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Commissioner of Income-tax, Bombay Vs. Vishnudayal Dwarkadas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 94 of 1969
Judge
Reported in[1980]123ITR140(Bom)
ActsIncome Tax Act, 1922 - Sections 10
AppellantCommissioner of Income-tax, Bombay
RespondentVishnudayal Dwarkadas
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.E. Dastur, Adv.
Excerpt:
.....to properly appreciate the several relevant recitals and portions of the operative part of the sale deed, and if regard be had to the sale deed, it is quite clear that the sum of rs. 14. it is explicitly clear both from the recitals of the sale deed, as well as the operative part thereof, that the aggregate price paid for the properties that were sold under the sale deed was rs. the case before us is a simple case of an agreement to sell immovable properties and the recitals in the sale deed as well as the operative part thereof distinctly point out that what particular amount of price is payable by the purchaser both in respect of immovable properties as well as in respect of movable properties, and what amount of interest becomes payable by reason of the inability of the purchaser..........immovable properties, being agricultural properties. on january 25, 1959, the assessee executed a sale deed for sale of certain agricultural properties to one rajendrakumar for the price of rs. 2,28,442. under the sale deed, the assessee received the full price; he also received interest at the rate of 6 3/4% from may 1, 1958, on the sale price till the date of payment. certain movables were sold under the agreement and for the said movables a sum of rs. 53,185.66 was received. it is further provided in the sale deed that right from may 1, 1958, the assessee who was the vendor, had given possession to the vendee and thereafter, as the agent of the vendee, he carried on agricultural operations on behalf of the vendee until the date of the execution of the sale deed and khas or actual.....
Judgment:

Kantawala, C.J.

1. At the instance of the revenue, the following two questions are referred to us for our determination :

'(1) Whether, on the facts and in the circumstances of the case, it could be rightly held that the amount of Rs. 15,083 or part thereof received by the assessee was a part of the consideration of the sale and was not revenue receipt

(2) Whether the amount of the Rs. 10,241 was rightly held to be not assessable in the assessment year 1960-61 ?'

2. Assessee, Vishnudayal Dwarkadas, a HUF, was partner in the firm carrying on business and on dissolution of the said firm, the assessee received certain movable and immovable properties, being agricultural properties. On January 25, 1959, the assessee executed a sale deed for sale of certain agricultural properties to one Rajendrakumar for the price of Rs. 2,28,442. Under the sale deed, the assessee received the full price; he also received interest at the rate of 6 3/4% from May 1, 1958, on the sale price till the date of payment. Certain movables were sold under the agreement and for the said movables a sum of Rs. 53,185.66 was received. It is further provided in the sale deed that right from May 1, 1958, the assessee who was the vendor, had given possession to the vendee and thereafter, as the agent of the vendee, he carried on agricultural operations on behalf of the vendee until the date of the execution of the sale deed and khas or actual possession of the land was given to the vendee on the execution of the sale deed. Thus, between May 1, 1958, and January 25, 1959, being the date of execution of the sale deed, as the agent of the vendee, the assessee had incurred expenses amounting to Rs. 53,870.08, and received income of Rs. 26,309.09 in respect of agricultural operations. The difference in the amount of Rs. 27,561, in respect of these agricultural operations, was also paid to the assessee by the vendee. By way of interest, an aggregate amount of Rs. 15,083 was received by the assessee from the purchaser Rajendrakumar.

3. For the assessment year 1960-61, for which the relevant accounting year was Muru Year S.Y. 2015-16 (corresponding to the period November 12, 1958, to October 31, 1959), the assessee, though he received the amount of interest, had not declared the same in the returns. Before the ITO, it was contended on behalf of the assessee that, as the interest was on account of sale proceeds of agricultural farm assets, which was a part and parcel of sale consideration, it was not liable to tax. The ITO rejected the said contention and brought to tax the said sum of Rs. 15,083 as income from other sources.

4. In an appeal, by the assessee, before the AAC, it was contended that the amount of interest of Rs. 15,083 was part of the sale consideration and since the property sold was an agricultural piece of property, the price thereof could not be subjected to income-tax. That contention was rejected by the AAC. He held that the consideration amount for sale of land was to be paid on May 1, 1958, but as the purchaser was not able to pay consideration immediately, the execution of the sale deed was postponed to such time when the purchaser would be able to pay the same. Accordingly, the assessee became entitled to interest by reason of deferment of payment of price and this interest could not be considered as part of the purchase consideration. It was further contended on behalf of the assessee, before the AAC, that the interest was received on the following dates :

AmountRs.July 31, 1958 117July 31, 1958 4,752January 27, 1959 9,223January 27, 1959 991

5. In view of the receipt of these amounts, it was urged on behalf of the assessee that as these amounts were received or credits were made in the financial year 1958-59, they could have been assessed only in the assessment year 1959-60. While dealing with this contention, the AAC observed that in respect of income from the farm the assessee employed mercantile system of accounting and had used the year ending July 31, of each year for this source of income and, therefore, the interest should be assessed with the previous year ending on July 31, and on this basis the amount assessable for the assessment year under appeal would be only the total of the amounts credited on January 27, 1959, aggregating to Rs. 10,214. He observed that the balance of Rs. 4,869 was assessable as income of the assessee under the head 'other sources' for the assessment year 1959-60, and gave directions to the ITO to take action for including this sum in the assessment for the assessment year 1959-60.

6. In the second appeal before the Tribunal, it was pointed out that the consideration for the immovable property was Rs. 2,28,442, and the consideration for movable property was Rs. 53,136 making a total of Rs. 2,81,728 and that interest of Rs. 15,083 at 63/4 per cent. was provided by the deed of sale for the period May 1, 1958 to January 25,1959, when the sale deed was executed. It was urged that the said amount of interest was part and parcel of the sale consideration for the agricultural farm as on January 25, 1959, when the sale deed was executed and possession of the farm given to the vendee. It was contended that before January 25, 1959, no debt was due from the purchaser and no interest in fact could have been charged.

7. On the other hand, on behalf of the revenue, it was contended before the Tribunal that if regard be had to the provisions of the sale deed, the sum of Rs. 15,083 was rightly assessed as the income in the hands of the assessee. The Tribunal accepted the contention of the assessee, inter alia, holding that he became entitled to receipt of the purchase consideration on January, 1959, when the sale deed was executed, and the purchaser was not under an obligation to pay any amount to the assessee before that date. It held that there was no amount due to the assessee on May 1, 1958, and no interest was due to the assessee for the period May 1, 1958, to January 29, 1959. According to the Tribunal, as the sale deed was executed on January 25, 1959, what the assessee received on that date in respect of movable property was the full purchase consideration and it could not be said that the assessee received any amount by way of interest on that date.

8. As regards the alternative contention, as regards the year in which the amount of interest would be brought to tax, it incidentally observed that it was not necessary to consider this point but as the point was raised and argued before the Tribunal, it gave a finding that the interest received being income from 'other sources', had to be assessed on the basis of financial year and as the interest was received during the financial year 1958-59, the same could be assessable in the assessment year 1959-60 and not in the assessment year 1960-61. The Tribunal, accordingly, allowed the appeal upholding both the contentions raised on behalf of the assessee and it is from this order of the Tribunal that the two questions are referred to us for our consideration.

9. Mr. Joshi, on behalf of the revenue, submitted that the Tribunal was in error in taking the view that the sum of Rs. 15,083 which was received by way of interest was part and parcel of the consideration amount namely, the sale price. He urged that the Tribunal has overlooked or failed to properly appreciate the several relevant recitals and portions of the operative part of the sale deed, and if regard be had to the sale deed, it is quite clear that the sum of Rs. 15,083, which was received by the assessee, was merely by way of interest and was a revenue receipt. It was not a part of the sale price payable either under the sale deed or under the agreement of sale between the parties. So far as the other finding of the Tribunal was concerned he urged that as in respect of the farm the assessee was maintaining accounts on the basis of the year ending July 31, the view that has been taken by the AAC was right and since the amount of Rs. 10,214 was received by the assessee on January 27, 1959, the same was rightly brought to tax by the AAC. He, therefore, submitted that the Tribunal was in error in treating the amount of interest as part and parcel of the sale consideration and in taking the view that no part of the interest amount that was received, accrued in the accounting year relevant to the assessment year 1960-61.

10. Mr. Dastoor, on the other hand, on behalf of the assessee, submitted that the sum of Rs. 15,083 that was received was part and parcel of the purchase consideration, and, even though, it was described in the sale deed as and by way of interest, it formed part of the purchase price payable by vendee under the sale deed. In short, he submitted that the view that has been taken by the Tribunal on this aspect of the matter was correct while the view that has been taken by the taxing authorities was not justified. So far as the year in which the income can be said to have arisen, he submitted, that so far as the assessee is concerned, the view that has been taken by the Tribunal that the income did not accrue to the assessee in the relevant accounting year for the assessment year 1960-61 was correct and even on that ground no part of the amount of Rs. 15,083 could be brought to tax for the assessment year 1960-61.

11. The first question that has to be considered in this case, in view of the rival contentions on behalf of the parties and the questions referred to us is whether the sum of Rs. 15,083 that was received by the assessee from Rajendrakumar was part of the consideration of sale and was, therefore, not a revenue receipt. The answer to such a question will depend on the terms of the agreement of sale and the sale deed that was executed between the parties.

12. So far as the record is concerned, no written agreement of sale appears to have been produced, but what was agreed between the parties can be inferred from the various recitals that appear in the sale deed, which was executed on January 25, 1959. It is necessary to refer to the relevant portion of the recitals and the operative part of the sale deed. The same, in our opinion, leaves no scope for upholding the contention that has been urged by Mr. Dastoor, on behalf of the assessee. They are as under :

'AND WHEREAS the vendor, for legal necessities and conveniences, agreed to sell and the vendee agreed to buy the properties mentioned in schedule 'A' for Rs. 2,28,442.80 (Rupees Two lakhs twenty eight thousand four hundred forty two and paise eighty only) only with effect from the May 1, 1958.

AND WHEREAS it was agreed between the parties that possession of the vended properties will be taken to have been delivered by the vendor to the vendee on the May 1, 1958, and that the vendor has been carrying on agricultural operations on behalf of the vendee until the date of execution of this deed then the vendee has taken over khas possession of the same and it was further agreed between the parties that the vendor shall receive from the vendee all the expenses incurred by him and shall likewise pay to him all the receipts of the above period and in pursuance of the said agreement upon.... calculation, the said expenses have been found to be Rs. 53,870.09 and the said receipts have been found to be Rs. 26,309.09 and the said sums of receipts and expenses having been adjusted the balance of Rs. 27,561.00 only has stamped receipt has already been obtained.

AND WHEREAS in pursuance of the said agreement the vendee having acquired title to and possession of the vended properties from the May 1, 1958, would be entitled to and be liable for all profits and losses relating to the properties under sale from the said date;

AND WHEREAS it was also agreed between the parties that the vendor will receive interest at the rate of 6 3/4 percent per annum from the vendee on the aforesaid consideration of Rs. 2,28,442.80 besides the interest on the value of movables from the May 1,1958, till the date of execution of this sale deed which upon calculation has been found to be Rs. 13,975.32 only and has already been paid by the vendee to the vendor and duly stamped receipt obtained;

NOW THIS DEED OF SALE WITNESSES AS FOLLOWS :

1. On consideration of having received the sum of Rs. 2,28,442.80 only, being full consideration of the properties hereby sold and described in Schedule 'A'.... the vendor hereby transfers by way of absolute sale to the vendee.....

3(b) The sale of the properties described in Schedule 'A' hereunder has been effected and possession thereof has been delivered to the vendee on and from the May 1, 1958, and khas possession has been obtained by the vendee on the date of execution of this sale deed.'

13. Schedule 'A' to this sale deed gives the break-up of the various items that were sold under the sale deed and the aggregate price is Rs. 2,28,442.80. It was urged by Mr. Dastoor that even though the sale deed is worded in this manner, still the sum of Rs. 15,083, which has been paid by way of interest as part and parcel of the sale price, cannot be treated as mere interest. Such a contention, in our opinion, is totally inconsistent with the provisions of the sale deed itself.

14. It is explicitly clear both from the recitals of the sale deed, as well as the operative part thereof, that the aggregate price paid for the properties that were sold under the sale deed was Rs. 2,28,442.80. It appears from the various recitals that the parties wanted to complete the sale on May 1, 1958. However, probably, due to the inability of the purchaser to pay the price and from and after that date that the possession of the assessee, as vendor, was regarded as for and on behalf of the vendee and all expenses incurred thereof in relation to those properties and the income earned were to be borne and received by the purchaser. Even the express agreement contained payment of interest at the rate of 6 3/4 per cent. These provisions leave no scope for doubt that under the agreement between the parties the entire price, both for movable and immovable properties, agreed to be sold was to be paid to the assessee by the vendor on May 1, 1958, and since the purchaser was unable to pay the same on that date and had paid it on the execution of the sale deed on January 25, 1959, the sum of Rs. 15,083 that was paid by way of interest in respect of the price of the immovable and movable properties was not part and parcel of the purchase price but was an item by way of interest for the inability of the purchaser to pay the price on May 1, 1958. Thus, it is not possible for us to accept the contention of Mr. Dastoor that the amount of interest of Rs. 15,083 was part and parcel of the sale price. The sale price so far as the immovable properties were concerned, was Rs. 2,28,442.80. While so far as the movable properties were concerned, it was Rs. 53,185.66 and since these amounts were paid later on, the aggregate amount of interest of Rs. 15,083 was payable and in fact paid by the purchaser to the assessee. It is not possible for us, therefore, having regard to the recitals and the operative part of the sale deed, to accept the contention of Mr. Dastoor that this item of Rs 15,083 should be regarded as part and parcel of the sale price.

15. Mr. Dastoor invited our attention to a decision of the Allahabad High Court in the case of CIT v. J.K. Cotton Spinning and Weaving Mills Ltd. : [1975]98ITR153(All) and a decision of the Gujarat High Court in the case of CIT v. Tensile Steel Ltd. : [1976]104ITR581(Guj) . In both these cases, the question related to calculation of depreciation and development rebate, to which the purchaser may be entitled when he has purchased plant, machinery, etc., on deferred payment basis and agreed to pay interest. We are not concerned in this case, how actual cost so far as the purchaser is concerned is to be calculated for the purpose of calculation of development rebate or depreciation. The case before us is a simple case of an agreement to sell immovable properties and the recitals in the sale deed as well as the operative part thereof distinctly point out that what particular amount of price is payable by the purchaser both in respect of immovable properties as well as in respect of movable properties, and what amount of interest becomes payable by reason of the inability of the purchaser to pay the price on the date of the agreement to sell when the parties intended that the price ought to have been paid.

16. Reference was also made by Mr. Dastoor to a decision of the Kerala High Court in the case of CIT v. Periyar and Pareekanni Rubbers Ltd. : [1973]87ITR666(Ker) . This was a case under the Land Acquisition Act, where the Land Acquisition Officer, under the agreement with the owner, took possession of the property before the award was made and the court took the view, that the amount of interest paid for the period prior to the date of publication of the award was made and the court took the view, that the amount of interest payable from the date of the award up to the date of payment of compensation, was revenue receipt. We are not concerned with a case dealing with the rights of parties to receive compensation under the Land Acquisition Act, when the property of an owner is proposed to be acquired by exercise of statutory powers. In the present case, the mutual rights between the assessee as the vendor and the purchaser are governed by the agreement of sale, the terms whereof are clearly to be found in the recitals of the sale deed. If regard be had to the various recitals and the operative part of the sale deed. If regard be had to the various recitals and the operative part of the sale deed, there can be no doubt whatsoever that right from May 1, 1958, the possession of the property was regarded as that of the purchaser and even though, till the execution of the sale deed, the assessee continued to be in possession, such possession was as an agent of the purchaser and even all the expenses incurred and the income earned were to be borne by and received by the purchaser. Thus, it is quite clear, so far as the assessee a vendor was concerned that the sum of Rs. 15,083 has been received by him clearly by way of interest because the purchaser was unable to pay the price on May 1, 1958, when the parties intended to conclude the transaction. It is not, therefore, possible to treat this amount of interest as part and parcel of the purchase price, or as being a capital receipt, in fact, the entire amount of interest that has been received by the assessee is a revenue receipt.

17. That takes us to the question, in which year, whether the whole or a part of this amount, can be regarded as having been received by the assessee and in which assessment year 1960-61. For this assessment year, there are three relevant possibilities, which may have to be considered for the accounting period. The financial year relevant to the assessment year 1960-61 is April 1,1959 to March 31,1960. It appears from the statement of case that ordinarily the assessee was having Muru year as the accounting year and for the assessment year 1960-61, the relevant Muru year will be S.Y. 2015-16, corresponding to the period November 12, 1958, to October 31, 1959. So far as the income and expenditure from the farm was concerned, he used to maintain books of account from August to July and for the assessment year 1960-61, the relevant accounting period, so far as the books of account are concerned, will be August 1, 1958 to July 31, 1959. It appears from the order of the AAC that so far as the farm was concerned, as the assessee was maintaing his books for the period ending July 31, he treated the assessable income on the footing of the amount received in the relevant accounting year on the basis of these books Looked at from that point of view, the aggregate sum of Rs. 10,214 was received by the assessee on January 27, 1959, which fell during that period and subjected that amount to tax for the assessment year 1960-61. So far as the balance amount of Rs. 4,869 was concerned, he held that it was assessable as income under the head 'other sources,' for the assessment year 1959-60.

18. So far as the Tribunal was concerned, it held that income from ' other sources' has to be assessed on the basis of financial year and as the interest was received during the financial year 1958-59, the same would be assessable in the assessment year 1959-60 and not in the assessment year 1960-61.

19. It was urged by Mr. Dastoor that the view that has been taken by the Tribunal is quite correct. So far as this aspect of the matter is concerned, in view of the clear definition of the expression 'previous year'. given in s. 2(11) of the Indian I.T. Act, 1922, Mr. Joshi, on behalf if the revenue, has not been in a position to seriously oppose the same. The relevant part of 'previous year' given in s. 2(11) is as under

''previous year' means -

(i) in respect of any separate source of income, profits and gains -

(a) the twelve months ending on the March 31, next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said March 31, then, at the option of the assessee, the year ending on the date to which has accounts have been so made up...;'

20. There is a proviso to this sub-section, but it is unnecessary to refer to the same. If regard be had to the substantive provision of clause (a) referred to above, then it is quite clear that in the latter part of that clause the option has to be exercised by the assessee so far as the income by way of interest is concerned. That being the position, the relevant previous year, so far as the income by way of interest is concerned, comprises the twelve months ending on the March 31, next preceding the year for which the assessment has to be made. The assessment in the present case has to be made for the assessment year 1960-61, and the twelve months preceding the March 31, for this, the assessment year will be April 1, 1959 to March 31, 1960. No part of interest was received by the assessee during any part of this accounting period. As indicated in the order of the Tribunal as well as that the AAC, part of the interest was received on July 31, 1958, and the rest of the interest was received on January 27, 1959. Both these dates are outside the financial year relevant to the assessment year 1960-61. As in the present case, the amount of interest was received on July 31, 1958 and January 27, 1959, they were received in the financial year relevant to the assessment year 1959-60, and the Tribunal, in our opinion, was right when it took the view that the interest was received during the financial year 1958-59, the same would be assessable in the assessment year 1959-60, and not in the assessment year 1960-61. Thus, no part of the amount of interest that has been received by the assessee can be subjected to tax in the assessment year 1960-61.

21. Accordingly, our answers to the questions referred to are as under :

Question No. 1 :- The amount of Rs. 15,083 received by way of interest was not part of consideration of sale but was received by way of interest and was a revenue receipt.

Question No. 2 :- The amount of Rs. 10,214 was not assessable in the assessment year 1960-61, but the whole amount of Rs. 15,083 was assessable in the assessment year 1959-60.

22. Since either side has partly succeeded in this reference, each party to bear its own costs.


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