Seshasayee Steels P. Ltd. Vs ACIT (Supreme Court)
Conclusion: Capital gain was brought to be tax when on transfer of immovable property, rights were extinguished on the receipt of the last cheque.
Held: Assessee entered into an agreement to sell a property with Builders Limited for a total sale consideration of Rs.5.5 crores. Pursuant to this agreement to sell, a Power of Attorney was by which, assessee appointed one director of Builders Ltd. to execute and join in execution the necessary number of sale agreements and/or sale deeds in respect of the schedule mentioned property after developing the same into flats. Assessee did not file any Return for Assessment Year 2004-2005. Apparently, it was detected later by AO that the agreement to Sell had been entered into and that, subsequently, a Memo of Compromise had also been entered into between the parties. Based on the discovery of this fact, notice issued under Section 148 was served on the assessee. Even in response to this notice, no Income Tax Return was filed. A notice was issued under Section 142(1) fixing the case for hearing on 20.09.2009. Here again, assessee did not turn-up, as a result of which, another notice was issue, but this time again the assessee did not turn-up. Since time bar was foremost in the mind of AO, limitation falling on this transaction by 31.12.2009, a Best Judgment Assessment Order was then passed under Section 144 treating the entire sale consideration as a capital gain and brought to tax. It was held that assessee’s rights in the said immovable property were extinguished on the receipt of the last cheque, as also that the compromise deed could be stated to be a transaction which had the effect of transferring the immovable property in question. Therefore, the orders under appeal would be Section 2(47)(ii) and (vi) in the facts of the present case and capital gain was liable to be taxed when rights in the immovable property extinguished on the receipt of last cheque.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
The appellant-assessee entered into an agreement to sell, on 15.05.1998, with one Vijay Santhi Builders Limited for a total sale consideration of Rs.5.5 crores.
The important clauses of the sale agreement are set out here in below:
“1. The consideration for the sale of the property shall be Rs. 5,50,000/- (Rupees Five Lakhs Fifty Thousand only) per ground. The total area of the property to be sold is around 100 grounds and the total sale consideration of Rs.5,50,00,000/-(Rupees Five Crores Fifty Lakhs only) will be paid directly by the nominees/members on behalf of PARTY OF THE SECOND PART or by the PARTY OF THE SECOND PART, whichever is earlier. The property shall be free of all encumbrances at the time of registration.
2. It is agreed that the total extent of the property is 100 grounds approximately including the areas allotted for road and other amenities, plus the actual extent available for flats.
12. THE PARTY OF THE FIRST PART has already handed over to the PARTY OF THE SECOND PART Xerox copies of all land documents of the schedule mentioned property for their legal counsel’s scrutiny and opinion. THE PARTY OF THE SECOND PART have also satisfied themselves about the title deeds. The PARTY OF THE FIRST PART agree to show the original title deed which are kept with them to the nominees of the second part as and when required after fixing prior appointment.
14. Both the parties are entitled to specific performance of this agreement.
16. THE PARTY OF THE FIRST PART hereby gives permission to the PARTY OF THE SECOND PART to start advertising, selling, construction on the land herein mentioned. Advertisements, sales catalogues and leaflets shall be approved by the PARTY OF THE FIRST PART before publication or circulation.
SCHEDULE OF PROPERTY
