IN THE HIGH COURT OF KERALA AT ERNAKULAM
OP.No. 31396 of 2000(K)
1. EKM CO.OP.HOUSE CONSTRUCTION SO.LTD
... Petitioner
Vs
1. KERALA CO.OP.TRIBUNAL
... Respondent
For Petitioner :DR.K.P.SATHEESAN
For Respondent :SRI.K.JAGADEESCHANDRAN NAIR
The Hon'ble MR. Justice P.R.RAMACHANDRA MENON
Dated :23/12/2009
O R D E R
P.R. RAMACHANDRA MENON, J.
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O.P. No. 31396 of 2000
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Dated, this the 23rd day of December, 2009
J U D G M E N T
Whether deduction of a sum of Rs.80,000/- from the amount
payable to the third respondent is in conformity with the stipulation
under Section 194C of the IT Act, forms the basic issue involved in this
Original Petition. There is also an incidental issue as to the denial of
the claim for interest on the balance amount retained at the hands of the
third respondent, as part of the ‘developmental charges’ for the period
from 01.10.1987.
2. The petitioner is a Co-operative House Construction Society
registered under the relevant provisions of the Kerala Co-operative
Societies Act, 1967. In the course of business of the Society, as
provided under the By-laws, the Society intended to purchase a total
extent of nearly 40 acres of land belonging to the respondent Nos. 3 to
6 and four others situated in Thrikkakkara Panchayath, to have it
properly laid out and sold to the prospective buyers who intended to
construct residential building therein. In fact, the third respondent, who
is a co-owner of the property is the Power of Attorney holder of the other
respondents. By virtue of the terms of Ext. P3 agreement executed
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between the petitioner and the third respondent, it was stipulated that the
land which was essentially a paddy field would be developed by the third
respondent and the same would be purchased by the petitioner on sale
by the said respondents for a sale consideration at the rate of Rs. 500/- per
cent, besides the ‘development charges’ payable at the rate of Rs. 1430/-
per cent. As part of the advance development charges, a sum of Rs. 10
lakhs was also paid by the petitioner to the third respondent, to be adjusted
towards the development charges at the rate of Rs.250/- per cent.
3. Despite the specific understanding that the entire property
would be developed and sold by the third respondent on or before
31.10.1985, only an extent of about 14.23 acres was developed and sold,
executing necessary sale deeds. Pursuant to the request made by the
third respondent for extension of time till 30.04.1986, it was granted by the
petitioner Society on the specific condition that, interest at the rate of 12%
per annum shall be levied on the balance, out of the total Rs. 40 lakhs
already paid as ‘advance development charges’ (i.e. Rs.644182/- as on
the relevant date) as borne by Ext. P4. Even after the extension of time till
30.04.1986, development and execution of sale deeds could be completed
only in respect of a total area of about 28.34 acres. The third respondent
sought for further time till 31.12.1986, which was also considered and
sanctioned by the Society, subject to levy of interest on the balance
advance amount paid towards the development charges, at the rate of 12%
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per annum.
4. On 31.12.1986, the third respondent executed a set of ‘five’
sale deeds for a total extent of about 5.41 acres, however, without
developing the property as agreed and as such, the third respondent was
eligible to get only a sum of Rs.2,70,490/- towards sale consideration in
respect of said extent of land at the rate of Rs.500/- per cent. In fact, the
total amount paid to the third respondent towards the development charges
as per Ext. P3 agreement during the period from 31.01.1985 to 30.04.1986
was Rs.40,00,300.59/- . As per Section 194C(1) of the Income Tax Act,
the petitioner being a Co-operative Society was stated as bound to deduct
2% of the said amount (Rs.80,000/-) towards Income Tax and remit the
same to the Department, which was deducted and remitted by the
petitioner Society, as borne by Ext. P5 certificate issued under Section 203
of the Income Tax Act.
5. Besides the said amount of Rs,80,000/- to be deducted from
the amount of Rs.40 lakhs paid to the third respondent, a further sum of
Rs. 24824.50/- was payable by the third respondent towards interest at the
rate of 12% per annum, on the outstanding balance of advance
development charges paid till 31.12.1986 in respect of the extended
period of performance of the agreement. After giving credit to the said
amount of Rs.80,000/- and 24824.50/-, only a sum of Rs.1,65,665.50/- was
liable to be paid to the third respondent to make the total as Rs. 2,70,490/-
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so as to constitute the sale consideration of the extent of 5.41 acres of
undeveloped land, at the rate of Rs.500/- per cent, sold by the third
respondent on 31.12.1986, which accordingly was satisfied by the
petitioner and it was in the said circumstances that the third respondent
executed ‘five’ sale deeds in respect of the said extent. But, since the third
respondent did not choose to fulfil the entire liability under Ext. P3
agreement by executing necessary sale deeds in respect of the remaining
extent of 4.72 acres of land, the petitioner was constrained to approach
the second respondent by fling ARC 390 of 1987 for necessary reliefs,
particularly to execute sale deeds in respect of the said extent and also to
allow adjusting of the balance advance of Rs. 1,25,891/- and interest
thereon at the rate of 12% from 01.01.1987 in the sale
consideration/development charges.
6. The case was resisted by the third respondent mainly stating
that the concerned respondents were not liable to suffer any income tax
deduction effected by the Society; that they had not agreed to have any
such deduction and that the sale deeds in respect of the balance extent
(remaining undeveloped) could be executed if development charges and
land value were paid, as agreed.
7. After considering the rival contentions and the available
materials on record, the second respondent passed Ext.P2 award on
27.12.1997 holding that the third respondent was bound to execute the
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sale deed in favour of the Society for 4 acres and 71.639 cents at a land
value of Rs.500/- per cent. However, the said verdict was made subject to
two conditions as follow:
(i) Rs.80,000/- deducted towards Income tax from
the amount payable to the 3rd respondent towards
development charges and remitted to Government shall
be returned with 12% interest from 31.12.1986.
(ii) On execution of the sale deed the land value
can be deducted from the outstanding advance balance.
But interest thereon will stand disallowed, as there is no
agreement for levy of interest.
The above conditions were stated as very much detrimental to the
interest of the Society and hence Ext.P2 Award was subjected to challenge
by filing appeal before the first respondent. But the first respondent, as per
Ext.P1 judgment, declined interference in the Appeal, which in turn is
subjected to challenge in this Original Petition.
8. The principal issue as to the eligibility of the petitioner Society
to get the remaining land of 4 acres and 71.639 cents of land, by way of
sale deeds to be executed by the 3rd respondent for a sale consideration of
Rs.500/- per cent, giving credit to the balance development charges left at
the hands of the said respondent as advance, stands confirmed in view of
the Ext.P2 Award passed by the second respondent and upheld by the first
respondent Tribunal vide Ext.P1. Admittedly, the direction given by the
original authority and confirmed by the appellate authority in this regard has
not been subjected to challenge from the part of the respondents and as
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such, it has become final. The remaining issue is only with regard to the
condition imposed by the second respondent in Ext.P2 Award directing the
petitioner to return the sum of Rs.80,000/- deducted by the petitioner from
the amounts payable to the 3rd respondent towards the ‘development
charges’ and remitted to the income tax authorities (with interest at the rate
of 12% per annum from 31.12.1986) and also as to the denial of interest on
the balance amount left at the hands of the respondents forming part of the
advance given as development charges.
9. Obviously, the direction to repay the sum of Rs.80,000/-
deducted by the petitioner and remitted to the Income Tax account of the
3rd respondent was on the basis of the stipulation under Section 194C (1)
of the Income Tax Act. The said provision stipulates as follows:-
S.194C (1) Any person responsible for paying any sum to any
resident (hereafter in this section referred to as the contractor) for
carrying out any work (including supply of labour for carrying out
any work) in pursuance of a contract between the contractor and a
specified person shall, at the time of credit of such sum to the
account of the contractor or at the time of payment thereof in cash
or by issue of a cheque or draft or by any other mode, whichever is
earlier, deduct an amount equal to–
(i) one per cent where the payment is being made or credit is
being given to an individual or a Hindu undivided family;
(ii) two per cent where the payment is being made or credit is
being given to a person other than an individual or a Hindu
undivided family, of such sum as income tax on income comprised
therein.
It is the case of the petitioner that by virtue of the above provision,
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the petitioner being a Co-operative Society, there is a statutory duty to
deduct the amount payable to the contractor at the rate of 2% towards the
income tax payable by the latter. It was accordingly, that the amount of
Rs.80,000/- (2% of Rs.40,00,000/- given as advance development
charges) was deducted and remitted to the Income Tax Department, to the
credit of the 3rd respondent and the necessary certificate was issued under
Section 203 of the Act, as borne by Ext.P5. The above contention was
however not accepted by the second respondent, while passing Ext.P2
order, observing that the development work carried out by the 3rd
respondent based on ‘Ext.P3 agreement’ was in fact given on contract, to
one `Prince Enterprises’ as per ‘Ext.R1 agreement’ executed by the 3rd
respondent and that the actual income tax payable in respect of the
transaction was remitted as per Ext.R2 challan No.7 dated 03.04.1987.
Observing that the same transaction has already suffered tax at two
instances, the second respondent (accepting the contention of the 3rd
respondent) ordered that the sum of Rs.80,000/- deducted by the petitioner
and remitted to the Income Tax department was to be repaid with interest
at the rate of 12% per annum from 31.12.1986. With regard to the other
claim, as to the payment of interest on the balance amount retained at the
hands of the 3rd respondent, as part of the advance development charges,
it was held as not covered by Ext.P3 agreement and hence rejected.
10. After considering the challenge raised in the appeal, the first
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respondent Tribunal, as per Ext.P1 order, confirmed Ext.P2 with regard to
the first condition to return the deducted sum of Rs.80,000/- with interest,
however on a different ground. It was observed by the Tribunal that
Section 194C (1) is applicable only in the case of payments to be effected
to the contractor. In the instant case, it was held by the Tribunal that the 3rd
respondent or the owner of the land has developed his own land, by
incurring the necessary expenditure, which cost was being compensated
by the petitioner and that undeveloped land also was liable to be conveyed
for the agreed sale consideration of Rs.500/- per cent, if there was any
violation on the part of the respondent/owner to develop the land. As such,
it was held that the ‘deduction’ made by the petitioner/appellant was quite
unauthorized. With regard to the other direction in Ext.P2 Award (as to the
return of balance, if any, after adjusting the sale consideration on execution
of sale deed with respect to the extent of land), it was observed that there
was no dispute or challenge; however omitting to consider the fact that the
claim was with respect to the eligibility to get interest at the rate of 12% per
annum on the advance development charges retained at the hands of the
3rd respondent.
11. Learned counsel for the petitioner submits that the finding and
reasoning given by the first and second respondents are not correct or
sustainable. With regard to the second claim regarding the interest on the
balance of advance development charges paid by the petitioner, the
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reasoning given by the second respondent is that, it does not form part of
Ext.P3 agreement, which does not appear to be correct. In fact, the claim
arose admittedly for the reason that the development and conveyance of
the property was not effected by the 3rd respondent within the stipulated
time ending on 31.10.1985 and the 3rd respondent himself had sought for
extension of time till 30.04.1986 which was allowed by the petitioner/
appellant Society as per Ext.P4 letter dated 20.11.1985, subject to the
condition that interest was paid on the outstanding amount at the rate of
12% per annum. Since further extension was sought for by the respondent
till 31.12.1986, it was also granted by the petitioner Society on the same
terms as mentioned in Ext.P4. This aspect was omitted to be considered
on merits by the first respondent while passing Ext.P1 verdict, wherein it
was simply observed that, with regard to the claim for adjustment of the
balance advance development charges to be set off against the sale
consideration, there was no dispute as such. This hence requires to be
reconsidered and the claim in this regard is liable to be adjudicated on the
basis of the actual facts and figures so as to determine the correct
quantum involved.
12. With regard to the direction to repay the sum of Rs.80,000/-
(deducted and remitted to the Income Tax Department) with interest at the
rate of 12% per annum from 31.12.1986, the petitioner has got a case that
the reliance placed by the second respondent on Ext.R1 and R2 is not
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correct or sustainable since the said documents were not produced with
notice to the petitioner and that the 3rd respondent had no case that the
transaction had already suffered tax, or that, the 3rd respondent was not
liable to have any such deduction. It is the specific contention of the
petitioner that the amount deducted as above, was with the specific
knowledge and consent of the 3rd respondent, since the said amount was
set off towards the sale consideration payable to the 3rd respondent in
respect of the sale of 5 acres and 40.980 cents of land (sold without
development, at the rate of Rs.500/- per cent) for a total sale consideration
of Rs.2,70,490/- besides giving credit to the interest payable on the
outstanding balance development charges paid in advance. It was
accordingly, that the 3rd respondent executed 5 sale deeds on 31.12.1986
without raising any protest and as such, the said respondent is estopped
from raising any challenge in this regard. More so when, the deduction
effected by the petitioner is stated as based on the statutory duty under
Section 194 C(1).
13. The factual position as narrated above, if correct, there
appears to be a double payment in respect of the same cause of action as
evidenced by Ext.P5 certificate and also Ext.R2 challan receipt whereby,
there is an unlawful enrichment to the Income Tax department. Whether
any such double payment has actually been obtained by the said
department or whether the petitioner Society was bound to effect deduction
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in the instant case, because of the peculiar nature of transaction covered
by Ext.P3 agreement, was a matter which ought to have been decided by
the respondents 1 and 2 only after getting the views of the Income Tax
Department as well. This is for the obvious reason that, if there is any
double payment as above, the excess payment is liable to be reimbursed
by the said department to the concerned party.
14. In the said circumstances, the matter requires to be
reconsidered after hearing the Income Tax Department as well.
Accordingly impugned orders (Ext.P1 and P2) are set aside to the extent
they are challenged and the matter is remanded to the first respondent
Tribunal, for consideration of both the above issues afresh; on the question
as to the claim for interest and also as to whether the deduction of the
amount by the petitioner leading to issuance of Ext.P5 certificate was
correct or sustainable and whether there is any double payment in respect
of the same transaction/cause of action and if so, as to the consequential
steps to have the relative rights and liabilities settled. The Tribunal shall
also consider the claim of the petitioner for interest on the basis of the
enlargement of time sought for vide Ext.P3 application, on the basis of
which Ext.P4 sanction was given and also the subsequent proceedings,
whereby further extension of time was granted by the petitioner. It is made
clear that the finding rendered by the second respondent and upheld by the
first respondent, fixing the liability of the 3rd respondent to convey the
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remaining extent of 4 acres and 71.639 cents of land forming the subject
matter of Ext.P3 agreement for the sale consideration of Rs.500/- per cent,
would stand in tact and the remand ordered hereby, is in no way to affect
the same.
Considering the fact that the matter is more than two decades old,
the first respondent Tribunal is directed to finalise the proceedings as
above, as expeditiously as possible, at any rate within four months from the
date of receipt of a copy of this judgment.
P.R. RAMACHANDRA MENON,
JUDGE.
dnc