TaxTMI 
TaxTMI 
2016 (5) TMI 119
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Code of Civil Procedure. (E.A. 185/88 before the Delhi High Court) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the Assessees had failed to quote any provision of the Act under which they were claiming exemption. The AO concluded that the Assessees had fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, nor an income attracting capital gains. Therefore, the AO justified in bringing the amount to tax under Section 10 (3) of the Act. Present appeals 12. While ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TR 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) heard the appeals thereagainst, the decision of the Allahabad High Court in Gulab Chand (supra) was still good law and, therefore, they were justified in treating the receipt to be of casual and non-r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ishing 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 ITAT, the plea of the Revenue was that it was either a capital receipt or a receipt of casual and non-recurring nature. In other words the case of the Revenue was not that a sum of Rs. 20,00,000 was in the nat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned 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 it falls within in exemption provided by the Act lies upon the assessee." 23.3 It was further observed as under: "Whether a receipt is liable to be treated as income depends very largely upon the facts and circumstances o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Assessee, the CIT (A) sought to revise the order of the AO by exercising revisional power under Section 263 of the Act and held that the amounts forfeited were revenue income. The Assessee succeeded in its appeal before the ITAT. However, the High Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssented 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 tax as capital gains under Section 45, is liable to be taxed as "income from other sources" under section 56 of the Act? In answering the above question the Bombay High Court held as under: "Income-tax Act except to the extent of any capital receipt bein....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 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 amount received on surrender of the tenancy right would attract Section 45 and the amounts derived if at all would be taxable only under the head "capital receipt and assessable if at all only under Item E of Section 14. That being so, it cannot be treated as a casual or non recurring receip....