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TMI Blog1990 (11) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... ed itself was contingent upon not only the vendor's fide being defect-free but also the absence of the Government intervention in any manner harmful to the buyer; that during the currency of the agreement the vendor agreed that the entire rent collected from out of the buildings in the said "Girija Gardens" (namely Rs. 5,000 per month from Canara Bank and Rs. 3,500 per month for the other portions thereof) will be paid by the vendor to the second party; and that the vendor would deposit and indeed deposited with the buyer the title deeds of the said property "with intent to create a security thereon for the said sum of Rs. 25 lakhs given as advance/part payment by the buyer--it being specifically understood that the said sum advanced shall not be treated as a loan". 3. During the year of account ending on 28-2-1982, being the previous year relevant to the assessment year 1982-83 now before us, the assessee received an aggregate sum of Rs. 1,02,000 under the said agreement. The assessee's case before the ITO was that the said sum was not exigible to tax. The ITO, however, held that the said sum was chargeable to tax under the head "Income from other sources". According to the ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the tenants of the property. Therefore, in the hands of the assessee the sum was in the nature of interest which is exigible to tax under the head "Income from other sources". 8. Adverting to the cases referred to and relied upon by the CIT (Appeals), Shri Abraham strongly contended that those cases are clearly distinguishable. In any event, in none of those cases the issue that is now before us came up for consideration. Shri Abraham, therefore, urged that the Department is entitled to succeed. 9. On his part, Shri V. Ramachandran, the learned counsel for the assessee, strongly supported the impugned order of the CIT (Appeals). According to him, the sum of Rs. 1,02,000 was in reality rental income. But it could not be, however, brought to tax under the head "Income from house property", because the assessee was not the owner of the subject property. Further, since the true nature of the sum in question was rental income, it could not also be brought to tax under the head "Income from other sources". The sum in question was a casual or capital receipt. 10. In this regard Shri Ramachandran drew our attention to the decision of the Andhra Pradesh High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warded all the Title deeds of the said 'Girija Gardens' (pursuant to list separately furnished) with intent to create a security thereon for the said sum of Rs. 25 lakhs given as advancelpart payment by the Second Party it being specifically understood that the said sum advanced shall not be treated as loan. 6. During the currency of this agreement, the First Party agrees that the entire rents collected from out of the buildings in the said 'Girija Gardens' (viz. Rs. 5,000 per month from Canara Bank and Rs. 3,500 per month for the other portions thereof) will be paid by the First Party to the Second-Party and receipt obtained therefor on or before the 15th day of each and every succeeding month, the first of such payment commencing from the 15th day of September, 1979 ; provided however, it will be open to the Second Party to demand payment of the entire amount of the advance together with the outstanding too after the expiry of three months' notice in writing to the First Party to that effect : Provided also it is specifically agreed by the First Party that on its failure to return the entire amount before the expiry of the said notice period of three months, the Second Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of entire amount of advance together with outstanding monthly payments (labelled as 'rent' in the agreement) after giving the vendor three months' notice. It is also stipulated that after the expiry of the said three-months' notice period, the vendor shall be liable to pay the assessee interest calculated at 12% per annum on all the amounts outstanding on the expiry of the notice period. If the assessee had received any monthly payments under clause (6) after the expiry of the notice period, such payments. would be adjusted against the interest due to the assessee. (d) Clause (5) of the agreement read with clause (8) thereof makes it clear that an element of equitable mortgage, that is to say, mortgage by deposit of title deed has been incorporated in the same agreement. 14. The assessee's case, which was accepted by the CIT (Appeals), may be summarised syllogistically as follows : (a) The monthly payments received by it under clause (6) of the agreement is "rent" properly so called. (b) "Rent" properly called so is normally assessable under the head "Income from house property". (c) This is subject, however, to the condition that the assessee must be the owner of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt". This is because the vendor is not the tenant of any property belonging to the assessee. 19. True, under clause (6) of the agreement, the vendor is obligated to make over to the assessee the rent collected by the vendor from the tenants of the subject property. All that can reasonably be said in this regard is that the rent actually collected by the vendor is a measure, in money terms, of the commercial equivalent of interest which the vendor was obligated to pay the assessee for the sum of Rs. 25 lakhs advanced by the assessee to the vendor under the agreement. Properly viewed, the rent collected by the vendor from the tenants of the subject property remains rent fill it reaches the coffers of the vendor. Subsequently, when the vendor reaches into the coffers to take out money equal to the rent collected by it and makes over the money to the assessee, the money so paid cannot be called as "rent". It can only be interest. 20. It is significant to note that it is not as though that the advance of Rs. 25 lakhs made by the assessee to the vendor was to be an interest-free advance. The proviso to clause (6) clearly stipulates that interest at the rate of 12% per annum was pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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