2014 (8) TMI 594 - HC - Income Tax

Taxability of Rs. 35 lakhs from Consent Decree as business income upheld by High Court

Ramesh Babulal Shah S/o. Babulal K. Shah And Others Versus Commissioner of Income Tax

The High Court held that the receipt of Rs. 35 lakhs by the assessee pursuant to a Consent Decree from the Bombay High Court was correctly treated as ... Nature of amount received in pursuance of Consent decree by HC – Purchase of land – Business income or Capital gain - Land was purchased but possession was not given to the assessee - During the pendency of the proceedings, consent decree was passed in the suit itself and in pursuance of the same ₹ 35,00,000/- was paid to the Assessee during the assessment year under consideration - The argument was that the agricultural land was agreed to be purchased and that is how the deal was struck, however, on payment of earnest money possession was never handed over. Thus, it is a capital investment in the property - tribunal found the transaction of purchase of land was in the nature of an adventure in trade and not as income in the nature of capital gains – Held that:- Authorities below rightly treated this sum as a receipt falling under Section 28(iv) of the I. T. Act - The Tribunal having clearly held that the land was in Urban Agglomeration, non agricultural user of the land was permissible - The land falls within the prescribed area of the Urban Land Ceiling Act and a plan had also been sanctioned for the proposed housing scheme under Section 20 of the Urban Land (Ceiling and Regulation) Act, 1976 - The subsequent conduct of the Assessee is consistent with the intent in acquiring the rights in the property, then all the more the ITO, as also the Commissioner and equally the Tribunal have not committed any error in holding that this was a sum or income chargeable to tax u/s 28(iv) of the I. T. Act – no substantial question of law arises for consideration - Decided against Assessee. Issues:1. Taxability of receipt of Rs. 35 lakhs by the assessee in pursuance of the Consent Decree of the Hon'ble Bombay High Court as business income.Analysis:The High Court of Bombay was approached for an opinion on the taxability of Rs. 35 lakhs received by the assessee in pursuance of a Consent Decree. The Tribunal had held that the transaction of purchasing land was an adventure in trade, not capital gains. The Tribunal initially referred six questions of law to the Court, but later confined the reference to the single question mentioned above. The assessee's counsel argued that a question of law did arise, emphasizing the circumstances of the case where the assessee entered into an agreement for land purchase, faced legal disputes, and eventually received the amount under the consent decree. The Income Tax Officer treated the amount as business income under Section 28(iv) of the Income Tax Act, which was upheld by the Commissioner and the Tribunal based on factual findings that the assessee engaged in a trade venture. The High Court noted that the legal tests applied were well-established, and the issue was the applicability of these tests rather than a question of law. The Court found no error in the lower authorities' decision to tax the amount as business income, considering the land's location and the assessee's conduct in acquiring the property rights.In conclusion, the High Court held that the reference was misconceived as no question of law arose from the facts and circumstances of the case. The Court found that the lower authorities correctly treated the amount of Rs. 35 lakhs as income chargeable to tax under Section 28(iv) of the Income Tax Act. Therefore, the reference was disposed of without the need for further opinion or answer from the Court.