COMMISSIONER OF INCOME TAX Vs. LAXMIDEVI NATANI

JUDGEMENT

(1.) THE applicant (Commissioner of Income-tax, Bhopal), has filed these three applications under Section 256(2) of the Income-tax Act, 1961 (for short "the Act"), seeking direction to the Tribunal to state the cases and refer the undernoted common question of law arising out of the order dated July 27, 1992, passed in I. T. A. No. 1040/Ind of 1991, on rejection of the application filed under Section 256(1) of the Act registered as R. A. No. 248/Ind of 1992 for the assessment year 1987-88 on October 25, 1993 ; order dated July 27, 1992, passed in I. T. A. No. 1041/Ind of 1991 on rejection of the application filed under Section 256(1) of the Act registered as R. A. No. 249/Ind of 1992 for the assessment year 1987-88 on October 25, 1993 ; and order dated July 27, 1992, passed in LT. A. No. 1100/Ind/1991 on rejection of the application filed under Section 256(1) of the Act registered as R. A. No. 250/Ind of 1992 for the assessment year 1987-88 on October 25, 1993, respectively, for our consideration and opinion :

(2.) THE facts lie in a narrow compass. Indian Pharmaceuticals is firm of which Shri Murlidhar Totla and Smt. Laxmidevi Natani are the partners. THE assessee-firm had entered into a contract for a consideration of Rs. 1,05,000 with Smt. Ratan Bai Tongia to purchase certain property vide deed of agreement dated September 25, 1970. THE contract was not carried out and eventually the assessee-firm was compelled to file a civil suit for specific performance of the contract which was dismissed on November 27, 1976, by the Seventh Additional Judge to the Court of the District Judge, Indore, on the ground that no valid sale deed was possible and permissible for want of sanction of the Indore Municipal Corporation and the competent authority under the Urban Land (Ceiling and Regulation) Act, 1976. THE assessee then filed an appeal before the High Court which terminated in a compromise on May 12, 1986. In terms of the compromise, the vendee agreed to pay damages of Rs. 14,85,001 to the assessee. According to the Assessing Officer and the Commissioner of Income-tax (Appeals) the said receipt was exigible to capital gains tax. Dissatisfied, the assessee came in appeal before the Tribunal. THE Tribunal considered the facts and circumstances and noted that in view of the judgment of the trial court the contract was not capable of being specifically performed. THE Tribunal also considered the case law to hold that a contract for sale of immovable property does not create any interest in the immovable property but only creates a personal obligation of a fiduciary character which could be enforced by a suit for specific performance, not only against the vendor but also against the purchaser for consideration with notice. THE Tribunal concluded that the amount of damages received was nothing but the compensation for the injury for non-performance of the contract. It was thus held that it was a capital receipt not exigible to capital gains tax since no transfer of property was involved and as such the Tribunal allowed all the aforesaid three appeals numbered 1100/Ind of 1991, filed by Indian Pharmaceuticals, Indore ; 1040/Ind of 1991, filed by Smt. Laxmidevi Natani, Indore, partner ; and 1041/Ind. of 1991, filed by Shri Murlidhar Totala, Indore, another partner, by common order dated July 27, 1992. THE Tribunal thus held that the addition of Rs. 7,34,000 as income from capital gain was liable to be deleted. THE Tribunal also considered Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 (SC), in reaching the aforesaid conclusions. THE Tribunal, therefore, directed the Assessing Officer to modify the assessment order in the case of the firm accordingly and also directed to give effect to the modified assessment order in the case of the aforesaid two partners also. Aggrieved, the applicant filed the aforesaid three applications, as noted above, under Section 256(1) of the Act. THE applications were dismissed on the assumption that the common order did not give rise to any question of law. THE applicant has, therefore, filed these three separate applications against the firm and its two partners under Section 256(2) of the Act proposing the common question for direction.

(3.) THE assessment year is 1987-88. THE amended provision was brought on the statute with effect from April 1, 1985. THE date of agreement is September 25, 1970. Prior to April 1, 1985, Section 2(47) read as under :