TMI Blog2003 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was delivered by F.I. REBELLO J. - The petitioner-company carries on business of hiring of plant and machinery. The petitioner had by an agreement, dated June 28, 1982, entered into with Prerna Premises Private Limited, agreed to purchase three office premises, being office premises Nos. 22, 22A and 23 in Maker Chambers III, at Nariman Point, Bombay-400 021, as well as four open car parking spaces, being car parking spaces Nos. 17 to 20, for a total cost of Rs. 28,66,634. It is the case of the petitioner that it subsequently became a member of the Maker Chambers III Premises Co-operative Society Limited. By an agreement, dated June 19,1984, entered into between the petitioner and the Bank of Maharashtra, the petitioner agreed to sell and the bank agreed to purchase from the petitioner all the right, title and interest of the petitioner in the said office premises and car parking spaces for a consideration, which was to be calculated at the rate of Rs. 1,600 per square foot for the office premises and at Rs. 80,000 for each of the car parking spaces. Under clause 2 of the agreement, the consideration was to be discharged in the following manner: Rs. 2,00,000 as earnest money b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disputes had arisen owing to which the petitioner did not complete the transactions. By letter of June 16, 1993, the petitioner confirmed that the petitioner had put the premises in possession of the bank and that the petitioner would take all necessary steps for transfer of the said premises on or before September 30, 1993. It is the case of the petitioner that even thereafter, the petitioner was unable to complete the transactions and there were demands by the bank on the petitioner to complete the transaction. The rest of the averments regarding the dispute between the bank and the petitioner need not be adverted to. Suffice it to say that the petitioner had also recorded, confirmed and assured the bank that it would take all steps for transfer of the property along with the share certificates on or before September 30, 1997. It is the case of the petitioner that in view of the uncertainties prevailing and the fact that the transfer of premises had not been completed, the petitioner in the accounts of the year 1991 had disclosed the amount of Rs. 84,47,111 received by it as a current liability under the heading "Advance against deferred sale of building". Note No. 2 of the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e insertion of sub-clauses (v) and (vi) were applicable only to transactions entered into after the assessment year 1988-89. The petitioner also pointed out that possession of the premises had been handed over prior to April 1, 1987, the amendment brought about in the definition in section 2(47), therefore, could not be applicable for the assessment year 1991-92. It was also pointed out that the mere exercise of the option by the bank would not result in a transfer as the expression is understood in section 2(47) of the Act. In these circumstances, the petitioner called upon respondent No. 1 to drop the proceedings. It is the case of the petitioner that respondent No. 1 had fixed a hearing on October 29, 1996. The petitioner appeared before the Commissioner and as desired furnished details under cover of letter dated November 5,1996. It is the case of the petitioner that respondent No. 1 thereafter completed the assessment for the assessment year 1994-95 by an order, dated December 4, 1996, under section 143(3) and assessed the petitioner to the income returned. It is the case of the petitioner that, therefore, they were shocked and surprised to receive on December 12, 1996 a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer to retain the property in part performance from June 12, 1990, and hence the transfer took place in terms of section 2(47)(v) and on that date capital gains were chargeable. The petitioner filed an appeal to the Commissioner of Income-tax (Appeals), on April 19,1999. That appeal was dismissed by order dated August 21, 2000. The petitioner has preferred an appeal against the order of the Commissioner of Income-tax, dated August 21, 2000. Respondent No. 1 thereafter forwarded a demand to respondent No. 3 for recovery of the amount and issued a notice on March 5, 2003. It is the case of the petitioner that it has duly replied to the notice dated March 5, 2003, and the summons dated March 27, 2003. Certain disputes that arose between the Bank of Maharashtra and the petitioner have also been set out. It is sought to be pointed out that in view of the proceedings which are pending in the suit filed by the Bank of Maharashtra, the office premises have not been conveyed or transferred to the Bank of Maharashtra. In the prayer clauses in the petition an additional prayer clause (c)(i) has been added to prohibit the respondents, etc., from in any manner taking steps or proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition and once it has admitted the petition, the issue of jurisdiction is alive for consideration by this court and in these circumstances, the mere fact that the respondents were permitted to carry on the assessment proceedings should not result in this court declining to exercise its extraordinary jurisdiction. All these objections were available at the time the petition was filed. This court despite the efficacious alternate remedy available, admitted the petition. Once that be the case the petition shall be disposed of on the merits. Our attention is invited to the judgment of the apex court in the case of Coca-Cola Export Corporation v. ITO [1998] 231 ITR 200. In that case the High Court had dismissed the petition on the ground that the petitioner had an alternative remedy available under the statute where all the questions raised by the appellant could be examined in detail. The High Court also held that the matter as to the exact scope and ambit of the two letters were awaiting decision at the appellate Stage before the income-tax authorities and in that view of the matter, it did not think fit to give expression to any opinion as to the scope of the two letters as that wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not inferences and for that purpose reliance is placed on the judgment of CIT v. Mangilal Dhanraj [1985] 155 ITR 71 of this court and the case of Chemicals and Fibres of India Ltd. v. M.K.N. Pillai [1984] 146 ITR 280 again of this court. It is then submitted that under the scheme of the Act for there to be a valid re-opening, information must come from extraneous source. Otherwise, irrespective of whether an assessment is made or not, it would mean that where a return has been processed under section 143(2) and found by the then officer not to have understated any income on the basis of the very same documents, reassessment under section 147 can be made on the same grounds that the assessee had under-stated the income. This would render the limitation contemplated by the Act under section 143(2) totally meaningless. Reliance for the proposition that only extraneous information can be relied upon is placed on the judgment of the Andhra Bank Ltd. v. CIT [1997] 225 ITR 447 (SC). It is then submitted that the position of law pre-1988 and post-1988 is the same qua the fact that there cannot be a change in the opinion on the same facts irrespective of whether an assessment is made u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement to sell coupled with possession as contemplated in section 53A is done in 1984 when sub-clause (v) was not on the statute, the question of that sub-section applying does not arise; (3) option exercised by the purchaser is merely to complete formalities to sell, it does not amount to an agreement to sell for the following reasons, namely, that for a valid agreement under section 53A it must be signed by the transferor, it should be a contract for consideration, should be in writing and the transferor should deliver possession subsequent to the agreement for sale. Reliance for that is placed on the judgment of the Division Bench of this court in Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 and also of the apex court in Mool Chand Bakhru v. Rohan [2002] 2 SCC 612. It is then submitted that it is inconceivable to contemplate that having accepted that there was an agreement for sale coupled with possession in 1984, in respect of the same premises and in respect of the same parties and under the same agreement there could be a fresh agreement to sell coupled with possession in 1991. The reasons itself would show the errors in the officer's reasoning. It is further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing their option to complete the sale in respect of the said premises in pursuance of clause (5) of the agreement dated June 19, 1984, and in the light of the admitted position by the petitioner by letter dated June 16, 1993, confirming to take steps before September 30, 1983, the transaction is deemed to have been completed on exercise of option by the bank under sub-clause (v) to section 2(47) of the Income-tax Act. It is, therefore, submitted that the Assessing Officer was justified in reassessing the income of the assessee by issuing notice under section 147 read with section 149(1) and hence the impugned notice is valid. The next submission is that the assessee had filed returns for the assessment year 1991-92 which was processed as non-scrutiny assessment under section 143(1) of the Income-tax Act. The Assessing Officer was justified in issuing notice under section 147 on the ground that income chargeable to tax escaped assessment under Explanation 2 to section 147, as the assessee had understated the income of Rs. 84,47,111, as current liability, though the transaction in respect of sale of the said premises had been completed on exercising the option by the bank by letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is as can be seen from the judgment of the apex court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185. In that case an agreement was entered into on March 17,1948, with one V to sell all assets for a consideration. On March 17, 1948, the appellant handed over possession of the land and buildings and machinery to the company. On March 20,1948, the company credited the sum of Rs. 2 lakhs in its accounts in favour of the appellant and the appellant also made appropriate entries in his own account books. The sale deed in respect of the land was executed in favour of the company on November 22, 1948. The agreement was approved by the board of directors of the company only on March 16, 1949, and by the shareholders of the company at a general meeting on April 10,1949. The question was whether capital gains arose from the sale in the previous year ending March 31, 1948, relevant to the assessment year 1948-49. The apex court held in that case that before section 12B of the Indian Income-tax Act, 1922, could be attracted, title must pass by any of the modes mentioned in section 12B, that is, sale, exchange or transfer. "Transfer" therein meant effective conveyance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of section 53A spelling out the terms of an agreement for sale. Having seen what is required under section 53A of the Transfer of Property Act, let us now examine whether there was material before the Assessing Officer for "reasons to believe" that the income chargeable with tax has escaped assessment for any assessment year. The question then is what is the meaning of the expression "reason to believe". It is no doubt true as is pointed out by the Revenue relying on the judgment of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) that there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at the stage of issuing of notice. In Dr. Amin's Pathology Laboratory v. P.N. Prasad, Joint CIT [2001] 252 ITR 673 (Bom) was a case where the original assessment was made under section 143(3) and reassessment after four years. The court observed that there should have been failure to disclose material facts necessary for assessment and mere production of balance-sheet or account books would not amount to disclosure of material facts necessary for assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed to the extent mentioned in letters dated May 4, 1973, and November 6, 1974, of the Government of India, Department of Economic Affairs, to the appellant. Dealing with these letters, the apex court held that the embargo so placed by these two letters had nothing to do with the amount of disallowances under the Income-tax Act. The court further proceeded to hold that, that could not be a ground for the Income-tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or section 147(b) of the Act on the ground that it would be "in consequence of information". In CIT v. Mangilal Dhanraj [1985] 155 ITR 71 a Division Bench of this court noted that what is the duty of the assessee was to disclose relevant facts. In that case the facts had been disclosed and in those circumstances, the court interfered with the notice issued. In Andhra Bank Ltd. v. CIT [1997] 225 ITR 447 (SC) in the matter of assessment year 1958-59 the method of accounting was accepted by the Income-tax Officer. In the matter of assessment for the years 1960-61, 1961-62 and 1962-63, the apex court noted that for exercise of jurisdiction under section 147(b) could only be, when i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hasers and the purchaser can rescind the same at certain consideration. The assessee has received 95 per cent, of the consideration and also has given possession of the property to the purchasers. During the course of the assessment proceedings for the assessment year 1994-95 it was gathered that the purchaser has on June 12, 1990, i.e., before the expiry of the sixth year of the original agreement has exercised the option given in that agreement to purchase the property and requested the assessee to complete the formalities of conveying the property to them before June 18,1990. However, the conveyance is not yet drawn and the assessee has also not offered the capital gains on sale of the building in any assessment year. In my opinion the provisions of sub-clause (v) in the definition of transfer under section 2(47) are clearly applicable in the assessee's case as the transaction falls within the situation contemplated by section 53A of the Transfer of Property Act, 1882, and has to be treated as transfer on the date of which the bank exercised its option to buy the building, i.e., on June 12, 1990, falling within the assessment year 1991-92. Since the assessee has not offered any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties is an agreement of 1984. In the agreement under clause (5) the conveyance was agreed to be completed after the expiry of the fifth year and before the expiry of the sixth year from the date of the agreement. At the relevant time, considering the clause in the agreement, to take possession by paying 95 per cent, of the consideration, the Bank of Maharashtra paid to the petitioners 95 per cent, of the consideration and the petitioners also put the Bank of Maharashtra in possession. It is pursuant to this agreement of 1984 that the Bank of Maharashtra continued to be in possession. Clause 5 by itself gave an exercise of option to the purchaser to call on the petitioner to specifically perform the contract cannot by any stretch of imagination be said to mean and include that a contract had come into existence on the date the Bank of Maharashtra issued notice to the petitioner for specific performance of the contract. For a transaction to amount to transfer within the meaning of section 2(47), the minimum requirements were that there had to be agreement between the parties, signed by the parties, it should be in writing, it should pertain to transfer of property, the transferee sho ..... 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