2001 (10) TMI 255 - AT - Income Tax

Issues Involved:
1. Determination of sale consideration for the purpose of computing long-term capital gain.
2. Validity and enforceability of the agreement for sale dated 31-8-1988.
3. Treatment of the payment of Rs. 72,90,000 to Premium Estate Pvt. Ltd.
4. Whether the entire amount of Rs. 1.40 crores should be treated as full consideration received by the assessees.

Issue-wise Detailed Analysis:

1. Determination of sale consideration for the purpose of computing long-term capital gain:

The primary issue revolves around whether the sale consideration should be Rs. 67,10,000 as claimed by the assessees or Rs. 1.40 crores as determined by the Assessing Officer (A.O.). The assessees had entered into an agreement with Premium Estate Pvt. Ltd. on 31-8-1988 for Rs. 67,10,000 and later, a subsequent agreement with the Bank of Tokyo Ltd. (BOT) on 7-7-1989 for Rs. 1.40 crores. The CIT(A) accepted the sale consideration of Rs. 67,10,000, while the A.O. argued that the entire amount of Rs. 1.40 crores should be considered.

2. Validity and enforceability of the agreement for sale dated 31-8-1988:

The Tribunal examined the agreement for sale dated 31-8-1988 between the assessees and Premium Estate Pvt. Ltd. and found it to be genuine and enforceable. The agreement stipulated a total consideration of Rs. 67,10,000, and the assessees received an earnest money of Rs. 1,50,000 from Premium Estate. The Tribunal noted that the agreement did not require compulsory registration under the Indian Registration Act and that Premium Estate had the right to nominate any person or company to complete the sale transaction.

3. Treatment of the payment of Rs. 72,90,000 to Premium Estate Pvt. Ltd.:

The Tribunal had to determine whether the payment of Rs. 72,90,000 to Premium Estate should be considered as an application of income or a diversion of income at source. The Tribunal concluded that the payment constituted a diversion of income at source due to an overriding legal obligation. The assessees had entered into a binding agreement with Premium Estate, which created a legal right for Premium Estate to receive the consideration amount. Thus, the excess amount over Rs. 67,10,000 was diverted by an overriding title before it reached the assessees.

4. Whether the entire amount of Rs. 1.40 crores should be treated as full consideration received by the assessees:

The Tribunal held that the capital gains should be computed based on the sale consideration of Rs. 67,10,000 actually received by the assessees. The excess amount of Rs. 72,90,000 paid to Premium Estate was considered as diverted at source by an overriding title and not as income of the assessees. The Tribunal emphasized that the agreement for sale dated 31-8-1988 created a legal right for Premium Estate to purchase the property for Rs. 67,10,000 and that the assessees were under an obligation not to receive any amount over and above this consideration.

Conclusion:

The Tribunal upheld the order of the CIT(A) and dismissed the departmental appeals. The capital gains were to be computed based on the sale consideration of Rs. 67,10,000, and the excess amount of Rs. 72,90,000 was deemed to have been diverted by an overriding title.

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