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TMI Blog1984 (10) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that there was a legally enforceable agreement between the assessee and Shri Ponnurangam ? " The assessee was the owner of land admeasuring 4 acres 27 guntas in survey No. 1 situated at Kakaguda in Secunderabad Cantonment. He entered into an agreement of sale with respect to the said land with one A. Ponnurangam of the same village. The agreement of sale is dated June 4, 1971, whereunder the land was agreed to be sold at the rate of Rs. 29,000 per acre. A sum of Rs. 5,000 was paid by way of earnest money. The sale was to be completed on or before March 31, 1972. Ponnurangam is said to be a social worker interested in the welfare of Harijans of that village. On July 28, 1971, Ponnurangam and certain other members of the Scheduled Castes addressed a representation to the District Social Welfare Officer to acquire the said land for providing house sites to the members of the Scheduled Castes. Ponnurangam, it appears, succeeded in persuading the authorities to acquire the said land. On November 23, 1971, the District Social Welfare Officer wrote a letter to the assessee proposing to acquire the land. In this letter, the District Social Welfare Officer intimated that the compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer except on the date of receiving the compensation cheque. The Land Acquisition Officer passed an award on March 9, 1972, determining the total compensation at Rs. 2,20,220, i.e., at the rate of Rs. 10 per sq. yard. A cheque was prepared for the said amount and handed over to the assessee on the same day ; (counsel for the assessee, however, states that though the award was passed on March 9, 1972, the cheque was given to the assessee only on March 13, 1972, and that, the averment in the statement of the case that the cheque was received by the assessee on March 9, 1972 itself, is incorrect. It is, however, unnecessary for us to go into this controversy). On March 13, 1972, three cheques were drawn by the assessee for Rs. 30,000, Rs. 46,000 and Rs. 29,220, respectively, totalling Rs. 1,05,220. The case of the assessee is that this amount of Rs. 1,05,220 (which included the earnest money of Rs. 5,000 received by him) was paid over to Ponnurangam in pursuance of the understanding/agreement arrived at between them after the receipt of the legal notice dated March 6, 1972, aforesaid and that, he himself received only a sum of Rs. 1,15,000, and nothing more. He, therefore, disclosed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and Ponnurangam in pursuance of, and after the legal notice dated March 6, 1972, aforesaid. The Tribunal further held that, by virtue of the agreement of sale, Ponnurangam must be held to have received the amount of Rs. 1,05,220 under an overriding title or obligation in his favour. It referred to the decision of the Supreme Court, which says that commercial principles and the principles of accountancy should guide the determination of the amount actually received by the assessee and, on that basis, held that only a sum of Rs. 1,20,000 was received by the assessee and hence the said amount alone should be taken into consideration for the purpose of assessing the capital gains tax. It is thereafter that the Revenue applied for referring as many as five questions for the opinion of this court; but, the Tribunal chose to refer only one question, referred to at the inception of this judgment. Later, the Revenue obtained a direction from this court to refer the other two questions, referred to hereinbefore, for our opinion. It is contended by Sri M. Suryanarayana Murthy, the learned standing counsel for the Revenue, that (i) the amount of Rs. 1,05,220 was paid to Ponnuranga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the said contention and do not wish to express any opinion on the question whether an agreement of the nature suggested by the learned standing counsel-viz., where the real object of the agreement is not sale and purchase of land but only an agreement to have the land acquired and to share the compensation would be violative of public policy and, therefore, illegal under s. 23 of the Contract Act. For the same reasons, it is unnecessary for us to consider the decision of this court in Ratanchand v. Askar, AIR 1976 AP 112. We shall now deal with the first contention urged by the learned standing counsel. This contention has to be considered in the context of the facts found by the Tribunal, viz., that the agreement of sale dated June 4, 1971, is a true and a bona fide one, and that there was a subsequent understanding arrived at between the assessee and Ponnurangam after the receipt of the legal notice dated March 6, 1972, whereunder the assessee agreed to take only the amount which he is entitled to under the agreement of sale, and agreed to Ponnurangam taking away the rest of the compensation amount. The further finding of fact to be kept in mind is that, as a fact, the sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral rule which can be followed. The market value of an interest, if ascertainable, may afford some guide towards ascertaining the amount to be apportioned in respect of that interest, but that can only be considered in relation to the total sum awarded as compensation." In J. C. Galstaun v. Secretary of State for India in Council, (10 CWN 195), it was held that a person holding an agreement of sale is entitled to ask for making a reference under s. 18. Similarly, in Chhuttan Lal v. Mul Chand [1917] 37 IC 822, a Division Bench of the Punjab High Court held that " the expression 'person interested' has been defined in section 3(b) of the Land Acquisition Act as including all persons claiming an interest in compensation to be awarded on account of the acquisition of the land under the Act, and this definition, in our opinion, is wide enough to include the equitable interest that Mulchand claims to have in the present case ......... It is true that the use of the expression " equitable interest " in this decision is the result of following the English decisions. As pointed out by the Supreme Court in Satyabrata Ghose v. Mugneeram Bangur Co. [1954] 17 SCJ 1 ; AIR 1954 SC 44, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the vendor and is in possession, he is entitled to be paid the full compensation for the land................" In that case, no doubt, full consideration was paid and possession too delivered, but, in our opinion, that fact does not make any difference in principle. If possession is also delivered, it may create a " possessory title " in the purchaser, as held in the said decision, which would clothe him with an additional right. But this decision too agrees that an agreement of sale does create a right to compensation in the purchaser. The learned standing counsel, Mr. M. S. Murthy, argued that Ponnurangam never filed his objections, nor appeared before the Land Acquisition Officer, nor did he institute any proceedings for establishing his claim. But that, in our opinion, is immaterial. He would have done that, if the assessee had disputed or denied his claim or right. Inasmuch as the assessee conceded his right and claim, he did not think it necessary to appear before the Land Acquisition Officer to assert his right. On this account, it cannot be said that Ponnurangam did not have a legal right. The legal right is created by the agreement, and not by the award of the Land Acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se decree was passed under which the step-mother was to be paid Rs. 1,100 per month, which amount was declared to be a charge upon the properties in the hands of the Raja, by the court The Raja sought to deduct this amount from his assessable income, which was disallowed by the High Court at Calcutta, but was allowed by the Privy Council on the ground that, by virtue of the charge created upon the properties, the amount of maintenance was being diverted to the step, mother under an overriding title; whereas in Sitaldas Tirathdas' case [1961] 41 ITR 367 (SC) before the Supreme Court, the amount payable to the wife towards maintenance, though payable under a decree of the court, was not made a charge on any property of the assessee. The decree created only a personal liability. It was, therefore, held that the case before the Supreme Court falls within the latter category, i.e., application of income, and not the former category, i.e., diversion of income. The learned counsel cited several cases decided by various High Courts, but we think it unnecessary and fruitless to refer to all of them, for, as pointed out by the Supreme Court in Sitaldas Tirathdas' case [1961] 41 ITR 367, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and the compensation payable for the land, and could claim the said excess amount in his own right, or on the basis of the obligation on the part of the assessee, as the case may be. This would become more clear if we give an illustration. Take a case where the owner of a land enters into an agreement of sale whereunder be receives the entire consideration from the purchaser, but before he executes a registered sale deed and puts the purchaser in possession thereof, the land is acquired. Can it be said in such a case that the compensation will be paid only to the owner who may, in turn, choose to pay it to the purchaser; or, should it be said that, in such a case, the purchaser alone will be entitled to the entire compensation ? We think the latter view would be correct. We may slightly modify the above illustration. In addition to receiving the full consideration, the owner also puts the purchaser in possession ; but, before the sale deed is executed, the land is acquired. According to law, no doubt, no title passes even in such a case except the right of the purchaser to invoke the doctrine of part performance. Would it be proper even in such a case to say that the purchaser h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember 1943, the defendant-company wrote to the plaintiff intimating him that, inasmuch as the Government has requisitioned the land and it is not known when the possession of the land would be restored, no development work can be taken up and completed, and hence the agreement between them was cancelled. The , plaintiff was called upon to take back the earnest money paid by him. In January, 1946, the plaintiff instituted a suit for specific performance of the agreement of sale, which was resisted, inter alia, on the ground that the contract of sale became frustrated on account of the requisition of the land by the Government. One of the contentions urged before the Supreme Court was that the doctrine of frustration does not apply to contracts for sale of land. The Supreme Court rejected this contention pointing out the distinction between the English law and the Indian law on the subject. The following paragraph brings out the principle (p. 49 of AIR 1954 SC): " The second contention raised by the Attorney-General can be disposed of in a few words. It is true that in England the judicial opinion generally expressed is that the doctrine of frustration does not operate in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pointed out, the contract was not frustrated. The most important reason for holding so was that there was absolutely no time-limit within which the roads and drains were to be constructed. It was pointed out that the first requisition order was passed nearly 15 months after the agreement between the parties and that, by that time, apparently no work was done by the defendant-company on the said land. The second circumstance taken note of by the court was that, even at the time of the agreement, the war was on, and the order of requisition taking temporary possession of the land for war purposes was a normal event during that period. The third circumstance noticed was that, because of the war, there was scarcity of construction materials and there were several restrictions in the matter of obtaining those materials. It was, therefore, held that all these factors must have been in the contemplation of parties and that is why they did not prescribe any definite time-limit for completing the roads, drains and other development work. In the light of this background, the court held that the contract could not be said to have become frustrated, more particularly because the requisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties to acquire this land. Indeed, according to the finding of the Tribunal, Ponnurangam entered into this agreement only with a view to see that the land is acquired by the Social Welfare Department and that he stage-managed the whole affair exclusively with that end in view. It cannot, therefore, be said that because of the acquisition of the land, the agreement of sale in this case became frustrated. Now, in this case, there is no occasion for the court to apportion the compensation between the assessee and Ponnurangam, because that apportionment they themselves had arrived at and we do not wish to express any opinion on the aspect whether the manner and method according to which they have apportioned the compensation money between themselves is the correct method according to law, or not. Suffice it to note, for the purpose of this case, that the contract of sale did not become impossible of performance because of the acquisition of the land the subject-matter of the agreement in the particular facts and circumstances of this case. For the above reasons, we answer all the three questions, referred to us, in the affirmative, i.e., in favour of the assessee and against the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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