2004 (1) TMI 51 - HC - Income Tax

Order by appropriate authority for purchase of immovable property Concept of discounting - payment of consideration by the Department was made after the date of payment mentioned in the agreement in such cases the concept of discounting as understood could not have been invoked by the competent authority - the appropriate authority was liable to pay the entire balance consideration without discounting the value of the consideration payable

Issues Involved:
1. Withholding of Rs. 5,00,000 on account of transfer fees payable to the co-operative housing society.
2. Application of the concept of discounting under section 269UA(b) of the Income-tax Act, 1961, thereby reducing the apparent consideration from Rs. 3,70,00,000 to Rs. 3,62,25,050.

Detailed Analysis:

1. Withholding of Rs. 5,00,000 on Account of Transfer Fees:
- Factual Matrix: The petitioner agreed to sell his property for Rs. 3,70,00,000, with Rs. 35,00,000 paid upfront and the balance of Rs. 3,35,00,000 payable within 48 hours after receiving a "no objection certificate" from the Income-tax Department or the housing society. The transfer charges were to be shared equally between the vendor and vendee.
- Contentions: The petitioner contended that withholding Rs. 5,00,000 for transfer fees was illegal and excessive since the actual transfer fee was only Rs. 25,000, with the petitioner's share being Rs. 12,500.
- Respondents' Position: The respondents, in their affidavit dated October 16, 2003, accepted the petitioner's contention regarding the transfer fees, except for the petitioner's entitlement to claim interest thereon.
- Judgment: The court directed respondent No. 2 to pay the petitioner Rs. 5,00,000 retained for transfer fees with interest at 10% per annum from February 18, 1994, to November 10, 1997, and accrued interest from November 11, 1997, until liquidation.

2. Application of the Concept of Discounting:
- Factual Matrix: The petitioner was to receive Rs. 3,35,00,000 on or before March 15, 1994, or within 48 hours of receiving the no objection certificate. The competent authority reduced the apparent consideration to Rs. 3,62,25,050 by applying an 8% per annum discount for 111 days from the date of the agreement.
- Petitioner's Argument: The petitioner argued that the discounting method was erroneously applied since the payment was made after the date mentioned in the agreement, and discounting is a rebate for early payment, not applicable in this case.
- Respondents' Argument: The respondents contended that the discounted value should be determined with reference to the date of the agreement, citing precedents from Smt. Vimla Devi G. Maheshwari v. S.K. Laul and Miss Kamla Khushaldas Teckchandani v. O.D. Mohindra.
- Court's Analysis: The court noted that the principle of discounting is well-known and regularly applied in accounting, meaning the present value of future payments. The court emphasized that discounting applies only if payment is made before the due date. Since the payment in this case was made after the date specified in the agreement, the concept of discounting was not applicable.
- Precedents: The court relied on the Division Bench judgment in Shrichand Raheja v. S.C. Prasad, which determined that discounting does not apply if payment is made after the date specified in the agreement. The court distinguished the present case from Smt. Vimla Devi G. Maheshwari and Miss Kamla Khushaldas Teckchandani, stating that these precedents did not apply to the facts at hand.
- Judgment: The court quashed the impugned order and directed respondent No. 2 to pay the petitioner the balance consideration without discounting. The court mandated the payment of Rs. 7,75,000 with interest at 12% per annum from March 25, 1994, to December 31, 2002, and 10% per annum thereafter until full payment.

Conclusion:
The petition was allowed, and the court ruled that the appropriate authority was not entitled to apply the concept of discounting since the payment was made after the due date specified in the agreement. The court directed the respondents to pay the petitioner the full consideration amount without discounting, along with interest on the withheld transfer fees. The rule was made absolute with no order as to costs.

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