TMI Blog1979 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... iration of the said period of six months, by a 15 days' notice to be given in writing, time could be made the essence of the contract. It was the responsibility of the vendor to obtain the necessary permission from the municipal or other public authorities, for the sub-division of the main plot admeasuring 7,012 square yards and the necessary costs for applying for and obtaining the said sub-division including the architect's fees were to be borne by the vendor only. It was stipulated that if the permission for the said sub-division was not obtained on any account whatsoever, the vendor would be entitled to cancel the agreement, upon which the earnest money deposited was to be refunded to the purchaser without any interest and thereupon the parties were not to have any other claim against each other. One of the clauses of the agreement provided that, on the completion of the sale, the vendor should put the purchaser or his nominee or nominees in vacant and peaceful possession of the premises. It appears that the vendor informed the assessee that the sub-division of the plot had not been granted by the municipal corporation and, therefore, it was not possible to complete the sale an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torneys for the Mortgagees of the property, in accordance with the agreement arrived at between ourselves and Anandji Haridas, which amount has been reimbursed to us. " In the assessment year 1964-65, the ITO, relying upon the wording of the receipt, held that the assessee was liable to pay capital gains tax and after allowing a sum of Rs. 14,115, on account of expenses, he brought to tax a sum of Rs. 4,85,885 by way of capital gains. This order of the ITO was upheld by AAC and the matter was taken to the Appellate Tribunal by the assessee. The Tribunal, considering the nature of the transaction as a result of which the assessee had received the amount of Rs. 5,90,000, took the view that the assessee had agreed not to insist upon the property being sold to itself, but it had agreed for consideration to part with the rights to a third party, namely, M/s. Advani and Batra, and, therefore, all its right, title and interest, which it had pursuant to the agreement, were transferred and assigned to M/s. Advani and Batra for a cash consideration of Rs. 5 lakhs. Thus, according to the Tribunal, there was a case for the levy of tax on capital gains made by the assessee in respect of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest or right in the land which was agreed to be purchased and, therefore, the assessee owned no capital asset as contemplated by s. 2(14) of the I.T. Act, 1961. It was further contended by him that when the assessee received a total amount of Rs. 5,90,000 from M/s. Advani and Batra, there was no transfer of any property as contemplated by s. 2(47) and the amount which the assessee had received was in effect compensation for breach of contract and could not be said to be consideration for the transfer of any asset. It was also contended that in any case the asset in respect of which capital gains tax was sought to be computed was an asset for the acquisition of which the assessee did not incur any cost and, therefore, no computation could be made as contemplated by s. 48 of the I.T. Act. Now, it is no doubt true that as provided for in s. 54 of the Transfer of Property Act, a contract for the sale of immovable property does not by itself create any interest in or charge on such property. It is, however, difficult to see how the provisions of s. 54 of the Transfer of Property Act at all become relevant for the purposes of the present case. It is not the case of the revenue nor wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance and transfer of immovable property in favour of the assessee is the payment of a sum of Rs. 90,000 by way of earnest money plus the obligation to pay the balance of the purchase price on the completion of the sale. It is in lieu of this consideration that the right to obtain a conveyance has been acquired by the assessee. Now, so far as the transaction between the assessee and Messrs. Advani and Batra is concerned, it is obvious that both the assessee and Anandji Haridas have treated the agreement of sale as subsisting and the rights under this agreement of sale were being assigned in favour of M/s. Advani Batra. It is no doubt true that at one stage Anandji Haridas wanted to treat the transaction as cancelled, a position which was not accepted by the assessee. The assessee, however, had throughout been insisting that the agreement of sale is a subsisting agreement and that it would be constrained to file a suit for specific performance of that agreement for sale. Whatever may have been the controversy between Anandji Haridas and the assessee prior to 23rd September, 1963, when the assessee executed the receipt for Rs. 5,90,000, the position on that day was not only that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us (Desai J.) was a party, specifically dealt with the question as to whether goodwill, which was a self-created and self-generated asset, created or generated by the activities of the assessee and which was a capital asset of the assessee, can be said to have been acquired by it at any particular point of time for any cost or any cost in terms of money and whether such a type of capital asset on transfer gives rise to chargeable gains under s. 12B(1) of the Indian I.T. Act, 1922. The Division Bench referred to the provisions of s. 12B(1) of the Indian I.T. Act, 1922, and s. 45 of the I.T. Act, 1961, and pointed out that the concept of profit and gain arising from the transfer or sale, as contemplated by the abovementioned provisions, necessarily implies that there is something received in excess of the capital asset which is transferred or sold and profit or gain arising from sale has a necessary reference to the difference between the cost price of the asset and the sale price of the asset. The Division Bench pointed out that the charging provision in both the Acts itself brings in the concept of actual cost to the assessee of the capital asset, and what is done by the machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in favour of M/s. Advani and Batra, he received Rs. 5,90,000 and Rs. 90,000 was treated as refund of consideration. Therefore, the actual cost to the assessee of the right to obtain the sale deed on the date of the agreement of sale was Rs. 90,000. Therefore, this was, in our view, clearly a case which squarely fell within s. 45 of the Act and the assessee had made a profit or gain arising from the transfer of the capital asset which was the right to obtain a sale deed in respect of immovable property. Question No. 1 referred at the instance of the assessee would, therefore, have to be answered in the affirmative. Coming to the quantum of capital gains, it is impossible for us to appreciate how the Tribunal was persuaded to apply the ratio of the decision in Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC) (hereinafter referred to as " Kapadia's case "). As already pointed out earlier, while determining the income chargeable under the head " Capital gains ", the Tribunal has taken the view that the assessee, if it had purchased the land itself at the rate of Rs. 234 per square yard, would have benefited by Rs. 66 per square yard because the price of land at Malabar Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land or not was not at all material. This was not a case where the value of a part of the asset held by the assessee had depreciated because a part of the asset was transferred and as a result of that transfer the assessee had derived any additional profit. This was a simple case where the entire capital asset which consisted of its right under the agreement came to be transferred. There was no question of deduction of any loss out of the profit which the assessee had made by transferring the capital asset. The Tribunal was, in our view, therefore, clearly in error in applying the ratio of Kapadia's case [1967] 63 ITR 651 (SC) to the case of the assessee. In our view, therefore, the entire amount of Rs. 5,00,000, being the difference between the amount of Rs. 5,90,000 received by the assessee and Rs. 90,000 originally paid by the assessee as earnest money, would be capital gain in the hands of the assessee. The assessee would, however, be entitled to a deduction of Rs. 14,115 on account of legal and other expenses referred to by the ITO. The second question would, therefore, have to be answered in the negative and in favour of the revenue. Accordingly, question No. 1 is answere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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