HASMUKHLAL M PARIKH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee derived income from house property and a share in a partnership and from interest 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 the assessee. On 14 -9 -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 from the 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 assessee 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 covenant under the deed of lease conveying the land S. No. 45 to the society for Rs. l,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 Section 33B of the Income -tax Act and brought the amount to tax. The matter was then taken to the Income -tax Appellate Tribunal, and 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 that 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 this reference under Section 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 the assessment years 1946 -47 and 1951 -52.

(2.) MR . Palkhivala for the assessee contends that as the assessee received a part of the 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. Counsel submits that 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 be 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 assesses had agreed to sell to the housing society absolutely the land held by him for Rs. 1,23,677/2/ - and that if the housing society desired to take on lease the rights of the assessee in all the land with a covenant to purchase, the assessee undertook to give the society a lease for three years 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' of Rs. l,23,677/2/ -. It was then recited that the assessee will, at the time of executing the sale -deed, account and give a set off of Rs. 60,000/ - 'paid as earnest money 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/ - was 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 sentence of paragraph 4 of the agreement the amount, is, it is true, referred to as 'out of the sale price of Rs. l,23,677/2/ -'; but the assessee has in this agreement expressly designated the amount of Rs. 60,000/ - as 'earnest money.' He has also reserved a right to forfeit the amount In the event of failure on the part of the society to complete the contract. This agreement, as is evident from the recital contained therein, was drawn up by an advocate. If in a document drawn up by a lawyer the expression 'earnest money' was used in referring to the amount of Rs. 60,000/ -received by the assessee, we would require much stronger evidence than is to be found in this case to justify us in holding that the expression 'earnest money' in the agreement was not intended to have the meaning which it normally has, and it was used in the sense of 'part payment of the mice': and the circumstances that this amount of Rs. 60,000/ - was liable to be forfeited in the event of the 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 that view.

(3.) ON the view taken by us, the 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. Answer accordingly.