2000 (9) TMI 1062 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 11,60,841 written back by the assessee is assessable as a revenue receipt.
2. The nature of the transaction between the assessee and M/s Powergas India (P) Ltd.
3. The applicability of forfeiture clauses in the agreements.
4. The timing of the assessment of the disputed service charges.

Detailed Analysis:

1. Assessability of Rs. 11,60,841 as a Revenue Receipt:
The primary issue in this appeal is whether the amount of Rs. 11,60,841, written back by the assessee, should be assessed as a revenue receipt. The assessee claimed this amount as a capital receipt on account of forfeiture of earnest money in a sale transaction of immovable property. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated it as a revenue receipt, leading to the assessee's grievance.

2. Nature of the Transaction:
The relevant facts reveal that the assessee, M/s Nylo Plast Industries (P) Ltd., entered into an agreement on 3rd June 1981 to purchase an apartment from two owners. Subsequently, on 7th September 1981, the assessee entered into another agreement to sell part of the property to M/s Powergas India (P) Ltd. The agreements included provisions for fixing the purchase price by mutual consent or through valuers, with clauses for termination and refund of earnest money in case of disagreement. The assessee received Rs. 18 lakhs as earnest money from M/s Powergas India (P) Ltd. and later executed another agreement for the use of furniture and fixtures in the apartment.

3. Applicability of Forfeiture Clauses:
The assessee argued that the forfeited amount should not be taxed as income, citing the Supreme Court's decision in Travancore Rubber & Tea Co. Ltd. vs. CIT, where forfeited amounts were treated as capital receipts. However, the Tribunal noted that the conditions for forfeiture under the agreements were not met. The agreements required the purchase price to be fixed and a wilful default by the purchaser for forfeiture to apply. Neither condition was satisfied in this case. The Tribunal observed that the assessee did not have a marketable title to the property and thus could not have legitimately forfeited the earnest money.

4. Timing of the Assessment:
The Tribunal emphasized that the nature of the amount written off by the assessee was crucial. The assessee had been receiving service charges for the use of the property, which had been offered for taxation as business income in preceding years. The dispute between the assessee and M/s Powergas India (P) Ltd. related to the quantum of these service charges. The Tribunal held that the amount of Rs. 11,60,841 appropriated by the assessee was not due to forfeiture but rather an adjustment of outstanding service charges. The income from these charges accrued to the assessee only in the year of settlement of the dispute, making it assessable in the year under appeal.

Conclusion:
The Tribunal concluded that the amount of Rs. 11,60,841 was rightly assessed as a revenue receipt in the year under appeal. The appeal of the assessee was dismissed, upholding the assessment made by the AO and confirmed by the CIT(A).