonably necessary and prudent or whether the alienees were reasonably
and honestly satisfied that it was so on a bona fide inquiry. It is this test that has to be applied to
this case and not the test as to whether there was any inquiry as to the necessity for the surplus.
The Courts below not having judged the case from that aspect, the case will have to go back for
a fresh consideration of the material on the record in the light of this test. It is necessary further
to remark that while undoubtedly, the burden is upon the alienee, it does not me n that if the
alienee does not speak positively to the existence of the necessity or to his having made an
inquiry, it must necessarilyfollow that he has to fail. As pointed out by their Lordships of the
Privy Council in Lakshmanna v. Venkateswarlu, A. I. R. (36) 1949 P.c. 278 at p. 285 : (76 I. A.
202), the burden of proofis not to be confused with the burden of adducing evidence. When the
entire evidence is before the Court, and when on the evidence and the circumstances, the Court
has no difficulty in arriving at a definite conclusion, the burden of proof recedes to the
background and the person on whom the burden to prove lies is not to fail when a satisfactory
conclusion can be reached in his favour on the existing material, merely because he has not
himself adduced positive evidence. For instance in cases of this kind either the fact that the
transaction was legally justified, or that there has been a fair and bona fide inquiry as to the
existence of necessity for the transaction is one that may be possible to infer from the evidence
and. the circumstances in the case. Since, however, the matter is to go back, we do not propose
to say anything further as to what are the circumstances for and against which might enable the
Court) to come to a definite conclusion in the matter on the existing material. The decree of the
lower appellate Court must accordingly be set aside and the appeal must be remanded to that
Court for rehearing in the light of the above observations. Costs will abide the result.

Case Analysis

1. Case Name :- Udaya Naik Vs. Lokanath Naik and ors.2

2 AIR 1954 Ori 195; 20 (1954) CLT 407

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2. Case Citation :- AIR 1954 Ori 195; 20 (1954) CLT 407
3. Facts :- Plaintiff No. 1 had a brother named Balamakund to whom the disputed property
originally belonged. The appellant-defendant No. 1 is their sister's son. Balamakund was
issueless and had brought up defendant no. 1 in his house though he did not formally adopt him
as his son. On 11th of April 1938 Balamakund executed an unregistered deed of gift (Ext. E)
giving away all his properties to defendant No. 1. The consent of the Gaontia to the transfer was
obtained on the document itself and similarly the consent of the plaintiff who was the next heir
of Balamakund was also obtained on the same document. Balamakund died a few days
afterwards and defendant No. 1, with a view to further safeguard his rights, obtained an
Ekrarnama (Ext, B) from the plaintiff on 7-12-1938 in which his consent already given in the
deed of gift was ratified. Defendant No. 1 obtained possession of the properties by virtue of the
deed of gift and continued in possession and was paying his share of the rent regularly to the
Gaontia. On 16-7-1942, however, the plaintiff instituted the suit under appeal alleging that he
was the next heir of Balamakund and as such entitled to his property. The suit was brought as if
it were a simple suit for ejectment of a trespasser and in the plaint there was a complete
suppression of the deed of gift and the Ekrarnama (Exts. E and B). Defendant No. 1 contested
the claim alleging various grounds such as estoppel, waiver, valid surrender, etc. But one of the
important grounds urged by him was that the suit was barred by the special rule of limitation
laid down in Section 47(1), C. P. Tenancy Act, 1898. This was the only point that was pressed
before us and we think that it would suffice for the disposal of the appeal. Plaintiff No. 2 and
defendant No. 2 are not necessary parties.The disputed property is situate in that portion of
Sambalpur district where the Central Provinces Tenancy Act of 1898 is still in force. As the
property is admittedly an occupancy holding the relevant sections for consideration are Sub-
sections (3) and (5) of Section 46 of that Act and Section 47(1) of that Act. They are reproduced
below for ready reference.
4. Point of Law :- 'Section 46(3).-- No occupancy tenant shall be entitled to sell, make a gift or
mortgage, sub-let (except for a period not exceeding one year) or otherwise transfer his right in
his holding or in any portion thereof, and every such sale, gift, mortgage, sub-lease (other than
for a period not exceeding one year) or transfer shall be voidable in the manner and to the
extent provided by the two next following sections: Provided that an occupancy tenant may
transfer his right of occupancy to any person who, if he survived the tenant, would inherit the
right to occupancy, or to any person in favour of whom as a co-sharer the right of occupancy
originally arose, or who has become by succession a co-sharer therein: Provided also that
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 nothing in this section shall affect the right of the Government to sell the right of an occupancy
tenant in his holding for the recovery of an advance made to him under the Land Improvement
Loans Act, 1883, or the Agriculturists Loans Act, 1884, or the right of the purchaser at such sale
to succeed to the holding.’ 'Section 48(5).-- Notwithstanding anything contained in the Indian
Registration Act, 1877, no officer empowered to register documents shall admit to registration
any document which purports to transfer the right of an occupancy tenant in his holding or in
any portion thereof unless the document recites that the transferee is a person who, if he
survived the tenant, would inherit the right of occupancy or is a person in favour of whom as a
co-sharer the right of occupancy originally arose or who became by succession a co-sharer
therein.’ 'Section 47(1).-- If an occupancy tenant transfers any portion of his right in any land in
contravention of the provisions of the last foregoing section, any such person as would be
entitled to inherit his right in the holding in the event of his death without nearer heirs, or the
landlord from whom the tenant held the land, may, on application to a Revenue Officer, made
within two years from the date on which in pursuance of the transfer the tenant parted with
possession of the land, be placed in possession, subject to far as the Revenue Officer may, in
accordance with rules made by the Local Government, determine, to his acceptance of the
liabilities of the transferring tenant for arrears of rent and for advances made by the landlord or
other persons for the necessary expenses of cultivation.'
5. Issues :- Whether in the present case the dispute between the parties is, in substance, one
regarding the validity or otherwise of a transfer effected in contravention of the relevant
provisions of Section 46, C. P. Tenancy Act.
Whether transfers of this type can be challenged in Civil Courts or in Revenue Courts.
6. Judgement :- In the plaint, apart from the occupancy holding, claim was made for a portion of
a residential house of the parties. There is, however, no evidence to show that the house was
treated as part of the holding being the homestead of a raiyat. The arguments in both the Courts
proceeded on the assumption that the entire disputed property was an occupancy holding to
which Section 46, C. P. Tenancy Act would apply. In this Court also no separate argument was
advanced as regards the invalidity of transfer of the house by the deed of gift. Hence, it is
unnecessary to consider whether even if the plaintiff's remedy against the transferee of the
occupancy holding is barred he can claim relief as regards that portion of the residential house
described in Schedule B-1 of the plaint. I would, therefore, in disagreement with both the lower
Courts hold that the plaintiff's only remedy was under Section 47(1), C. P. Tenancy Act in the

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 Revenue Court and that remedy also has become time-barred. The judgment and decree of both
the Courts are set aside and the plaintiff's suit is dismissed with costs throughout.

Section 47 :- Transfer by co-owners of share in common property.—Where several co-

owners of immoveable property transfer a share therein without specifying that the transfer is to
take effect on any particular share or shares of the transferors, the transfer, as among such
transferors, takes effect on such shares equally where the shares were equal, and, where they were
unequal, proportionately to the extent of such shares.

Illustration

A, the owner of an eight-anna share, and B and C, each the owner of a four-anna share, in mauza
Sultanpur, transfer a two-anna share in the mauza to D, without specifying from which of their
several shares the transfer is made. To give effect to the transfer one-anna share is taken from the
share of A, and half-an-anna share from each of the shares of B and C.

Case Analysis

1. Case Name :- Mr. Jasbir Singh Sarkaria Vs. Commissioner Concerned

2. Case Citation :- AIR 1954 Ori 195; 20 (1954) CLT 407
3. Facts :- The applicant, who is a citizen of USA, is the co-owner of agricultural land of an
extent of 27.7 acres. The other co-owners are his brother and sister. The applicant is entitled to
4/9th share therein. The applicant and other co-owners having decided to develop the land by
constructing a residential complex thereon through a 'developer' entered into a 'Collaboration
agreement' on 8.6.2005 with M/s. Santur Developers Pvt. Ltd., New Delhi. On behalf of the
applicant, the agreement was signed by his brother and Power of Attorney holder Mr. Karanbir
Singh Sarkaria. According to the terms of the agreement, the developer should obtain the 'Letter
of Intent' from the concerned Government department and obtain other permissions and
sanctions for developing the land at its own risk and cost. The developer will have 84 per cent
share of the entire built up area and the proportionate land area whereas the owners' share will
be 16 per cent. The mode of apportionment of the built up area is indicated in clause 21 of the
agreement. The consideration for the agreement is the portion of the built up area to be handed
over to the owner free of cost. Owners are entitled to visit the site in order to review the
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progress of the project. It is clarified in clause 18 that the ownership would remain exclusively
with the owners till it vests with both the parties as per their respective shares on the completion
of the project. The other clauses and the steps contemplated in the agreement are the following:
(i) Payment of earnest money of Rs.1 crore at the time of entering into agreement.(ii) Execution
of Special Power of Attorney in favour of developer to enable it to deal with the statutory
authorities etc. for obtaining necessary approvals/sanctions.(iii) Obtaining 'Letter of Intent' not
later than 8.3.2006. In case of failure to do so, the agreement shall stand terminated. ('letter of
Intent' is the license granted by the Director of Town Planning to develop the land for the
proposed purpose subject to payment of prescribed charges and compliance with other
conditions).(iv) On fulfillment of the requirements laid down in the 'Letter of Intent', owners
will have to execute irrevocable general Power of Attorney in favour of the developer, inter alia,
authorizing it to book and sell dwelling units out of developer's share and collect the money for
the same. However, the sale deeds can only be executed after the owners receive their share of
the constructed area. [Vide clause 15] (v) After filing application for change of land use
(licence), the developer shall take steps to earmark the built up area of the owners in accordance
with the tentative building plan and both the parties are entitled to lease out or sell the area
falling to their respective shares as per the agreed allocation and to receive payments. [vide
clause 26] (vi) The owners, on completion of the construction of their built up area, shall grant
power in favour of the developer to enable it to transfer rights, title and interest to the extent of
its share in favour of buyers of the units. (vii) Subject to the fulfillment of the obligations
enjoined upon the developer, the owners shall not interfere with the execution of the
development and construction work. Three months later, an agreement styled as 'Supplementary
Agreement' was entered into on 15.9.2005 between the applicant and other co-owners on the
one hand and M/s. Santur Developers Pvt. Ltd.^ on the other. In essence, it is an agreement to
sell the 16 per cent share of the owners in the built up area to the developer or its nominee for a
consideration of Rs.42 crore. Apart from Rs.2 crores which the owners have received under the
collaboration agreement, the balance sum of Rs. 40 crore is payable by the developer to the
owners in six instalments starting from 8.3.2006. The time for payment of installment money
may be extended subject to payment of interest/liquidated damages as per clauses 8 and 9. The
last installment of Rs. 10 crore was payable on or before 8th June, 2007 subject to maximum
extension of three months. Thus, the entire consideration should be paid within 27 months from
the date of Collaboration agreement. Under clause 10 it is provided that if the payment is not
made within the maximum period of extension, the owners shall be at liberty to terminate the
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 collaboration agreement by giving 30 days' notice and thereupon it is incumbent on the
developer to forthwith cease the development activity on the land and remove itself and its
agents therefrom. On receipt of all payments within the prescribed or extended time, the owners
shall have to transfer all the rights, title and interest in and over the owners' developed share
alongwith proportionate land and basement underneath by executing requisite documents. The
owners shall also grant powers to the developers enabling them to transfer rights and possession
and to execute sale deeds etc. in respect of the developer's 84 per cent share together with
proportionate land and basement underneath. The GPA executed earlier in favour of the
developer will become inoperative after the title gets transferred to the developer. In the last
clause it is stated that all other terms and conditions of Collaboration Agreement not
inconsistent with the provisions of the supplementary Agreement will continue to be binding on
both parties.
4. Point Of Law :- The expression used is 'arising' which is not to be equated with the expression
'received'. Both these expressions and in addition thereto, the expression 'accrue' are used in the
Income-tax Act either collectively or separately according to the context and the nature of
charging provision. The second point which deserves notice is that by a deeming provision, the
profits or gains that have arisen would be treated as the income of the previous year in which
the transfer took place. That means, the income on account of arisal of capital gain should be
charged to tax in the same previous year in which the transfer was effected or deemed to have
taken place. The effect and ambit of the deeming provision contained in Section 45 has been
considered in decided cases and leading text books. The following statement of law in Sampath
Iyengar's Commentary (10th Edition - Revised by Shri S. Rajaratnam) brings out the correct
legal position: Section 45 enacts that the capital gains shall by fiction 'be deemed to be the
income of the previous year in which the transfer took place'. Since this is a statutory fiction,
the actual year in which the sale price was received, whether it was one year, two years, three
years, four years etc. previous to the previous year of transfer, is beside the point. The entirety
of the sum or sums received in any earlier year or years would be regarded as the capital gains
arising in the previous year of transfer. As to the date of deemed transfer under clause (v), two
extreme view-points are put forward on behalf of the applicant and the department. Whereas it
is the contention of the departmental representative that the date of execution of the
Supplementary agreement is itself the date of transfer giving rise to capital gains, it is the case
of the applicant that the transfer takes place only after the full consideration of Rs. 42 crores is
received by the owners and the developer is in a position to demand transfer of title in his
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 favour. According to the authorized representative, till the last installment is paid, there is no
transaction in the eye of law which authorizes the developer to 'retain' possession.
5. Issues :- Whether on the facts and in the circumstances of the case, the capital gains accrue/
arise to the applicant (assessee) during the financial year 2006-07 and accordingly subject to tax
in the assessment year 2007-08 on grant of CLU (Change of Land Use) as detailed in the letter
dated 8.3.2006 ?
Whether on the facts and in the circumstances of the case, the capital gains accrue/arise to the
applicant (assessee) during the financial year 2007-08 and accordingly subject to tax in the
assessment year 2008-09 on completion of construction and on receipt of final payment of
installment when the share of the Developer is eligible for transfer as agreed vide Collaboration
Agreement dated 8.6.2005?
Whether on the facts and in the circumstances of the case, the capital gains accrue/arise to the
applicant (assessee) partly during the assessment year 2006-07, assessment year 2007-08 and
the assessment year 2008-09 respectively, on receipt of consideration amount in proportion to
its payment by the Developer, who is allowed to carry out the development activity after grant
of CLU and other required permissions?
6. Judgement :- Where the agreement for transfer of immovable property by itself does not
provide for immediate transfer of possession, the date of entering into the agreement cannot be
considered to be the date of transfer within the meaning of clause (v) of Section 2(47) of the
Income-tax Act. To attract clause (v) of section 2(47), it is not necessary that the entire sale
consideration upto the last installment should be received by the owner. In the instant case,
having regard to the terms of two agreements and the irrevocable GPA executed pursuant to the
agreement, the execution of GPA shall be regarded as the "transaction involving the allowing of
the possession" of land to be taken in part performance of the contract and therefore, the
transfer within the meaning of section 2(47)(v) must be deemed to have taken place on the date
of execution of such GPA. The irrevocable GPA was executed on 8.5.2006 i.e. during the
previous year relevant to the assessment year 2007-08 and the capital gains must be held to
have arisen during that year. Incidentally, it may be mentioned that during the said year, i.e.
financial year 2006-07, a final licence was granted and the applicant/owners received nearly
2/3rd of the consideration. Once it is held that the transaction of the nature referred to in clause
(v) of section 2(47) had taken place on a particular date, the actual date of taking physical
possession need not be probed into. It is enough if the transferee has by virtue of that
transaction a right to enter upon and exercise the acts of possession effectively. In view of the
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 foregoing discussion, we answer the first question in the affirmative; that is to say, the capital
gains arise during the financial year 2006-07 and shall be subjected to tax for the assessment
year 2007-08. Consequentially, questions No. 2 and 3 are answered in the negative.

Case Analysis

1. Case Name :- M/S.Cauvery Spinning and Weaving Mills Limited (In Liquidation) Vs. the
Deputy Commissioner of Income-tax, and ors. 3
2. Case Citation :- AIR 1952 Ori 239; 18 (1952) CLT 161
3. Facts :- The petitioner is a company under liquidation. The same is now represented by the
Official Liquidator of this Court. A Mill belonging to the petitioner company was ordered to be
sold by the Company Court in public auction. Accordingly, it was sold in public auction for a
sum of Rs.4.49 Crores. The bidder in whose favour the sale was confirmed filed two
applications before the Company Court in C.A.Nos.979/1991 and 980/1991 praying the
Company Court to permit him to pay a part of consideration of Rs.2.23 Crores in 80 instalments
and further praying to grant lease of the Mill namely, Cauvery Spinning and Weaving Mills
Limited. He further submitted that he was ready to pay a sum Rs.2.26 Crores towards part sale
consideration. The Company Court by order dated 12.8.1991 accordingly granted permission to
the bidder to pay Rs.2.26 Crores within six months without interest and to pay the balance of
Rs.2.23 Crores in 80 monthly instalments regularly commencing from 1.12.1991. He was
further directed that for the said amount, the bidder shall pay flat rate of interest of 18% per
annum on reducing balance from 1.1.1991. It was only in pursuance of this order, the bidder
paid Rs.2.23 Crores within six months which carried no interest. The balance of amount, as per
the order of the Court, he started paying in instalments and that also he could not carry out
promptly. He filed another application in C.A.No.1762/93 before the Company Court to pay the
balance of Rs.1.39 Crores and to relieve him from payment of interest. In the said application,
this Court by order dated 2.11.1993 reduced the interest from 18% to 15%. Similarly in respect
of the payment of the balance of consideration, some concession was shown in the matter of
time. Subsequently, there were few more such applications in respect of the payment.
Ultimately, the entire sale consideration was paid and accordingly, a Sale Certificate was issued

3 AIR 1952 Ori 239; 18(1952)CLT161

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 in favour of the purchaser. In this regard, a sum of Rs.57.89 Lakhs was paid by the purchaser in
the name of "interest" as directed by the Company Court. The 1st respondent proposed to assess
the said amount as income under the head of "income from other sources" for the purpose of
payment of income tax. The petitioner/Liquidator opposed the same on the ground that the said
amount has been received by the Official Liquidator only as part of sale consideration and
therefore, it will fall under the head of "Capital Gains" for the purpose of income tax and not
under the head of "income from other sources". The same was not accepted by the 1st
respondent. The 1st respondent assessed the same as "income from other sources" and
accordingly computed the amount of income tax for the same. Against the said order of the 1st
respondent, an appeal was preferred by the Official Liquidator to the 2nd respondent which was
also rejected. Challenging the same, the petitioner/Official Liquidator filed a Company
Application before this Court in C.A.No.2012/1997 praying the Company Court to direct the
Income Tax Department to treat the interest amount paid by the purchaser of the Mill as
forming part of sale consideration. In the said Company Application, notice was issued to the
1st respondent by the Company Court. When the matter was taken up on 14.12.2000 for
hearing, a preliminary objection was raised by the 1st respondent in respect of the
maintainability of the Company Application. It was contended that when there was an
alternative efficacious remedy available to the petitioner/Liquidator, the Company Application
was not maintainable. Having considered the same, the Company Court by order dated
14.12.2000 dismissed the said petition as not maintainable, however, with a direction to the
Official Liquidator to challenge the order of assessment by filing a Writ Petition before this
Court. It was also directed that in fairness, the Income Tax Department should not raise the plea
of availability of alternative remedy or the delay in challenging the order of assessment. It is in
pursuance of the said direction issued, the petitioner/Official Liquidator has come forward with
this Writ Petition.
4. Point Of Law :- The learned Senior Counsel would further point out that indisputably, when
the bidder was permitted to pay the part of the bid amount in instalments, the Company Court
by order dated 2.11.1993 in C.A.No.980/1991 directed the Official Liquidator to lease out the
Mill to the bidder for a reasonable lease rent which was also fixed by the Company Court.
Relying on this, the learned Senior Counsel would submit that though possession was taken by
the bidder even before the sale was effected, the same will not amount to transfer since the
possession was not transferred by way of part performance under Section 53-A of the Transfer
of Property Act. In this regard, the learned Senior Counsel would rely on Section 48 of the
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Income Tax Act and the definition of the term interest as found in Section 2(28A) of the said
Act. To substantiate his contention, the learned Senior Counsel would also take me through
various orders passed by the Company Court including the tender notification wherein it has
been stated that the interest amount to be collected from the bidder will be treated as part of sale
consideration. Therefore, the learned Senior Counsel would submit that it was the intention
even of the Company Court, which had full control over the property, to have the amount
collected by way of interest as part of sale consideration. Therefore, he would submit that it
cannot be contended that the amount in question was received by the Official Liquidator in the
name of interest in legal sense. For the purpose of Income Tax Act, it is not at all interest, but it
forms part of the sale consideration falling under the head of Capital Gain. The learned Senior
Counsel has relied on the judgment of Kerala High Court in Karvalves Limited v.
Commissioner of Income Tax reported in (1992) 197 ITR 95, wherein the Court had occasion to
consider as to whether the amount paid as Solatium on account of the lands acquired under the
Land Acquisition Act would form part of the sale consideration or the income from other
sources. The learned Senior Counsel would submit that the various High Courts have taken the
consistent view that the Solatium forms part of only the sale consideration and therefore, it is
not an income from other sources for the purpose of income tax. To put it in nutshell, the
learned Senior Counsel would submit that the order of assessment made by the 1st respondent
which was later on confirmed by the 2nd respondent wherein they have assessed the said
amount, treating the same as income from other sources is not at all sustainable and therefore,
the same requires interference at the hands of this Court. The learned Counsel for the
respondent would have a different stand. He would also take me through various proceedings of
the Company Court wherein two different expressions viz. consideration and interest have been
employed. According to him, the intention of the Company Court itself was to treat the bid
amount as consideration and any amount received from the bidder for the delayed payment
towards interest is only as an income from other sources. In this regard, the learned Counsel
would also submit that even in the Sale Certificate issued by the Company Court, it has been
treated separately as consideration and interest, thereby denoting that the bid amount is the
consideration and the amount in question is only interest. The learned Counsel would further
submit that in a Catena of decisions, it has been held that any amount accrued as interest on the
capital amount is only income from other sources as defined in the Income Tax Act. In this case,
according to the learned Counsel for the respondent, the amount in question was received by the
Official Liquidator from the bidder only by way of interest on the capital amount, namely, the
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 consideration and therefore, the assessment order is sustainable under law. The learned Counsel
would further submit that though it is true that the transfer of title to the property was effected
only on the issuance of the Sale Certificate, it is immaterial. He would further point out that the
moment, the sale is confirmed and the part payment is made, there is notional transfer of the
property in favour of the bidder and therefore, any excess amount received subsequently
because of the deferred payment in instalments would be only income on the bid amount. He
would further submit that such interest is paid only as an obligation on the part of the bidder
arising out of some arrangement. Therefore, the said amount is the amount due from the bidder
which in turn will fall within the definition of interest as defined in the Income Tax Act.
5. Issues :- Whether the amount in question received by the Official Liquidator forms part of the
sale consideration so as to fall within the head of "Capital Gain" or the same is interest, pure
and simple, so as to fall within the head of "income from other sources" for the purpose of
assesement for payment of income tax.
6. Judgement :- The judgment relied on by the learned Counsel for the Respondents i.e. in Mount
Stuart Tea Estate and Amar Coffee Plantation V. Commissioner of Income Tax reported in
(1999) 239 ITR 489 that is a case where this Court has held that though possession was not
transferred on account of agreement for sale, still the amount received by way of interest for the
sale consideration mentioned in the sale agreement will be only income through other sources.
But the facts are distinguishable. In that case, the Court had to consider as to whether the
amount received by the seller forms part of the sale consideration or it was under a different
transaction where interest for a fixed amount was calculated and received by him. In the given
set of facts and circumstances of that case, it has been held that the amount received by way of
interest was not on account of transfer of capital asset, but on account of a different transaction
under which interest was received. Therefore, the principles stated in the said case do not come
to the rescue of the respondents. In view of the foregoing discussion I hold that the amount in
question, in this Writ Petition received by the Official Liquidator as per the orders of the
Company Court, though repeatedly referred to as interest, for the purpose of assessment of
income tax, it is part of sale consideration and therefore, the same cannot be treated as income
from other sources as defined in Section 56 of the Income Tax Act. The said amount should be
treated only as Capital Gain under Section 45 of the Income Tax Act for the purpose of
assessment. In the result, the Writ Petition is allowed, the impugned order passed by the 1st
respondent and confirmed by the 2nd respondent is set aside and the matter is remitted to the 1st

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respondent for issuance of appropriate assessment order treating the amount in question as
Capital Gain. No costs.

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