RATANCHAND HIRACHAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) ON the 18th Sept., 1946, the assessee entered into an agreement with one Kesarbai and others to purchase a piece of land together with a house standing thereon, at Walkeshwar Road, Bombay, for Rs. 4 lakhs. Under the agreement of sale, the transaction was to be completed by the purchaser within 3 months. After having entered into the agreement, the assessee was unwilling to complete the transaction because the house which he had agreed to purchase was popularly described as vagmukhi and it was a common superstition that a vagmukhi house brings ill -luck to the owner. On the 11th April, 1947, the assessee procured two other persons who agreed to purchase the property and executed a contract to sell the house to those persons for Rs. 3,45,000. Thereafter, a sale deed was executed by Kesarbai and others of the property to which the assessee was a confirming party, whereunder Rs. 3,45,000 were paid by the purchasers and the balance was paid by the assessee as a confirming party. In the assessment of income -tax, the assessee claimed to deduct the amount paid by him and certain costs incurred in respect of this transaction from his total income as a loss from business. In the alternative, he claimed that it was a capital loss and the same was liable to be set off under S. 24 against capital gains under S. 12B of the IT Act. The ITO rejected the contention of the assessee, holding that the agreement to purchase the house was not in the course of a business conducted by the assessee and that the amount of consideration paid by the assessee under the deed of sale was not liable to be set off as a capital loss under s. 12B of the IT Act. That order was confirmed by the AAC. Before the Tribunal, the assessee acquiesced in the view of the income - tax authorities that the transaction entered into by the assessee was not in the course of his business. He merely claimed the benefit of S. 12B of the IT Act. The Tribunal held that by entering into an agreement of purchase, the assessee did not become the owner of the property and it was not possible to assume that the agreement to purchase the property under which the "assessee was bound to lose could by itself be styled as a capital asset". They further observed that the loss of the assessee was due to non -fulfilment of the agreement to purchase the property and that such a loss was not covered by S. 12B of the IT Act.

(2.) AT the instance of the assessee, the Tribunal has referred the following question :