1985 (12) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 54,000 received by the assessee constitutes income.
2. The nature of the transaction and its tax implications.
3. The applicability of capital gains tax on the transaction.
4. The timing and completion of the transaction.

Detailed Analysis:

1. Whether the amount of Rs. 54,000 received by the assessee constitutes income:
The primary issue for determination is whether the amount of Rs. 54,000, representing the difference in the sale price agreed to be paid by the assessee-tenant to his landlords for the purchase of the property and the consideration agreed to in the tripartite agreement dated 2-9-1979, is taxable as income of the assessee. The Tribunal concluded that the amount of Rs. 54,000 was received by the assessee for surrendering his tenancy rights and possession of the property. This amount was deemed not taxable as income based on the precedent set by the Hon'ble Delhi High Court in the case of Bawa Shiv Charan Singh v. CIT [1985] 47 CTR (Delhi) 12.

2. The nature of the transaction and its tax implications:
The Tribunal noted that the transaction involved the assessee surrendering his tenancy rights and possession of the property in favor of a third party. The Tribunal referenced the Hon'ble Supreme Court's observation in Swami Motor Transports (P.) Ltd. v. Sri Sankaraswamigal Mutt AIR 1963 SC 864, which stated that a contract to purchase property does not create an interest in immovable property. Consequently, the arrangements made on 16-2-1979 did not create any interest in immovable property for the assessee, and there was no transfer of a capital asset as per the Income-tax Act, 1961.

3. The applicability of capital gains tax on the transaction:
The Tribunal held that no capital gain arose from the transaction since the assessee did not hold any immovable property. The amount of Rs. 54,000 was not considered taxable as income for the assessment year under appeal. The Tribunal emphasized that the amount was received for surrendering tenancy rights, which does not constitute a transfer of a capital asset.

4. The timing and completion of the transaction:
The Tribunal examined the agreements and noted that the sale deed was executed on 5-8-1981, not during the year under consideration. The Tribunal highlighted that the final sale agreement differed from the original agreement to sell, and the exact nature of the receipt should be examined in the relevant accounting period corresponding to the date of the sale deed execution. The Tribunal concluded that the transaction was not completed during the year under consideration, and the tax implications should be examined in the relevant assessment year.

Separate Judgments Delivered:
- Judicial Member's Judgment: The Judicial Member concluded that the amount of Rs. 54,000 was not taxable as income based on the precedent set by the Hon'ble Delhi High Court and the rationale that the arrangements did not create any interest in immovable property.
- Accountant Member's Judgment: The Accountant Member agreed with the conclusion that the amount could not be included in the total income of the assessee for the year under consideration but provided different reasoning. The Accountant Member emphasized that the transaction was not completed during the year under consideration, and the amount was merely an advance held in trust pending finalization of the transaction. The exact nature of the receipt should be examined in the relevant accounting period.

Conclusion:
The Tribunal allowed the assessee's appeal, concluding that the amount of Rs. 54,000 was not taxable as income for the year under consideration. The transaction's tax implications should be examined in the relevant assessment year corresponding to the completion of the transaction.