Income-tax---

----Reference---Capital gains---Agreement for transfer of immovable property---Subsequent dispute and compromise---Amount received as damages---Question whether there was a transfer within the meaning of S.2(47) and whether amount was assessable as capital gains---Question of law---Indian Income Tax Act, 1961, Ss.2(47), 45 & 256.

The assessee-firm had entered into a contract with R for a consideration of Rs.1,05,000 to purchase a certain property by a 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 District Judge on the ground that no valid sale 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 by which the assessee received damages. This was brought to tax by the Assessing Officer. However, the Tribunal held that it vas not taxable as capital gains. On an application to direct reference:

Held, allowing the application, that the question whether the Tribunal was justified in holding that the amount of Rs.7,34,000 was a capital receipt not exigible to capital gain tax as no transfer of any property had taken place within the meaning of section 2(47) of the Income Tax Act, 1961, was a question of law.

Baroda Cement and Chemicals Ltd. v. CIT (1986) 158 ITR 636 (Guj.); CIT v. Abbasbhoy A. Dehgamwalla (1992) 195 ITR 2$ (Bom.); CIT v. Tata Services Ltd. (1980) 122 ITR 594 (Bom.); Madan (D.B.) v. CIT (1991) 192 ITR 344 (SC) and Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647 (SC) ref.

D. D. Vyas for the Commissioner.

S. C. Bagdiya for the Assessee.

JUDGMENT

A. R. TIWARI, J.---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 un-demoted common question of law arising out of the order, dated July 27, 1992, passed in I.T.A. No. 1040/lnd 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/lnd of 1992 for the Assessment Year 1987-88 on October 25, 1993; and order, dated July 27, 1992, passed in I.T.A. No. 1100/lnd of 1991 on rejection of the application filed under section 256(1) of the Act registered as R. A. No. 250/lnd of 1992 for the Assessment Year 1987-88 on October 25, 1993, respectively, for our consideration and opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding the amount of Rs.7,34,000 as capital receipt not exigible to capital gain tax as no transfer of any property was involved?"

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 info 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. 1t 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 appals numbered 1100/lnd of 1991, filed by Indian Pharmaceuticals, Indore; 1040/1nd of 1991, filed by Smt. Laximdevi Natani, Indore, partner; and 1041/lnd. of 1991, filed by Shri Murlidhar Totla, 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 application, 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.

We have heard Shri D. D. Vyas, learned counsel for the applicant/Department, and Shri S. C. Bagdiya, learned counsel for the non?-applicant/assessee, in all these three miscellaneous civil cases.

Section 2(47), sub-clauses (i),(ii) and (iii) (sub-clauses (iv) to (vi) are not reproduced), of the Act, substituted by the Taxation Laws (Amendment) Act. 1984, with effect from April 1, 1985, provides as under:

"(47) 'transfer', in relation to a capital asset, includes,---

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishments of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or"

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:

"(47) 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishments of any rights therein or the compulsory acquisition thereof under any law; .

Shri Vyas placed reliance on section 2(47) of the Act; CIT v. Tata Services Ltd. (1980) 122 ITR 594 (Bom.); CIT v. Abbasbhay A. Dehgamwalla (1992) 195 ITR 28 (Bom); Baroda Cement and Chemicals Ltd. v. CIT (1986) 158 ITR 636 (Guj); D. B. Madan v. CIT (1991) 192 ITR 344 (SC) (sic), and contended that the assessee did receive the amount and as such the amount was exigible to capital gains tax within the meaning of section 2(47) of the Act.

Shir Bagdiya, on the other hand, submitted that the question stands concluded by the decision in Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647 (SC). According to him, the amount is not exigible to capital gains tax until and unless there is transfer as defined under section 2(47) of the Act. He submitted that as there was no transfer, there is no question of exigibility to capital gains tax.

Shri Vyas submitted that this is not the stage to consider the rival contentions and record an opinion one way or the other. According to him, in view of the aforesaid provisions and the view taken in various decisions, a prima facie case is made out for a direction to state the case and refer the question . He, however, submits that in the proposed question, at the end of the words "within the meaning of section 2(47) of the Income Tax Act, 1961 " need to be added to impart proper clarification of the point in issue.

The fact remains that the amount has been received by the assessee on the basis of a compromise reached in the first appeal in the High Court. In view of this position, we are satisfied that the aforesaid question with the addition of the aforesaid words does arise out of the common order passed by the Tribunal. In view of this conclusion, we do not express any opinion on the merits of the matter and the question when submitted to us, can be considered in detail with the assistance of both the sides and can be answered in conformity with law.

In the result, we allow these applications and call upon the Tribunal to state the cases, concerning the firm and its two partners, with reference to the aforesaid three appeals and refer the under-noted question of law for our consideration and opinion as expeditionary as possible:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding the amount of Rs.7,34,000 as capital receipt not exigible to capital gains tax as no transfer of any property was involved within the meaning of section 2(47) of the Income Tax Act, 1961?"

We, however, make no order as to costs.

Counsel fee for each side in each case is, however, fixed at Rs.750, if certified.

Transmit a copy of this order to the Tribunal immediately.

Retain this order in the record of Miscellaneous Civil Case No. 103 of 1994, and place its copy each in the record of connected miscellaneous civil cases, as particularised above, for ready reference.

M.B.A/3217/FC????????????????????????????????????????????????????????????????????????????????? Order accordingly