1981 (7) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 5,000 received by the assessee as earnest money constituted its income taxable for the assessment year 1971-72.
2. Whether the amount of Rs. 2,08,772 received by the assessee as part price constituted its income taxable for the assessment year 1971-72.

Summary:

Issue 1: Earnest Money as Taxable Income
The Tribunal held that the amount of Rs. 5,000 received by the assessee as earnest money under an agreement to sell land constituted its income for the assessment year 1971-72. However, the High Court disagreed, stating that an agreement to sell does not create any interest in favor of the purchaser, and the title remains with the seller until the sale is completed by executing a registered sale deed. Therefore, the receipt of Rs. 5,000 as earnest money does not constitute taxable income for the assessment year 1971-72.

Issue 2: Part Price as Taxable Income
The Tribunal also held that the amount of Rs. 2,08,772 received by the assessee as part price constituted its income for the assessment year 1971-72. The High Court, however, emphasized that the land remains part of the assessee's stock-in-trade until the sale is completed by executing a registered sale deed. The receipt of Rs. 2,08,772 as part payment does not confer any title on the purchaser and does not constitute taxable income until the sale transaction is completed. The High Court concluded that the amount received would assume the character of income only when the sale transaction is completed in accordance with law.

Conclusion:
The High Court answered both questions in the negative, ruling that neither the amount of Rs. 5,000 received as earnest money nor the amount of Rs. 2,08,772 received as part price constituted the assessee's income taxable for the assessment year 1971-72. The Tribunal's decision was set aside, and the High Court ruled in favor of the revenue with no order as to costs.