TaxTMI 
TaxTMI 
2003 (5) TMI 478
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng with his father Mr. Nanalal Kapurchand Shah jointly (whose name was recorded for the sake of convenience) agreed to purchase share certificate No. 34 containing five equity shares of Rs. 50 each bearing distinctive numbers 166 to 170 (both inclusive) of Shirin Co-operative Housing Society Ltd. together with the right to use and occupy premises bearing No. 101 on the 1st floor of Shirin Apartment No. 3 situated at 211/219 Tardeo Road, Mumbai-400 007, from Mahendra Builders Pvt. Ltd. (hereinafter referred as "M/s. MBPL") having its office at Mahendra Chambers, 134/136 Dr. D. N. Road, Bombay-400 001, for an aggregate consideration of Rs. 37,50,000. A copy of the agreement dated December 27, 1992 entered into between Mahendra Builders Pvt. Ltd. and (1) Mr. Dhruva Nanalal Shah, and (2) Mr. Nanalal Kapurchand Shah is available on record. As per the aforesaid agreement an amount of Rs. 36,65,000 was paid to M/s. MBPL on an execution of the said agreement. The vendor received the payment of Rs. 36,65,000 vide two pay-inslips drawn on Indian Bank, Napean Sea Road Branch, Mumbai. The assessee agreed to pay a further sum of Rs. 50,000 within the period of one week from the receipt of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fund the balance sum of Rs. 31,65,000 to the assessee along with a further amount of Rs. 21,00,000. A copy of the agreement dated May 25, 1995, between the assessee and M/s. MBPL in the form of exchange of letters, whereunder the assessee received the aforesaid sum, has been placed on record. Accordingly, the assessee received the balance sum of Rs. 31,65,000 invested by him in purchase of the flat and also a further sum of Rs. 21,00,000. Thus, a total sum of Rs. 57,65,000 was paid by the vendor to the assessee. These letters were notorised. It is stated in the notorised letter dated May 25, 1995 that the assessee will not claim any right, title, interest or possession in respect of the property on receipt of the payment of Rs. 57,65,000. Consequent upon receiving a proposal from the Assessing Officer for revision under section 263, the Commissioner of Income-tax passed order under section 263 in which it was held that "the Assessing Officer has not considered whether such right, title and interest in property existed in favour of the assessee and whether such action could be considered as relinquishment of right in property". The Commissioner of Income-tax also referred to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d payments only in lieu of their right to sue was the admitted fact. Further, in all the cases there was no dispute as to the fact of non-performance of the agreement and breach of contract was established. In fact, the cases reveal that in all the cases specific performance was ruled out completely and all that the assessees had was a right to sue." The Commissioner of Income-tax also pointed out that the assessee did not choose to bring about any case against the trespassers. The Commissioner of Income-tax further observed that "even if it is admitted that there was a breach due to the vendor committing a wilful default of any of the provisions of the agreement, the quantum could not have gone beyond Rs. 50,000". The Commissioner of Income-tax also observed that "in this case the vendor guaranteed a good title but even so the vendee was evicted, the latter can at best be allowed to recover the value of property on the date of eviction". By, inter alia, relying on the decision of the Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the decision of the Gujarat High Court in the case of Rayon Silk Mills v. CIT [1996] 221 ITR 155, the learned Commi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aining amount of Rs. 31,65,000 was refunded only on May 25, 1995 after the filing of the criminal complaint against M/s. MBPL. Learned counsel also referred to para. 6 of the aforecited agreement wherein the transferor had declared and confirmed that it was absolutely entitled to hold, possess, lease and occupy the said flat and no other person had any right, title, interest, benefit, claim or demand of any nature whatsoever into or upon the shares of the housing society concerned and the said flat either by way of sale, exchange, mortgage, lease, lien, leave and licence, gift, trust, etc. It was stated that the agreement was fraudulently entered into by M/s. MBPL and the assessee became a victim of cheating by M/s. MBPL as the said flat had already been sold to Smt. Sarala Devi Surya Narain Kanav and Shri Ajay Kumar Surya Narain Kanav by M/s. TPPL (who were the owner and developer of the said property) vide agreement dated May 6, 1981 (copy available at pages 59 to 84 of the paper book). It was further stated that the said buyers had also made payments on May 12, 1981 and July 21, 1982, of Rs. 26,131.25 and Rs. 26,131.25 respectively in instalments towards the purchase of the said....
X X X X Extracts X X X X
X X X X Extracts X X X X
....65,000 (rupees fifty seven lakhs sixty five thousand only) comprising of Rs. 36,65,000 being the deposit money paid as recited hereinabove and Rs. 21,00,000 as liquidated damages and on the conditions as hereinafter recorded." Learned counsel also adverted our attention to the assessee's letter dated September 29, 1997, written to the Assessing Officer wherein it has been stated : "A copy of the agreement dated May 25, 1995 between the assessee and M/s. Mahendra Builders Pvt. Ltd. whereunder the assessee received the aforesaid sums has been placed on record. Accordingly, the assessee received the balance sum of Rs. 31,65,000 invested by them in purchase of the flat and also liquidated damage of Rs. 21,00,000 for the mental tension and agony suffered by the assessee and the members of his family, loss of good bargain, steep rise in the real estate prices in the city of Bombay and loss due to payment of taxes on capital gains earned on the sale of the original flat." Learned counsel pointed out that despite the proper putting up of the case before the Assessing Officer vide letter dated September 29, 1997, there is not even a whisper in the assessment order about the liquida....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nection with flat No. 101 "owned and occupied by them" (copy available at page 56 of the paper book). (2) Letter dated January 21, 1993, written by Ajay Kumar Kanav to the Commissioner of Police regarding the harassment and torture of the builder Shri Mahindra V. Shah (available at page 92 of the paper book). (3) Letter dated January 27, 1993, written by Smt. K. Sarala Devi Surya Narain and Shri K. Ajay Kumar Surya Narain to the Secretary of the Shirin Co-operative Housing Society Ltd., Tardeo, Bombay, regarding their enrolment as bona fide members of the housing society, they being the owner and occupier of the flat No. 101 (available at page 93 of the paper book). (4) Copies of sale agreement and order of documents including duly filled in membership form were also furnished alongwith the above letter. Apart from emphasising the fact that real estate prices had doubled between 1993 and 1995, learned counsel contended that the agreement to sell the aforesaid flat to the assessee was illegal because M/s. MBPL had no title to the flat. It was pointed out that the title derived by M/s. MBPL from M/s. TPPL was illegal as the latter had already sold the flat to Smt. Sarala ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earned Departmental Representative pointed out that in the assessment order the Assessing Officer had only used the words "relinquishment of flat". It was pointed out that nothing was said by the Assessing Officer about the receipt of Rs. 21 lakhs as liquidated damages by the assessee. The learned Departmental Representative submitted that for taking action under section 263 proposal was received from the Assessing Officer by the Commissioner of Income-tax as is clear from para. 1 of the Commissioner of Income-tax's order. The learned Departmental Representative further contended that the assessee had not taken due diligence to find out whether the title in respect of the flat in question was clear and unencumbered. It was stated that "buyers beware" principle should have been followed by the assessee. The learned Departmental Representative contended that from the assessment order or the assessment records there is nothing to indicate that the Assessing Officer had made the necessary enquiries with regard to the receipt of amount of Rs. 21 lakhs by the assessee as liquidated damages. It was stated that no questionnaire was issued by the Assessing Officer in this regard. The learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1 to 12 of the paper book) and the termination agreement (in the form of exchange of letters between the assessee and M/s. MBPL) (available at pages 32 and 33 of the paper book) and our attention was specifically drawn to the assessee's letter dated May 25, 1995, written to M/s. MBPL stating, "I shall not claim any right, title, interest or possession in respect of the flat No. 101 on the first floor of Shirin Apartment Building No. 3, Tardeo Road, Mumbai-400 007". Thus, according to the learned Departmental Representative, relinquishment of right is covered in the definition of "transfer" given in section 2(47). The learned Departmental Representative placed reliance on the following decisions : (1) CIT v. Kartikey V. Sarabhai [1981] 131 ITR 42 (Guj) ; (2) CIT v. P. N. Sreenivasa Rao [1988] 171 ITR 562 (Ker) ; and (3) CIT v. Vijay Flexible Containers [1990] 186 ITR 693 (Bom). When the case was being heard as a part heard case on December 10, 2001, the assessee carried out an inspection of the record available with the Departmental Representative in connection with the filing of the letter dated September 29, 1997, before the Assessing Officer. On inspection, this letter was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not filed in the course of the assessment proceedings before the Deputy Commissioner of Income-tax, Special Range 33, Mumbai". Thus, the case of learned counsel for the assessee is that the letter dated September 29, 1997 was filed during the course of assessment proceedings and was available on records of the Assessing Officer even during the course of proceedings under section 263 before the Commissioner of Income-tax. Learned counsel, therefore, stated that the letter dated September 29, 1997, being not surprisingly found on record in the file produced by the learned Departmental Representative before the Tribunal, it is very much possible that the same may be available in some other folder and full production of records by the learned Departmental Representative will prove the assessee's contention. Thus, according to learned counsel, the Assessing Officer had applied his mind to the full facts of the case in the course of assessment proceedings before exempting the receipt of Rs. 21 lakhs from being taxed in the hands of the assessee and hence, as held by the hon'ble Bombay High Court in the case of Gabriel India Ltd. [1993] 203 ITR 108, the Commissioner of Income-tax had no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed out by learned counsel that though the Commissioner of Incometax extracted some observations of the High Court, yet he had not referred to the observations made thereafter in the same order which are as under (page 115) : "The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasijudicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue." Learned counsel further pointed out that the decision of the Assessing Officer not to tax the liquidated damages of Rs. 21 lakhs was supported by four decisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of any right though as a measure of abundant caution the assessee had stated in the letter dated May 25, 1995, written to M/s. MBPL, that he would not claim any right, title, interest or possession in respect of flat No. 101. Thus, we hold that there was neither a capital asset within the meaning of section 2(14) nor there was any transfer within the meaning of section 2(47). The liability of the assessee to capital gains could arise only if there was a transfer of capital asset within the meaning of section 2(47). We, therefore, hold that the amount of Rs. 21 lakhs received by the asses see as liquidated damages could not be treated as capital gain. Since the assessee did not have to part with any stock-in-trade, the said receipt could not be treated even as a revenue receipt. Moreover, in the light of the deci sion of the hon'ble Calcutta High Court in the case of Ashoka Marketing Ltd. [1987] 164 ITR 664, we hold that since there was no element of cost involved in the acquisition of Rs. 21 lakhs liquidated damages received by the assessee, the amount could not be treated either as capital gain or as a revenue receipt. The assessee had only filed police complaints and had not move....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned amount as not taxable. In our opinion, the view adopted by the Assessing Officer was a correct view. However, learned Commissioner of Income-tax in his order under section 263 has taken a different view. In the case of Patel Cotton Co. Ltd. v. Asst. CIT [1998] 64 ITD 273 it has been held by the Income-tax Appellate Tribunal, Mumbai Bench "E", that where two views are possible in a case, mere fact that the Assessing Officer adopted one view will not render his view erroneous, though it might be prejudicial to the interests of the Revenue. We, therefore, hold that the order passed by the Commissioner of Income-tax under section 263 is not a valid order and the same is annulled. In the result, the appeal of the assessee is allowed. I. P. Bansal (Judicial Member).-I have carefully gone through the order proposed by the learned Accountant Member. Upon a careful consideration of the matter I could not persuade myself to agree with the findings of facts and the conclusion reached by my learned Brother, for the reasons given below : The assessment in the present case was framed vide order dated October 13, 1997 under section 143(3) of the Income-tax Act, 1961. During the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to be paid by the assessee to the society being half share of the transfer fee payable on receiving no objection certificate from the appropriate authority. (vii) On the execution of the agreement dated December 27, 1992, and after making the payment of Rs. 36,65,000 M/s. MBPL handed over the vacant and peaceful possession of the said flat to the assessee as could be seen from the letter dated December 27, 1992, written by M/s. MBPL to the assessee. For the sake of convenience the same is reproduced below : "Dated 27-12-1992 To Shri Dhruv Ranalal Shah and Shri Nanalal Kapurchand Shah, 403/4, Shivam, Dungaray Road, Bombay-400 006. Sub : Possession of Flat No. 101 on the first floor of Shirin Apartment Tardeo Road, Bombay-400 007. Dear Sir, We have today handed over the vacant and peaceful possession of flat No. 101 on 1st floor of Shirin Apartments, building No. 3, Tardeo Road Bombay-400 007, in as is where is conditions. Yours faithfully, (Sd.) . . . . . . . (for MBPL)." (viii) On December 30, 1992, application in Form No. 37-I under section 269UC of the Act was filed with the appropriate authority. On February 26, 1993, the appropriate authority gave ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount of Rs. 21 lakhs received by the assessee from M/s. MBPL is a revenue receipt taxable as capital gain. The Commissioner of Income-tax also concluded that liquidated damages will be restricted to the covenanted amount in the agreement which was specified at Rs. 50,000. Learned counsel for the assessee has raised various propositions to challenge the validity of the order under section 263 as well as for non-assessability of the extra sum received by the assessee vide settlement arrived at between the assessee and M/s. MBPL on May 25, 1995. It was argued that all the material facts regarding receipt of extra money were placed before the Assessing Officer during the course of assessment proceedings. The Assessing Officer after careful consideration of the facts of the case, arrived at the conclusion that the relevant extra amount was not assessable to capital gain. The non-discussion in the assessment order by the Assessing Officer of this fact does not mean that the Assessing Officer did not apply his mind on the transaction. The Commissioner, therefore, was not right in making revision on the ground that the Assessing Officer failed to consider the assessability of extra s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITR 664 (Cal) ; (ii) CIT v. Hiralal Manilal Mody [1981] 131 ITR 421 (Guj) ; (iii) Baroda Cement and Chemicals Ltd. v. CIT [1986] 158 ITR 636 (Guj) ; (iv) CIT v. Abbasbhoy A. Dehgamwalla [1992] 195 ITR 28 (Bom) ; and (v) Bharat Forge Co. Ltd. v. CIT [1994] 205 ITR 339 (Bom). The facts of these cases have been discussed in detail in the order of the Commissioner of Income-tax. After considering all these cases, the Commissioner of Income-tax has observed, in para 5.2 of his order, as under : "Before proceeding to discuss these issues in detail, I would first like to point out that in all the cases cited by the assessee in his defence, the fact that the assessees had received payments only in lieu of their right to sue was the admitted fact. Further, in all the cases there was no dispute as to the fact of non-performance of the agreement and breach of contract was established. In fact the cases reveal that in all the cases specific performance was ruled out completely and all that the assessees had was a right to sue." As it could be seen from the above conclusion of the Commissioner of Income-tax that in the cases relied upon, the specific performance of contract was ruled ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve ; (ii) rescind this agreement in which event the transferor shall be liable to forthwith refund to the transferees the aggregate amount of Rs. 36,65,000 (Rupees thirty six lakh sixty five thousand) paid by the transferees to the transferor without interest together with the sum of Rs. 50,000 (Rupees fifty thousand) as liquidated damages." Thus, the assessee had a right to get specific performance. No reason has been advanced for not pressing this claim instead of the fact that almost all the consideration agreed upon had already been passed, the agreement was partly performed by handing over peaceful and vacant possession of the property in question. The original shares regarding flat were also handed over to the assessee. It is now well-settled by the various pronouncements of the jurisdictional High Court that a right to obtain conveyance of immovable property is a "capital asset" within the meaning of section 2(14) of the Income-tax Act, 1961 (Act). These pronouncements have been extracted in the following paragraphs by the hon'ble High Court in the case of Bafna Charitable Trust v. CIT [1998] 230 ITR 864 (Bom) (page 873) : "In CIT v. Tata Services Ltd. [1980] 122....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted that timely payments of the instalments is the essence of agreement. There was also some case filed in the High Court by the transferor for cancellation of the said agreement. In these circumstances, the assessee being a bona fide purchaser without notice had a good case for specific performance of agreement. There is no evidence on record to indicate that the assessee has ever pressed this right, instead he preferred to file criminal complaint against the vendor. These circumstances suggest that the assessee had voluntarily surrendered his right to get specific performance of the agreement by accepting the amount from the vendor. Giving up of the right to get specific performance was a "property of any kind" and thus a "capital asset" under section 2(14) of the Act. The term "property of any kind" has come up for consideration before the Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693 wherein their Lordships observed as under (page 699) : "Having regard to the statutory provisions and the authorities which we have cited above, we cannot, with respect, agree that the right acquired under an agreement to purchase immovable property is a me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647. It is observed that the decision of the Supreme Court in Vania Silk Mills P. Ltd. [1991] 191 ITR 647 has been disapproved in the later decision of the Supreme Court in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323. Moreover, as pointed out earlier the case is also distinguishable on facts. The contention of the assessee that the sum of Rs. 21 lakhs was liquidated damages is not acceptable for the following reasons. It is not in accordance with the agreement existed between the parties. Much stress has been given on the word "forthwith" as existed in clause 10 of the agreement. It was argued that the amount of Rs. 50,000 was to be given only if the amount has to be refunded to the assessee immediately in the case of non-performance of contract. It was not so done by the vendor. So the amount of Rs. 21 lakhs needs to be treated as liquidated damages given to the assessee for mental tension and agony suffered by the assessee and his family members, loss of good bargain, steep rise in the price of real estate, loss due to payment of taxes on capital gain earned. This contention of the assessee is also found to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In the result, the appeal filed by the assessee is dismissed. Order of Reference to Third Member We, having differed on the points in the above appeal filed by the assessee, refer the following points of difference to the President under section 255(4) of the Income-tax Act, 1961 : Question No. 1 : Whether, on the facts and circumstances of the case, the provisions of section 263 of the Income-tax Act, 1961 were rightly invoked by the Commissioner of Income-tax ? Question No. 2 : Whether the amount received by the assessee from M/s. Mahendra Builders Pvt. Ltd. and claimed as liquidated damages is assessable to tax as capital gains ? Order of third member J. P. Bengra (Vice-President).-There being a difference of opinion between the Members constituting the Division Bench, the hon'ble President has referred, under section 255(4) of the Income-tax Act, 1961, the following points of difference to me as a Third Member to resolve the controversy : "(1) Whether, on the facts and circumstances of the case, the provisions of section 263 of the Income-tax Act, 1961 were rightly invoked by the Commissioner of Income-tax ? (2) Whether the amount received by the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../219, Tardeo Road, Mumbai-7 from MBPL for an aggregate consideration of Rs. 37,50,000. As per this agreement, an amount of Rs. 36,65,000 was paid to M/s. MBPL on execution of the said agreement. The assessee agreed to pay a further sum of Rs. 50,000 within the period of one week from the date of receipt of the order of the appropriate authority under the Income-tax Act. A further amount of Rs. 35,000 was also to be paid by the assessee as transfer fees payable to the society for transfer of the shares on behalf of the transferor, M/s. MBPL. Shirin Co-operative Housing Society Ltd. gave no objection certificate for transfer of the shares of MBPL in respect of the said flat in favour of the assessee vide their letter dated December 27, 1992. The appropriate authority, acting on an application in Form No. 37-I under section 269UC of the Act, issued a no objection certificate on February 26, 1993, for transfer of the said shares and the said flat by M/s. MBPL to the assessee. On January 7, 1993, Mrs. Saraladevi S. Kanav and others, on the basis of the earlier agreement dated May 6, 1981, entered into with M/s. TPPL took forcible possession of the said flat, before the no objection c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement. As a result, the entire capital gain of Rs. 33,23,358 has been offered by the assessee as short-term capital gain." Later on, the Commissioner of Income-tax, Mumbai City-VIII, Mumbai, while perusing the records of the assessee found that the assessee received Rs. 21 lakhs from M/s. MBPL, which the Assessing Officer treated as capital receipt. The Commissioner of Income-tax was of the view that the impugned amount should have been taxed as short-term capital gain. Therefore, he was of the view that the amount of Rs. 21 lakhs received by the assessee from MBPL, is, in fact, a revenue receipt taxable as capital gain. Therefore, he directed the Assessing Officer to keep in mind the discussions made in the Commissioner of Income-tax's order under section 263 and treat the amount as capital gain accrued and in lieu of relinquishment of the rights vested in him in the property by virtue of the agreement dated December 27, 1992 and for non-receipt of peaceful possession of the flat on December 27, 1992. He further directed that the amount of liquidated damages will be restricted to the covenanted amount in the agreement. He also directed that the Assessing Officer shall give effe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the same from its sister company named M/s. Tardeo Properties Pvt. Ltd. While proceedings for issue of the above certificate was going on Shri Suraj Narain Kanav and Smt. Saraladevi Kanav claimed possession of the aforesaid flat on the basis of the agreement of purchase of the said flat they had with M/s. Tardeo Properties Pvt. Ltd. They had filed copy of the said agreement with the appropriate authority and reported certain facts." He pointed out that the assessee had given detailed explanation vide above two letters running into 10 pages and 1 page respectively, which form part of the record. Evidently, the claim was allowed by the Assessing Officer on being satisfied with the explanation of the assessee. Therefore, the decision of the Assessing Officer cannot be held to be erroneous simply because the Assessing Officer did not make elaborate discussion in respect of the said item of receipt. In this connection reliance was placed on the decision of the Bombay High Court in the case of Gabriel India Ltd. [1993] 203 ITR 108 at 117. He pointed out that section 263 does not visualise a case of substitution of the judgment of the Commissioner for that of the Assessing Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consideration of the flat. The amount was refunded only after the assessee filed a criminal complaint under section 420 of the IPC vide FIR dated December 10, 1993 (page 50 of the paper book). MBPL paid liquidated damages of Rs. 21 lakhs to the assessee because there was a steep rise in the real estate prices, mental tension and agony suffered by the assessee and his family members and for loss of good bargain. In other words, the liquidated damages were paid for the breach of contract for selling the flat without having any right, title or interest attached to it. Thus, the right that the assessee has acquired on establishment of the breach of contract is a right to sue for damages which is not an actionable claim and, therefore, is not a capital asset. Further, it was contended that the damages received have no co-relation with the flat as there was no extinguishment of any right. Reliance was placed on the decision in the case of Bharat Forge Co. Ltd. v. CIT [1994] 205 ITR 339 (Bom). It is also submitted that the decision of CIT v. Vijay Flexible Containers [1990] 186 ITR 693 (Bom) relied upon by the Commissioner of Income-tax has no application to the facts of the assessee's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Mahendrakumar Shah and his wife, Pratibha M. Shah, and M/s. TPPL is a sister concern of M/s. MBPL and Shri Mahendrakumar Shah is a common director in both these concerns. It is submitted that MBPL, without having any right, title or interest in the said flat, got the share certificates of the housing society transferred in its name. Thus, it is contended that the receipt of liquidated damages by the assessee did not bear the character of income and it has no connection either with the purchase of the flat or with the transfer of the flat in the name of M/s. MBPL, but it is paid to the assessee as compensation for mental and physical agony caused to him. Reliance was also placed on the decision of the Gujarat High Court in the case of CIT v. Hiralal Manilal Mody [1981] 131 ITR 421. In addition to the citations mentioned above, learned counsel for the assessee further invited my attention to section 73 of the Indian Contract Act and emphasised that general principle for award of damage is compensatory, i.e., the injured party should as far as possible be placed in the same position in terms of money as if the contract had been performed by the party in default. Attention was also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the refund of money. The opinion of the learned Judicial Member that the Commissioner of Incometax has validly exercised the jurisdiction under section 263, is unfounded. If there is absence of discussion despite the assessee having given the detailed reply, it will not amount to non-application of mind by the Assessing Officer. However, the Judicial Member has wrongly relied on the observation of the Commissioner of Income-tax given at paras. 5.2, 5.4, etc. The Judicial Member has also wrongly interpreted the meaning of section 2(14) of the Income-tax Act, which defines the "capital asset" vis-a-vis the decision of the Bombay High Court in the case of Bafna Charitable Trust v. CIT [1998] 230 ITR 864 and the decision of the apex court in the case of CIT v. Mrs. Grace Collis [2001] 242 ITR 323 as also the decision of the apex court in the case of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 which the assessee has distinguished in his written submission elaborately. Thus, he submitted that the view taken by the learned Accountant Member is correct that the amount is not taxable. Learned counsel for the assessee has also relied on the decision of the Karnataka High Court in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad earned long-term capital gain of Rs. 33,23,358 on the sale of flat and claimed exemption of the same under section 54 on account of purchase of a flat for Rs. 37,50,000 from Mahindra Builders Pvt. Ltd. However, some other persons forcibly took possession of the flat while the same was being furnished. After prolonged litigation, the assessee had to relinquish this interest in the said flat by way of cancellation of the original agreement. As a result, the entire capital gain of Rs. 33,23,358 has been offered by the assessee as short-term capital gain." If we go through the order of the Assessing Officer it would be clear that the above order did not make an elaborate discussion in this regard. Now, the question arises whether the Commissioner of Income-tax can exercise jurisdiction under section 263 in such a case where the assessee had offered a detailed explanation consequent upon the enquiries cast by the Assessing Officer and allowed the claim on being satisfied with the explanation of the assessee. In this regard, I find that in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108, the honourable Bombay High Court has laid down the following principle (headnote) :....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed. Any and every erroneous order cannot be the subject-matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Held, that the Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. This decis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....self will not be enough to vest the Commissioner with the power of suo motu revision. This issue also came up for consideration before the Indore Bench in the case of Eicher Motors Ltd. v. CIT [1999] 63 TTJ 640. The learned Members while discussing the various case laws on this issue opined that it is wellsettled that unless the assessment order is erroneous and prejudicial to the interests of the Revenue, revisional jurisdiction cannot be exercised under section 263. The mere fact that the Assessing Officer has not made detailed discussion on the issue is not enough for the Commissioner of Income-tax to invoke his revisional jurisdiction under section 263. The action of the Commissioner of Income-tax must resemble with that of a surgeon's knife. He must use the powers conferred on him under section 263 to correct the blatant errors. Simply because the Assessing Officer has allowed the depreciation and investment allowance on enhanced value without detailed discussion on the issue is not enough to invoke revisionary jurisdiction. Similarly in the case of Sarunda Cold Retreades (P.) Ltd. v. ITO [1998] 99 Taxman 330 (Mag), the Jaipur Bench of the Tribunal had taken the same vie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar that the income-tax authorities made enquiries from the said purchasers about the source of purchase of that flat which is also clear from the specific query raised by the Department given overleaf of the notice (page 89). So it is clear that the transaction of selling the property to Smt. Saraladevi Kanav and Ajaykumar Kanav was a real transaction between the TPPL and the purchasing parties. It is noteworthy that Shri Mahendra kumar Shah was common director of the firm TPPL and MBPL. It seems that when a dispute has arisen between Saraladevi Kanav and Ajaykumar Kanav and TPPL, Shri Mahendrakumar Shah being the common director of both the firms has fraudulently transferred the flat in the name of MBPL and subsequently entered into an agreement between MBPL and the assessee vide agreement dated April 10, 1986. Consequent to the fraudulent agreement between TPPL and MBPL Shri Mahendrakumar Shah got the share certificate Nos. 166 to 170 pertaining to the above flat in Shirin Co-operative Housing Society transferred in the name of M/s. MBPL when the agreement between TPPL and Smt. Saraladevi Kanav and others was still valid. While lodging a complaint, the assessee in his application....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in it. Therefore, the assessee did not get any right, title or interest in the capital asset. What he got is the mere right to sue. The same right to sue for damages is not an actionable claim. The right to sue for damages for breach of contract, no doubt, is capable of maturing into a right to receive damages for breach of contract. But that happens only when the damages claimed for breach of contract are either admitted or decreed and not before. In the case of CIT v. Abbasbhoy A. Dehgamwalla [1992] 195 ITR 28 (Bom), the hon'ble Bombay High Court has held that the right to sue could not be termed as capital asset if an amount is received as consideration. This is clear from the following observations (pages 35 and 37) : "The decisions thereunder make it abundantly clear that the right to sue for damages is not an actionable claim. It cannot be assigned. Transfer of such a right is as much opposed to public policy as is gambling in litigation. As such, it will not be quite correct to say that such a right constituted a 'capital asset' which in turn has to be 'an interest in property of any kind'. The question of the assessee's right under the agreement of 1945 being converted o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e has brought on record that due to the rise in prices in real estate during that period M/s. MBPL agreed to compensate the assessee for the mental tension and agony suffered by the assessee and his family members for loss of good bargain, steep rise in the price of real estate and loss due to payment of taxes on capital gains earned which is supported by the ready reckoner and market value of flats during 1990 to 1999 placed on the paper book which can be held to be a right cause for payment of liquidated damages which is permissible under section 73 of the Indian Contract Act. Therefore, in the given facts and circumstances of the present case, I am of the opinion that the liquidated damages received by the assessee, cannot be brought to capital gain tax. It is not an income in the nature of capital receipt which was rightly not taxed by the Assessing Officer. I, therefore, agree with the view taken by the learned Accountant Member. Further, all receipts are not taxable under the Income-tax Act. Section 2(24) defines "income". It is no doubt that this is an inclusive definition. However, a capital receipt is not income under section 2(14) unless it is chargeable to tax as c....