TMI Blog2009 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit is received, it is not a refundable amount. This is a great factor to be reckoned in determining whether the receipt of earnest money is a trading or revenue receipt or a capital receipt. – Held that Tribunal Order is not correct and answered in favor of revenue. - 343 to 345 of 1995 - - - Dated:- 17-7-2009 - ADARSH KUMAR GOEL and DAYA CHAUDHARY, JJ. Mr. Rajesh Sethi, Sr. Standing Counsel for the Revenue. Mr. Rajan Verma, Advocate for the Assessee. ORDER 1. Following question of law has been referred for opinion of this Court under Section 256(1) of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated 20.5.1993 in I.T.A. Nos.150 to 152/Chandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed as under:- "......Thus, the appellant was never hit by the Urban Land Ceiling Act as he never became the legal owner of the property. Immediately after the agreement to purchase land he sold the same by parceling out various pieces of land to various parties at a higher rate and thus on one hand he was to pay only Rs. one lac per acre to Smt. Devinder Kaur and he in turn sold the same at a higher rate to various persons and thus made the profits out of this land even before getting the legal possession of the same. The assessee's plea that the advances received from various parties are 'Amanat' with the firm cannot be accepted as 'Amanat' is something which is given only on trust and nothing in-turn is received back. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without taking the legal possession of the same and as such, the advances received from the third parties are clearly his profits and have been rightly assessed." 3. The Tribunal reversed the said view, holding that the title had not passed on to the buyers and thus, the sale was not completed. The Tribunal observed as under:- "11. We have considered the rival contentions and find that the proposition of law is well-settled in favour of the assessee. Receipt of money in the hands of the assessee could not be held to be other than advance money till the transaction assumed maturity by way of registered sale deed. The assessing officer was, therefore, not justified in treating the receipt of money as representing the sale price. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emain as earnest money. He relies on judgment of Full Bench of the Gujarat High Court in Commissioner of Income Tax v. Mormasji Mancharji Vaid (2001) 250 ITR 542 (paras 20-22) and judgment of this Court dated 29.9.2006 in I.T.R. Nos.102 to 104 of 1990 The CIT, Patiala v. M/s Dhir Co. Colonisers (P) Ltd., Ludhiana. Therein, after referring to observations of the Hon'ble Supreme Court in CIT Bombay etc. v. M/s Poder Cement Private Limited etc. AIR 1997 SC 2523, it was observed that having regard to object of the Income Tax Act, 1961, namely "to tax the income", owner was the person who was entitled to receive income from the property in his hands. Thus, mere fact that sale deed had not been executed, was not conclusive for holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a-I, (1981) 130 ITR 321 (P H) and Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax, Hyderabad, AIR 1987 SC 522. In M/s Mysore Minerals Limited v. The Commissioner of Income Tax, Bangalore, AIR 1999 SC 3185, similar view was taken. We may also quote observations made by the Kerala High Court in CIT v. Travancore Rubber Tea Co. Limited, (1991) ITR 508, which are apt for the present case also:- "Prima facie, the moment an earnest money or deposit is received, certain legal incidents are attached to it. It is a security received for due performance of the contract. Whether the contract is effectuated or not, the amount could and will ordinarily be retained by the seller. If the purchaser commits breach of the agreement, earnes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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