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TMI Blog1981 (6) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... g period for the relevant assessment year was from 1st October, 1949, to 30th September, 1950. The method of accounting followed by the assessee was stated to be mercantile. The assessment order, out of which this question arose, related to the assessment made under s. 147(a) of the I.T. Act, 1961, read with s. 143(3) of the said Act. The question relates to the assessability of Rs. 5,00,000 and whether it arises out of the business of sale and purchase of land or property. The ITO in his assessment order stated as follows : "The assessee made an agreement on 7th October, 1948, with one Mozahar Hussain of Dacca (East Pakistan), for sale of the house property at 163, Lower Circular Road, Calcutta, for a sum of Rs. 11 lakhs. Shri Hussain paid a sum of Rs. 5 lakhs on 7th October, 1948, by way of earnest money in part payment of the purchase money. The balance, i.e., Rs. 6 lakhs, was to be paid within six months from the delivery of the deeds by the vendor to the purchaser's solicitors. The time-limit for the delivery of relevant deeds, etc., to the purchaser's solicitor was set within six months of the aforesaid agreement dated 7th October, 1948. The purchaser, therefore, was under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, observed as follows: "Regarding the addition of Rs. 5,00,000 as profit it is found that the assessee made all agreement oil 7th October, 1948, with one Mozahar Hussain of Dacca (East Pakistan), for sale of the house property at 163, Lower Circular Road , Calcutta, for a sum of Rs.11,00,000. Sri If Hussain paid a sum of Rs. 5,00,000 on 7th October, 1948, by way of earliest money in part payment of the purchase money. The balance, i.e., Rs. 6,00,000, was to be paid within 6 months from the delivery of the deeds by the vendor to the purchaser's solicitors. The time-limit for the delivery of relevant deeds, etc., to the purchaser's solicitors was set within 6 months of the aforesaid agreement dated 7th October, 1948. The purchaser, therefore, was under an obligation to complete the purchase by paying the entire value of the property, i.e., Rs.11,00,000 by 6th October, 1949, as per agreement. The time in this respect was strictly the essence of the contract. The ITO states that it was stipulated, vide clause 9 of the agreement, that in case that purchaser failed to complete the purchase within the time limit then the earnest money was to be forfeited to the vendor or the vendo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly stated in the memorandum of association, vide clause 2, that the objects for which the company is established are: ' To purchase for investment or re-sale and to traffic in land and house and other property ... whether real or personal.' In other words, dealings in land and properties have been stated as one of the main objects of the company, The ITO has, therefore, considered the property as the stock-in-trade and the forfeited amount as revenue receipts, and the ITO has correctly held that the date of forfeiture is 6th October, 1949. The appellant's counsel has not been able to substantiate his claim that the property should not be held as stock-in-trade and he has not been able to satisfy why it should not be assessed in the assessment year 1951-52. Under the circumstances, I feel that the ITO was quite justified in treating the sum of Rs. 5,00,000 as business profit of the appellant." Being aggrieved by the aforesaid order of the AAC, there was a further appeal before the Tribunal. The Tribunal referred to the arguments made on behalf of the assessee. The Tribunal observed that it was first, inter alia, argued that the reopening under s. 147(a) was bad because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also important to refer to the agreement dated 7th October, 1948, out of which the question of assessability of the amount of Rs. 5,00,000 arose. The relevant clauses of the said agreement were as follows: " 3. The vendor shall within six months from the date hereof deliver to the purchaser's solicitors documents of title relating to the said premises as are in possession of the vendor and on their accountable receipt (sic) for investigation of the vendor's title and the sale and purchase shall be cornpleted within six months from the delivery of the deeds and documents as aforesaid, time in this respect being strictly the essence of the contract. 4. The vendor shall at its own cost make out a marketable title to the said premises and render the same free from all encumbrances. 5. The vendor shall on receipt of the balance of the purchase money duly execute and register in favour of the purchaser or of such person or persons as he may direct a proper conveyance of the said premises and shall at its own cost cause all necessary parties to join in such conveyance and shall immediately thereafter put the purchaser or his nominee or nominees in vacant and peaceful possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forfeiture of the earnest money was passed by the directors on 1st November, 1951, only after duly issuing a registered notice first on the 19th June, 1949, and later oil, 28th September, 1951. Unless these formalities had been gone through, the forfeiture was liable to be challenged. In fact, he points out that the purchaser did file a suit before the Calcutta High Court in 1957 for return of the forfeited money but did not ultimately pursue it. The departmental representative has argued that the assessee's plea regarding the year ended 31st March being taken as a previous year for assessing the gain relating to the property is beside the point ; for all sources of income the company has been following the year ended 30th September as its previous year. He further argues that the forfeiture did become effective on 6th October, 1949, which relates to the assessment year 1951-52, though it might have been formally recorded by the company as late as 1st November, 1951. After carefully going through the relevant clauses of the agreement dated 7th October, 1948, in the light of the events in their chronological order, as recorded by us in para. 3 above, we are satisfied that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiture. The amount forfeited was Rs. 5,00,000. As against this, the appellant had incurred a cost of Rs. 5,00,000. If the cost is to be deducted, there will be no question of any gains resulting for the forfeiture. There is nothing in the Tribunal's order to show that the said cost was not to be taken into account. The earnest money received by the appellant was its liability to the purchaser which liability continued till the date of the forfeiture. As a result of the forfeiture, the said liability ceased but the benefit arising from the cessation of the liability did not fall to be assessed under section 41 of the Income-tax Act, as the provisions of that section had no application. " The assessee further stated, inter alia, as follows: "As the appellant is seriously prejudiced by the Tribunal's omission to deal with, refer to or to take into (sic) the appellant hereby humbly prays that the order dated 29th September, 1973, passed by the Tribunal may be modified having regard to the above aspects of the case. " The Tribunal in its order passed on 4th October, 1974, made the following orders: " 6. We have carefully considered the contentions of the learned represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1953-54. The assessee in its miscellaneous application desired the deletion of the above observation. The Tribunal by its order dated 4th October, 1974, decided not to do so, as it was of opinion that it was not necessary to decide the question of assessability and the observation was only incidental for its conclusion that the forfeited amount could not be assessed in the year under consideration. In its application, the Department's contention is that the Tribunal had impliedly decided that the receipt was of income nature and on that account the observation in its order of 4th October, 1974, that it was not necessary to decide the, assessability run counter to that finding in the appellate order. 2. We have heard the learned representatives of the parties. As has been pointed out in the order dated 4th October, 1974, the Tribunal did not pronounce upon the assessability of the forfeited amount ; its impugned observations in the order of 4th October, 1974, do not run counter to its decision in the appeal. The application is accordingly dismissed." Therefore, it appears to us that in the first order disposing of the appeal there is no finding that the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's business, which the Supreme Court felt was a question which involved, in the first place, the ascertainment of facts by the Appellate Tribunal and, in the second place, the application of the correct principle of law to the facts so found. There, the question was whether a sum of Rs. 18 lakhs appropriated by the assessee-company in its accounts as compensation payable to its managing agents for termination of the managing agency agreement was admissible as an expenditure wholly and exclusively laid out by the, assessee for the purpose of its business under s. 10(2)(xv) of the Indian I.T. Act, 1922. The Appellate. Tribunal had arrived at the finding that the termination of the managing agency was not a bona fide transaction and it was done for an improper or oblique motive, and on a reference of the question whether the amount of Rs. 18 lakhs was an admissible deduction under s. 10(2)(xv) of the Indian I.T. Act, 1922, the High Court had held that the termination of the managing agency agreement was in the interest of commercial expediency and there was no evidence which could lead to the inference that the termination of the managing agency agreement was done with any ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from that time which fell within the year relevant for our present purpose. If in that background the Tribunal had come to the conclusion that in reality there is no accrual of any income, if the receipt was income at all in the year in question, it cannot be said that the Tribunal was in error. Learned advocate for the Revenue argued that a vendor had a right after the relevant date to treat the amount as accrued to it. But the question is which is the relevant date? Firstly, when were the documents of title delivered, upon which none of the authorities have addressed themselves. This primarily is the responsibility of the ITO to do so, specially when he was assessing after a reopening and there is no clear finding that the option was exercised in the year in question. Apart from that, learned advocate for the assessee drew our attention to certain observations in Cheshire Fifoot on the Law of Contract, 7th edn., p. 534, in support of the proposition that even in a case where there was no option specifically given in a contract, the right to forfeit did not automatically follow, but an intention to forfeit had still to be attributed to the vendor. We need not go as per that op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., AIR 1970 SC 1986, which affirmed the observations made by the Division Bench of this court, as we have, referred to hereinbefore. These observations, however, in the background of the peculiar facts and circumstances of this case, which we have pointed out, cannot be of any assistance to us. On behalf of the assessee reliance was placed on the observations of the Supreme Court in the case of Namdeo Lokman Lodhi v. Narmadabai, AIR 1953 SC 228, where the Supreme Court was dealing with whether the notice of intention to determine a lease on forfeiture prior to the amendment of cl. (g) of s. 111 of the Transfer of Property Act, 1882, was necessary at all and also on the observations of the Supreme Court in the case of Rattan Lal v. Vardesh Chander, AIR 1976 SC 588, in aid of the proposition that even where it was not expressly, so provided it was necessary to give a notice of the intention to forfeit the amount before the amount could be treated as a forfeited amount. We need not, in view of the specific clauses and the peculiar nature of the facts of cl. 3 and cl. 9 of the agreement, further examine this aspect of the, question If the amount is retained as a forfeited amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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