TMI Blog1994 (2) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of Sri R. M. Aga, individual, on protective basis as income from "Profits Gains of business or profession". The facts of the case have been elaborated which are common to both the appeals. 3. The brief facts are that during his lifetime, Sri M. M. Aga had entered into an agreement of sale of Bakhtawar Ice Factory on 31-3-1981 with Sri P.C. Bafna, for a total consideration of Rs. one crore and received Rs. five lakhs as earnest money. The deal did not materialise. Sri P.C. Bafna alleged a supplementary agreement wherein the consideration was reduced to Rs. 80 lakhs and he has also filed a Suit No. 845 of 1981 in April 1982 for specific performance. An interim order dated 12-8-1983 has been passed by the Bombay High Court injecting and restraining the legal heirs from parting with or disposing of the property or creating any tenancy thereof. The said property was sold by public auction held on 23-4-1984 by Tax Recovery Officer, G-III Ward, Bombay, for a total consideration of Rs. 61,25,000 to M/s. Veena (P.) Ltd., Narpat Raj Mehta, Parasmal Jain, H. D. Jogani and P. C. Bafna. At this juncture it is to be pointed out that the original agreement dated 31-3-1981 was ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further held that the sum of Rs. 39,00,000 received by Sri R.M. Aga for settlement of all disputes with the purchasers to the exclusion of all other legal heirs was for giving up his right to enjoyment of the said property and therefore such right is a capital asset. The value of such right could be ascertained. In this view of the matter, therefore, he held that the entire sum of Rs. 39 lakhs received by R. M. Aga to the exclusion of other legal heirs is to be taxed in his hands and compute the capital gains arising out of that amount. Accordingly, he directed the ITO to compute capital gains in the case of the assessee with reference to the sale price of Rs. 61,25,000 and further directed the Assessing Officer to take assessment proceedings in the case of Sri R. M. Aga to tax the benefit arising out of Rs. 39 lakhs." 5. In the assessment of R.M. Aga, the Assessing Officer assessed the aforesaid amount of Rs. 39 lakhs as income from 'Profits Gains of business or profession' on protective basis. According to the Assessing Officer, the assessee has rendered services on behalf of himself and other legal heirs in challenging the sale of the impugned property before various courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of eight-fold activities carried on by the assessee as reproduced in the appellate order, it should be treated as income from adventure in the nature of trade. In other words, a portion of the amount of Rs. 39 lakhs representing share of right in the immovable property is to be assessed for long-term capital gains while the balance is to be assessed as income from adventure in the nature of trade in the hands of the assessee. 7. The Revenue is in appeal against the order of the CIT(A) directing the exclusion of Rs. 39 lakhs from the sale consideration for the purpose of assessment of long-term capital gains in the hands of late M.M. Aga while R.M. Aga is in appeal against the order of the CIT(A) directing the assessment of Rs. 39 lakhs in his hands partly for capital gains and partly as income from business or profession. 8. Sri Dastur, learned counsel for the assessee and Sri M. C. Nair, the learned Departmental Representative have been duly heard at great length and the paper compilations filed were duly taken into account and the case laws relied upon by them have been duly considered. It appears that the broad question appears to be whether Rs. 39 lakhs is to be assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved and the Court held that did not amount to an adventure in the nature of trade and the profits arising therefrom were not assessable as business profits. The decision of the Punjab and Haryana High Court in the case of Kaur Singh v. CIT [1983] 144 ITR 756 was relied upon wherein the profits arising on sale of plots of land by converting a portion of the land let out to college, was not held to be Profits Gains of business because at the time of purchase of the property, Kishan Bagh Kothi, there was no intention to make profits by plotting out the land and selling them. The decision of the Delhi High Court in the case of CIT v. Raunaq Singh Swaran Singh [1972] 85 ITR 220 was cited for the proposition that profit making would normally be not of an irrelevant consideration for every honest and prudent purchaser, but will not in every case make the purchase an adventure in the nature of trade. In that case, two plots of land were purchased and later on sold the same because the assessee at that relevant time was hard-pressed for funds to purchase Rs. 25 lakhs worth of shares in a company and it was this pressing necessity which forced it to drop the original idea of construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that a sum of Rs. 49 lakhs was fixed as floor price for the auction of the said property. In this connection he referred to clause (f) of the decree of the Supreme Court dated 28-9-1984 according to which consent terms in the agreement with the undertaking shall form part of the record. Therefore, the sum of Rs. 39 lakhs paid to R. M. Aga as the legal heir rightly formed part of the total sale consideration of the property and it is to be assessed as capital gains. 13. The learned counsel for the assessee, on the other hand, submitted that while confirming the sale of the property the Tax Recovery Officer has to take the market price of the property or otherwise it would be set aside. He referred pg. 157 of the paper compilation containing the order of the Supreme Court dated 28-9-1984 wherein clause (c) it has been specified that the amount of Rs. 61.25 lakhs realised by way of sale of the property will be retained by the Income-tax Department for satisfaction of all taxes. In other words, the learned counsel for the assessee reiterated his argument that the sale price as per the Supreme Court order was only Rs. 61.25 lakhs and therefore the sum of Rs. 39 lakhs received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is less than the reserve price, if any, specified under clause (cc) of Rule 53. Rule 60 provides for a remedy to the defaulter to apply to the TRO to set aside the sale on consideration of depositing the amounts due with interest thereon and payment of penalty to the purchaser. Rule 63 provides that where no application is made for setting aside the sale or where such application is disallowed by the TRO, shall make an order confirming the sale and thereupon the sale shall become absolute. Upon confirmation of the sale, the sale shall become absolute. In view of the aforesaid relevant rules, the only course open to the defaulter is to challenge the action of the TRO on the ground of fraud. This is exactly what has been done by R.M. Aga by rushing to the court and filing a writ in the Bombay High Court on 15-6-1984. It is not necessary to trace the course of the outcome of the said writ petition. However, contents of the writ petition are very much relevant and have direct bearing on the issue involved in these appeals. 15. In clause 7(b) of the Writ Petition, it has been stated by Sri P.C. Bafna, Respondent No. 8, had agreed to purchase the property from the deceased for Rs. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause XV, it is stated such reserve price was mala fide and the auction sale price was totally vitiated. In clause XVI, the auction sale was stated to be collusive one, rushed through, fixing absolutely low reserve price and complete the sale for Rs. 61.25 lakhs though the authorities were fully aware of the fact that Sri P.C. Bafna himself had more than 3 years earlier agreed to purchase the property for Rs. one crore. The auction sale was said to be bad in law inasmuch as the agreed sale price was known to the TRO but it was not referred to in the proclamation of sale. In clause 23, it was stated that Rule 52 of the Second Schedule of the IT Act was violated while in clause 24, the auction sale was stated to be highly arbitrary, unreasonable and unjust. The sale was illegal and null and void. In clause 25, the sale is to be fraudulent, mala fide and dishonest. 17. We shall now refer to the contents of the Special Leave Petition dated 25-7-1984 filed by the assessee. At the end of para 1, it has been stated that the assessee challenged the auction sale of the property at Rs. 61,25,000 even though the Respondent No. 8, Sri P.C. Bafna had entered into an agreement earlier for pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 8 for specific performance. Thus, the Consent Decree has brought about the sale of the impugned property for a consideration of Rs. one crore so to say. This is the irresistible conclusion one could draw when all the developments and disputes taken together culminating in dissolution of disputes and arriving at consensus by way of Consent Decree passed by the Supreme Court. 19. In this connection, the various contentions raised on behalf of Sri R.M. Aga in connection with taxing the amount of Rs. 39 lakhs received by him are not valid and tenable because Sri R.M. Aga never waged a war to enforce his share of right in the property as a legal heir of late M.M. Aga and therefore the question whether the amount received by him is taxable as a revenue receipt or non-taxable as a capital receipt is purely academic in nature. Even in the Consent Decree. Their Lordships of the Supreme Court have made it very clear that though the sum of Rs. 61,25,000 could be retained by the Income-tax Department towards the tax arrears of late M. M. Aga the balance remaining after meeting the tax liabilities should be handed over to legal heirs of late M. M. Aga. Therefore, the legal heirs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot mean that the sale price is only Rs. 61,25,000 as per auction sale. If the parties have not agreed to the consent terms, the auction sale would have been knocked off on the ground of fraud and the respondent would have lost a valuable property. If the respondents have saved themselves and succeeded in retaining the property it is only at the cost or price of Rs. 39 lakhs paid for the property and nothing else. The consent decree is couched in such a manner as if the sum of Rs. 39 lakhs was paid to Sri R.M. Aga for giving up all disputes and rights in the property. As we have demonstrated hereinabove that the burden of the song of Sri R.M. Aga all through has been that the original price agreed to as per agreement of sale dated 31-1-1981 was not paid to the vendor. Viewed from this angle, we do not agree with the contention of the learned counsel for the assessee that the amount of Rs. 39 lakhs received by Sri R.M. Aga was a capital receipt in his hand and inasmuch as there was no cost, therefore it was not liable to capital gains. We also do not agree with the contention of the learned counsel for the assessee that Sri R.M. Aga having not indulged in any other activity, the sing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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