TaxTMI 
TaxTMI 
2018 (4) TMI 621
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.... agreement on the very day in identical terms with Shree Someshwara Darshan Samudike Kheti Sahkari Mandli Ltd., Part- 1 (registered body) pertaining to its land measuring 1012 sq.mtrs. comprised in R.S. 305, revenue estate of village Thaltej, Daskroi Taluka, Dist. Ahmedabad for Rs. 25lacs. It issued a cheque of Rs. 14.54lacs in favour of the said body. It further agreed to provide remaining sum of Rs. 10.46lacs on as and when required basis in the nature of interest free security deposit. The assessee's third development agreement came to be executed on 18.03.2008 with S/Shri Raghuvir Sinh Amar Sinh Vaghela and his son Balbhadrasinh Vaghela regarding their land admeasuring about 57,466 sq.mtrs. in R.S. 232, Village & Taluka Sanand, District Ahmedabad. There is no dispute that clause no. 24 in this third agreement stipulated the assessee to pay sum of Rs. 95 lacs on as and when required basis herein as well. 3. The Assessing Officer observes in his assessment order that these three owners paid the assessee respective sums of Rs. 2,22,27,804/-, Rs. 50lacs and Rs. 1.15crore; totaling to Rs. 3,87,27,804/- in relevant previous year in lieu of the latter having surrendered its pre-empti....
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....s. It re-narrated the entire modus operandi vis-à-vis assessee's real estate development agreement embedded therein followed by development, cancellation and settlement deeds leading to avoidance of tax as the damages in question had been claimed as capital receipts. The assessing authority was of the view that all this mechanism employed at assessee's behest defied business prudence. It thereafter took note of similar transactions in earlier assessment orders without any development activities undertaken. The Assessing Officer further took cognizance of meager capital gains in vendors'cases (supra) to observe that they had declined pittance figures of capital gain as against assessee getting sizeable exempt income of Rs. 3.87crores. He therefore made the impugned income addition in assessee's hands. 6. The CIT(A) upholds the impugned addition as follows: "2.2 The various issues involved in the case of the appellant along with my comments are discussed as under: A. There were three agreements entered into by the appellant with three different parties i.e. land owners, in two eases the appellant has entered into development agreement with individuals. In the third case t....
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....ted as compensation received by the appellant against relinquishment of right to sue. That too in all cases in exactly similar fashion. F. From the plain reading of the development agreements it is clear that the compensation was an in-built part of the agreement. The compensation received by the appellant is the income received by it for loss of future income. G. The timing of the various transactions reflect a pattern in the actions of the appellant. Land Date of Dev. Agreement Date of sale to third party Date of termination Agreement Gap between the sale and termination agreement Total consideration (Rs.) Total Benefit to the owner/ owners (Rs.) Benefit to appellant (Rs.) Survey no. 232, Village Moje, 57466 sq mt 18-03-2008 15-09- 2008 27-09-2008 (stamp paper purchased on 5-09- 2008) 12 days 1,37,94,000 22,94,000 1,15,00,000 Survey no. 231/1+2, Village Moje, 49068 sq mt 31-03-2007 30-06- 2008 30-06-2008 (stamp paper purchased on 11-03- 2008) Nil 2,28,12,111 584307 2,22,27,804 Survey no. 305, Village godhavi, Thaltej. 1012 sq mt 31-03-2007 Not 27-12-2008 Not sold to third party.....
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....be mutually agreed upon between the parties hereto for the termination, of rights arising in favour of developer under this agreement. 6.12 it has been further agreed by the owners that in the event of termination of this dollop and agreement as mentioned herein before in para 6.11 and/or for any reason whatsoever, then in that case pre-emptive right to purchase the said land shall remain with the party of the other part(Developer) It has been further agreed by and between the parties hereto that in ease the party of the other part exercises the pre-emptive right to purchase the said land then the requirement of obtaining all necessary sanctions and permissions from the local authorities or other authorities under the law fir the time being in force for the purchase of said land shall be that of the party of the other part. 6.13 It has been also agreed by and between the parties to this agreement that in case of the party of the other part exercise their pre-emptive rights to purchase the said land then they shall acquire the said land as a buyer of the said land and not for the purposes of development of the said land. Of the exposition of the said land as aforesaid from the....
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....e of execution of development agreement and even the possession of land was taken by the appellant. L. In the case of the agreement; with society, similar provisions exist except that the advance of Rs. 1454000/- was actually given by the appellant to the society with the commitment of payment of additional Rs. 1046000/-. Further the role of the appellant was termed as that of a 'Project consultant and Organiser'. However the; clauses relating to pre-emptive purchase possession of land remained similar to the other two agreements. Even specific clauses in respect of compensation to the appellant in case of default exist. M. It is interesting to note that the society has not sold the land to the third party. Only the agreement has been cancelled on 27-12-2008 on the stamp paper which was purchased on 24-07-2008. N. The purchase of stamp papers much ahead of the agreements for compensation agreement clearly indicates that the prior planning for all such exercise was clear. O. It is not clear as to why the agreements were not pursued by the appellant despite lapse of substantial period of time after execution. P. The sale-agreement indicates that they have handed over the po....
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....3-2007, a party of the first part and a second part to this termination agreement have mutually agreed and decided that by virtue of existing development rights of the said land held by the party of the second part, the party of the second part shall be entitled to get the compensation /damages for the termination of the rights to Sue for pre-emptive purchase right arising to the party of the second part vide project consultancy agreement...." As is clear from the clause number 6.11 to 6.14 of the development agreement as reproduced above, the provision for compensation was an inbuilt part of the development agreement. If the termination agreement takes place between the two parties and the compensation is received in accordance with the clauses of the development agreement, then it is to be treated as compensation arising 'on account of the development agreement and not on account of relinquishment of rights to Sue. T. The Supreme Court, in the case of Suraj Lamp & Industries Pvt. Ltd. Vs. State of Haryana & Anr., (2012) 340 ITR 1 held that the transactions of the nature of 'GPA sales' or "SAN GPAVWILL transfers' do not convey title and do no amount to transfer, nor can th....
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....he potential for being placed in a better position will arise in cases where: a. payment made from one party to another would be subject to tax in the event that the contract had been properly performed; but b. the damages are not themselves subject to tax. In the case of Sri Harindar Singh vs Wealth Tax Officer, 1967, 64 ITR 394 P H, Punjab-Haryana High Court has referred to the words of Earl Jowitt "in British transport Commission v. Gourley (1): "The obligation to pay tax-save for those in possession of exiguous incomes is almost universal in its application, that obligation is ever present in the minds of those who are called upon to pay taxes, and no sensible person any longer regards the net earnings from his trade or profession as the equivalent of his available income." The principle has also been referred to by the Hon'ble Gujarat High Court in the case of Commissioner Of Wealth-Tax, ... vs Raipur Manufacturing Company (1964) 52 ITR 482. W. The accounting standard AS-5 provides the definition of extra ordinary items of income. As per AS-5 Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ord....
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.... of compensation and has to be seen merely as a corollary to the compensation receipt. Y. A specific fight to Sue and its relinquishment will arise only When some action is taken by the party to show that it is capable of taking sortie legal action or it is willing to move to the courts to secure specific performance. In the case of the appellant no such action has been taken. z. In the case of Manoj B. Joshi v. Income-tax Officer [2009] 179 TAXMAN 30 (BOM.) a similar case came before Hon'ble Bombay High Court. In this case the only difference was that the assessee was the owner not conducting any business of realty. The assessee had entered into an agreement with the developer for development of property and the developer could not carry out the work and indemnified the assessee by way of compensation. The receipt was considered by assessee as capital receipt not chargeable to tax. The High Court held that "The assessee had, admittedly, received the amount in issue from 'D' in accordance with the agreement and/or the release deed entered into by and between the assessee and 'D'. In view of the admitted facts and circumstances of the case, it could not be said that the am....
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....greed by him earlier. [Para 15] Thus, considering all the facts and circumstances of the case and the factual findings retarded by all the three lower authorities, it could not be said that the amount in issue received by the assessee was not an income at all, as defined under section 2(24); and that alternatively, the income of the assessee was required to be treated as 'Income from long-term capital gain' and not as 'Income from other sources.' as contemplated by section 14 read with section 56. All the three lower authorities were fully justified in treating the receipt of amount in issue by the assessee, not only as an income but also as income received by the assessee from other source as contemplated, by section 14, read with section 56 and subject the same to laxation accordingly. [Para 16]" 2.3 For the sake of arguments even if the appellant's contention that the compensation was in the form of indemnity against any possible legal action, then the same would have to be treated as revenue receipt in view of the decision of Hon'ble Bombay HC in the case of Manoj Joshi (supra). At the most' the head of income can be Income from Other Sources. However, i....
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....ess income. The above co-ordinate bench holds that Section 28(va) does not include such an income in specified cases therein. Mr. Shah takes us to assessee's paper book comprising of all development agreements, termination documents as well as registered conveyance deed alongwith necessary replies submitted in lower proceedings. 9. Mr. Shah's next submission is that its above development agreements followed by their terminations are also not compulsorily registerable under Indian Registration Act since the same are mere MOUs not in the nature of part performance of contract u/s.53A of the Transfer of Property Act. He quotes hon'ble apex court's decision in Suraj Lamp & Industries (P.) Ltd. vs. State of Haryana (2012) 340 ITR 1 (SC) holding that unregistered instruments alike GPA sales, agreement, GP and will transfers do not amount to transfer nor would they be recognized as valid modes of transfer of immovable properties. The assessee thereafter cites a co-ordinate bench decision in (2016) 73 taxmann.com 288 (Ahmedabad-Trib.) Smt. Sapnaben Dipakbhai Patel vs. ITO distinguishing hon'ble apex court's abovestated judicial precedent as under: "24. On due consideration of the above ....
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.... (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (1 of 1877), or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882 (4 of 1882) or as evidence of any collateral transaction not required to be effected by registered instrument." 25. Section 53A of the T.P. Act provide a shield to defend the possession taken by virtue of the agreement. The vendee can claim protection of the possession even against the owner i.e. vendor, during the period sale deed was not registered. The person who has acquired the possession on execution of agreement as referred to in section 53A may not be able to protect his possession on account of non- registration of the agreement, but for all other collateral purposes, i.e. for tendering the agreement into evidence for suit for specific performance, etc. it is to be treated as valid agreement. A controversy in this aspect had arisen whether such non-registered agreement can be entertained in evidence or not in a suit for specific performance. A reference was made before the Division Benc....
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....ry of possession or has been executed with a person, who is already in possession shall not be dismissed for want of registration of the contract/agreement; (b) the proviso to section 49 of the Registration Act, legitimises such a contract to the extent that, even though unregistered, it can form the basis of a suit for specific performance and be led into evidence as proof of the agreement or part performance of a contract." 26. Thus, if the assessee refused to honour her agreement dated 4.4.2008, SDS has a right to get this agreement enforced by way of suit for specific performance and the assessee could be persuaded to execute the sale deed in favour of SDS by virtue of this agreement. The validity of this agreement under general law viz. Specific Relief Act as well as Indian Registration Act has not been effected. This aspect has not been appreciated by the ld.CIT(A) while holding that since the agreements are unregistered, therefore, they are non-genuine. 27. Let us examine the issue with different angles. For example, the assessee refuses to honour her agreement dated 4.4.2008 and SDS/Capital Consultancy files a suit for specific performance. A decree for performance of....
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....ch is neither capital gains nor business income. Case law (2009) 179 TAXMAN 30 (Bom.) Manoj B. Joshi vs. ITO, M/s. Ansal Properties & Industries Ltd. vs. CIT ITA No.183/2008 decided on 19.11.2010 (Delhi High Court), CIT vs. Hiralal Manilal Mody (1981) 131 ITR 421 (Guj.), (1985) 149 ITR 215 (Delhi) CIT vs. J. Dalmia, DCIT vs. Shri Shekhar G. Patel ITA No. 1997/Ahd/2010 decided on 19.03.2014 and Satyam Food Specialties (P.) Ltd. vs. DCIT (2015) 57 taxmann.com 194 (Jaipur Tribunal) is quoted in support the pray for deleting the impugned addition made in assessment as confirmed in lower appellate proceedings. 11. Learned Departmental Representative draws strong support from both the lower authorities' action making the impugned addition more particularly from the CIT(A)'s above extracted detailed discussion. He quotes hon'ble apex court's decision in Mc Dowell & Co. Ltd., Sumati Dayal and Durga Prasad More cases (supra) to support the impugned addition. He pleads that the assessee has entered into a complex web of above transactions by employing colorable device in order to evade payment of taxes. He seeks to highlight the fact that the above cancellation agreements stamp papers had b....
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....t without getting conversion certificate from Collector's Office. The assessee accordingly explains that it could not have got the above agreements registered in view of said statutory bar. It clarifies that its possession in development agreement was in the capacity of a licensee than that covered u/s.53A of the Transfer of Property Act. Mr. Shah refers to Section 52 of the Indian Easement Act, 1882 giving limited right for development purposes only instead of full fledge possession. Mr. Shah refers to case record that there is no material therein indicating the assessee to have undertaken even a single development exercise in all the three tracts of land. 15. We afforded rejoinder opportunity to the Revenue as well. Learned Senior Departmental Representative undertook to file written submissions. He has indeed submitted a detailed compilation of arguments running into 10 pages thereafter once again seeking to strongly support learned CIT(A)'s action affirming impugned addition. 16. We have given our thoughtful consideration to rival submissions. We have also perused the relevant case record with able to assistance of both the learned counsel. The dispute between the parties is....
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....cal compensation sum as in facts of the instant case is not a business income as well since not covered under specific instances u/s.28(va) of the Act. The Revenue's stands therefore holding both development and cancellation agreements in all cases is not sustainable in view of the same unregistered documents does not carry any merit as Section 17 of the Registration Law could not have been applied in view of bar on transfer of the lands in question. We thus observe that assessee's above development license acquired in its all three agreements does not amount to part performance requiring compulsory registration u/s.17 of the Registration Act. We therefore conclude in this view of all this evidence as well as legal position that the impugned compensation amount is not liable to be treated as income u/s.2(24) of the Act nor the same is taxable as capital gain for business income being in the nature of a capital receipt. 17. We now advert to Revenue's strong effort that the assessee's modus operandi is that of entering into such development agreements in order to evade payment of taxes (supra). We find instant plea as well to be devoid of merit since the department has itself accept....