WEALTH-TAX OFFICER v. A.K. JOHAR
[Citation -1986-LL-1219]

Citation 1986-LL-1219
Appellant Name WEALTH-TAX OFFICER
Respondent Name A.K. JOHAR
Court ITAT
Relevant Act Wealth-tax
Date of Order 19/12/1986
Assessment Year 1975-76 TO 1978-79
Judgment View Judgment
Keyword Tags capital receipt not liable to tax • memorandum of understanding • transfer of ownership • original memorandum • wealth-tax act • valuation date • share capital • net wealth • take over
Bot Summary: The ITO made a detailed order for the assessment year 1980-81 on 28-3-1983 and held that the amount received by the assessee was capital receipt and, 'hence neither the provisions of capital gains are attracted nor any element of profit has arisen'. The assessee filed the returns of his net wealth for the assessment years 1975-76 to 1978-79. The assessee took these assessments in appeal before the learned AAC. The AAC by his order dated 27-3-1985 in the assessment years 1975-76 and 1976-77 held that the sum of Rs. 8,81,666 was received by the assessee and the assessee became entitled to it only as a result of the arbitration award dated 17-3-1979. From what is stated above, it is clear that the memorandum between IHCL and the assessee and others entered into in March 1975 could not be performed in view of the dispossession of the assessee of the premises by the Ministry of Works Housing through the Director of Estates, Government of India, in relation to which the agreement was arrived at. A stage came when IHCL tried to riggle out of this agreement altogether because in terms of the memorandum the shares of Fonseca Ltd. had not been transferred to IHCL. Therefore, the assessee was only holding shares of Fonseca Ltd. when the assessee and others referred the matter for arbitration. On these valuation dates, the assessee did not have disposable right, title and interest in the sum of Rs. 25 lakhs, which became due to the assessee and others in terms of the award dated 17-3-1979. Since, the assessee received these amounts after the valuation date, the assessee was not owner of these amounts nor these amounts belonged to the assessee on any of the valuation dates for the assessments under appeal before us.


These appeals by revenue involve common point. These are, therefore, heard together and are being disposed of by consolidated order. 2. parties have been heard and their rival contentions carefully considered. assessment years involved are 1975-76 to 1978-79. common issue is whether on facts and in circumstances of case, sum of Rs. 8,81,666 can be said to be includible as asset into net wealth of assessee for years under appeal. This issue has arisen out of very interesting set of facts, which are as under. 3. One Mr. J.E.D. Fonseca was lessee of premises, 1, Man Singh Road, New Delhi and was running hotel in name and style of Fonseca (P.) Ltd. This lease expired in 1968. During subsistence of lease, land and building in which hotel was run had become evacuee property after partition of India. title to said estate, therefore, vested in Director of Estates, Ministry of Works & Housing, Government of India, New Delhi. However, despite expiry of lease in 1968 said Fonseca continued to be in possession and occupation of premises. Shri Fonseca died in August 1970. However, before his death said Fonseca placed assessee and some others i n occupation of said premises, as they acquired all shares of Fonseca (P.) Ltd. In meantime, Director of Estates was taking steps to acquire property. Since assessee and others had been put in possession by lessee and they were in joint occupation of premises, disputes arose with Director of Estates regarding lease. 4. It appears, company registered as Indian Hotel Co. Ltd. having its registered office at Taj Mahal Hotel, Appollo Bunder, Bombay became interested in said premises for purpose of setting up five star hotel. In March 1975, said Indian Hotel Co. Ltd. entered into understanding and memorandum dated 13-3-1975 was made between Indian Hotel Co. Ltd. (IHCL) of first part and assessee and others of second part. These parties agreed that IHCL shall take over control and operation of undertaking of Fonseca (P.) Ltd. and take possession of premises with effect from 15-3-1975 and with object of acquiring ownership IHCL will purchase and pay for equity shares of Fonseca (P.) Ltd. at rate of Rs. 1,000 each from assessee and others. This sum was fixed at Rs. 25 lakhs. In other words, with payment of Rs. 25 lakhs, IHCL will become owners of Fonseca (P.) Ltd. This memorandum of understanding was to be given legal shape by executing legal agreement. assessee and others withdrew pending disputes with Director of Estates, Government of India regarding title of Director of Estates to property. 5. However, before shares could be handed over and before formal legal agreement could be executed, Ministry of Works & Housing acting through Director of Estates took possession of property. Thus, assessee and his associates had to close down Fonseca Hotel and lost possession of property at 1, Man Singh Road. Subsequently, said Ministry of Works & Housing handed over said property to Municipal Corporation of New Delhi. With these developments, IHCL started contending that for reasons and circumstances beyond its control and also for fact that assessee and others, did not fulfil their part of memorandum to put them in possession of property, it was not possible for them to fulfil terms of said agreement. In other words, memorandum dated 13-3-1975 came to be questioned and IHCL projected that covenants made thereunder were not capable of being performed in view of various statutory restrictions and as such said memorandum was frustrated and had come to end. In other words, IHCL contended that in absence of any legal agreement having been signed and share certificates covering share capital of Fonseca (P.) Ltd. having not been signed in their favour memorandum of understanding had come to end. assessee and others, however, objected to their conduct and asked them to perform terms of memorandum. 6. In meantime, it appears IHCL managed to get property in question allotted to it by New Delhi Municipal Corporation. assessee and others, therefore, as aggrieved party took matter before Bombay High Court. Bombay High Court appointed arbitrator, Shri S.A. Aiyer. arbitrator gave his award on 17-3-1979. As per this award, IHCL was required to pay Rs. 25 lakhs as per original memorandum because they had reaped intended advantage in entire process, even if shares had not been transferred to IHCL nor was transfer of ownership and possession of property effected between IHCL and assessee and others. assessee, however, along with others became entitled to receive his share of award which was made rule of Court. Thus, assessee received Rs. 2,55,556 in accounting period relevant to assessment year 1979-80 and received further sum of Rs. 6,26,110 in accounting period relevant to assessment year 1980-81. sum total of these two amounts is Rs. 8,81,666. assessee by his letter dated 24-6-1980 informed ITO, A-Ward, Dehradun about amounts he had received. Return for that assessment year was filed on 21-7-1980. ITO (Shri R.K. Sharma) made detailed order for assessment year 1980-81 on 28-3-1983 and held that amount received by assessee was capital receipt and, 'hence neither provisions of capital gains are attracted nor any element of profit (adventure in nature of trade) has arisen'. He, therefore, held that amount received by assessee was capital receipt not liable to tax under provisions of Income-tax Act, 1961. Similarly, for assessment year 1979-80 assessment made on 28-3-1983 amount received in that year at Rs. 2,55,556 was held as not liable to tax. 7. assessee filed returns of his net wealth for assessment years 1975-76 to 1978-79. Simultaneously on 27-10-1979 declaring net wealth of Rs. 1,74,060, Rs. 1,85,288, Rs. 1,64,500 and Rs. 1,74,600 respectively. WTO in person is same as ITO. He concluded assessments on 25-3- 1981 under section 16(3) of Wealth-tax Act, 1957 for assessment years 1975-76 and 1976-77. amount of Rs. 8,81,666 was added in net wealth of assessee as, 'interest in Fonseca (P.) Ltd.'. For assessment years 1977-78 and 1978-79 consolidated order was made under section 16(3) on 15- 3-1983 and amount of Rs. 8,81,666 was included in each year's net wealth. 8. assessee took these assessments in appeal before learned AAC. AAC by his order dated 27-3-1985 in assessment years 1975-76 and 1976-77 held that sum of Rs. 8,81,666 was received by assessee and assessee became entitled to it only as result of arbitration award dated 17-3-1979. Therefore, as on each valuation date, amount did not belong to assessee as it had not become due. For assessment years 1977-78 and 1978-79 he made independent order on 28-4-1983 and 27-3-1985 1977-78 and 1978-79 he made independent order on 28-4-1983 and 27-3-1985 respectively and insofar as issue of taxability of sum of Rs. 8,81,666 is concerned, in these two years, he followed his own order for assessment years 1975-76 and 1976-77 and deleted amounts. Hence, grievance of revenue. 9. From what is stated above, it is clear that memorandum between IHCL and assessee and others entered into in March 1975 could not be performed in view of dispossession of assessee of premises by Ministry of Works & Housing through Director of Estates, Government of India, in relation to which agreement was arrived at. stage came when IHCL tried to riggle out of this agreement altogether because in terms of memorandum shares of Fonseca (P.) Ltd. had not been transferred to IHCL. Therefore, assessee was only holding shares of Fonseca (P.) Ltd. when assessee and others referred matter for arbitration. arbitrator appointed gave award on 17-3- 1979. assessee in view of said award received above amount as his share. Rs. 2,55,556 were received in accounting period relevant to assessment year 1979-80 and Rs. 6,26,110 were received in previous year relevant to assessment year 1980-81 insofar as income- tax assessments are concerned. As pointed out supra, ITO has held that these amounts are capital receipts and not taxable in those years. This has been clearly brought out after full consideration and discussion in orders for income-tax assessments which are both dated 28-3-1983. valuation dates for assessment years under appeal for purpose of wealth-tax are 31-3- 1975, 31-3-1976, 31-3-1977 and 31-3-1978. All these dates fall before 17-3- 1979. On these valuation dates, assessee did not have disposable right, title and interest in sum of Rs. 25 lakhs, which became due to assessee and others in terms of award dated 17-3-1979. Since, assessee received these amounts after valuation date, assessee was not owner of these amounts nor these amounts belonged to assessee on any of valuation dates for assessments under appeal before us. These, therefore, could not be brought to tax in manner done by WTO. amounts were rightly deleted by learned AAC. revenue has not made out case for interference in his order. We, therefore, dismiss appeals of revenue. *** WEALTH-TAX OFFICER v. A.K. JOHAR
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