PENINSULAR PLANTATIONS LTD VS COMMISSIONER OF INCOME-TAX
1999 P T D 1731
[227 I T R 490]
[Kerala High Court (India)]
Before V. V. Kamat and P.A. Mohammed, JJ
PENINSULAR PLANTATIONS LTD
Versus
COMMISSIONER OF INCOME-TAX
I.T.Rs. Nos.63, 64 and 86 of 1992, decided on 14/08/1996.
Income-tax---
----Income from house property or income from other sources ---Assessee agreeing to purchase property---Part consideration paid to vendor---Vendor to hand over to assessee rent from property collected during currency of agreement---Sums received by assessee from vendor not rent as assessee not yet owner---Taxable as income from other sources---Indian Income Tax Act, 1961, Ss.22 & 56.
On August 16, 1979, the assessee-company entered into an agreement to purchase certain property. The agreed consideration was Rs.30 lakhs, out of which, the agreement recited that a sum of Rs.25 lakhs had been received by the vendor. Under clause (4) of the agreement, the sum of Rs.5 lakhs was to be paid on the date of execution of the sale deed. Clauses (6) and (7) recited that during the currency of the agreement, the entire rents collected from the tenants of the property in question amounting to Rs.8,500 per month would be paid by the vendor to the assessee, that it would be open to the assessee to demand payment of the entire amount of the advances together with the outstanding sum after the expiry of three months' notice in writing, that on failure by the vendor to return the entire amount before expiry of the notice period, the assessee would be entitled to receive interest at the rate of 12 per cent per annum on all out standings, so, however, that the rent of Rs.8,500 or portions thereof collected after that date should be adjusted. The question was whether the sum of Rs.1,02,000 received by the assessee could be treated as income from house property or as income from other sources:
Held, that the sum in question could not be treated as income from house property because the assessee was not the owner of the house property which was the subject-matter of the agreement, as no sale-deed had been executed. The vendor continued to be the owner, and received rents, but when handed over to the assessee, the sums received by the assessee from the owner were not rent but were received under the terms of the agreement, and were, therefore, assessable under the head "income from other sources".
CIT v. Trustees of H.E.H. The Nizam's Miscellaneous Trust (1986) 160 ITR 253 (AP) ref.
B.S. Krishnan, P.R. Raman and K. Anand for the Assessee
P.K.R. Menon and N.R.K. Nair for the Commissioner
JUDGMENT
V.V. KAMAT, J.---The assessee, Peninsular Plantations Ltd., gets concerned with these three proceedings in relation to the assessment for the years 1980-81, 1981-82 and 1982-83, respectively. The questions that expect our answer, really concern the interpretation of the agreement, dated August 16, 1979, to ascertain as to whether the amount of Rs.1,02,000 received by the assessee therein could be considered as income from property or other sources. Although it appears that in I.T.R. No.86 of 1982, there are four questions and in I.T.Rs. Nos.63 and 64 of 1992, there are five questions, relating them together it would be seen that we have to answer the following five questions:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the sums made over to the applicant cannot be recorded as rents?
(2) Whether, on the facts and in the circumstances of t1Je case, the Tribunal is right in law in holding that sums are assessable as the income of the applicant?
(3) Whether, on the facts and in the circumstances of the case, the sums paid by the vendor are a commercial equivalent to the interest on the sum of Rs.25,00,000 advanced by the applicant to the vendor?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in its interpretation of the terms of the agreement, dated August 16, 1979, entered into between the 'applicant and the vendor?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the sums in question are rightly assessable under the head 'Income from other sources'?"
It is necessary to mention that question No.2 out of the above questions is found absent in the four questions in I.T.R. No.86 of 1992. However, it does not alter the situation and answer to the question really involved as regards the interpretation of the agreement as stated at the outset. The assessee, Peninsular Plantations Ltd., a company deriving income from investments and as such could be understood as an investment company.
On August 16, 1979, an agreement is entered into between the assessee-company and Kanthimathy Plantations Limited for the purchase of the property and covered by it. For the purposes of these proceedings the said agreement provided that the agreed consideration was Rs.30 lakhs. The agreement is at Annexure D in the paper book, and thereunder the first party ---Kanthimathy Plantations Ltd.---vendor being the owner of the immovable property specifically described thereunder offered to sell and the second party, the present assessee, the Peninsular Plantations offered to purchase the said property, known in common parlance as "Girija Gardens". The terms and conditions, so far as they are relevant for the purpose of these proceedings, show that Rs.25,00,000 out of the agreed consideration of Rs.30,00,000 is received under the agreement by the vendor. An amount of Rs.5 lakhs by virtue of clause (4) of the agreement is understood and agreed to be paid on the date of the execution of the sale-deed.
Conditions Nos.6 and 7 specified the agreed conduct of the parties during the currency of the agreement. It would be necessary to reproduce the said conditions hereinafter:
"6. During the currency of this agreement, the first party agrees that the entire rents collected from out of the buildings in the said 'Girija Gardens' (viz., Rs.5,000 per month from Canara Bank and Rs.3,500 per month for the other portions thereof), will be paid by the first party to the second party and receipt obtained therefore on or before the 15th day of September, 1979, provided, however, -it will be open to the second party to demand payment of the entire amount of the advances together with the outstanding too after the expiry of three months notice in writing to the first party to that effect.
7. Provided also it is specifically agreed by the first party that on its failure to return the entire amount before the expiry of the said notice period of three months, the second party shall be entitled to receive from the first party interest calculated at the rate of 12 per cent. per annum on all-amounts outstanding on the expiry of the said notice period; so, however, the rent of Rs.8,500 referred to in para. 6 (supra), or portions thereof, if any, collected beyond that date will be adjusted accordingly."
Reading the above conditions it would be seen and it is obvious that the amount of rent in respect of the properties specified therein (Rs.5,000 and Rs.3,500 per month), is agreed to be paid to the second party by the first party an in regard thereto it is also specified that failure of the first party in regard thereto as agreed ,would create a liability as regards payment of interest at the rate of 12 per cent per annum. It would be seen that the amounts collected as referred to by the first party to the agreement, obviously as an owner of the property in question are also agreed to be paid to the second party as a condition of this agreement.
The question before us is as to whether the said payment totalling Rs.1,02,000 received by the assessee (second party to the agreement) could be understood as having any character as "income, from house property" or would have to be understood as "income from other sources".
Once the terms and conditions of the agreement, as seen above, are understood and once the situation that the second party, the present assessee, does not become an owner of the property in question as no sale-deed is executed, till then the payment would clearly be payments under clauses (6) and (7) of the agreement in question. It is crystal clear that the second party, the assessee, cannot be understood with reference to the payments as having received them as income from house property but only as having received income under the agreement in question. It is also crystal clear that when the first party continues to be the owner and rightfully receives rent, handing over of the amounts in accordance with the terms and conditions of the agreement in question could not be understood to have any connection with the property which is the subject-matter of the agreement but a payment only in accordance with the terms and conditions of the agreement alone.
In these proceedings, the Income-tax Officer has held that the assessee has received the amounts during the currency of the agreement and has consequently held the amount in question to be income from other sources.
The first appellate authority, however, considered the situation otherwise. The first appellate authority, the Commissioner of Income-tax (Appeals), understood this to be than the receipt of the amounts under the agreement could not be understood as income of the assessee and consequently excluded the same from the computation of the income from the assessee as has been done by the Income-tax Officer.
The Income-tax Appellate Tribunal has considered the question from paragraph 11 (page 20 of this judgment). The Tribunal has considered the terms and conditions of the agreement and has held that although the amount of Rs.25,00,000 may not be a loan it would be a debt owed by the, latter to the former. In other words, the Tribunal considered this as a situation of a loan and a debt. The Tribunal considered the question with regard to take contention of the assessee that what is received by the assessee would have to be understood as rent. It was argued before the Tribunal that the reading of the agreement would show that the payment is described as rent and normally would come under the head "Income from house property". In the process of reasoning, the Tribunal has observed that the agreement for sale does not create any title of ownership in favour of the prospective buyer and therefore, such an agreement is only a legal right to demand conveyance of the property. In the process of reasoning, although the Tribunal has observed that the assessee cannot be treated as having any vested right in the subject- matter of the agreement and as such he could not be considered to be the owner of the property, the Tribunal had observed that as per clause (6) of the agreement the vendor was forced to collect the rent from the tenant of the subject property and thereafter, make it over to the assessee. The Tribunal proceeds further to state that the amount paid by the tenants to the vendor are proper, in the hands of the vendor, the receipt thereof would partake of the character of rent. The Tribunal has also considered the provisions with regard to the charge of rate of interest at 12 per cent per annum. In the process of analysis after recording a finding that these amounts could not be understood as rent, the Tribunal has proceeded to understand the situation in "essence and substance" as described by the Tribunal to be only the commercial equivalent of interest paid by the vendor to the assessee for the user of the sum of Rs.25 lakhs advanced by the assessee. There may be serious quarrel with regard to this conclusion of the Tribunal, however, we are really not concerned, other than to know as to whether what is received by the assessee would carry the character of rent or not. The terms and conditions of the agreement are crystal clear that the amounts received by the assessee are payments under the agreement in regard to which the parties agreed during the period of execution of the agreement in question. If this is the situation the sum in question with regard to the assessment year would have to be understood as "income from the sources". The position is again crystal clear that the agreement in question does not confer any title of ownership on the second party---the present assessee before us, and, therefore, as a consequence any income received under the terms and conditions of the agreement cannot be understood as income from house property but only as income under the agreement in question.
As we have stated, the factual matrix really present no difficulty, on a fair and even charitable reading of clauses (6) and (7) of the agreement.
Learned counsel placed reliance on the decision of the Andhra Pradesh High Court, CIT v. Trustees of H.E.H. The Nizam's Miscellaneous Trust (1986) 160 ITR 253, a decision dealing with general principles to ascertain heads of income in regard to the determination of chargeability thereof. There cannot be any dispute whatsoever with regard to the general principles. The several heads of income have to be found in the income-tax return and also in the statutory provision of section 14 of the Income Tax Act, 1961, and are always considered as mutually, exclusive. If the receipt can be brought under one head of income, it cannot be brought to tax under the residuary head. Therefore, determination of a particular head and the problem relating thereto necessitates a resort to notions of practical men in the absence of a statutory guidance. In our judgment the position is that the title of ownership does not pass on the second party, the assessee under the agreement in question and, therefore, the payments received by the assessee under the terms and conditions of the agreement could not be said to have any kind of a semblance of connection as the income of the house property There cannot be any quarrel that falling back upon the residuary head of income--"income from other sources" would not be permissible, if the question income can get categorised in any of the other heads. These general principles placed for our consideration by learned counsel through the above judgment are well-accepted and acted upon. The controversy before us is as to whether the payment could be income from house property or income from other sources. It cannot be understood as income from house property because the assessee is not the owner of the house property, which is still the subject-matter of the agreement. In our judgment, the Income-tax Officer as well as the Tribunal determined the income under the head "Income from other sources". For all these reasons, we answer the questions in the following manner:
Question No. 1 is answered in the affirmative, in favour of the Revenue and against the assessee;
Question No.2 is also answered in the affirmative, in favour of the Revenue and against the assessee;
Question No. 3; is unnecessary as observed in this judgment;
Question No.4 is answered in the affirmative, in favour of the Revenue and against the assessee;
Question No.5 is answered in the affirmative, in favour of the Revenue and against the assessee.
A copy of the judgment under the seal of this Court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench, for passing consequential orders.
M.B.A./2015/FCOrder accordingly.