Bindiya H Malkani Vs
CIT Bombay High Court
COURT: Bombay High Court
SECTION(S): 2(42A), 45,
48
GENRE: Domestic Tax
CATCH WORDS: capital gains, long-term capital asset
COUNSEL: Sameer Dalal
DATE: June 29, 2016
(Date of pronouncement)
DATE: July 12, 2016
(Date of publication)
AY: 1989-90
S. 2(42A)/ 45: An
agreement to purchase property merely creates a right to seek specific
performance.
The appellant entered
into an agreement on 18th May, 1980 with M/s. Shubhada Prints Pvt. Ltd. for
acquiring leasehold rights of immovable property (said land) situated at Majas
Village, Jogeshwari (E), Mumbai, for consideration set out therein. The
appellant purchaser was required to file a Suit in this Court being Suit
No.1077 of 1981 against the vendor Shubhada Prints Pvt. Ltd., inter alia,
seeking specific performance of the agreement to assign the leasehold rights in
the said land. An earnest money of Rs.25,000/- had been paid at the time of
execution of the agreement. During the pendency of the Suit, the parties
arrived at Consent Terms on 11th March, 1988 pursuant to which the defendant –
vendor agreed to assign the leasehold rights in the said land at a lump sum of
Rs.4,50,000/- instead the lower consideration originally payable under the suit
agreement. The appellant thereafter sold the said land to one M/s. Associated
Estate and Investment Corporation vide agreement dated 29th November, 1988 for
a price of Rs.37,70,000/- resulting in capital gain to him. According to the
appellant, he was holding the said land since 1980 i.e. from the date of the
agreement dated 18th May, 1980 and hence the gain was long term in nature. The
Assessing Officer and Tribunal, however, found that the appellant came into
possession only pursuant to the Consent Terms and therefore the amount of
consideration received on sale by the appellant is to be treated as short term
capital gain and he was assessed accordingly. On appeal by the assessee to the
High Court HELD dismissing the appeal:
(i) Consequent to the
vendor not honouring the agreement dated 18th May, 1980, all that the appellant
had was a right to seek specific performance which he sought to enforce by
filing the suit. The appellant did not have possession of the said land. It is
only on the Consent Terms being filed in Court that the appellant got ownership
and possession.
(ii) In our opinion,
the assessee-appellant ‘held’ the property only upon the order being passed
upon filing of the Consent Terms in Court on 11th March, 1988. The said land
was sold on 29th November, 1988. Therefore it falls beyond the scope of long
term capital gains and within the province of short term capital gain.
Accordingly, we are of the view that the gains resulting from the sale of the
said land in November 1988 would be a short term capital gain.
__________________________________________________
IN THE HIGH COURT OF
JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.75
OF 2001
1) Mrs. Bindiya H.
Malkani
2) Mr. Bharat H.
Malkani
3) Mr. Pravin H.
Malkani,
legal heirs of late
Shri H. G. Malkani,
residing at, Bindiya,
Gandhi Gram Road,
Juhu, Mumbai-400 049.
..Appellants
Versus
The Commissioner of
Income Tax Mumbai City IX, Mumbai
having his office at, Piramal
Chambers, Lalbaug, Parel,
Mumbai-400 012.
..Respondent
...........
Mr. Sameer Dalal a/w
Subhash Shetty for the Appellant.
None for the
Respondent.
...........
CORAM: M. S. SANKLECHA &
A. K. MENON, JJ.
DATE : 29th JUNE, 2016
JUDGMENT (PER A. K.
MENON, J.)
1. This appeal under
Section 260A of the Income Tax Act, 1961(the Act) assails the order dated 30th
August, 2001 passed by the Income Tax Appellate Tribunal (Tribunal). The
appellants are heirs of the original assessee-appellant (“the appellant”). The
impugned order relates to Assessment Year 1989-90.
2. This appeal was
admitted on 1st April, 2004 on the following substantial question of law:-
“Whether on the facts and in the circumstances of the case and in law, the Tribunal
was right in coming to the conclusion that the capital gains arising to the
appellant on the transfer of the impugned plot of land vide agreement dated 29
th November, 1988 is short term capital gains and not long term capital gains
as contended by the appellant?”
3. The revenue was
represented at the time of admission and even waived service. However none
appears today for the Revenue. The revenue has also not filed any affidavit in
reply.
4. The issue that
arises in this Petition lies within a narrow compass. The appellant had entered
into an agreement on 18th May, 1980 with M/s. Shubhada Prints Pvt. Ltd. for
acquiring leasehold rights of immovable property (said land) situated at Majas
Village, Jogeshwari (E), Mumbai, for consideration set out therein. The
appellant purchaser was required to file a Suit in this Court being Suit
No.1077 of 1981 against the vendor Shubhada Prints Pvt. Ltd., inter alia,
seeking specific performance of the agreement to assign the leasehold rights in
the said land. An earnest money of Rs.25,000/- had been paid at the time of
execution of the agreement. During the pendency of the Suit, the parties
arrived at Consent Terms on 11th March, 1988 pursuant to which the defendant -
vendor agreed to assign the leasehold rights in the said land at a lump sum of
Rs.4,50,000/- instead the lower consideration originally payable under the suit
agreement.
5. The appellant
thereafter sold the said land to one M/s. Associated Estate and Investment
Corporation vide agreement dated 29th November, 1988 for a price of
Rs.37,70,000/- resulting in capital gain to him. According to the appellant, he
was holding the said land since 1980 i.e. from the date of the agreement dated
18th May, 1980 and hence the gain was long term in nature. The Assessing
Officer, however, found that the appellant came into possession only pursuant
to the Consent Terms and therefore the amount of consideration received on sale
by the appellant is to be treated as short term capital gain and he was
assessed accordingly.
6. In appeal the CIT(A)
by order dated 25th March, 1991 allowed the appeal of the appellant. The CIT(A)
directed the Assessing Officer to treat the gain on sale of the said land as
long term capital gain.
7. Being aggrieved, the Revenue-Responent
challenged the order dated 25th March, 1991 of the CIT(A) before the Tribunal.
By the impugned order dated 30th August, 2001 the Tribunal dismissed the
assessee's appeal.
8. Mr. Dalal contended
before us that the original appellant-assessee Mr. Malkani ‘held’ the property
effectively from the date of the suit agreement.
Mr. Dalal states that
in order to constitute long term capital gain the assessee should have held the
property for more than 3 years before the same was sold.
In this case by virtue
of the agreement dated 18th May, 1980 the assessee had interest in the said
land from that date and the sale taking place in March 1988, it is eligible to
benefit of long term capital gain in terms of Section 54 of the Act. Therefore,
it is submitted that said land is held for more than 36 months. It is submitted
that the Consent Terms only re-affirmed his pre-existing right under the
agreement dated 19th May, 1980. Mr. Dalal submitted that the appellant came
into the possession of the land only after the Consent Terms were filed. The
Consent Terms as we have adverted to earlier, were dated 11th February, 1988
whereas the sale by the appellant to the new purchaser took place on 29th
November, 1988 i.e. within a month of the same being acquired by the assessee.
9. In the present facts
we find that consequent to the vendor not honouring the agreement dated 18th
May, 1980, all that the appellant had was a right to seek specific performance
which he sought to enforce by filing the suit. The appellant did not have
possession of the said land. It is only on the Consent Terms being filed in
Court that the appellant got ownership and possession.
10. We find that the
issue in question arose before this Court in CIT v/s. Dr. D. A. Irani 234 ITR
850. In the case of D.A. Irani (supra) it was held that where a sale of
property took place within 5 months of acquiring ownership, the gains arising
on sale were short term capital gains. The facts in D. A. Irani's case were
that the assessee was a tenant who took a flat on a lease and later acquired
ownership of such flat. The Court found that the tenancy was an inferior right
which led to the assessee acquiring a superior right upon purchase and that the
tenancy being inferior right merged into the superior right. Accordingly
applying the doctrine of merger it resulted in the “drowning” and “sinking” of
the inferior tenancy into the superior right of ownership and therefore this
Court held in that case that the property could be said to be held only upon
the purchase and the assessee could not be said to have held the premises
during the period of tenancy. Similarly in these facts, the right to specific
performance merged into the ownership rights on the order being passed in the
suit upon filing of the Consent Terms. We put the above decision in the case of
D.A. Irani(supra) to Mr. Dalal calling upon him to distinguish it in the facts
of the present case. Mr. Dalal was unable to show any distinction which would
warrant our taking a view different from that taken by this Court in D.A.
Irani(supra).
11. In the
circumstances, we do not find any merit in the appeal. In our opinion, the
assessee-appellant ‘held’ the property only upon the order being passed upon
filing of the Consent Terms in Court on 11th March, 1988. The said land was
sold on 29th November, 1988. Therefore it falls beyond the scope of long term
capital gains and within the province of short term capital gain. Accordingly,
we are of the view that the gains resulting from the sale of the said land in
November 1988 would be a short term capital gain.
12. In the result, we
answer the substantial question of law in the affirmative i.e. in favour of the
Revenue and against the assessee. The appeal is dismissed. No order as to
costs.
(A. K. MENON, J.)
(M. S. SANKLECHA, J.)
No comments:
Post a Comment