Sabyasachi Mukhaeji, J. - (1.) Under Section 256(1) of the I.T. Act, 1961, a somewhat peculiar question has been referred to this court for an answer. The question is as follows : "Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the agreement for sale in respect of premises No. 163, Lower Circular Road, Calcutta, being dated 7th October, 1948, the Tribunal was justified in law in holding that the forfeiture of the sum of Rs. 5,00,000 being advance from the intending buyer took place on 1st November, 1951, and not 6th October, 1949, and accordingly the gains resulting therefrom, if any, could not be assessed for the assessment year 1952-53 ?"
(2.) We shall presently explain why we characterised the question as somewhat peculiar. Before we do so, it is necessary in this case to refer to the history. This appears to be a question relevant for the assessment year 1951-52. The accounting period for the relevant assessment year was from 1st October, 1949, to 30th September, 1950. The method of accounting followed by the assessee was stated to be mercantile. The assessment order, out of which this question arose, related to the assessment made under Section 147(a) of the I.T. Act, 1961, read with Section 143(3) of the said Act. The question relates to the assessability of Rs. 5,00,000 and whether it arises out of the business of sale and purchase of land or property. The ITO in his assessment order stated as follows : "The assessee made an agreement on 7th October, 1948, with one Mozahar Hussain of Dacca (East Pakistan), for sale of the house property at 163, Lower Circular Road, Calcutta, for a sum of Rs. 11 lakhs. Shri Hussain paid a sum of Rs. 5 lakhs on 7th October, 1948, by way of earnest money in part payment of the purchase money. The balance, i.-e., Rs. 6 lakhs, was to be paid within six months from the delivery of the deeds by the vendor to the purchaser's solicitors. The time-limit for the delivery of relevant deeds, etc., to the purchaser's solicitor was set within six months of the aforesaid agreement dated 7th October, 1948. The purchaser, therefore, was under an obligation to complete the purchase by paying the entire value of the property, i.e., Rs. 11 lakhs by 6th October, 1949, as per agreement. The time in this respect was strictly the essence of the contract. It was stipulated, vide Clause 9 of the agreement, that in case the purchaser failed to complete the purchase within the time-limit then the earnest money was to be forfeited to the vendor or the vendor may sue the purchaser for specific performance. The purchaser eventually failed to complete the purchase as per terms of the agreement of sale and the board of directors resolved at a meeting held on 1st November, 1951, that the earnest money of Rs. 5 lakhs paid by the purchaser to the assessee be forfeited and accordingly forfeited the amount. It was further resolved that the amount forfeited should be continued to be shown in the account as 'deposit on sale of property '. The assessee did not disclose the fact of the forfeiture clearly in its balance-sheet or statements of account nor was any enquiry made in this matter in course of the assessment proceedings for the assessment year 1951-52."
(3.) He thereafter referred to different contentions and concluded his finding with the following observations : "Regarding the date of forfeiture also I am unable to accept the arguments of the learned authorised representative. As per agreement referred to above the amount stood automatically forfeited within the accounting year itself on failure of the purchaser to complete the purchase (time being the essence of the contract). In the context it is not material to consider as to how the assessee treated this amount and when the resolution was formally passed. Regarding the authorised representative's plea that a case was filed by the purchaser for recovery of the advance in 1957, it may be stated that adequate particulars in this regard have not been produced. It is not clear how the suit has been filed beyond the limitation period and what subsequently happened to the case during the 13 subsequent years. In the Absence of these particulars and in view of the facts that the money was forfeited in terms of a solemn agreement entered into between the two contracting parties any objection on this ground cannot be accepted.";