TaxTMI 
TaxTMI 
2016 (5) TMI 119
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....riends Colony, New Delhi, which was mortgaged to PNB. On 29th January 1981, the suit was decreed. 3. In the execution proceedings filed by PNB as Decree Holder ("DH"), an order was passed for the auction sale of the aforementioned property. The Appellants herein, i.e., Girish Bansal and Gyanendra Bansal participated in the public auction and their bid for a sum of Rs. 10,05,000 was accepted. The sale in their favour was confirmed by the Civil Court. On 2nd February 1989 a sale certificate was issued. This was followed by a sale deed executed in their favour which was duly registered with the office of the Sub-Registrar, Delhi on 6th February 1989. 4. The Judgment Debtors ("JDs"), however, challenged the order of the Civil Court. The matter ultimately reached the Supreme Court by way of Civil Appeal No. 1003 of 1992. The terms of the compromise that was reached between the parties were recorded by the Supreme Court in its order dated 28th February 1992 as under: "With the consent of all the learned counsel appearing for the respective parties, the following order is made: i) The auction sale of the plot in question is set aside under Order 21 Rule 89 of the C....
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..... In the course of the assessment proceedings, the Assessing Officer ("AO") framed the following questions for consideration: (i) Whether the amount of Rs. 10,00,000/- revised by the assessee is a sale consideration and chargeable to tax under the head of capital gain or not? (ii) Whether the amount received is not a capital gain as claimed by the assessee in the revised return? (iii) Whether the assessee had claimed exemption of this amount and if so under what provision of Income-tax Act? (iv). Whether, the amount received is covered under Section 10(3) of the IT Act, 1961 deals with receipts which are of a casual and non-recurring nature, or not? 8. In the assessment order dated 29th February 1996, the AO came to the conclusion that a sum of Rs. 10,00,000 could not be considered as sale consideration since the auction sale had been set aside along with sale certificate and the same was treated as null and void. Further it could not be said that capital gain was attracted. However, as far as issue (iii) was concerned, the AO concluded that the sum of Rs. 10,00,000 paid was not covered under any exemption clause of the Act and further that th....
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....ght in the capital asset which the Assessees on their own volition had given up against the payment, and therefore the amount received was a capital receipt and the alternative plea that if it was not a capital receipt, then it was a casual and non-recurring receipt, was rejected in light of the decision of the Karnataka High Court in C. Kamala v. CIT 114 ITR 159 (Karnataka). (ii) Once the sale was set aside pursuant to the compromise recorded by the Supreme Court, the Assessees could never be said to have acquired any right in the property, and therefore, they could not have transferred any right therein as well. The ITAT agreed with the counsel for the Assessees that the Assessees "had not acquired any capital asset and the receipt was not a capital receipt accessible to tax". Accordingly, the first question was answered in favour of the Assessees. (iii) The word "any receipt" is of wide aptitude. Again relying on the decision of the Allahabad High Court in Gulab Chand (supra) and the decision of the Bombay High Court in Kishan Mahadev Jaghav v. V.D. Vakhaskar , 249 ITR 266 (Bom) , it was held that the sum received by the Assessees was neither a business income nor a salary....
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....ion was not a charging provision but an exemption provision. He submitted that this course was not available to the Revenue as was explained by the Supreme Court in CIT vs. D.P. Sandu Bros. 273 ITR 1 (SC), in which it upheld the decision of the Bombay High Court in V.D. Vakhaskar (supra). He also referred to the decision of the Karnataka High Court in C. Kamala v. CIT (supra) to point out that in similar circumstances, the receipt of money upon cancellation of the auction sale by the Court was held not be in the nature of capital gains. He submitted that after the decision of the Supreme Court in D.P. Sandu Bros. (supra), the decision of the Allahabad High Court in Gulab Chand (supra), which was relied upon by the CIT (A) as well as ITAT in the present case, could no longer said to be a good law. 16. Countering the above submissions, it was submitted by Mr. Raghvendra Singh, learned counsel for the Revenue that it was never the case of the Revenue that the sum of Rs. 20,00,000 received by the Assessees was a capital receipt or that it attracted capital gains that could be brought to tax as such. He submitted that at the time when the AO framed the assessments and the CIT (A) hea....
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....nd the amount so received given any name would be liable to be taxed". 19. The other submission of the DR recorded was "the assessee given consent to relinquish his right in the property and for relinquishing that right which he has acquired from the sale certificate and sale deed, the assessee asked for a price which is paid, on the receipt of which amount they cease to have right". It was specifically recorded in para 11 of the impugned order by the ITAT that "The Ld. DR submitted that the assessee in their wisdom agreed and consented to take the compensation for giving up of the right in the property and once having received the amount be it given in any name the said amount is to be brought to the tax and taxed not only under the proper hands but also in the proper heads". After having said so, learned DR submitted that the amount received is the capital receipt. 20. The alternative plea of the DR as recorded in the impugned order of the ITAT was that if the amount was not capital receipt "then it has rightly been taxed as casual and non-recurring and in the circumstances, no interference in the orders of the authorities below is called for". Therefore, even before the IT....
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.... the burden lies upon the Revenue to prove that it is within the taxing provision. Among the earlier decisions of the Supreme Court is Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC). There the Assessee explained that the jewellery and the money received by her were the gifts made by the Maharani of Baroda. Disbelieving the Assessee on the ground that she had failed to produce documents in support of her contention, the ITAT held that what was given to her was remuneration for services rendered or to be rendered. This was upheld by the High Court leading to the consequent appeal by the Assessee to the Supreme Court. 23.2 The Supreme Court in Parimisetti Seetharamamma (supra) noted that it was not the case of the Assessee that the receipts were income that was exempted from taxation. Her case was that the receipt does not fall within the taxing provisions at all. It was explained by the Supreme Court as under: "In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing, provision. Where however a receipt is of the nature of income, the burden of proving, that it is not taxable because....
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....d had not done any act which would either directly or indirectly amount to a transfer." Consequently, the Court concluded that the sum of Rs. 20,000 which was received by the Assessee could not be treated as long term capital gains. 25.1 In Travancore Rubber (supra) the Assessee was the plantation company engaged in the business of growing rubber and tea. It entered into three agreements with the purchasers for sale of old rubber trees. The purchasers paid a certain amount by way of earnest money and another sum by way of advance under the three respective agreements. The total amount of earnest money received by the Assessee under the three agreements was Rs. 75,000 and the total amount by way of advance was Rs. 3,56,300. 25.2 All the three purchasers defaulted in payment of the balance amount and the agreements were accordingly terminated and the amount of earnest money and the advance was forfeited by the Assessee. The Assessee"s right to retain the amount of earnest money and advance was confirmed by the Civil Court. 25.3 In its return filed for the AY 1977-78, the Assessee claimed that the amounts were not taxable as revenue receipt. While the AO agreed with the Asses....
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....e was no cost of acquisition for the tenancy right". Therefore it was held to be of a casual and non-recurring nature within the meaning of Section 10(3) of the Act. 27. The Calcutta High Court in B.K. Roy Pvt. Ltd. v. CIT (1995) 211 ITR 500 (Cal) dissented from the decision in Gulab Chand (supra) holding that if a capital receipt is not taxable as capital gain, then it cannot be treated as a casual and non-recurring receipt under Section 10(3) of the Act. 28.1 This view was also the view of the Bombay High Court in Cadell Weaving Mill Co. Pvt. Ltd. (supra). The Bombay High Court followed the decision of the Calcutta High Court in B.K. Roy (supra) and dissented from the decision in Gulab Chand (supra). The question before the Bombay High Court was whether the money received upon surrender of tenancy rights and whether such receipt could be construed to be a casual and non-recurring receipt within the meaning of Section 10(3) of the Act and as such is exigible to tax under Section 56 of the Act. 28.2 In Cadell Weaving Mill Co. Pvt. Ltd. (supra), the precise question addressed by the Bombay High Court was: "Whether the surrender value of a tenancy right, if not chargeable to....
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....tion 10(3). In order to attract Section 10(3), two conditions are required to be satisfied, viz., that the receipt should be casual and non-recurring and that it should not arise by way of business income, salary income or capital gains chargeable under Section 45. Therefore, the aforestated three types of incomes constitute exceptions to Section 10(3). That capital receipts do not fall under Section 10(3)." 29.1 The decision of the Bombay High Court was carried in appeal by the Revenue and the said appeal was decided by the Supreme Court along with the appeal of D P Sandu Bros.(supra). A three-judge bench of the Supreme Court in D P Sandu Bros.(supra) upheld the judgement of the Bombay High Court holding that a tenancy right is a capital asset and the sum received on the surrender of the tenancy right is a capital receipt within the meaning of Section 45. It was further held that it was not open to the Revenue to impose tax on such capital receipt by the Assessee under any other Section since "income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate Section and no other". The am....