1994 (2) TMI 98 - AT - Income Tax

Auction Sale, Business Income, Capital Gains, Earnest Money, High Court, Supreme Court, Tax Liability, Tax Recovery Officer

Summary

Issues Involved:

1. Assessment of long-term capital gains on the sale of "Bakhtawar Ice Factory."
2. Determination of the total sale consideration for the property.
3. Taxability of Rs. 39 lakhs received by R.M. Aga.
4. Nature of Rs. 39 lakhs as either capital gains or income from business/profession.
5. Protective assessment of Rs. 39 lakhs in the hands of R.M. Aga.

Issue-wise Detailed Analysis:

1. Assessment of Long-term Capital Gains on the Sale of "Bakhtawar Ice Factory":

The property "Bakhtawar Ice Factory" was sold by public auction on 23-4-1984 for Rs. 61,25,000. The Assessing Officer initially assessed the total consideration for the sale of the property at Rs. 1,05,25,000, including Rs. 61,25,000 from the auction, Rs. 39 lakhs received as per Consent Terms dated 26-9-1984, and Rs. 5,00,000 as earnest money. The CIT(A) later concluded that only Rs. 61,25,000 should be considered for calculating capital gains, as confirmed by the Supreme Court.

2. Determination of the Total Sale Consideration for the Property:

The CIT(A) held that the sale consideration should be Rs. 61,25,000 as per the Supreme Court's confirmation of the auction sale. However, the ITAT concluded that the sum of Rs. 39 lakhs paid to R.M. Aga was part of the sale consideration, as it was paid to dissolve disputes and was linked to the sale of the property. Therefore, the total sale consideration was determined to be Rs. 1,05,25,000.

3. Taxability of Rs. 39 Lakhs Received by R.M. Aga:

The CIT(A) directed that Rs. 39 lakhs received by R.M. Aga should be taxed as capital gains for relinquishing his rights to the property. The Assessing Officer had assessed this amount as income from "Profits & Gains of business or profession" on a protective basis, arguing that R.M. Aga rendered services by challenging the sale and fulfilling the Consent Decree terms.

4. Nature of Rs. 39 Lakhs as Either Capital Gains or Income from Business/Profession:

The CIT(A) held that a portion of Rs. 39 lakhs should be treated as long-term capital gains, while the balance should be considered income from an adventure in the nature of trade. The ITAT, however, concluded that the entire amount of Rs. 39 lakhs was part of the sale consideration and should be assessed as capital gains in the hands of late M.M. Aga, not as business income in the hands of R.M. Aga.

5. Protective Assessment of Rs. 39 Lakhs in the Hands of R.M. Aga:

The ITAT found that the protective assessment of Rs. 39 lakhs in the hands of R.M. Aga was not justified since it was substantially considered part of the sale consideration in the hands of late M.M. Aga. The inclusion of Rs. 39 lakhs as part of the sale consideration for the property was upheld, and the protective assessment was dismissed.

Conclusion:

The ITAT allowed the Revenue's appeal in the case of late M.M. Aga, confirming the total sale consideration at Rs. 1,05,25,000 and computing capital gains accordingly. The appeal filed by R.M. Aga was also allowed, dismissing the protective assessment of Rs. 39 lakhs as business income. The ITAT emphasized that the Rs. 39 lakhs received by R.M. Aga was part of the sale consideration for the property and should be treated as such for tax purposes.