1974 (7) TMI 25 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 226(4) of the Income-tax Act, 1961 regarding the ownership of money deposited in court.
2. Whether the amount deposited by the plaintiff for specific performance of an agreement of sale can be considered as "belonging" to him under the Income-tax Act.

Analysis:

In this case, the main issue before the court was the interpretation of section 226(4) of the Income-tax Act, 1961, concerning the ownership of money deposited in court. The plaintiff had filed a suit for specific performance of an agreement of sale and had deposited the balance of the consideration money in court along with amounts for executing and registering a sale deed. The Income-tax Officer sought payment of this amount under section 226(4) as belonging to the plaintiff. The court had to determine whether the deposited amount could be considered as "belonging" to the plaintiff within the meaning of the Income-tax Act.

The court noted that the plaintiff had deposited the money as per the court's decree for specific performance. The court directed the plaintiff to deposit the amount, and upon execution of the sale deed, the balance was to be paid to the seller. The court found that once the amount was earmarked for the specified purpose of payment to the seller, it ceased to be the property of the plaintiff. The court referred to previous decisions to support this view, emphasizing that only amounts over which the assessee has full proprietary or exercisable rights can be subject to recovery for income tax purposes.

The court further reasoned that the plaintiff did not have a controlling right over the deposited amount, as its final disposal depended on the outcome of the case and the completion of registration. The court highlighted that the purpose and intent of section 226(4) were to allow recovery only from amounts the assessee had full proprietary or exercisable rights over. The court concluded that the amount deposited for specific performance did not belong to the plaintiff as it was earmarked for payment to the seller upon registration, and the plaintiff did not have the option to withdraw it at will.

Ultimately, the court allowed the revision petition, setting aside the lower court's order for payment to the Income-tax Officer. The court held that the amount in deposit did not belong to the plaintiff and that each party should bear their own costs in the matter.