Punjab-Haryana High Court
Commissioner Of Income Tax vs Dhir And Co. Colonisers (P) Ltd. on 29 September, 2006
Equivalent citations: (2007)207CTR(P&H)239, [2007]288ITR561(P&H)
Bench: Adarsh Kumar Goel, Rajesh Bindal
JUDGMENT
1. Following question has been referred for opinion of this Court by the Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dt. 14th March, 1989 in ITA Nos. 237, 238 and 715/Chandi/1985, in respect of asst. yrs. 1980-81 and 1982-83:
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount received by the assessee-colonizer by way of advances or earnest money as a result of agreements to sell plots, did not constitute revenue receipts in its hands, as no sale deed had yet been executed?
2. Facts noticed by the Tribunal are that the assessee M/s Dhir & Co. Colonisers (P) Ltd. is a private limited company. For the assessment years under reference, trading additions of Rs. 28,770, Rs. 98,700 and Rs. 1,93,084 were made by the learned ITO on the basis that these amounts represented income of the assessee from colonization business. The facts in regard to the same are not in dispute. The assessee had colonisation business. It had developed four colonies in Ludhiana, namely, Asha Puri (and its extension) Krishna Nagar, Ram Park and Sawan Park. The land was purchased from 1973 to 1975 from various persons. The land was registered in the name of the assessee. Thereafter, it was developed into plots and sought to be sold on instalment basis. Some of the sales were registered in December, 1975. In the balance cases, registration could not be effected on account of the restrictions placed by the Urban Land (Ceiling and Regulation) Act, 1976. Though the plots were not registered, the learned ITO took the view that the possession having been handed over, the amounts received in respect of such plots represented trading receipts.
3. The matters were thereafter taken in appeals by the assessee and the learned CIT(A) vacated the additions made by the learned ITO for all the years.
4. The issue was thereafter, for all these years, brought by the Revenue before the Tribunal. The Bench dismissed the appeals with the following observations:
5. We have considered the rival submissions as also the decisions, referred to above. It is not under dispute that some of the sales were registered upto December, 1975. On behalf of the assessee, it was also admitted that on the persistent representation and appeals to the authorities under the Urban Land (Ceiling and Regulation) Act, the assessee had succeeded in obtaining some sanctions and registration deeds were executed in favour of purchasers to the tune of Rs. 45,715 during the year ending 31st March, 1987 and in a sum of Rs. 72,460 during the period ending 31st March, 1988. It was also submitted that various refunds of earnest money received were also given to those purchasers in whose cases registered sale deeds could not be executed. The details of these cases were also furnished. In some cases, the assessee had also executed sale deeds notwithstanding the prohibition that they could not be registered. The assessee had entered into correspondence with the competent authority under the Urban Land Act. In some cases, some plots were sought to be sold in spite of prohibitions contained in the Punjab Regulation of Colonies Act and the assessee was prosecuted for the violation of the provisions of Section 8(1) thereof. It is clear from the provisions of the Transfer of Property Act and the Registration Act, that no immovable property can be transferred without the execution of a registration sale deed. To the same effect was the view expressed by the Supreme Court in the case of (Late) Nawab Sir Mix Usman Ali Khan (supra). Unless the title of the assessee was extinguished, the title of the purchaser in the plots in question could not arise and the land was to be treated to continue as the stock-in-trade of the assessee. The land could cease to be the assessee's stock-in-trade only when there was a valid and registered sale deed in respect thereof. It is not under dispute that the assessee-company could not and did not execute any registered sale deed in respect of the instances in question during the assessment years under appeals and, therefore, what it received in the form of advance or earnest money could not constitute a revenue receipt in its hands. We have already seen that in some cases refunds were made by the assessee. The facts in the case of Ashaland Corpn. (supra) were very much similar. In that case, the question arose before the Hon'ble Gujarat High Court whether any agreement to sell land could create any interest in favour of the purchaser and whether a transaction of sale could be said to be complete only with the transfer of title in hand. It was held that earnest money and part payments received could not partake the character of profit nor could they be assessed as trading receipts. All the factors which influenced the mind of the ITO in taxing the amounts in question were considered by the Gujarat High Court in that case and it was held that it was only on the completion of a transaction of purchase or sale culminating in the extinguishment of the title in vendor and simultaneous creation of the title in the vendee that the seller could earn profit or suffer a loss. The Court also considered the doctrine of part performance embodied in Section 53A of the Transfer of Property Act and came to the conclusion that it could also not come to the rescue of the vendee. So far as the decision dt. 9th April, 1987 of the Chandigarh Bench in the case of Sh. Avtar Singh (supra) is concerned, we find that the facts in that case were not identical with the facts obtaining in the present case. The assessee had furnished before us a charge showing the grounds which formed the basis of the decision dt. 9th April, 1987 in the case of Sh. Avtar Singh (supra) and now facts in the present case differed fundamentally from those facts. It is not necessary to repeat them. Therefore, on the basis of the authority of the Madras High Court in the case of L.G. Ramamurthi & Ors. (supra), the learned Counsel for the assessee was right in pointing out that the decision in the case of Shri Avtar Singh (supra) could not come in the way of the assessee. The result is that we find no warrant or justification on facts in interfering with the orders of the CIT(A).
5. We have heard learned Counsel for the parties and perused the record.
6. We proceed to answer the question referred as under:
In CIT v. Podai Cement (P) Ltd. , the assessee purchased flats and let out the same and received rental income. During the assessment, the assessee took the plea that the said income was not income from house property as the assessee was not "legal owner" of the flats inasmuch as ownership was not transferred in the name of the assessee. The plea of the assessee was upheld by the Tribunal and the High Court. It was argued that the assessee being in beneficial enjoyment of the flats, was owner for purposes of income-tax. It was held that even though, under the common law, "owner" means a person who has got a valid title legally conveyed after complying with the requirements of Transfer of Property Act, Registration Act, etc., having regard to the ground realities and the object of the IT Act, namely "to tax the income", "owner" was the person who was entitled to receive income from the property in his own rights. It was thus, held that principles of Common law, Transfer of Property Act and Registration Act were not conclusive for interpretation of provisions of IT Act on the question of ownership of property. The Hon'ble Supreme Court, inter alia, referred to earlier judgments dealing with the issue in R.B. Jodha Mai Kuthiala v. CIT , Smt. Kala Rani v. CIT and Late Nawab Sir Mir Osman Ali Khan v. CWT . In Mysore Minerals Ltd. v. CIT , similar view was taken.
7. We may also quote observations made by the Kerala High Court in CIT v. Travancore Rubber & Tea Co. Ltd. , which are apt for the present case also:
Prima fade, the moment an earnest money or deposit is received, certain legal incidents are attached to it. It is a security received for due performance of the contract. Whether the contract is effectuated or not, the amount could and will ordinarily be retained by the seller. If the purchaser commits breach of the agreement, earnest money can be forfeited. If, on the other hand, the transaction goes through, the earnest money received will be given credit to, towards the consideration fixed in the agreement. Either way, once earnest money or deposit is received, it is not a refundable amount. This is a great factor to be reckoned in determining whether the receipt of earnest money is a trading or revenue receipt or a capital receipt. It should also be noticed that the company, in carrying on its business, has entered into the deal for the sale of plots. As part of the bargain, it has stipulated payment of earnest money or deposit for the due performance of the contract. Prima facie, the earnest money received has got immediate nexus with the 'business' carried on by the assessee-company. It is a part of the bargain in the course of carrying on a business.
8. In the present case, the Tribunal held that unless the title of the assessee was extinguished, land was to be treated to continue as stock-in-trade of the assessee and the amounts received on account of sale of plots were not trading receipts. In view of law laid down by the Hon'ble Supreme Court, this view cannot be approved. Once the possession of plots was transferred and transferees even made constructions, the dominion over the property passed on to the transferees and the amounts received by the assessee could not be held to be mere deposits and property transferred could not be held to be stock-in-trade of the assessee. The amount received by the assessee had, thus, to be revenue receipt in its hands.
9. For the above reasons, we answer the question in favour of the Revenue and against the assessee.
Reference is disposed of accordingly.