|COURT:||Bombay High Court|
|CORAM:||A. K. Menon J., M. S. Sanklecha J|
|SECTION(S):||2(42A), 45, 48|
|CATCH WORDS:||capital gains, long-term capital asset|
|DATE:||June 29, 2016 (Date of pronouncement)|
|DATE:||July 12, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 2(42A)/ 45: An agreement to purchase property merely creates a right to seek specific performance. The asset cannot be considered to be "held" from the date of the agreement so as to constitute long-term capital gains|
The appellant entered into an agreement on 18th May, 1980 with M/s. Shubhada Prints Pvt. Ltd. for acquiring leasehold rights of immovable property (said land) situated at Majas Village, Jogeshwari (E), Mumbai, for consideration set out therein. The appellant purchaser was required to file a Suit in this Court being Suit No.1077 of 1981 against the vendor Shubhada Prints Pvt. Ltd., inter alia, seeking specific performance of the agreement to assign the leasehold rights in the said land. An earnest money of Rs.25,000/- had been paid at the time of execution of the agreement. During the pendency of the Suit, the parties arrived at Consent Terms on 11th March, 1988 pursuant to which the defendant – vendor agreed to assign the leasehold rights in the said land at a lump sum of Rs.4,50,000/- instead the lower consideration originally payable under the suit agreement. The appellant thereafter sold the said land to one M/s. Associated Estate and Investment Corporation vide agreement dated 29th November, 1988 for a price of Rs.37,70,000/- resulting in capital gain to him. According to the appellant, he was holding the said land since 1980 i.e. from the date of the agreement dated 18th May, 1980 and hence the gain was long term in nature. The Assessing Officer and Tribunal, however, found that the appellant came into possession only pursuant to the Consent Terms and therefore the amount of consideration received on sale by the appellant is to be treated as short term capital gain and he was assessed accordingly. On appeal by the assessee to the High Court HELD dismissing the appeal:
(i) Consequent to the vendor not honouring the agreement dated 18th May, 1980, all that the appellant had was a right to seek specific performance which he sought to enforce by filing the suit. The appellant did not have possession of the said land. It is only on the Consent Terms being filed in Court that the appellant got ownership and possession.
(ii) In our opinion, the assessee-appellant ‘held’ the property only upon the order being passed upon filing of the Consent Terms in Court on 11th March, 1988. The said land was sold on 29th November, 1988. Therefore it falls beyond the scope of long term capital gains and within the province of short term capital gain. Accordingly, we are of the view that the gains resulting from the sale of the said land in November 1988 would be a short term capital gain.
Opinion of the court is right under specific performance provisions;
Again there can be two views here; when initially a sum is paid and an agreement for sale is done , may be registered under stamps Act relevant or not, the date of purchase can be the date of agreement; after signing agreement the transferor might have needed more; that means the trasferror is not following the contract Act virtually ; that means trasferee has his right over that property starts from te day he signed the agreement for sale; that way he has a benefit of right over the property since then;
Income tax is an Act just to collect tax revenue that is all as on the relevant AY only, if ROI is filed with all disclosures relevant;
If the tax payer declared his supposed purchase in the ROI in the AY declaring his purchase under agreement for sale; after all all agreement of sale is obviously a purchase preliminary rights document, might be some other disputes be there, say transferee could seek specific performance; so specific performance is legal right if the trasferor failed to give possession, like this several cases are found in govt lands when allotted and sold to people and the said rights holders have resold the property to others, and gave possession to the new buyer; the govt of karnataka refused to allow the new buyer to go ahead with his building activity, saying the land still belongs to the government; and the man seeks specific performance, but govt dilly dallys under one pretext or the other; if we accept the hon high court view here in this case, naturally we do injustice to the agreement holder as very agreement is the date of purchase; might be possession might have been delayed for any other reason, here obviously for higher value; agreeing to give higher amount is just the prerogative of the buyer; as he need not have to pay in legal sense ; but paying some willingness is present here on the part f the buyer; if we agree to the premise the possession date is the right for tax assessment of tax here, obviously it is like sec 197
(c) position, in the black money situation wherein the government flouted its own legislative position time honored, is the second view too, sir.
In fact it all depends upon the advocacy sir, that needs to convince the court, so the natural justice surfaced under Art 14 as a fundamental right which has to be honored even by Art 265 too