TaxTMI 
TaxTMI 
2000 (3) TMI 5
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....gly terminated and the amounts of earnest money and advance were forfeited by the assessee. The assessee filed three suits before the Subordinate Judge, Kottayam, in this connection. The assessee's right to retain the amounts of earnest money and advance was confirmed by the court. In 1979, the assessee was eventually successful in selling the old rubber trees to a third party but at a loss. In the assessee's return for the assessment year in question, the assessee claimed that the amounts forfeited were not taxable as revenue receipts. The Assessing Officer upheld the contention of the assessee. However, the Commissioner of Income-tax sought to revise the assessment under section 263 of the Act and held that the amounts forfeited were revenue income and assessable to income tax. The assessee preferred an appeal before the Income-tax Tribunal. The Tribunal set aside the order of the Commissioner and restored the finding of the Assessing Officer. At the instance of the Revenue, the Income-tax Tribunal referred the following two questions of law for the decision of the High Court under section 256(1) of the Act (see [1991] 190 ITR 508, 509) : "(1) Whether, on the facts and i....
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....ted fact that the trees had not been cut and removed or at least there is no evidence' . . .? (ii) legally and factually right in 'rejecting the contention' of the Revenue after having rightly accepted the contention of the Revenue that the receipt would be eligible to income-tax for capital gains ? (4) Whether, on the facts and in the circumstances of the case if the answer to question No. 2 is in favour of the Revenue should not the Tribunal have in view of the provisions contained in section 51 of the Income-tax Act and read with the decision of the Supreme Court in Kapurchand Shrimal v. CIT [1981] 131 ITR 451, given appropriate direction to the assessing authority ?" The High Court by its judgment dated April 9, 1996 (see [1996] 221 ITR 585), answered the first question only. It held that both the amounts received by the assessee by way of forfeiture could not be considered in relation to "any other thing other than the situation of forfeiture" and once it is held that the forfeiture puts an end to the agreement in question as a necessary sequitur, it followed that it "puts an end to the character as is understood by the parties and to the amounts covered thereby" and ....
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....and Elson (Inspector o f Taxes) v. Prices Tailors Ltd. [1963] 1 All ER 231 (Ch D) with approval as limiting the principle enunciated in Tattersall's case [1939] 7 ITR 316 (CA). It was held by this court that the proposition enunciated in Tattersall's case [1939] 7 ITR 316 (CA), was not absolute and that in given cases amounts which were not received initially as trading receipts could eventually be regarded as business income by reason of subsequent events. The subsequent event must be such that "a different quality is imprinted" on the receipt. An example of such subsequent event was found in the case of Jay's---The Jewellers [1947] 29 TC 274 (KB) where (page 129 of 222 ITR): "It has been categorically laid down that the money which belonged to the customers and which arose out of sale of customer's property could become a trading receipt when the customers did not or could not make any claim against that money in law and the amount was taken by the assessee to its profit and loss account. In fact, it was emphasised that that was the correct accounting practice. Atkinson J. pointed out that a new asset could come into existence automatically by operation of law. When no demand ....
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....ising out of the same. But the Tribunal erred in overlooking the phrase "or other money" in section 51 in holding that the earnest money did not come within the purview of section 51. No doubt, as held by the High Court in the decision reported in CIT v. Travancore Rubber and Tea Co. Ltd. [1991] 190 ITR 508, there is a distinction between earnest money and advance, but that distinction loses its significance in the context of the express language of section 51 to include "other money" in addition to "advance". The matter may be considered from another aspect. The amount forfeited by the assessee was in terms of clause 16 of the agreement which reads : "In the event of the purchaser failing to pay any of the instalments hereby agreed to be paid by him on the date specified or violating any of the terms on its part to be performed, the, vendor shall have the right and liberty to cancel all rights hereby granted to the purchaser any time after such violation and to realise from the purchaser forthwith in a lump the entire balance amount then remaining to be paid. In the event of the balance amount remaining unpaid on demand the purchaser will not have any claim or right over the....