Mr. Joy Bajaj v. The Assistant Commissioner Of Income Tax, Ward 4(2), Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 88/2020 Mr. Joy Bajaj S/o Shyam Sundar Bajaj, Aged About 35 Years, R/o1/567 Vidyadhar Nagar, Jaipur. ----Appellant Versus The Assistant Commissioner Of Income Tax, Ward 4(2), Jaipur. ----Respondent HON'BLE MR. JUSTICE AVNEESH JHINGAN HON'BLE MR. JUSTICE MANEESH SHARMA Order 11/03/2025-AVNEESH JHINGAN, J: 1.This appeal is filed against the order of Income Tax AppellateTribunal (for short ‘the tribunal’) dated 22.03.2019 relating toassessment year 2015-16. 2.The brief facts are that the appellant vide two separateregistered sale deeds dated 16.10.2014 purchased two officesfrom M/s. Radha Swami Buildcon Pvt. Ltd. (hereinafter referred toas ‘the seller’) for the consideration of Rs.28,00,000/- &Rs.26,50,000/-. For payment of the consideration, chequesamounting to Rs.54,50,000/- were issued. There was dispute andthe only cheque amounting to Rs.1,00,000/- was encashed. Theseller filed a civil suit in 2015 for declaring the sale deeds infavour of the appellant to be null and void. During the pendency ofthe litigation, the parties settled dispute and new cheques totalingto Rs.53,50,000/- in lieu of earlier cheques were issued and gotencashed by seller in the year 2017. The assessing officer (for short ‘the A.O.’) vide order dated 22.12.2017 framed assessmentunder Section 143(3) of the Act and made an addition ofRs.53,50,000/- under Section 56(2)(vii) of the Act. The CITdismissed the appeal of the appellant on 14.12.2018. The tribunalset aside the addition of Rs.53,50,000/- by accepting the appealon 22.02.2019, but the directions were issued that the purchaseconsideration should be determined by notionally applying interestfactor for the period of delay in making the payment. In therectification application filed, the tribunal rectified the factualerrors in the appellate order but outcome of appeal remained as itis. Hence, the present appeal. 3.On 07.05.2022, the appeal was admitted on following substantial questions of law:- “Whether, in the facts and circumstances ofthe case and in law, ld. ITAT was justified indirecting the ld. AO to add income in thehands of the appellant by calculating theinterest income on notional basis u/s 56(2)(vii)(b) of the Income Tax Act, 1961, withoutthere being any charging section, in thisregard, under the head “income from othersources”? 4.Learned counsel for the appellant submits that the tribunalafter deleting the addition of Rs.53,50,000/- erred in directing thatthe sale consideration be redetermined taking into considerationinterest element on notional basis, for delayed paymentconsideration. The argument is that Section 56(2)(vii)(b) is notapplicable. 5.As per contra the appellant had enjoyed the property formore than two years and also kept Rs.53,50,000/- with him forwhich he must have earned interest. 6. The portion of Section 56 of the Act in issue is reproduced below:- 56. (1) Income of every kind which is not to beexcluded from the total income under this Actshall be chargeable to income-tax under thehead "Income from other sources", if it is notchargeable to income-tax under any of theheads specified in section 14, items A to E. (2) In particular, and without prejudice to thegenerality of the provisions of sub-section (1),the following incomes, shall be chargeable toincome-tax under the head "Income from othersources", namely:— **** ****** ***** ********** (vii) where an individual or a Hindu undividedfamily receives, in any previous year, from anyperson or persons on or after the 1st day ofOctober, 2009 but before the 1st day of April,2017,— (a) any sum of money, without consideration,the aggregate value of which exceeds fiftythousand rupees, the whole of the aggregatevalue of such sum; (b) any immovable property,— (2) In particular, and without prejudice to thegenerality of the provisions of sub-section (1),the following incomes, shall be chargeable toincome-tax under the head "Income from othersources", namely:— **** ****** ***** ********** (vii) where an individual or a Hindu undividedfamily receives, in any previous year, from anyperson or persons on or after the 1st day ofOctober, 2009 but before the 1st day of April,2017,— (a) any sum of money, without consideration,the aggregate value of which exceeds fiftythousand rupees, the whole of the aggregatevalue of such sum; (b) any immovable property,— (i) without consideration, the stamp duty valueof which exceeds fifty thousand rupees, thestamp duty value of such property; (ii) for a consideration which is less than thestamp duty value of the property by an amountexceeding fifty thousand rupees, the stamp dutyvalue of such property as exceeds suchconsideration:***** ***** ****** 7.The relevant portion of explanatory notes to the provisions of the Finance Act, 2010 are reproduced below:- “13.4 The provisions of section 56(2) (vii) wereintroduced as a counter evasion mechanism to preventlaundering of unaccounted income. The provisions wereintended to extend the tax net to such transactions inkind. The intent is not to tax the transactions entered intoin the normal course of business or trade, the profits ofwhich are taxable under specific head of income.Therefore, the definition of property has been amended to provide that section 56(2)(vii) will have application to the‘property’ which is in the nature of a capital asset of therecipient and therefore would not apply to stock-in-trade,raw material and consumable stores of any business ofsuch recipient. 13.5 In several cases of immovable property transactions,there is a time gap between the booking of a propertyand the receipt of such property on registration, whichresults in a taxable differential. Therefore clause (vii) ofsection 56(2) has been amended to provide that it wouldapply only if the immovable property is received withoutany consideration and to remove the stipulation regardingtransactions involving cases of inadequate considerationin respect of immovable property.” 8.After abolition of Gift Tax Act, 1958 Section 56(2)(vii) wasinserted to tax transaction of transfer of property withoutconsideration or for lesser value. By virtue of Section 56 everyincome not chargeable to tax under items A to E of Section 14andis not to be excluded from total income shall be chargeable to taxunder head ‘Income from other sources’. Sub-Section 2 specifiesthe income to be included. Section 56(2)(vii)(b) by deemingfiction bring within ambit of charge-ability the value of immovableproperty received without consideration or for a considerationlesser than the stamp duty value. 9.It is undisputed that two offices were purchased by theappellant for a total consideration of Rs.54,50,000/-. Consequentto the dispute the payment of Rs.53,50,000/- was delayed and fora sale deed registered in 2014 complete payment was made in2017. During the pendency of the civil suit, the matter wascompromised and a correction deed dated 29.04.2017 wasexecuted between the parties. The execution deed specificallymentions that in lieu of earlier cheques issued, the appellant hasissued new cheques and the details of new cheques wasmentioned. The cheques issued in 2017 were encashed. 10.It would be apposite to mention that the tribunal in theimpugned order has wrongly recorded that the seller filed a suitfor recovery, rather the suit was for setting aside of sale deeds.The tribunal erred in recording that it is not forthcoming that thecheques of Rs.53,50,000/- were handed over in 2014 by theappellant to the seller. As per the contents of the correction deedin lieu of earlier cheques given, the new cheques were issued. 10.It would be apposite to mention that the tribunal in theimpugned order has wrongly recorded that the seller filed a suitfor recovery, rather the suit was for setting aside of sale deeds.The tribunal erred in recording that it is not forthcoming that thecheques of Rs.53,50,000/- were handed over in 2014 by theappellant to the seller. As per the contents of the correction deedin lieu of earlier cheques given, the new cheques were issued. 11.The appeal before the tribunal was to challenge the additionof Rs.53,50,000/- made under Section 56(2)(vii). The appeal tothat extent was accepted and has not been challenged by thedepartment. In absence of cross-appeal or cross-objection by thedepartment the tribunal after deciding the only issue involved inthe appeal, in absence of prayer pleading or material before iterred in directing re-determination of purchase consideration bynotionally applying the interest factor for the period of delay inmaking the payment of the purchase consideration. 12.There is no finding that the amount of Rs.53,50,000/- wasinvested by the appellant and had earned interest thereon. Theincome cannot be taxed on the assumption of being earned. Evenif that is the case the interest earned thereon would have beentaxable being covered under Section 14. The tribunal proceededon surmises and conjectures that the interest income was earnedby the appellant by delaying the payment of purchaseconsideration. 13.The rule of interpretation is that in case of language of theprovision is clear and unequivocal the meaning should be assignedto the plain language of the section and no words can be added tothe provision. Reference is made to Commissioner of Income Tax, Madras vs. Ajax Products Ltd. reported in (1965) 55 ITR 741 (SC) held. “13. Would the amendment make any difference inthe application of the proviso? The rule of constructionof a taxing statute has been pithily stated by RowlattJ. in Cape Brandy Syndicate v. I.R.C. {1921} 1 K.B.64 thus: “In a Taxing Act one has to look merely at what isclearly said. There is no room for any intendment.There is no equity about a tax. There is nopresumption as to a tax. Nothing is to be read in,nothing is to be implied. One can look fairly at thelanguage used.” 14. To put it in other words, the subject is not to be taxed unless the charging provision clearly imposesthe obligation. Equally important is the rule ofconstruction that if the words of a statute are preciseand unambiguous, they must be accepted as declaringthe express intentions of the legislature. Giving aclose scrutiny to the second proviso, it will be clearthat be giving the natural meaning to every wordused therein, it clearly fits in within the scheme of theentire section.” 14.There is no fiction created by section 56(2)(vii) that withdelay in payment of consideration in a transaction of immovableproperty, the notional interest accruing on delay of such paymentshall be chargeable to tax. In absence of a specific provision, thedeeming fiction cannot extended to tax notional interest incomeby bringing it within the ambit of provisions enacted for chargingtax by deeming fiction on transfer of property withoutconsideration or for an amount lesser than the stamp duty value.The Supreme Court in the case of The Commissioner of Income Tax, Bombay City I, Bombay Vs. Amarchand N. Shroff reported in (1963) 48 ITR 59 (SC) held. “10. xxxxxxxxxxxx As was observed by this Courtin Bengal Immunity Co. Ltd. v. The State of Bihar{1955}2SCR603, legal fictions are only for adefinite purpose and they are limited to thein Bengal Immunity Co. Ltd. v. The State of Bihar{1955}2SCR603, legal fictions are only for adefinite purpose and they are limited to the purpose for which they are created and shouldnot be extended beyond the legitimate field. xxxxxxxxxxx” 15.The impugned directions issued by tribunal shall result in Tax, Bombay City I, Bombay Vs. Amarchand N. Shroff reported in (1963) 48 ITR 59 (SC) held. “10. xxxxxxxxxxxx As was observed by this Courtin Bengal Immunity Co. Ltd. v. The State of Bihar{1955}2SCR603, legal fictions are only for adefinite purpose and they are limited to thein Bengal Immunity Co. Ltd. v. The State of Bihar{1955}2SCR603, legal fictions are only for adefinite purpose and they are limited to the purpose for which they are created and shouldnot be extended beyond the legitimate field. xxxxxxxxxxx” 15.The impugned directions issued by tribunal shall result in creating two deeming fictions: firstly that interest was earned bydelay in payment of purchase consideration and secondly thatsuch notional interest shall be chargeable to tax. There are nosuch fiction created by Section 56(2)(vii)(b) of the Act. 16.After the finding of tribunal that it was not a case ofreceiving immovable property without consideration or for aconsideration which was less than the stamp duty value of theproperty having attained finality, the case does not falls within theambit of Section 56(2)(vii)(b) of the Act. 17.The substantial question of law is answered in favour of theassessee. 18.The appeal is allowed. (MANEESH SHARMA),J(AVNEESH JHINGAN),J Chandan/47 Reportable:Yes