ZUARI ESTATE DEVELOPMENT Vs. J R KANEKAR

JUDGEMENT

(1.) THE petitioner company carries on business of hiring of plant and machinery. The petitioner had by an agreement, dated 2 8/06/1982, entered into with Prerna Premises Private Limited, agreed to purchase three office premises, being office premises Nos. 22, 22-A and 23 in maker Chambers III, at Nariman Point, Bombay 400 021 as well as four open car parking spaces, being car parking space Nos. 17 to 20, for a total cost of rs. 28,66,634/ -. It is the case of the petitioner that it subsequently became a member of the Maker Chambers III Premises Co-operative Society Limited. By an agreement, dated 19/06/1984, entered into between the petitioner and the Bank of Maharashtra, the petitioner agreed to sell and the bank agreed to purchase from the petitioner all the right, title and interest of the petitioner in the said office premises and car parking spaces for a consideration, which was to be calculated at the rate of Rs. 1,600/- per square foot for the office premises and at Rs. 80,000/- for each of the car parking spaces. Under Clause 2 of the agreement the consideration was to be discharged in the following manner: Rs. 2,00,000/- as earnest money before the execution of the agreement and the balance to be paid at the time of execution of final document of sale and transfer of the properly by the petitioner. It was also provided that if the petitioner puts the bank in possession of the premises before execution of the final document of sale and transfer, then the bank was to pay to the petitioner 95% of the total consideration as reduced by Rs. 2,00,000/- and the balance of 5% on the execution of the final document of sale. Clause 3 of the agreement provided that from the date the bank was put in possession of the premises, the bank would be liable to pay the maintenance charges, municipal taxes, cesses and all other outgoings in respect thereof. Clause 5 provided that the sale of the premises would be completed only after expiry of five years from the date of the agreement but before the expiry of the sixth year from the date of the agreement, time being the essence of the contract. The agreement further provided that the bank would have an option either to complete the transaction or rescind the same and, in the event the bank rescinded the agreement, the petitioner would refund the entire amount that may have been paid by the bank to the petitioner within one year of the rescission on return of possession of the premises by the bank. It was further agreed that the parties would sign such papers and documents as were necessary for completion of the sale on payment of the full purchase price payable by the bank to the petitioner. By Clause 9 of the agreement, the bank had agreed that once the bank was put in possession of the premises, they would not sell, transfer, assign, let out or give on leave and licence basis or in any other manner part with possession of the premises or any portion or portions thereof to anyone else pending completion of the sale. After the bank had paid to the petitioner, on 20/06/1984, the sum of Rs. 84,47,111/-, being 95% of the consideration agreed upon, the petitioner put and handed over possession in part performance of the agreement of sale to the bank on 20th June 1984 itself.

(2.) BY letter of 12/06/1990, in terms of Clause 5 of the agreement of sale, dated 19/06/1984, the bank called upon the petitioner to complete the transaction and convey the property to the bank by 18/06/1990. It is the case of the petitioner that certain disputes had arisen owing to which the petitioner did not complete the transactions. By letter of 16/06/1993, the petitioner confirmed that the petitioner had put the premises in possession of the bank and that the petitioner would take all necessary steps for transfer of the said premises on or before 30/09/1993. It is the case of the petitioner that even thereafter, the petitioner was unable to complete the transactions and there were demands by the bank of the petitioner to complete the transaction. The rest of the averments regarding the dispute between the bank and the petitioner need not be adverted to. Suffice it to say that the petitioner had also recorded, confirmed and assured the bank that it would take all steps for transfer of the property alongwith the share certificates on or before 30/09/1997. It is the case of the petitioner that in view of the uncertainties prevailing and the fact that the transfer of premises had not been completed, the petitioner in the accounts of the year 1991 had disclosed the amount of Rs. 84,47, 111/- received by it as a current liability under the heading "advance against deferred sale of building". Note No. 2 of the notes of accounts forming part of the balance sheet as on 31/03/1991 reads as under:

(3.) IN the course of the assessment proceedings for the assessment year 1994-95, respondent No. 1 raised a query as to why the capital gains arising on the sale of the premises should not be taxed in the assessment year 1991-92. The petitioner in reply to the query filed a detailed letter, dated 1 8/10/1996, wherein the relevant facts were set out exhaustively. It was also pointed out that the amendments brought out in section 2 (47) by the insertion of sub-clauses (v) and (vi) were applicable only to transactions entered into after the assessment year 1988-89. The petitioner also pointed out that possession of the premises had been handed over prior to 1/04/1987, the amendment brought about in the definition in section 2 (47), therefore, could not be applicable for the assessment year 1991-92. It was also pointed out that the mere exercise of the option by the bank would not result in a transfer as the expression is understood in section 2 (47) of the Act. In these circumstances, the petitioner called upon the respondent No. 1 to drop the proceedings. It is the case of the petitioner that respondent No. 1 had fixed a hearing on 29/10/1996. The petitioner appeared before the commissioner and as desired furnished details under cover of letter dated 5/11/1996. It is the case of the petitioner that respondent No. 1 thereafter completed the assessment for the assessment year 1994-95 by an order, dated 4/12/1996, under section 143 (3) and assessed the petitioner to the income returned. It is the case of the petitioner that, therefore, they were shocked and surprised to receive on 12/12/1996 a notice under section 148 dated 4/12/1996 by which the respondent No. 1 had recorded that he had reason to believe that the petitioner's income chargeable to tax for the assessment year 1991-92 had escaped assessment and, therefore, proposed to reassess the income for the assessment year 1991-92 and called upon the petiioner to furnish within 30 days from the date of service of the notice a return in the prescribed form. The petitioner by letter, dated 3/01/1997, had called on the respondent No. 1 to furnish the reasons recorded by him prior to the issue of the impugned notice dated 4/12/1996. Petitioner contends that till date the petitioner has not received any reply to the said notice. The petitioner thereafter filed the present petition on 13/01/1997. The petition came up for admission before this Court on 27/01/1997, on which date, the learned Bench granted rule. However, this Court permitted the respondent No. 1 to proceed with the assessment but further ordered that the demand, if any, on the basis of such assessment, could be raised only after obtaining an order of this Court. The petitioner filed a return of income pursuant to notice, dated 12/02/1997. Petitioner declared rs. 9,110/- in the return as filed. By letter, dated 12/05/1997, the respondent No. 1 forwarded a copy of the reasons recorded by him prior to the issuance of notice under section 148. The respondent No. 1 thereafter completed the assessment under section 143 (3) read with section 147 by an order dated 28/01/1999. The respondent No. 1 held that on construction of relevant clauses of the agreement, it was clear that Clause 5 was inserted only with a view to avoid payment of capital gain tax immediately. The respondent No. 1 took the view that till the period the Bank of Maharashtra exercised the option of purchase, the agreement was a leave and licence agreement between the petitioner and the Bank of Maharashtra. He also came to the conclusion that the sale price was fixed not on the rates prevailing on 19/06/1994 but the price which was estimated to be the prevailing price in 1989-90 when the buyer exercised the option. Respondent No. 1 held that the contract to sell the property became effective from 12/06/1990, that is, the date on which the bank exercised its option to purchase the property. The respondent No. 1 also held that the petitioner allowed the buyer to retain the property in part performance from 12/06/1990 and hence the transfer took place in terms of section 2 (27) (v) and on that date capital gains were chargeable.