In the ITAT
Joint Commissioner of Income-tax,
v.
Trident Projects Ltd
K.G. BANSAL, ACCOUNTANT MEMBER
AND R.V. EASWAR, VICE PRESIDENT
IT APPEAL NO. 2123 (
[ASSESSMENT YEAR : 1996-97]
NOVEMBER 16, 2007
Section 28(i) of the Income-tax
Act, 1961 - Business income - Chargeable as - Assessment year 1996-97 - For
relevant assessment year, assessee-company, in original return of income filed,
had declared profit of Rs. 1.70 crores on account of sale of a property ‘B’ to
another company ‘S’ as business profit - Subsequently assessee filed revised
return of income excluding above profit of Rs. 1.70 crores and in this regard
explained to Assessing Officer that under an agreement to sell dated 31-3-1996
property ‘B’ was agreed to be sold to ‘S’ for a consideration of Rs. 2.40
crores that subsequently said agreement was cancelled on 31-10-1997, and that,
therefore, no profits accrued to it and that was why a revised return was filed
- Assessing Officer held that filing of revised return was clearly an
after-thought with a view to conceal income and accordingly assessed profit of
Rs. 1.70 crores in hands of assessee as business profits - Commissioner
(Appeal), however, held that amount of Rs. 1.70 crores was not liable to tax in
hands of assessee - Whether since full facts had not been brought on record to
enable one to take a decision as to whether there was a real sale of property
by ssessee to ‘S’ and any income accrued to it as profits of business case was
to be restored back to file of Assessing Officer for being redone in accordance
with law and in light of observations made in instant appeal - Held, yes
FACTS
For the relevant assessment year 1996-97, the assessee-company, in the original return of income filed, had declared the profit of Rs 1.70 crores on account of sale of a property ‘B’ to another company ‘S’ as business profit. Subsequently, the assessee filed the revised return of income excluding the above profit of Rs. 1.70 crores and in this regard explain to the Assessing Officer that under an agreement to sell dated 31-3-1996 the property ‘B’ was agreed to be sold to ‘S’ for a consideration of Rs. 2.40 crores that subsequently the said agreement was cancelled on 30-10-1997, and that, therefore, no profits accrued to it and that was why a revised return was filed. The Assessing Officer held that as per the agreement to sell dated 31-3-1996 the assessee had handed over symbolic possession of the property to ‘S’, as the property was under the occupation of another person, and that it was not necessary for the assessee to handover the vacant possession of the property. He further held that ‘S’ accepted the symbolic possession and even treated the property as its stock-in-trade in its balance sheet as on 31-3-1996 as well as on 31-3-1997. The Assessing Officer further held that since the assessee despite the fact that the purchaser company ‘S’ did not pay the price for the property immediately as provided in the agreement dated 31-3-1996 handed over possession of the property to ‘S’, the assessee by its own conduct had allowed the performance of the agreement to sell by permitting the buyer to make payments later along with interest. The Assessing Officer, therefore, concluded that there was a part performance of the sale agreement within the meaning of section 53A of the Transfer of Property Act and, thus, there was a transfer of the property under section 2(47)(v) of the Act. He further held that since the assessee had treated the property ‘B’ as stock-in-trade and the sale took place in the normal course of the business, the realization of the sale proceed or registration of the property in the name of ‘S’ were not required to complete the transfer. He also held that the assessee adopted the mercantile system of accounting. The Assessing Officer further held that the stamp papers for the agreement to sell and the cancellation deed were purchased at the same time with an intention to defraud the revenue. He also held that the date of resolution had been noted in the agreement to sell as well as on the cancellation deed as 24-1-996 in ink. He, therefore, held that the filing of the revised return was clearly an after-thought with a view to conceal the income. He, therefore, assessed the profit of Rs. 1.70 crores on the sale of the property in the hands of the assessee as business profits.
On appeal, the Commissioner (Appeals) accepting the revised return filed by the assessee held that the amount of Rs. 1.70 crores was not liable to tax in the hands of the assessee. He, therefore, set aside the order passed by the Assessing Officer.
On revenue’s appeal to the Tribunal:
HELD
The Assessing Officer had not brought the
profit of Rs. 1.70 crores to tax under the head “capital gains” but had
assessed it only under the head “business”. Therefore, the reference by the
Assessing Officer to sec.2(47)(v) was not relevant, as it would be relevant
only if the profit had to be assessed under the head “capital gains”. Since the property was treated as
stock-in-trade by the assessee and stock-in-trade is excluded from the
definition of a “capital asset” in section 2(14), the proper head of assessment
of the profit was only “business” and not “capital gains”. But that might hot
drastically change the question arising in the instant case, because even in
the case of sale of immovable property held as stock-in-trade giving rise to
business profits it is necessary to find out if there is a sale under the
general law and it would be required to look into the Transfer of Property Act
for that purpose, including section 53-A thereof. However, full facts had not been brought on
record to enable one to take a decision as to the correctness of the orders of
the lower authorities. Firstly, it was
necessary to find out the connection, if any, between the two companies,
especially because a motive to avoid tax was alleged. It was also necessary to find out whether the
property was let out by the assessee and if so to whom and what was the rent
being paid inas muchas the purchaser-company ‘S’ showed the rent paid in its
accounts after 31-3-1996. There was a
reference in the record to the property being illegally occupied by some person
but that fact had to be verified.
Further, the property was shown by ‘S’ in its balance sheets as on 31-3-1997
and 31-3-1998. It was worth
examining why, despite the cancellation of the agreements in October, 1997 ‘S’
continued to show the property in its balance sheet even as on 31-3-1998. It might be necessary to examine the persons
involved in the transaction to find out their intention and also to find out
why they should cancel the agreement to sell.
The alleged discrepancies in the dates of purchase of stamp papers might
also be put to them for explanation.
Further in the agreement to sell there was a stipulation that timely
payment of the sale price was of the essence of the contract and in the said
agreement there was also a provision for delayed payment of the price subject
to interest, which threw serious doubts about the seriousness of the parties in
saying that timely payment of the price was of the essence of the
contract. Therefore, only when the complete facts were brought on record and
their implication analyzed could it be said whether there was a real sale of
the property by the assessee to ‘S’ and any income accrued to it as profits of the
business. Therefore, the orders passed
by the lower authorities were set aside
and the matter was restored to the file of the
Assessing Officer for being redone in accordance with law and in the light of
aforesaid observations. [