(1) The assessee derived income from house property and a share in a partnership and form interpet and dividends. On 8-10-1938, the assessee purchased the leasehold interest in Survey No. 45 of village Paladi from one Bhudarbhai who had obtained a lease from the original owner of the land on 26-9-1938. Under the lease Bhudarbhai had a right to purchase the land, and that right was also assigned to be assessee. On 14-9-1945, the assessee purchased a half share in the reversion from the orginal owner, and on 5-5-1946 he entered into an agreement with a housing society for sale of his rights in the land and obtained Rs. 60,000/- as earnest money. Under the lease Bhudarbhai had a right to purchase the land, and that right was also assigned to the assessee. On 14-09-1945, the assessee purchased a half share in the reversion from the original owner, and on 5-5-1946 he entered into an agreement with a housing society for sale of his rights in the land and obtained Rs.60,000/- as earnest money. Under another conveyance, dated 24-9-1947, the assessee purchased fromthe original owner of the land his right of reversion, in the remaining half share. On 1-10-1947, the society executed in favour of the assessce a lease in respect of the entire land, and in 1950 the assessee executed a conveyance in favour of the society in pursuance of the conveniant under the deed of lease conveying the land S.No.45 to the society for Rs.1,23,677/2-. In the year of assessment 1951-52, the Income-tax Officer did not include in computing the total income of the assessee the profit of Rs.96,796/- made by the assessee in this transaction. But the Commissioner of Income-tax took action under S.88B of the Income-tax Act and brought the amount as tax. Income-tax Act and brought the amount as tax. The matter was then taken to the Income-Tax Appellate Tribunal & the Tribunal was of the view that in acquiring the right of Bhudarbhai the assessee was induling in a trading venture and that the profit of Rs.96,796/- made by the assessee in this transaction. But the Commissioner of Income-tax Act and brought the amount to tax. The matter was then taken to the Income-tax Appellate Tribunal & the Tribunal was of the view that in acquiring the right of Bhudarbhai the assessee was indulging in a trading venture and that the profit of Rs.96,000/- odd made by the assessee accrued in the year 1950. The Tribunal negatived the contention hat the amount of Rs.60,000/- received by the assessee on 5-5-1946 was part of the sale price under agreement dated 5-5-1946. In the reference under S.66(2) of the Income-tax Act, the question which falls to be determined is whether on the facts and in the circumstances of the case the amount of Rs.96,000/- odd, which is the profit made by the assessee is taxable in the assessment year 1951-52, or is liable to be apportioned as income for he assessment year 1946-47 and 1951-52.
(2) Mr. Palkhivala for the assessee contends that as the assessee received a part ofthe price on 5-5-1946 and the balance of the price in the year 1950, even if the assessee was liable to pay tax on the profit accruing under the transaction on the footing that it was a trading venture, that the profit therein had to be apportioned between the assessment years 1946-47 and 1951-52 for assessing tax liability. Counel submits the tax appropriate to the amount of Rs.60,000/- received by the assessee in the year 1946 was payable in the assessment year 1947-48 and the tax on the balance was payable by the assessee in the year of assessment 1951-52. That the venture of the assessee was a trading venture has been found by the Tribunal and that question is not open to the canvassed and has not been canvassed before us. It is evident that the assessee had purchased the leasehold rights in the land, which were purchased by Bhudarbhai, only ten days after the latter had obtained the same. Thereafter the assessee purchased the rights of the owner in two instalments, and in the venture, he has undoubtedly made a profit exceeding Rs.96,000/-. In the agreement dated 5-5-1946, it was recited that the assessee had agreed to sell to the housing society desired to take on lease the rights of the assessee in all the land with a covenant to purchase on the society paying him Rs.60.000/- at the time of executing the lease deed 'out of the sale price' and if the housing society failed to get the sale-deed executed of the rights of the assessee during the period of the lease on payment of the remaining consideration, then the amount of Rs.60,000/- paid by the society as 'earnest money' will stand forfeited. It is undisputed that the amount of Rs.60,000/- paid by the housing society to the assessee; and this amount is expressly designated at two places in the agreement as 'earnest money'. In the opening senence of paragraph 4 of the agreement the amount is, it is true, referred to as 'out of the sale price of Rs.1,23,677/2/'; but the assessee has in this agreement expressly designed as 'earnest money'. this agreements, is evident from the r2ecital contained, therein was drawn up by an advocate. If in a document drawn by a lawyer the expression 'earnest money' in the agreement was intended to have the meaning which it normally has, and it was used in the sense of 'part payment of Rs.60,000/- was liable to be forfeited in the event of housing society failing to carry out its part of the contract makes the conclusion inevitable that the amount was intended to be earnest money and not part payment of the price. The Tribunal has taken the view that the amount of Rs.60,000/- paid in 1946 by the housing society to the assessee was earnest money, and we agree with the view.
(3) Mr.Palkhiwala has contended that event if the amount of Rs.60,000/- was earnest money, when the sale-deed was executed, and the assessee received the full price of Rs.1,23,677/2/, in the amount of Rs.60,000/- which was appropriated towards the price at the date of sale-deed must be regarded as embed the characteristic of income received in the year 1946 and that amount was initially received and not in the year in which the sale-ded was executed and the amount was appropriated towards the price. In support of the contention, outattention was invited to a judgment of their Lordships of the Supreme Court by Turner Morrison and Co. Limited v Commissioner of Income-tax, West Bengal, (1953) 23 ITR 152; non-resident Association had effected sale of salt in India through brokers. The sale proceeds of the salt were collected by the assessee and credited to the account kept intheir own name with a bank and after deducting the expenses including their commission the balance was remitted to the Association in Egypt. The income-tax authorities treated the assessees as the agentsof the non-resident Association under S.43 if the Indian Income-tax Act and assessed tem to income-tax under S.4(1)(a) or, in the alternative, under S.4(1)(c). It was held by their Lordships of the Supreme Court that the income, profits, and gains derived from the sale of salt in British India were assessable to income received by the company in British India on behalf of the Association. In dealing with the question received their Lordships observed (at page 160 of the report(ITR); (at p.143 of AIR):
'There can, therefore, be no question that when the gross sale proceeds were received by the Agents in India they necessarily received whatever income, profits and gains were lying dormant or hidden or otherwise embedded in them. Of course, if on the taking of accounts it be found that there was no profit during the year then the question of receipt of incom, profits, and gains, then the proportionate part thereof attributable to the sale proceeds received by the Agents in India were income, profits, and gains received by them at the moment the gross sale proceeds the position the provisions of S.4(1)(a) were immediately attracted and the income, profits, and gains so received became chargeable to tax under S.3 of the Act'.
But in tthe case before us, the assessee did not in the year 1946 receive any part of the gross profit; andin Turner Morrison and Company's case : 23ITR152(SC) will apply to the facts of this case. When sale proceeds gross or net, are reiceved by the assessee, evidently S.4 is immediately attracted, and the income profits and gains embedded therein became chargeable to tax; but in our judgment that principle will not apply to an amount left in deposit with the assessee for due performance of a contract which amount is subsequenlty appropriated towards the price on the execution of sale-deed.
(4) On the view taken by us, th answer to the question, referred is that the amount of Rs.96,000/-odd, which is the profit made by the assessee in the transaction, is taxable in the year of assessment 1951-52 and is not liable to be apportioned as income for the assessment year 1946-47 and 1951-52. The assessee to pay the costs of the Commissioner of Income-tax.
(5) Answer accordingly.