COMMISSIONER OF INCOME TAX Vs. TATA SERVICES LIMITED

JUDGEMENT

(1.) REFERENCE made in this case at the instance of the revenue with regard to question No. 2 and at the instance of the assessee with regard to question No. 1, arises out of a transaction of assignment of the rights of the assessee under an agreement of sale dated July 31, 1961. By this agreement, the assessee had entered into an agreement with one Seth Anandji Haridas to purchase a residential plot at 29D, Doongarsey Road, Malabar Hill, Bombay, and had paid Rs. 90,000 as earnest money. The agreement was in respect of 5,000 sq. yds. out of a larger plot and the price fixed was at the rate of Rs. 175 per sq. yd. The balance of the purchase price was to be paid on the completion of the purchase. The purchase was to be completed within six months from the date of the agreement and after the expiration of the said period of six months, by a 15 days' notice to be given in writing, time could be made the essence of the contact. It was the responsibility of the vendor to obtain the necessary permission from the municipal or other public authorities, for the subdivision of the main plot admeasuring 7,012 square yards and the necessary costs for applying for and obtaining the said sub -division including the architect's fees where to be borne by the vendor only. It was stipulated that if the permission for the said sub -division was not obtained on any account whatsoever, the vendor would be entitled to cancel the agreement, upon which the earnest money deposited was to be refunded to the purchaser without any interest and there upon the parties were not to have any other claim against each other. One of the clauses of the agreement provided that, on the completion of the sale, the vendor should put the purchaser or his nominee or nominees in vacant and peaceful possession of the premises. It appears that the vendor informed the assessee that the sub -division of the plot had not been granted by the municipal corporation and, therefore, it was not possible to complete the sale and the vendor had reluctantly, therefore, to treat the agreement as cancelled. This was not accepted by the assessee whose solicitors expressed readiness to have the matter completed and to work for obtaining the necessary order for sub -division. There were talks between the parties, the conclusions were confirmed by the letter of the assessee's solicitors dated April 16, 1963, wherein it was stated that the value for the superstructure on the land was fixed at Rs. 2,25,000 in place of Rs. 2,43,000 and the sale was agreed to be completed within three months from April 16, 1963, time being of the essence of the contract.

(2.) IN this letter dated April 16, 1963, the break -up of the total cost of the land amounting to Rs. 16,43,800 was given and there was a note added at the bottom that : 'The present market priced of land in the Malabar Hill area is reported to be about Rs. 300, even higher, per square yard.' This settlement was, however, repudiated by the vendor and the assessee then threatened to file a suit. It however, appears that the vendor had decided to sell the property to M/s. Advani and Batra and he was, therefore, anxious to return the earnest money of Rs. 90,000 and in addition also to pay a sum of Rs. 5,00,000 in order to get the assignment of the assessee's rights, in regard to the contract in question, in favour of Messrs. Advani and Batra. Correspondence thus ensued between the parties. Finally, it was agreed that the assessee was to receive Rs. 5,90,000 from M/s. Advani and Batra and the assessee was to transfer and assign in favour of M/s. Advani and Batra, the assessee's right, title and interest under the agreement entered into by the assessee with Anandji Haridas for purchase of the property at Doongarsey Road. The assessee finally received a sum of Rs. 5,90,000 from M/s. Advani and Batra and the receipt of which is passed by the assessee, which is annex. 'H' to the statement of the case, recites that the assessee has received from M/s. H. K. Advani and R. K. Batra their cheque for Rs. 5,90,000 made up as follows : 'Rs. 5,00,000 being the amount of consideration for the transfer and assignment of our right, title and interest under the agreements entered into by us with Anandji Haridas for the purchase of his property at Doongarsey Road. Rs. 90,000 being the amount of money deposited by us with Messrs. Kanga and Co., Attorneys for the Mortgagees of the Property, in accordance with the agreement arrived at between ourselves and Anandji Haridas, which amount has been reimbursed to us.'

(3.) WHILE , however, dealing with the computation of capital gains, the Tribunal has made a rather usual order taking aid of the decision of the Supreme Court of Miss Dhun Dadabhoy Kapadia v. CIT v. : [1967]63ITR651(SC) . The Tribunal took the view that if the assessee was to purchase the property at Rs. 234 per square yard, the value of which was on that day Rs. 300 per square yard, the assessee suffered a detriment to the extent of Rs. 66 per square yard as a value of the assignment in favour of M/s. Advani and Batra. Thus, the Tribunal directed the ITO that, 'while computing capital gains he will not only give the expenses which have been previously allowed but also a sum which will be arrived at by a calculation being made at the rate of Rs. 66 per square yard on the entire area that formed the subject -matter of dispute between the assessee and Anadji.'