The perils of buying property at an auction

Written by Indu Bhan | Indu Bhan | Updated: Jan 16 2013, 07:22am hrs
Donations and their tax benefits

The Supreme Court has rejected the director of income tax (exemption)s appeal alleging that Raunaq Educational Foundation had committed impropriety in its assessment for 2002-03.

During the accounting year 2002-03, the trust had, by way of donation, received two cheques for Rs 40 lakh each from Apollo Tyres Ltd. One of the cheques dated April 22 was given in the accounting year 2001-2002, i.e. before March 31, 2002, but was honoured after April 1, 2002, i.e. in accounting year 2002-03.

The assessing officer had concluded that the trust had given undue advantage under the provisions of Section 80G of the Income Tax Act to Apollo Tyres as many of the trustees were related to the directors of Apollo Tyres. By accepting a post-dated cheque and by giving receipt in the earlier accounting year, the assessee trust had granted undue favour and, therefore, this was clearly in violation of provisions of Section 13(2) (d) (h). Thus, exemption under section 11 and 12 cannot be allowed to the assessee, the department had stated.

However, both the Income Tax Appellate Tribunal and the Delhi High Court did not find any impropriety as the donation was accounted for in the correct accounting year. They held that the amount was not included in the accounting year 2001-2002 as a donation but was shown separately in the balance sheet as amount receivable by way of donation. Moreover, Apollo had also not availed of benefits under Section 80G during the accounting year 2001-02 but had availed of the benefits only in the accounting year 2002-03, the period during which the cheque had been honoured and the amount of donation was paid to the assessee trust.

Account books are to be taken as correct

Setting aside the judgment of the Punjab and Haryana High Court in the case, M/s Gian Chand & Brothers vs Rattan Lal, the Supreme Court said that account books regularly maintained in the course of business are to be taken as correct unless there are strong reasons to indicate that they are unreliable.

In this case, the partnership firm advanced money to the agriculturists and charged commission on the sale price of the agricultural produce sold as determined by the market committee. The firm had also given such advances to Rattan Lal and the transactions were entered in the books of accounts maintained in the regular course of business.

However, Rattan Lal allegedly failed to return the money advanced. This compelled the lender to move the trial court seeking recovery of R9.72 lakh with interest.

The borrower disputed the genuineness of the entries in the account books on various grounds, including forgery. Though the trial court upheld the claim of the firm saying that the bahi entries showed that the amount was advanced to Rattan Lal and the entries had the signatures of the latter, the high court allowed the appeal of the agriculturist. Quoting from Commissioner of Income Tax vs Woodward Governor India Pvt Ltd that accounts regularly maintained in the course of business are to be taken as correct, the Supreme Court stated that the high court was in error as it applied the wrong principles of procedure.

Once bought at auction, payments cant stop

Overturning the Punjab and Haryana High Court judgment in the case of Punjab Urban Planning and Development Authority vs Raghu Nath Gupta and Others, the Supreme Court said that successful bidders who have accepted the offer of commercial plots in a public auction with a condition, that is, on as is where is, cannot stop payment on the grounds that the seller had not provided basic amenities like parking, lighting, etc.

It said that the essence of an as is where is sale is that the one buying a property is presumed to be doing so with his eyes and ears open, and cannot have any grievance later as to lack of infrastructure facilities.

The authority had in 2001 conducted a public auction for sale of the commercial plots. The successful bidders had taken possession on payment of 25% of the total cost of site. However, the buyers moved the HC seeking a direction to the authority not to charge interest on the balance installments. While the HC allowed the plea, the top court said that the buyers were legally obliged to pay the interest interest at the rate of 2% per month for the delayed payments of installments as after having accepted the terms and conditions of the allotment letter, including instalment facility for payment, the purchasers cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter.