1981 (6) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Date of forfeiture of the advance amount.
2. Whether the forfeited amount constitutes revenue receipts assessable to tax.
3. The nature of the property (capital asset vs. stock-in-trade).
4. Validity of the reopening under section 147(a) of the I.T. Act, 1961.

Detailed Analysis:

1. Date of Forfeiture of the Advance Amount:
The primary issue was determining the correct date of forfeiture of the Rs. 5,00,000 advance paid by the purchaser. The Tribunal held that the forfeiture took place on 1st November 1951, based on the board of directors' resolution, and not on 6th October 1949, as claimed by the Income Tax Officer (ITO). The Tribunal noted, "the assessee-company was not in a position to forfeit the earnest money immediately at the end of one year of the date of the agreement dated 7th October, 1948." The formalities, including issuing registered notices on 19th June 1949 and 28th September 1951, were necessary before the forfeiture could be legally effective.

2. Whether the Forfeited Amount Constitutes Revenue Receipts Assessable to Tax:
The Tribunal did not make a definitive finding on whether the forfeited amount constituted revenue receipts assessable to tax. The Tribunal stated, "the decision on the point whether the forfeited amount really constituted income or not was not necessary for deciding the appeal." The ITO and the Appellate Assistant Commissioner (AAC) considered the forfeited amount as revenue receipts, but the Tribunal did not address this aspect conclusively. The Tribunal's order noted, "there is no finding that the receipt was revenue in character or was an assessable income at all."

3. The Nature of the Property (Capital Asset vs. Stock-in-Trade):
The Tribunal rejected the assessee's contention that the property in question was a capital asset and not stock-in-trade. The Tribunal observed, "the property in question was a capital asset and not a stock-in-trade and so the gain arising therefrom was not assessable as a revenue receipt." The ITO had considered the property as stock-in-trade based on the company's memorandum of association, which stated that dealing in land and properties was one of the main objects of the company.

4. Validity of the Reopening under Section 147(a) of the I.T. Act, 1961:
The Tribunal upheld the validity of the reopening under section 147(a) of the I.T. Act, 1961. The Tribunal observed, "the reopening was valid." The assessee had argued that the condition precedent for reopening had not been fulfilled, but the Tribunal did not find merit in this argument.

Conclusion:
The High Court found that the Tribunal did not make a definitive finding on whether the forfeited amount was assessable income. The Tribunal's order was based on the premise that if the forfeited amount was considered a gain, it would be assessable in the assessment year 1953-54 and not 1951-52. The High Court noted, "if there was no gain, the receipt could not be an assessable income as such." The High Court declined to answer the question posed, stating that any answer would be purely academic. The Court observed, "we decline to answer the question, as the answer to this question would be academic on the facts of this case."

Final Judgment:
The High Court declined to answer the question, noting that the Tribunal had not made a conclusive finding on whether the forfeited amount was assessable income. The Court stated, "In any event, we decline to answer the question, in the facts and circumstances of the case." There was no order as to costs.