K.C. Srivastava, Accountant Member - (1.) THESE are cross-appeals, one by the assessee and the other by the Department against the order of the CIT (Appeals) relating to the assessment year 1982-83. For the sake of convenience both the appeals are being disposed of by this common order.
(2.) The major ground in this appeal relates to the treatment of Rs. 1 crore as consideration for the transfer of a capital asset, and thus being subjected to the charge of capital gains tax. The relevant facts are as under:- The assessee-company was mainly carrying on business in automobiles. In 1976 the New Delhi Municipal Committee (hereinafter referred to as "the N.D.M.C", for short) finalised the lay-out for development of a commercial complex at Barakhamba Lane, New Delhi. In that lay-out a hotel site with sufficient green area around had been earmarked for the purpose of putting up a Five Star Hotel. The N.D.M.C. called for offers for this Hotel site. It was stated that the land could continue to be on lease with the N.D.M.C. and a licence would be given for a period of extending from 33 years to 99 years for the construction of the Hotel, which would be in the possession and enjoyment of the licensor, and annual license fee was also contemplated. After some discussion, the assessee-company offered a license fee of Rs. 28,11,000 on the terms and conditions to be mutually agreed upon. Later on the proposed area was increased and the license fee was also proportionately increased. The N.D.M.C. asked the assessee to deposit the advance license fees. In March 1977 the assessee informed the N.D.M.C. that the payment of increased tender price was acceptable to them on the terms and conditions contemplated. It was, however, stated that considering the huge financial involvement the assessee would be forming a separate public limited company for this project and a request was made that the necessary provision may be made in the license agreement for this permission at a later stage. There were certain other suggestions in respect of the draft agreement to be finalised in this respect. The assessee had proposed that he should pay Rs. 20 lacs as earnest money and the balance was to be paid at the time of actual possession. It was also stated that the license should be for 99 years and it should be co-terminous with the period for which the lease is granted by the Central Government to N.D.M.C. It was also proposed that a provision should be made whereby the licensee is authorised to transfer the possession of rooms, shops for any period not exceeding the total period of license. With the assessee's letter dated 10th March, 1977 the amount of Rs. 20 lacs was paid as earnest money.
(3.) AFTER the payment of the earnest money in March, 1977 there is some interregnum in facts and it appears that the N.D.M.C. was not inclined to grant the license to the assessee. The assessee-company filed a suit against the N.D.M.C. in December 1978. In this suit it was stated that the N.D.M.C. by a resolution dated 23-3-1977 had ratified the action taken by the Officers of the N.D.M.C. It also appears that some draft was forwarded to the N.D.M.C. for finalizing the agreement. In the plaint it was stated that the assessee-company was interested in Hotel Project and, therefore, it had written letters to N.D.M.C. and on its not receiving any reply, the company approached the Lt. Governor. It also appears that the assessee had approached the Minister of Works & Housing as the N.D.M.C. and the Government were not granting the license, the N.D.M.C. refunded on 27-5-1978 the amount of Rs. 20 lacs which the assessee-company accepted under protest. It was on the basis of these facts that the assessee had claimed in the suit that the N.D.M.C. should be directed to pay damages of Rs. 64,40,000 but the first request was for the immediate physical possession of the Hotel site and only in the alternative to pay the damages. This suit was registered as Suit No. 144 of 79 and it remained pending till settlement was reached between the parties in March 1981. The Court was informed about the settlement under which the N.D.M.C. was to grant license in favour of the assessee-company for a period of 99 years. A copy of the license deed was filed before the Court. The Court's order was passed on 11th March, 1981 noting the giving of physical possession to the assessee and it was also observed that the Government had decided to allot the land in question to the N.D.M.C.;