Bindiya H. Malkani & Ors vs The Commissioner Of Income Tax ...
2016 Latest Caselaw 3471 Bom

                                                              1                          itxa-75.01(270616).doc


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                 IN THE HIGH COURT OF JUDICATURE AT BOMBAY




                                                                                                
                         ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                       
                             INCOME TAX APPEAL NO.75 OF 2001

      1)     Mrs. Bindiya H. Malkani
      2)     Mr. Bharat H. Malkani




                                                                      
      3)     Mr. Pravin H. Malkani,
      legal heirs of late Shri H. G. Malkani,
      residing at Bindiya, Gandhi Gram Road,




                                                    
      Juhu, Mumbai-400 049.                                                      ..Appellants
                Versus              
      The Commissioner of Income Tax
      Mumbai City IX, Mumbai
                                   
      having his office at
      Piramal Chambers, Lalbaug, Parel,
      Mumbai-400 012.                                                            ..Respondent
         


                                                ...........
      Mr. Sameer Dalal a/w Subhash Shetty for the Appellant.
      



      None for the Respondent.
                                                ...........
                                          CORAM: M. S. SANKLECHA &





                                                                  A. K. MENON, JJ.
                                           DATE : 29 th JUNE, 2016





      JUDGMENT (PER A. K. MENON, J.)

1. This appeal under Section 260A of the Income Tax Act, 1961(the Act)

assails the order dated 30 th August, 2001 passed by the Income Tax Appellate

Tribunal (Tribunal). The appellants are heirs of the original assessee-appellant

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("the appellant"). The impugned order relates to Assessment Year 1989-90.

2. This appeal was admitted on 1 st April, 2004 on the following substantial

question of law:-

"Whether on the facts and in the circumstances of the case and

in law, the Tribunal was right in coming to the conclusion that

the capital gains arising to the appellant on the transfer of the

impugned plot of land vide agreement dated 29 th November,

1988 is short term capital gains and not long term capital gains

as contended by the appellant?"

3. The revenue was represented at the time of admission and even waived

service. However none appears today for the Revenue. The revenue has also not

filed any affidavit in reply.

4. The issue that arises in this Petition lies within a narrow compass. The

appellant had entered into an agreement on 18 th 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

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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 11 th 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.

5. The appellant thereafter sold the said land to one M/s. Associated Estate

and Investment Corporation vide agreement dated 29 th 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, 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.

6. In appeal the CIT(A) by order dated 25 th March, 1991 allowed the

appeal of the appellant. The CIT(A) directed the Assessing Officer to treat the

gain on sale of the said land as long term capital gain.

7. Being aggrieved, the Revenue-Responent challenged the order dated 25 th

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March, 1991 of the CIT(A) before the Tribunal. By the impugned order dated

30th August, 2001 the Tribunal dismissed the assessee's appeal.

8. Mr. Dalal contended before us that the original appellant-assessee Mr.

Malkani 'held' the property effectively from the date of the suit agreement.

Mr. Dalal states that in order to constitute long term capital gain the assessee

should have held the property for more than 3 years before the same was sold.

In this case by virtue of the agreement dated 18 th May, 1980 the assessee had

interest in the said land from that date and the sale taking place in March

1988, it is eligible to benefit of long term capital gain in terms of Section 54 of

the Act. Therefore, it is submitted that said land is held for more than 36

months. It is submitted that the Consent Terms only re-affirmed his

pre-existing right under the agreement dated 19 th May, 1980. Mr. Dalal

submitted that the appellant came into the possession of the land only after the

Consent Terms were filed. The Consent Terms as we have adverted to earlier,

were dated 11th February, 1988 whereas the sale by the appellant to the new

purchaser took place on 29th November, 1988 i.e. within a month of the same

being acquired by the assessee.

9. In the present facts we find that consequent to the vendor not

honouring the agreement dated 18 th May, 1980, all that the appellant had was

a right to seek specific performance which he sought to enforce by filing the

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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.

10. We find that the issue in question arose before this Court in CIT v/s.

Dr. D. A. Irani 234 ITR 850. In the case of D.A. Irani (supra) it was held

that where a sale of property took place within 5 months of acquiring

ownership, the gains arising on sale were short term capital gains. The facts in

D. A. Irani's case were that the assessee was a tenant who took a flat on a lease

and later acquired ownership of such flat. The Court found that the tenancy

was an inferior right which led to the assessee acquiring a superior right upon

purchase and that the tenancy being inferior right merged into the superior

right. Accordingly applying the doctrine of merger it resulted in the "drowning"

and "sinking" of the inferior tenancy into the superior right of ownership and

therefore this Court held in that case that the property could be said to be held

only upon the purchase and the assessee could not be said to have held the

premises during the period of tenancy. Similarly in these facts, the right to

specific performance merged into the ownership rights on the order being

passed in the suit upon filing of the Consent Terms. We put the above decision

in the case of D.A. Irani(supra) to Mr. Dalal calling upon him to distinguish it

in the facts of the present case. Mr. Dalal was unable to show any distinction

which would warrant our taking a view different from that taken by this Court

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in D.A. Irani(supra).

11. In the circumstances, we do not find any merit in the appeal. In our

opinion, the assessee-appellant 'held' the property only upon the order being

passed upon filing of the Consent Terms in Court on 11 th March, 1988. The

said land was sold on 29 th 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.

12. In the result, we answer the substantial question of law in the

affirmative i.e. in favour of the Revenue and against the assessee. The appeal is

dismissed. No order as to costs.

              (A. K. MENON, J.)                     (M. S. SANKLECHA, J.)






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