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TMI Blog1996 (4) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee in the course of its plantation business ? (b) is not or cannot be subject to tax ? 2. Whether, on the facts and in the circumstances of the case and in view of the fact that the trees were transferred, i.e., cut and removed, ultimately by agreement dated July 22, 1979, the Tribunal is,--- (i) factually correct in holding that 'it is an undisputed fact that the trees had not been cut and removed or at least there is no evidence . . . .' ? (ii) legally and factually right in 'rejecting the contention' of the Revenue after having rightly accepted the contention of the Revenue that the receipt would be exigible to income-tax for capital gains ? 3. Whether, on the facts and in the circumstances of the case if the answer to question No. 2 is in favour of the Revenue should not the Tribunal have in view of the provisions contained in section 51 of the Income-tax Act and read with the decision of the Supreme Court in 131 ITR 451 given appropriate direction to the assessing authority ? " These questions are in pursuance of the earlier directions of this court in CIT v. Travancore Rubber and Tea Co. Ltd. [1991] 190 ITR 508. In fact, the most appropriate step would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and advance referable to the three agreements are laid out hereafter in this judgment to show that the total amount of Rs. 4,31,300 became the subject-matter of the consideration as to whether it would be income for assessment with regard to the year in question. The tabulation is as follows : --------------------------------------------------------------------------------------------------------------------------------------------------- Name of the Earnest money Advance Total party deposit --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. P. M. Joseph 25,000 1,03,125 1,28,125 George Joseph 25,000 1,03,175 1,28,175 N. Viswam 25,000 1,50,000 1,75,000 --------------------- 4,31,300 --------------------------------------------------------------------------------------------------------------------------------------------------- It would be at once seen and the same has been emphasised in the earlier judgment of this court (CIT v. Travancore Rubber and Tea Co. Ltd. [1991] 190 ITR 508) that as far as the total amount of earnest money is concerned it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements entered into by the company with the various purchasers, to understand the legal import flowing therefrom and also the difference between the two counts of amounts received by the assessee-company from the purchasers' earnest money or deposit and advance. As this court found that the question was then oversimplified by the Tribunal, consequently dealing with the same in a very elementary and summary fashion remitted the matter as it found that a perfunctory and arbitrary treatment is given to the factual matrix. This court also emphasised reference to the observations in Kanga and Palkhivala's 'The Law and Practice of Income Tax', Eighth edition, volume 1, pages 179 and 197 with a direction that the same is useful about some aspects of the matter that may fall for consideration. With such a background, when the proceedings were taken up again by the Income-tax Appellate Tribunal, Cochin Bench, the salient features of the agreements were examined and it is observed that as the purchasers did not pay the first instalment on the due date, the assessee-company terminated all the three agreements and forfeited the moneys already paid. It is also mentioned that in the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f agricultural income but an income arising from the breach of contract. Consequently, the Tribunal has yet reached an incongruous conclusion. It held that the forfeiture of the advance amount of Rs. 3,56,300 does not give rise to any taxable income for the year 1977-78. It also observed that for all earnest money deposit would however give rise to taxable income in the hands of the assessee thus upholding the order of the Commissioner of Income-tax under section 263 of the Income-tax Act. We have explained the factual matrix as spelt out as a result of the examination of agreements. The staring feature in the context would be that the agreements are cancelled as a result of the final decrees of the Subordinate Judge, Kottayam, and by reason of this factual situation, the amounts received by the assessee snapped all connections with any possibility of finalisation of the transactions covered thereby. The factual matrix shows that all the three agreements by way of the final situation of cancellation could not be considered in relation to any other thing other than the situation of forfeiture. It would be more than elementary to state that an agreement of sale is only a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot called upon to proceed in the direction. The Tribunal has reached the conclusion that as a result of the forfeiture the amounts will have to be viewed as a benefit arising in the course of the planting business of the assessee. In the judgment, the Tribunal really ought not to have considered this question as to whether the amount can be linked as income from agriculture or not and could be viewed as such only as a benefit arising in the course of plantation. Really we need not dwell upon this because that is not the question required to be considered by any stretch of imagination with reference to the questions before us or even before the earlier court. We have observed above that it is the finality of the situation relating to the forfeiture of the agreements that changes the character of the amounts, additionally because even under the original agreement the amounts that are described differently could not be said to have any connection with the subject-matter thereof. We have already held that once the agreements are cancelled by the decrees of the court forfeiture is a logical consequence thereof. Losing all differentiation in nomenclature under the agreements in questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thought of at a stage prior to the execution of the agreement in question, at a stage of negotiation deal with receipt of advance or other money and retention thereof. It must be made clear that when on a bare reading of the section, application thereof cannot be thought of it would be unnecessary and would be termed as casual, to proceed to consider and venture to make observations in regard to the submissions in the context. Therefore, when we have held that forfeiture and even otherwise the agreement of sale would not touch the subject-matter of the agreements, it is more than clear as a result thereof that the amounts would not go any way near formation of capital as is sought to be urged. This is in view of the situation and it has been made clear by the earlier judgment of this court (see [1991] 190 ITR 508) which is the source of the present proceedings that there has to be some nexus. Nexus means immediate cause and not cause of causes. We have already held that immediate nexus with regard to the character of these amounts being income is the forfeiture as a result of the cancellation of the agreements by the court. The importance of immediate nexus is also emphasised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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