1971 (2) TMI 11 - HC - Income Tax

Sale agreement - realisation of sale price of property - whether additions made were justified when the assessee s accounts were being maintained on mercantile basis

Issues Involved:
1. Taxability of the unpaid balance of the sale price of bungalows.
2. Assessability of rental income from bungalows in possession of purchasers without transfer of ownership.
3. Taxability of interest credited to the interest account for properties in possession of purchasers without transfer of ownership.
4. Inclusion of realized sale proceeds of properties sold prior to April 1, 1956, in the total income for subsequent assessment years.

Detailed Analysis:

Issue 1: Taxability of the Unpaid Balance of the Sale Price of Bungalows
The primary issue was whether the unpaid balance of Rs. 1,38,868 from the sale of bungalows should be included in the assessee's income for the assessment year 1957-58. The assessee argued that this amount was not receivable in the accounting year but at a future date. The Tribunal, however, held that the entire balance was rightly included in the income as the assessee had switched from a cash basis to a mercantile system of accounting. The court agreed, stating that under the mercantile system, income is taxable when it accrues, not when it is received. Thus, the entire amount had accrued to the assessee in the relevant year of account.

Issue 2: Assessability of Rental Income from Bungalows in Possession of Purchasers Without Transfer of Ownership
The second issue was whether rental income from bungalows, where possession had been handed over to purchasers but ownership had not been transferred, was assessable in the hands of the assessee. The Tribunal held that the assessee remained the owner of the properties as no formal conveyance was executed. The court agreed, emphasizing that under Section 9 of the Income-tax Act, the term "owner" refers to the legal owner. Since the purchasers were only in possession without a formal transfer of ownership, the rental income was rightly assessed in the hands of the assessee.

Issue 3: Taxability of Interest Credited to the Interest Account for Properties in Possession of Purchasers Without Transfer of Ownership
The third issue related to whether the interest credited to the interest account for properties in possession of purchasers without ownership transfer was rightly excluded from the assessee's income. The Tribunal had excluded this interest from the assessee's income, but the court disagreed. It held that since the assessee remained the owner of the properties, the interest was legitimately due to the assessee and should be included in the income. Therefore, the interest credited to the interest account was taxable in the hands of the assessee.

Issue 4: Inclusion of Realized Sale Proceeds of Properties Sold Prior to April 1, 1956, in the Total Income for Subsequent Assessment Years
The fourth issue was whether the sums of Rs. 12,866 and Rs. 14,598, being realizations of the sale proceeds of properties sold prior to April 1, 1956, should be included in the total income for the assessment years 1958-59 and 1960-61, respectively. The assessee argued that these amounts accrued earlier and should not be taxed in the relevant assessment years. However, the court noted that the assessee had shown these amounts as received in the income-tax years relevant to the assessment years in question. Therefore, these amounts were rightly included in the income for the assessment years 1958-59 and 1960-61.

Conclusion:
- Question 1: Affirmative - The addition of Rs. 1,38,868 was justified.
- Question 2: Affirmative - The rental income was assessable in the hands of the assessee.
- Question 3: Negative - The interest credited to the interest account should be included in the income.
- Question 4: Affirmative - The sums of Rs. 12,866 and Rs. 14,598 were rightly included in the total income for the relevant assessment years.

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