TMI Blog1999 (10) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into between the trust, which is the owner of the premises and described in the deed as first vendors, the assessee-firm which was described as the second vendors and a company by name Vihar Securities (P) Ltd., it was agreed that the property would be sold to Vihar Securities, which was described as the purchasers in the deed, for an aggregate consideration of ₹ 45 crores. The assessee-firm had joined the agreement as a confirming party. The agreed consideration of ₹ 45 crores was to be paid in the following manner : ₹ 15 crores to the first vendors, viz., the owners of the property as the purchase price and ₹ 30 crores to the second vendors, the assessee herein, to enable the assessee to secure alternate accommodation against surrender of tenancy rights in the property and handing up over possession. During the relevant previous year the assessee received a sum of ₹ 4 crores in accordance with cl. 3(i) and 3(ii) of the agreement from the purchasers, M/s Vihar Securities (P) Ltd., on 15th Sept., 1994, and 27th Dec., 1994, in equal amounts. The assessee appears to have taken the position that the amount was not subject to tax under any head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, and that they are using the major portion of the property for industrial user, running the Bombay Union Dyeing Mills. It also acknowledges that the assessee had sublet certain premises falling in the property to five sub-tenants or occupants. The preamble further states that the trust which was the owner of the property were desirous of selling the property to Vihar Securities (P) Ltd. and had sought the co-operation of the second vendors, viz., the assessee herein and the second vendors have agreed to cooperate with the first vendors is selling the property under sale by surrender of their tenancy rights and vacating the property under sale upon payment of the amount agreed between them so as to secure suitable alternate accommodation elsewhere . This part of the preamble shows that two acts were required to be performed : (1) surrender of the tenancy rights and vacating the property by the assessee and (2) payment of the amount agreed upon to the assessee. Under cl. 2, the amount payable to the assessee was fixed at ₹ 30 crores, to enable the second vendors to secure alternate accommodation against surrender of tenancy/reversionary interest in the said property a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d staff of Bombay Union Dyeing Mills and/or for payment to the sub-tenants/occupants for securing surrender of their respective premises, provided the purchasers are satisfied about the need for such additional payments and the balance price or consideration payable to the second vendors as hereinafter mentioned shall stand revised or reduced accordingly to the extent to which such additional amounts are paid and the first vendors and the confirming parties hereby accord their consent in that behalf. (v) The balance amount of price or consideration as may be finally ascertained after payment of the amounts pursuant to cls. 3(i), (ii), (iii) and (iv) above shall be paid by the purchasers to the vendors in their respective proportions in seven equal instalments, first of such instalments to commence after a period of 30 days on the sanction of the new building plants by and upon receipt of commencement certificate in part or full from the Municipal Corporation of Greater Bombay and against the purchasers being given a licence to enter upon the property under sale as hereinafter mentioned. Remaining six instalments shall be paid at the end of every quarter from the due date of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land under sale at its own cost on or before the receipt of the commencement certificate of the new building plans and the licence referred to in cl. 5. The licence referred to in cl. 5 is the permission to be granted by the vendors to the purchasers to enter upon the property for the purpose of developing or constructing buildings. Clause 25 provides for the contingency in the event the purchasers commit default in paying any of the instalments as per cl. 3. Sub-cl. (ii) states that in the event of default in paying the amounts demanded by the vendors as specified in cl. 3(iii) and 3(iv), then the vendors shall be entitled to terminate the agreement and forfeit the earnest money after giving 15 days notice to the purchasers. 8. The aforesaid clauses contained in the tripartite agreement show that various steps have to be taken thereunder before the sale is complete or even before the assessee is bound to hand over vacant possession to the purchasers of the property. In other words, it shows that nothing has taken place during the relevant previous year, except the receipt of ₹ 4 crores under cl. 3(i) and 3(ii) of the agreement, to enable one to say that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first of such instalments to commence after a period of 30 days from the sanction of the new building plan and upon receipt of the commencement certificate from Bombay Municipal Corporation and against the purchasers being given the licence, by the vendors, to enter upon the property. Clause 5 specifies when the vendors shall grant the licence. It says that the licence shall be granted simultaneously with the release of the payment of the first instalment of the seven instalments payable pursuant to cl. 3(v). This means that the first of such instalments will be received by the assessee only after a period of 30 days after the commencement certificate is given by the BMC. This postulates that the building plans have to be drawn up and got approved by the purchaser from the BMC. Clause 5 is also important in one more sense, viz., that it clarifies that the grant of the licence by the vendors to the purchasers to enter upon the property should not be construed as giving possession within the meaning of s. 53A of the Transfer of Property Act. Again cl. 7 clarified that the assessee will close down the mills upon the sale of the property and ensure that on or before the completion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and in fact on a construction of the terms and conditions of the agreement, it is clear that such was not the intention at all. Therefore, except that the assessee had received a sum of ₹ 4 crores during the year under agreement, nothing has taken place to show that the tenancy rights which the assessee had in the property were surrendered to the purchasers. In fact cl. 18 puts the matter beyond doubt by saying that on the receipt of the balance purchase price, the vendors, meaning thereby the owner and the assessee-firm, shall put the purchasers in possession of the property and thereafter the parties shall have a regular sale deed executed in favour of the purchasers or their nominees. Clause 21 further strengthens the view by saying that the assessee shall be entitled to the debris on demolition of the structures it had put up on the property before the receipt of commencement certificate of the new building plans and the licence is granted by the vendors to the purchasers to enter upon the property. 10. Apart from the view which we have taken on an examination of the terms and conditions of the tripartite agreement dt. 15th Sept., 1994, there is also other evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt would start only after a period of 30 days from the date of such certificate. The assessee would be yet to receive a substantial part of the consideration from the purchaser company for the surrender of the tenancy rights and would have continued in possession of the property even at that time. Sixthly the assessee gave notice of closure of the Bombay Union Dyeing Mills only on 3rd Aug., 1996, as per the copy of the notice placed at pp. 76 and 77 of the paper book. Lastly pp. 82 to 98 of the paper book contain evidence in the form of details of textile processing done by the assessee in 1995, correspondence with the Central Excise Department, etc. in the year 1995, all of which show that during the relevant previous year the assessee did not surrender possession of the premises. 11. The fundamental error committed by the AO, in our view, is that he proceeded on the assumption, as is clear from Para 5 of the assessment order, that all the steps contemplated in the tripartite agreement had been taken and completed and therefore, the assessee must be taken to have surrendered the tenancy rights. We have already seen that factually this is not a correct conclusion nor can it be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative sought to contend that the agreement should be broken up into two parts, one entered into between the landlord and the purchaser transferring the rights of the landlord over the property to the purchaser and the other between the landlord and the assessee, under which the assessee surrendered his tenancy rights. It is not possible to artificially break up the agreement into two parts. The agreement is a tripartite agreement. The assessee was a long-standing tenant and had acquired certain rights over the property and therefore, its co-operation in the completion of the sale was absolutely essential. Since the assessee had certain rights over the property, it had to be roped in as a confirming party. In fact in the agreement the assessee has been referred to as a second vendor and not merely a confirming party. There are various steps to be taken under the agreement by the owner of the property, the assessee as tenant as well as the purchaser. All these form a single integrated whole and cannot be broken up as two different transactions, one for the sale of the property and the other as a surrender of the tenancy rights in the property. 13. The learned Departmental Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the two essential elements of a surrender of tenancy rights, viz., vacating and handing over possession of the premises and ceasing to pay rent are missing. A mere promise to surrender the tenancy at a future date and continuance of the payment of the rent point to the contrary conclusion, viz., that there is no surrender of the tenancy rights. The argument of the learned Departmental Representative is not acceptable at all. 15. The learned Departmental Representative then argued that under cl. 3 of the tripartite agreement the assessee was under no obligation to do anything and therefore, it must be held that there was actual surrender of the tenancy rights on 15th Sept., 1994, itself. It is impossible to accept the contention unless one is prepared to overlook completely the duties of the assessee described in cl. 3(iii) or cl. 3(iv). These clauses provide for the assessee to arrive at settlements or agreements with the union and the workers and staff employed in the Bombay Union Dyeing Mills and for arriving at settlement with the sub-tenants or occupants for securing vacant and peaceful possession of the premises in their respective possession. In cl. 3(iv) there is a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s its liability to pay interest on the ground that but for the capital gains included in the assessment, there would be no liability to tax. It is also contended that there were loss brought forward from the earlier year and also loss for the year under appeal and, therefore, there was no liability to pay any advance tax. From the statement of facts filed before the CIT(A), we find that the position with regard to the loss and depreciation is as under : Business Loss Depreciation Total Rs. Rs. Rs. Upto asst. yr. 1994-95 1,19,46,681 11,03,832 1,30,50,513 For asst. yr. 1995-96 97,95,048 3,87,490 1,01,82,538 Total 2,17,41,729 14,91,322 2,32,33,051 As shown in the above charge, not only were there losses brought forward from the earlier years, but even for the year under appeal, there was a loss of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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