COMMISSIONER OF INCOME-TAX v. SMT. LAXMIDEVI NATANI. (CIT v. MURLIDHAR TOTLA.)
Civil Misc. Case No. 103, 104, 105 of 1994, decided on April 19, 1996.
HIGH COURT OF MADHYA PRADESH : INDORE BENCH
D. D. Vyas, for the Revenue : section C. Bagdiya, for the Assessee
A. R. TIWARI, J. :
The applicant (CIT, Bhopal) has filed these three applications under section 256(2) of the IT Act, 1961 (for short by the Act’) seeking direction to the Tribunal to state the cases and refer the undernoted common question of law arising out of the order dt. 27th July, 1992, passed in ITA No. 1040/Ind/1991 on rejection of the application filed under section 256(1) of the Act registered as RA No. 2o 248/Ind/1992 for asst. yr. 1987-88 on 25th October, 1993, order dt. 27th July, 1992, passed in ITA No. 1041/Ind/1991 on rejection of the application filed under section 256(1) of the Act registered as RA No. 249/Ind/1992 for asst. yr. 1987-88 on 25th October, 1993; and order dt. 27th July, 1992 passed in ITA No. 1100/Ind/1991 on rejection of the application filed under section 256(1) of the Act registered as RA No. 250/Ind/1992 for asst. yr. 1987-88 on 25th October, 1993 respectively, for our consideration and opinion :
“Whether, on the facts and in the circumstances of the case, Tribunal was justified in holding the amount of Rs. 7,34,000 as capital receipt not exigible to capital gain tax as no transfer of any property was involved ?”
2. Facts lie in a narrow compass. M/s Indian Pharmaceuticals is firm of which Shri Murlidhar Totla and Smt. Laxmidevi Natani are the partners. The assessee-firm had entered into a contract for a consideration of Rs. 1,05,000.00 with Smt. Ratan Bai Tongia to purchase certain property vide deed of agreement dt. 25th September, 1970. The contract was not carried out and eventually the assessee-firm was compelled to file a civil suit for specific performance of the contract which was dismissed on 27th November, 1976 by 7th Additional Judge to the Court of District Judge, Indore on the ground that no valid sale-deed was possible and permissible for want of sanction of the Indore Municipal Corporation and the Competent Authority under the Urban Land (Ceiling & Regulations) Act, 1970. The assessee then filed appeal before the High Court which was terminated by compromise on 12th May, 1986. In terms of the compromise, the vendee agreed to pay damages of Rs. 14,85,001 to the assessee. According to the AO and the CIT(A) the said receipt was exigible to capital gains tax.
Dissatisfied, the assessee came in appeal before the Tribunal. The Tribunal considered the facts and circumstances and noted that in view of the judgment of the trial Court the contract was not capable of being specifically performed. The Tribunal also considered the case law to hold that a contract for sale of immovable property does not create any interest in the immovable property but only create a personal obligation of a fiduciary character which could be enforced by a suit of specific performance, not only against the vendor but also against the purchaser for consideration with notice. The Tribunal concluded that the amount of damages received was nothing but the compensation for injury for non-performance of the contract. It was thus held that it was a capital receipt not exigible to capital gains since no transfer of property was involved and as such the Tribunal allowed all the aforesaid three appeals numbered 1100/Ind/1991, filed by M/s Indian Pharmaceuticals, Indore; 1040/Ind/1991, filed by Smt. Laxmidevi Natani, Indore, Partner, and 1041/Ind/1991, filed by Shri Murlidhar Totla, Indore, another partner by common order dt. 27th July, 1992. The Tribunal thus held that addition of Rs. 7,34,000 as income from capital gain was liable to be deleted. The Tribunal also considered Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC) : TC 20R.290 in reaching the aforesaid conclusions. The Tribunal, therefore, directed the AO to modify the assessment order in the case of firm accordingly and also directed to give effect to the modified assessment order in the case of the aforesaid two partners also. Aggrieved, the applicant filed the aforesaid three applications, as noted above, under section 256(1) of the Act. The applications were dismissed on the assumption that the common order did not give rise to any question of law. The applicant, has, therefore, filed these three separate applications against the firm and its two partners under section 256(2) of the Act proposing the common question for direction.
3. We have heard Shri D. D. Vyas, learned counsel for the applicant/Department and Shri section C. Bagdiya, learned counsel
for the non-applicant/assessee in all these three Misc. Civil cases.
4. Section 2(47), sub-cls. (i), (ii) and (iii) [sub-cls. (iv) to (vi) are not reproduced], of the Act, substituted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1st April, 1985, provides as under :
(47) “transfer”, in relation to a capital asset, includes :
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
5. The assessment year is 1987-88. The amended provision was brought on the statute w.e.f. 1st April, 1985. The date of agreement is 25th September, 1970. Prior to 1st April, 1985, section 2(47) reads as under :
(47) “transfer”, in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law;
6. Shri Vyas placed reliance on section 2(47) of the Act, CIT vs. Tata Services Ltd. (1979) 13 CTR (Bom) 227 : (1980) 122 ITR 594 (Bom) : TC 20R.323, CIT vs. Abbasbhoy A. Dehgamwalla & Ors. (1992) 101 CTR (Bom) 425 : (1992) 195 ITR 28 (Bom):
TC 20R.381, Baroda Cement & Chemicals Ltd. vs. CIT (1986) 53 CTR (Guj) : (1986) 158 ITR 636 (Guj) : TC 20R.355 and D. B. Madan vs. CIT (1992) 102 CTR (SC) 169 : (1991) 192 ITR 344 (SC) : TC 54R.640 and contended that the assessee did
receive the amount and as such the amount was exigible to capital gain tax within the meaning of section 2(47) of the Act.
7. Shri Bagdiya, on the other hand, submitted that the question stands concluded by the decision reported in (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC) : TC 20R.290 (supra). According to him amount is not exigible to capital gain tax until and unless there is transfer as defined under section 2(47) of the Act. He submitted that as there was no transfer, there is no question of exigibility to capital gain tax.
8. Shri Vyas submitted that this is not the stage to consider the rival contentions and record the opinion one way or other. According to him in view of the aforesaid provisions and view taken in various decisions, a prima facie case is made out for direction to state the cases and refer the question, He, however, submits that in the proposed question, at the end the words “within the meaning of section 2(47) of the IT Act, 1961” need to be added to impart proper clarification of the point in issue.
9. The fact remains that the amount has been received by the assessee on the basis of compromise reached in the first
appeal in High Court. In view of this position, we are satisfied that the aforesaid question with the addition of the aforesaid words does arise out of the common order passed by the Tribunal. In view of this conclusion, we do not express any opinion on the merits of the matter and the question when submitted to us, can be considered in detail with the assistance of both the sides and can be answered in conformity with law.
10. In the result, we allow these applications and call upon the Tribunal to state the cases, concerning the firm and its two partners, with reference to the aforesaid three appeals and refer the under noted question of law for our consideration and opinion as expeditiously as possible :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding the amount of Rs. 7,34,000 as capital receipt not exigible to capital gain tax as no transfer of any property was involved within the meaning of section 2(47) of the IT Act, 1961 ?”
11. We, however, make no order as to costs.
12. Counsel fee for each side in each case is, however, fixed at Rs. 750, if certified.
13. Transmit a copy of this order to the Tribunal immediately.
14. Retain this order in the record of Misc. Civil Case No. 103 of 1994 and place its copy each in the record of connected Misc. Civil cases, as particularised above, for ready reference.