Income Tax Appellate Tribunal - Pune
Anant Chunilal Kate vs Income Tax Officer on 28 May, 1999
Equivalent citations: [2000]73ITD71(PUNE)
ORDER
K. C. Singhal, J.M.
1. This is the recalled matter arising out of order of the Tribunal in M.A. 4/Pn/91, dt. 29th November, 1991. The only issue to be considered is whether the addition of Rs. 98,818 on account of income from business in trading of plots was rightly made by the AO.
2. The facts as gathered from the assessment order and the relevant material produced before us are these. The assessee entered into an agreement for purchase of agricultural land bearing No. 166, measuring 30 acres 6 guntas at Nandurbar with Shri Harisingh Shankarsingh Pardeshi and others on 23rd September, 1979 with a view to sell the same in future in plots after converting the aforesaid land into non-agricultural land. The consideration was fixed at Rs. 1,62,500. The sum of Rs. 10,000 was to be paid as earnest money and the balance amount of Rs. 1,52,500 was payable in three annual instalments of Rs. 50,000 by 23rd September, 1980, Rs. 50,000 by 23rd September, 1981 and Rs. 52,500 by 30th September, 1982. As per the terms of the agreement, the assessee was able to obtain permission for conversion of land into non-agricultural land in respect of 2 acres and 30 guntas. This permission was obtained in the name of vendors. The said land was converted into 23 plots and the layout was got approved. Thereafter 17 plots were sold by the assessee during the year under consideration against consideration of Rs. 1,25,200; and 6 plots remained unsold. The vendors executed the sale-deeds in favour of the persons nominated by the assessee. The money was received and kept by the assessee. However, the assessee had paid Rs. 40,000 to the vendors against Rs. 50,000 of the first instalment.
3. The vendors through their lawyer sent a notice dt. 24th September, 1981 to the assessee for cancelling the agreement dt. 23rd September, 1979 since the assessee had failed to pay the entire amount of first instalment which was due on 23rd September, 1980. The sum of Rs. 50,000 paid by the assessee was accordingly forfeited by the vendors. The notice further stated that vendors were entitled to sell the balance land of agricultural and non-agricultural to any other person. After the receipt of his notice, the assessee filed a suit for specific performance before the civil Court Dhule, The said suit was decreed in favour of the assessee vide order dt. 18th October, 1982, for the reason mentioned therein. The vendors filed appeal against this order before the Hon'ble High Court of Bombay. Finally, a compromise decree was passed by the High Court on 19th day of June, 1989. According to the terms of the consent decree, the assessee was to give up all the claims of the land. Further, the amount of Rs. 1,25,418 was returned by the assessee to the vendors and the amount of Rs. 50,000 was returned by the vendors to the assessee.
4. In the meanwhile, the AO issued notice under s. 139(2) of the IT Act dt. 20th September, 1981 to the assessee for filing the income-tax return pertaining to asst. yr. 1981-82 in response to which the assessee filed the return of 25th March, 1982 declared total income of Rs. 12,600 including the sum of Rs. 3,400 as commission at the rate of Rs. 200 per plot. In the course of assessment proceedings, it was claimed on behalf of the assessee that no income accrued to the assessee in view of the dispute between the parties which was finally resolved by way of consent decree dt. 19th June, 1989. The AO was not satisfied with the contention of the assessee. The AO recorded the statement of Shri Manilal Pardeshi, one of the co-owners of the land on 20th March, 1984. It was stated by him that the entire amount of sale proceeds was received and kept by the assessee and the assessee was responsible for the payment of any taxes due on the income thereof. It was, however, admitted that the said agreement was terminated and the matter was pending before the High Court. After considering the material on record, the AO was of the view that income had accrued to the assessee. Accordingly, the profit was computed at Rs. 97,818 which was added to the income of the assessee. The assessee remains unsuccessful before the CIT(A). Hence, this appeal before the Tribunal.
5. The learned counsel for the assessee Mr. Sathe took us through the entire material on record which has been referred to by us. It was contended by him that on account of the termination of the agreement, the entire matter was in jeopardy and therefore, no income accrued to the assessee in view of the decision of the Supreme Court in the case of CIT vs. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524 (SC). Though it was admitted by him that the entire sale consideration of the plot was received and kept by him, but the same was being held by the assessee in trust and was liable to be refunded in case the litigation went against the assessee.
6. On the other hand, the learned Departmental Representative has supported the order of the CIT(A) by contending that there was valid agreement between the vendors and the assessee during the year under consideration by virtue of which the assessee got the right to get the conveyance in his favour or in favour of the persons nominated by him. The plots were sold after converting the land into non-agricultural land as per terms of the agreement and the entire sale proceeds was received and kept by the assessee. Further, there was no dispute between the parties during the year under consideration and therefore, the income arising out of the sale of such plots accrued to the assessee. According to him, the decision of the Supreme Court relied upon by the counsel for the assessee is distinguishable on facts.
7. Rival contention of the parties and the material placed before us have been considered carefully. The arguments of Mr. Sathe, learned counsel for the assessee appears to be attractive, but cannot be accepted. There is no dispute about the facts that (i) there existed a valid agreement of purchase of agricultural land between assessee and vendors during the year under consideration; (ii) sales of plots were validly effected by the vendors in favour of the persons nominated by the assessee as per the terms of the agreement; (ii) the consideration of the sale of plots was received and kept by the assessee as per the agreement; and (iv) the activity of the assessee was in the nature of trade and profits arising out of such activity was assessable as business profit. It is well-settled principle that profits from trading business arises or accrues on the sale of goods or property in which the assessee deals. However, the total profits of the year accrue on the last day of the accounting year as held by the apex Court in the case of CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC). In view of the facts and the legal positions stated above, the profits on the sale of plots not only accrued but also received by the assessee during the year under consideration. Once the income is accrued to the assessee, it became taxable.
8. We have gone through the agreement dt. 23rd September, 1979 between the assessee and vendors and the notice dt. 24th September, 1981 issued by the vendors to the assessee for cancellation of the agreement. It is not necessary for us to go through all the terms of the agreement. It would be suffice to quote the terms of the agreement which provide consequences on the failure of the assessee to pay the instalments as per the agreement. The relevant portion in this regard is quoted below :
"If you fail to pay the agreed amount before 30th September, 1982, the advance amount as well as any other amounts given to us under this contract will be treated as forfeited and your right of purchase of land under this contract will be extinguished forever."
9. The relevant portion of the notice is quoted below :
"Therefore, by this notice, you are hereby informed that "agreement to sell" entered by our clients with you is cancelled and the amount of bayana of Rs. 10,000 and Rs. 40,000 paid towards sale price is hereby confiscated and our clients are entitled to sell balance land agricultural and non-agricultural to any other person."
10. The perusal of the aforesaid contents of the agreement and the notice of termination clearly shows that the amount of sale proceeds of the plot received and kept by the assessee was never in jeopardy. There is no clause in the agreement for refund of money in respect of the sale proceeds of the plot sold prior to the termination of the agreement, if any. Further, the notice sent by the vendors also does not ask the assessee to refund the amount of sale proceeds. Further, no suit was filed by the vendors for refund of such money. The only suit filed before the Court was at the instance of the assessee for the specific performance which was decreed in favour of the assessee by the civil Court, Dhule. In view of these facts, it is difficult to accept that the amount of sale proceeds of the plot which gave rise to the business profits was ever in jeopardy. It was never subject-matter of the litigation. Merely because, the assessee agreed before the High Court to return the amount of sale proceeds, it cannot be said that the right of the assessee in respect to the amount of sale proceeds was an inchoate right and the income did not accrue to the assessee. In our considered opinion, the business profits arisen out of the sale proceeds of the plots accrued during the year under consideration and the assessee was liable to pay income-tax thereof since it is the settled position of the law that income once accrued, then such accruals cannot be postponed.
11. The decision of the Hon'ble Supreme Court in the case of Hindustan Housing & Land Development Trust Ltd. (supra) heavily relied upon by the learned counsel for the assessee is distinguishable on the facts. In that case, the enhanced compensation was awarded by the Court which was challenged by the Government before the High Court. It was observed by the apex Court that if the appeal of the Government was allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. It is because of this reason, the Court held that right of the assessee to the enhanced compensation was an inchoate right. However, in the present case, the income accrued to the assessee on account of the sale of the plots which was never the subject-matter of the litigation. The sales of the plots were effected validly under a valid agreement and there was no dispute to such transactions. The terms of the agreement and the notice of termination of the agreement did not provide for the refund of such amount. There was no suit by the vendors for recovery of such amount. Therefore, the assessee was the absolute owner of the sale proceeds. In view of these distinguishing features, the decision of the Supreme Court cannot be applied in the present case.
12. In view of the above discussion, the order of CIT(A) is upheld. The appeal of the assessee is therefore dismissed.