Court
Judgments on Income Tax related with property
NON – Taxability of surrender of tenancy rights
prior to 1-4-94
Gist
of recent judgments – 9th March 2000 Compulsory acquisition of immovable properties
by Government of India under Chapter XXC of Income Tax Act
Court Judgments on Income Tax related with
property
1. Madras High Court
Purchase of immovable property by Govt. – Principles of Natural justice must be
followed – Opportunity to be heard must be given before passing order U/s 269 UD
– Reasons for passing order may be recorded separately but the order would be
incomplete unless either reasons are incorporated in the order of are served separately
along with the order on affected party – Reasons for order must be communicated to
the affected party – Income Tax 1961 Se. 269 UD.
GOVERNMENT OF INDIA AND ANOTHER
Vs.
MAXIM A LOBO AND ANOTHER (190 – ITR – 101)
2. (In the Andhra Pradesh High Court)
Mrs. Sooni Rustom Mehta and others
Vs.
Appropriate Authority Income Tax Department. (191 – ITR 290)
M. JAGANNDHA RAO and J.ESWARA PRASAD J.J. Acquisition of immovable property – deposit
of consideration with Appropriate Authority – condition – precedent –
Dispute regarding title to receive consideration – Meaning of “DISPUTE” and
“TITLE” – Write Petition challenging rires of provisions – Amounts to
dispute regarding title to receive consideration – Deposit of consideration with
Appropriate Authority – valid – Income Tax Act 1961 U/s 269
UG.
3.
Acquisition of Property (191 – ITR – {ST}3)
Appropriate Authority : Scope of powers
8.7.1991 : Their lordship M.N. Venkatachaliah and N.M. KASHIWAL J.J. dismissed following
the dismissal of S.L.P. (Civil) No. 6304 of 1991 on 23.4.1991 (Sec.189 ITR (ST) 120) a
Special leave petition by the Department to appeal against the judgement dated 14.12.1990
of the Delhi High Court in C.W. No. 47 of 1990 ITR 656 whereby the High Court allowed the
assessee’s writ petition holding that the Appropriate Authority had the option either
to acquire the property sought to be transferred or to issue a no objection certificate
and that if any other law was being violated it was for the proper authorities under that
law to take action : Appropriate Authority V Sawant Narang : SLP (Civil) No. 11817 of
1991.
4. (In the Supreme Court of India). Appropriate Authority and
another Vs. Tanvi Trading and Credits P.Ltd. and others. Rangnath Misra CII and
M.H. KANIA
and Kuldip Singh JJ April 23, 1991.
Acquisition of immovable property – Proposed transfer of immovable property –
statement filed – Appropriate Authority – Scope of Powers – Only to
decide whether Government should purchase properly or if no decision to purchase is
ordered to issue no objection certificate Income Tax Act 1961 Ss 269 UC (3), 269 UL (3).
5. Acquisition of property {187 ITR (St) 66}
Two different report by Valuation Officer : No basis for either report : Effect.
3.12.1990 : Their Lordship N.D. Ojha and S.C. Agrawal against the judgement dated
14.3.1985 of Delhi High Court in ITSA No.1 of 1984 reported in 157 ITR 308, whereby the
High Court dismissed the 2nd Appeal of the Department against the order of the Tribunal
and held that the true meaning of Section 269 C, of the Income Tax Act 1961 was that there
must be material before the Competent Authority to show that the fair market value
exceeded the apparent consideration by more than 15% and that neither under section 269 L
of the Income Tax Act was there power given to the Valuation Officer to submit a Second
Report and that as there was no basis for either of the report submitted by the valuation
officer in this case, the acquisition of the property was not valid : Commissioner of
Income Tax Vs. Arun Mehta SLP (Civil) Nos. 12452 – 12455 of 1984.
6. Acquisition of property {188 ITR (ST) 86}.
Tenant of property : Whether can request for acquisition 19.2.1991 : Their Lordship
K.N. Singh, Kuldip Singh and P.B. Sawant J.J. dismissed a Special Leave Petition by a
tenant of a building against the judgement dated 23.11.19890 of the Delhi High Court in
C.W.P. No. 3483 of 1990 whereby the High Court dismissed the tenant’s writ
petition on the ground that he had no locus standi to file the petition. In this case the
building in question had been agreed to be sold to a third party for a certain sum,
permission of the Income Tax authorities obtained, and the tenant had been survey notice
to vacate the premises. The tenants claimed that the agreed consideration was low and that
the Department should acquired the property : S.R. Minocha Vs. Appropriate Authority SLP
(Civil) No. 16703 of 1990.
7. (In the Orissa High Court) (188- ITR 306
Madan Mohan Samantray
Vs.
Union of India and others
G.B. Patnaik and J. B. Mahapatra JJJ
April 17 1990.
Acquisition of immovable property – Jurisdiction of Civil court – suits in Civil
Court impliedly barred in proceedings under Chapter XXA – income Tax Act 1961 Chapter
XXA S. 293.
8. (in the Madras High Court). 188 ITR – 306
Naresh M. Mehta Vs. Appropriate Authority.
Kanakraj J. January 19, 1991.
Acquisition of immovable property – Agreement for sale of property – Application
for certificate of No Objection- Property sub-divided and sol without sanction from
Appropriate Authority – No prohibition against sale of such property privately
subdivided - rejection of application not valid – Income Tax Act 1961, S
269 UC, constitution of India Act 226.
9. (In the Delhi High Court) 188 ITR 623
Tanvi Trading & Credits Pvt. Ltd. and others
V/s.
Appropriate Authority and others
B.N. Kirpal and Mrs. Santosh Duggal JJ.
November 28, 1990.
Acquisition of immovable property
– proposed transfer of immovable property – statement filed – appropriate
Authority scope of powers – only to decide whether Government should purchase
property – No power to decide whether proposed transferred is illegal – If no
decision to purchase ordered, Appropriate Authority should issue No Objection
Certificate. No jurisdiction to order statement to be filed - Income Tax Act 1961 SS
269 UC (3) 269 UD 269 UL.
10. (In the Delhi High Court)
Mrs. Satwant Narang (188 ITR 656)
V/s.
Appropriate authority IT Department, New Delhi.
M. K. Chawla and Arunkkumar JJ December 14 1990 Acquisition of immovable property –
proposed transfer of immovable property for more than RS. 10 Lacs – Prescribed
statement filed – Appropriate Authority – Scope of powers – To order
purchase of property b Central Government on issue No Objection Certificate – No
jurisdiction to go into object or purpose of transaction – No jurisdiction to club
one property with another find fault in validity of proposed transaction – Property
cleared by competent authority under land ceiling Act – Municipal Corporation
not disputing ownership – Appropriate Authority can got go into legality of proposed
transaction on the basis of defects in adjacent plot subject – Matter of separate
statement – Income Tax 1961 SS 269 UC, 269 UD, 269 UH 269 UL.
NON – Taxability of surrender of tenancy rights prior to 1-4-94
By Vimal Punmiya, Chartered Accountant
The issue regarding
taxability/non-taxability of surrender of Tenancy rights is giving sleepless nights to
millions of Tenants, especially in city like Mumbai where Pugree system is in great vogue.
The decision of the Special Bench constituted by the Bombay Tribunal in the case of Cadell
Wvg. Mill Co. (P) Ltd. V/s. ACIT reported in (1995) 55 ITD 137 (Bom.) sent shocking waves
to millions where in the Tribunal had taken stand that the amount received on surrender of
tenancy right was casual income and taxable and that only where permission was granted to
the tenant at any time by the Landlord under the terms of the contractual tenancy or where
any permission to sub-lease was obtained by the tenant from the Landlord, the surrender of
tenancy rights even by the statutory tenant is a valid transfer of capital asset.
Recently on similar
facts and issues the Special Bench constituted under the Delhi Tribunal in the case.
The amount received on surrender of Tenancy rights is a Capital Receipt.
It can be charged to tax only under Capital Gains.
But chargeability failed because of the decision of the Apex Court in the case of BC
Srinivas Shetty reported in 128 ITR 294/5 Taxman 1(c) provisions cannot be applied was
regarded as never intended by section 45 to be subject of charge.
That the amendment made in section 55(2) by the Finance Act 1994 taxing the receipts as
Capital Gains was only prospective in operation.
For arriving at the aforesaid decision the Delhi Court decision and distinguished the
issues with the High Court which have taken a contrary view.
In order to treat the receipts as Capital receipts reliance was placed in the case of BAWA
SHIV Charan Singh V/s. CIT (1984) 149 ITR 29 (Delhi) where it was held Property is a term
of widest import and it signifies every possible interest which a person can acquire, hold
and enjoy. Tenancy right is a Capital Asset. When the interest of the Lessor is a parted
with, the price paid would be premium or salami, but the periodical payments by the lessee
for continous enjoyment of the benefits under the lease are in the nature of rent, the
former is a capital receipt the letter a revenue receipt.
The apex court in Universal Radiators V/s. CIT (1993) 201 ITR 800 /68 Taxmann 45 (SC) has
held that the eligibility to tax is different from liability to pay tax. Since the amount
falls within the ambit of eligibility to tax the same is outside the purview of exempt
income. The Allahabad Court in Smt. Anand Bala Bhusan V/s. Cit (1995) 83 Taxmann 548
(all.) has stated that Section 10(3) applies to casual and non-recurring income which are
not chargeable U/s. 45 of the Act. The term All receipts in Section 10(3) cannot enlarge
the scope of Section 10(3). Similarly the Delhi High Court has distinguished the decision
of the Bombay Tribunal is Cadell wvg. Case stating that the said case was rendered with
reference to the provision of the Bombay Rents, Hotels, Lodging House Rates Control Act,
1947. Section 12 thereof only entitled the statutory tenant to continue to be in
possession till standard rent or permitted increase are paid. Therefore, the statutory
tenant did not have an estate or interest capable of being transferred placing reliance in
the case of Anan Niwas P.Ltd. V/s. Anandji Kalyanji pedhi AIR 1979 SC 144. The said
Section of the Bombay Act entitlked statutory tenant to continue to be in possession till
standard rent or permitted increases are paid, nothing further whereas under DRC Act,
rights of a statutory tenant were held to be heritable.
The Delhi Tribunal has also held that the decision of the Allahabad High Court in
CULABCHANDS case reported in 192 ITR 495 wherein it was held the receipts were of casual
and non-recurring nature and provisions of section 10(3) are applicable is not correct
because the said decision is revered by the Calcutta High Court in
B.K. Roy (P) Ltd. V/s.
CIT (1997) 211 ITR 500, Karnataka High Court in Joy ICW Creams (Bang.) P.Ltd and
Cadell Wvg, Mills Coo. Pvt. Ltd. (Bom. Tribunal) also the same Allahabad High Court on
similar facts in the case of Smt. Anand Bala Bhushan V/s. CIT (1995) 83 Taxmann 548 (all.)
head held that the receipts of compensation was nto of the nature of ordinary income and,
therefore, the question of treating the same as a casual receipt for the purposes of
income tax did not arise.
The Delhi Tribunal has stated that under the Delhi Rent Control Act a tenant even after
the determination of the tenantncy continues to have an interest in the tenanted premises
as held in SMT. Gian Devi Anand V/s. Jeevan Kumar AIR 1985 SC 796.
Further under the following cases :
Surrender of tenancy rights in a premises for ownership rights in another premises does
not constitute a transfer :
(1991) 192 ITR 382 (S.C.) A. Basper
(1984) 148 ITR 99 (Bom) Nila Products
(1981) 129 ITR 448 (Bom.) Mrs. Shirinbai P.Pundole
(1979) 117 ITR 581 (Cal.) A. Gasper
In view of the decision of the Delhi Tribunal I am of the view that on representations
made the Bombay Tribunal may reconsider or review its decision because if section 5(3) of
DRC Act prohibits the tenant from claiming or receiving payment in consideration of
relinquishment transfer or assignment of his tenancy, and section 48(1)(b) of DRC Act
prescribes penalty for contravention of the provisions of Section 5 of DRC Act the similar
provisions are also available in the Bombay Rent Act and even under the Bombay Rent Act a
tenant continues to have an interest in the tenanted premises.
Gist of recent judgements – 9th March
2000 Compulsory
acquisition of immovable properties by Government of India under Chapter XXC of Income Tax
Act
The Government
believed that the parties were under-selling immovable properties in order to save more
stamp duty registration charges and tax under the Income Tax Act, hence the Govt. of India
introduced Chapter XXC of Income Tax Act. Initially the limit of transaction was Rs. 10
lakhs or more so far as Greater Mumbai is concerned. This limit has now been enhanced to
Rs. 75 lakhs. The constitutional validity of this provision was challenged in the Supreme
Court of India which held that Chapter XXC of the Income Tax Act was valid. (See S.C.
Judgement in the case of Keshav Ram & Co. vs. Union of India, reported in (1989) 3
S.C.C. Page 151).
Supreme Court has also held that if the Government of India takes a decision to
compulsorily acquire the immovable property, due notice should be given to the parties
concerned and proper hearing should be given to them before taking any decision for
compulsory acquisition of immovable property.
Acquisition of Immovable property
for Public purposes under the Land Acquisition Act, 1984
The Land Acquisition Act authorizes State Government inter alia, to acquire immovable
property for public purposes or for benefit of a Limited Company having certain objects.
Sometimes persons whose properties are notified to be acquired submit their opposition
when Enquirer is held by the Special 5A of the said Act. If any of the parties affected by
the proposed acquisition initiates proceedings for quashing of the acquisition
proceedings, the Court may on finding that the acquisition proceedings were not
valid, quash the Notification u.s. 6 of the said Act. But that party which approaches the
Court for the relief alone is entitled to the benefit of the decision. Other parties whose
property is notified for acquisition are not entitled to take any advantage of the
decision so given in favour of only one party who approached the Court.
(See S.C. Judgement reported in 1994 (4) ALL MR in the case of Delhi Administration v.s.
Gurdip Singh Urban & Ors. Page 678).
Government dues such
as Sales Tax, Income Tax, Land Revenue etc. have priority over other creditors
Borrowers when they approach financial institutions for financial facilities, financial
institutions require borrowers to furnish adequate security. Generally, whenever borrower
owns any immovable property, he creates an equitable mortgages in favour of the financial
institutions as security for repayment of the proposed loan financial facilities. In
proceedings initiated by financial institutions for recovery of its claim, it moves the
Court for appointment of Receiver of the mortgages property and Court generally appoints a
Receiver of the mortgages property. The Government can file a claim before the Court
Receiver claiming priority over the financial institutions. The Court has held that claim
of the Government for recovery of tax, etc has a priority over all other creditors whether
secured of unsecured. (See the Judgement of Bombay High Court reported in 1994(4) ALL MR
679 Bank of Maharashtra vs. Konkan Companies Pvt.Ltd. & Ors.
