COMMISSIONER OF INCOME TAX Vs. HIRALAL MANILAL MODY

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following three questions have been referred to us for our opinion :

(2.) THE facts leading to this case are as follows: We are concerned with asst. year 1969 70, the previous year being calendar year 1968. The assessee is an individual and he has no personal books of account. The assessee filed return of income on 30th June, 1969, in respect of the asst. year 1969 70, declaring a total income of Rs. 39,285. The assessee had entered into an agreement with one Modi Kalidas Hargovandas and another for the purchase of an immovable property situate on Gandhi Road, Ahmedabad, for a sum of rupees two lakhs. The agreement was entered into in 1956, and under the terms of the agreement, the sellers had to execute the deed of conveyance within a period of three years. At the time of the agreement, the assessee paid an amount of Rs. 50,000 as earnest money and the balance of Rs. 1,50,000 was to be paid at the time of the execution of the deed of conveyance. The vendors failed to execute the deed of conveyance as stipulated and the agreement executed in 1956 was cancelled. Thereafter, the assessee entered into a fresh agreement dt. 12th May, 1964, with the same vendors for the purchase of the same property. Under the terms of this agreement of 1964, the deed of conveyance was to be executed within six months (wrongly mentioned in the statement of the case as three years) from the date of execution of the agreement. The vendors again failed to execute the deed of conveyance as agreed. On 21st Dec., 1964, a settlement was arrived at between the assessee and the vendors and under that agreement the vendors agreed to pay Rs. 8,000 to the assessee by way of damages and this amount was to be treated as having been paid towards the consideration of rupees two lakhs. In other words, the assessee was deemed to have paid Rs. 8,000 in addition to Rs. 50,000 which were paid by way of earnest money and Rs. 58,000 were to be treated as paid towards the consideration of rupees two lakhs. The sellers did not execute a sale deed but again agreed to pay a further amount of Rs. 8,000 by way of damages on 8th July, 1965. This amount of Rs. 8,000 was also to be treated as paid towards the consideration. The assessee paid a further sum of Rs. 10,000 towards the consideration on 10th Nov., 1965, and the period for execution of the deed of conveyance was extended up to 30th June, 1966. The vendors failed to execute the deed of conveyance as agreed.

(3.) THE AAC by his order held that the amount of Rs. 8,000 could not be taxed as it was merely a reduction in the purchase price of a capital asset. He observed that the assessee was not a dealer Rs. 50,000 paid as earnest money in 1956; Rs.16,000 payable by way of damages as stated above which were to be credited towards the consideration. Rs.10,000 further amount paid by the assessee on 10th Nov., 1965; Rs.8,431 further damages; and Rs.1,000 towards the costs of the suit. in property and that the ITO himself had taxed the amount of Rs. 8,000 not as business income but as income from "other sources". He was of the view that the addition of the amount of Rs. 8,000 made in the asst. year 1965 66 should be deleted.