1999 (9) TMI 937 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Ownership of land and title acquisition.
2. Nature of the transaction between the appellant and buyers.
3. Applicability of section 5-B of the Karnataka Sales Tax Act, 1957.
4. Calculation of tax based on the sale price of immovable properties.

Detailed Analysis:

1. Ownership of Land and Title Acquisition:

The primary issue was whether the appellant could be considered the owner of the land after paying the full consideration but without registering the sale deed. The court held that under Indian law, unlike English law, there is no concept of equitable ownership. Ownership of immovable property requires a registered sale deed as per section 54 of the Indian Transfer of Property Act, 1882. The appellant, despite paying the full consideration, did not acquire ownership due to the absence of a registered sale deed. The court referenced several cases, including *Imtiaz Ali v. Nasim Ahmed* and *Juharmal v. Kapoor Chand*, to support this conclusion.

2. Nature of the Transaction Between the Appellant and Buyers:

The court examined whether the agreements between the appellant and the buyers constituted a works contract or a sale of immovable property. It was determined that the appellant acted as a contractor for the buyers, constructing flats, shops, offices, etc., under the Ownership Flats Act, 1972. The agreements were legally binding contracts for construction rather than sales of pre-existing properties. The court cited the *Builders Association of India v. Union of India* case to reinforce that a works contract involves the transfer of property in goods and the supply of labor and services.

3. Applicability of Section 5-B of the Karnataka Sales Tax Act, 1957:

The court addressed whether the development of the property by the appellant attracted tax under section 5-B of the Act. It was concluded that the appellant was liable to pay tax on the transfer of property in goods involved in the execution of works contracts. The court referred to the 46th Amendment to the Constitution, which altered the definition of "sale" to include the transfer of property in goods involved in works contracts. The court emphasized that the appellant's activities fell within this scope, making them subject to tax under section 5-B.

4. Calculation of Tax Based on the Sale Price of Immovable Properties:

The court examined whether it was permissible to take the sale price of immovable properties sold by the appellant as the consideration for tax under section 5-B. It was determined that the appellant's method of calculating tax based on the sale price of the immovable properties was incorrect. The court highlighted that the tax should be calculated based on the transfer of property in goods involved in the execution of the works contract, not the sale price of the completed flats or buildings. The court referenced the *Carlill v. Carbolic Smoke Ball Co.* case to illustrate that the contracts were for construction, not for the sale of pre-existing flats.

Conclusion:

The court dismissed the appeals, concluding that the appellant was not the owner of the land due to the lack of a registered sale deed. The agreements between the appellant and buyers were deemed works contracts, making the appellant liable for tax under section 5-B of the Karnataka Sales Tax Act, 1957. The tax should be calculated based on the transfer of property in goods involved in the execution of the works contracts, not the sale price of the immovable properties. The appeals were found to have no merit and were dismissed accordingly.