TaxTMI 
TaxTMI 
2019 (8) TMI 768
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....he case and in law the Ld. CIT(A) is justified in deleting the addition of Rs. 9,00,00,000/- by ignoring the fact that this amount is closely linked to the transaction and is not an independent term. The assessee upon receipt of notice of hearing, has filed crossobjections which is in support of the impugned order. 2.1 Facts in brief are that the assessee being resident individual, a lawyer by profession, was assessed for year under consideration u/s 143(3) of the Act on 28.03.2015, wherein the income of the assessee was determined at Rs. 939.87 Lakhs after certain additions as against returned income of Rs. 39.87 Lakhs e-filed by the assessee on 30.08.2012. As evident from grounds of appeal, the sole subject matter of present appeal before us is the nature of compensation of Rs. 900 Lakhs received by the assessee during impugned AY pursuant to certain consent terms as approved by Hon'ble Supreme Court. 2.2 During assessment proceedings, it transpired that the assessee had sold a plot at Gaoli, Village Gundavalli, Andheri (E), Mumbai on 31.12.2011 for a sale consideration of Rs. 4 Crores. The indexed cost of plot was taken at Rs. 66.02 lakhs. The assessee invested Rs. 250.....
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....et, its cost was indeterminable and the charging section would fail in terms of the decision of Hon'ble Supreme Court rendered in CIT V/s B.C.Srinivasa Shetty [128 ITR 294]. 3.2 The Learned CIT(A), after due consideration of factual matrix and assessee's submissions concurred with the same and allowed the claim by observing as under: - 6.3. HELD: I have carefully considered the impugned assessment order, written submission of the appellant and remand report. The moot question need to be addressed is the nature of receipt of compensation of Rs. 9 Crores received by the appellant on account of time and effort and cost put in by him alone in the Court of Law and further warding off of his right to sue at any forum/authority/court of law. At the outset, it is apparent from the assessment order that this issue has not been addressed at all. The AO has mechanically considered this amount as part of sale consideration. 6.4 it is pertinent to glimpse of chronology of events that lead to present situation of the instant case, may instant issue at hand. In 1969 Appellant's father wanted to develop the aforesaid properties but could not get plan approved from Bombay Munic....
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....2 8. Notice of Motion 184 of 2002 in WP 974 of 1999 9. Notice of Motion 183 of 2002 in WP 2000 of 2000 10. Supreme court SLP No 4344 of 2003 - 11. Supreme court SLP No.5999 of 2006 12. Supreme court SLP No.6735 of 2006 13. Supreme court SLP No. 19344 of 2006 14. Criminal Contempt Petition No. 1 of 2007 15. Criminal contempt Petition 2 of 2007 16. N/M No..256 of 2007 in BCC Suit No.4109/1980 17. N/M A/o.257 of 2007 in BCC Suit No.4109/1980 18. N/M A/o.258 0/2007 in BCC Suit No.4109/1980 19. N/M No. 833 of 2007 in BCC Suit No.4109/1980 20. Supreme court SLP No. 25501 of 2008 21. Supreme court SLP No.2758 of 2010 22. Supreme court SLP No.2749 of 2010 23. Contempt Petition No 31 of 2010 24. High court Suit No.870 of 2010 (Rs. 100 Crore Claim by Akruti City Ltd against Assess for defamation) 25. Criminal Writ Petition No. 1977 of 2010 26. Supreme court SLP No.35188 of 2010 27. Supreme court SLP No.35441 of 2010. 28. Supreme court SLP No.445 of 2011. 29. Supreme Court SLP No.446 of 2011 ....
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....epted the payment of Rs. 9 Crore in full and final settlement. It is apparently clear that Rs. 9,00,00,000 was paid only to the Appellant and not the other parties to suit and hence is not consideration received for sale of property. It is consideration for time, effort and cost put in by the Appellant for over a decade to challenge the acquisition of the suit properties. The above consent terms have also been approved by the Hon'ble Supreme Court by holding that "In view of the above development, the LA. is allowed, the consent terms - Annexure I, are taken on record and the Special Leave Petitions are disposed of in terms of the settlement arrived at between the parties." These facts clearly establish that the Hon'ble Supreme Court has duly approved that the Appellant must receive Rs. 4,00,00,000/- as consideration for sale of property and Rs. 9,00,00,000/- for time and effort put in by him over decades in challenging the acquisition of suit properties. This claim is special to the appellant as per para 5 of the Consent Terms. 6.6 On careful perusal of Consent Terms and the Conveyance Deed it clear that by agreeing into these terms and conditions the app....
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....n terms thereof, then, it is an order of the Court. Thus, the Court has not undertaken any mechanical exercise or has not casually and lightly accepted the terms and approved the same. It has performed a conscious act and in terms of Order in the four corners of law of the land. This issue has not been addressed by the AO in the assessment order. He has simply treated the compensation as part of Sale Consideration. 6.7. Let us visit various provisions of the Income Tax Act, 1961 and of Transfer of Property Act 1882. 6.7.1. Section 2 (14) defines Capital Asset as under: Capital asset means property of any kind held by an assessee..... {Explanation:- For the removal of doubts, it is clarified that property includes and shall be deemed to have included any rights in or in relations to an Indian company,, including rights of Management or control or any other rights whatsoever,} Further Section 2(24) provides as under: "(24) "income" includes- (vi) any capital gains chargeable under section 45" 6.7.2. Section 2 (47) defines transfer as under: "transfer", in relation to a capital asset. includes,- ....
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....n which such compensation or part thereof, or such consideration or part thereof, was first received; and (b) the amount by which the compensation or consideration is enhanced or further enhanced by the court. Tribunal or other authority shall be deemed to be income chargeable under the head "Capital gains" of the previous year in which such amount is received by the assessee : Provided that any amount of compensation of a court, Tribunal or other authority shall be deemed to be income chargeable under the head "Capital gains" of the previous year in which the final order of such court, Tribunal or other authority is made; (c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority....
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....he asset took place; (v) "Cost inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index (urban) for the immediately preceding previous year to such previous year, by notification20 in the Official Gazette, specify, in this behalf." 6.8. Now we may consider whether the compensation amount of Rs. 9 crore in the form of damages received by the appellant on account of time and effort and cost put in by him alone in the Court of Law and further warding off of his right to sue at any forum/authority/court of law can be treated as capital gains in the hands of appellant. Section 2(24) of the Act specifically includes "(vi) any capital gains chargeable under section 45" within the ambit of income. Thus, a capital receipts would be chargeable to tax only if it falls under section 45 of the Act (as capital gains) though capital receipt as such is not taxable. This principle was described by the Income Tax Appellate Tribunal (Mumbai) in Dhruv A. Shah v. Commissioner of Income Tax [20041 88 ITD 118 as follows: "Further, all receipts are not taxa....
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....Chemicals V/s CIT (158 ITR 636) held as under: 'The amendment of clause (e) of section 6 by the deletion of the italicized words has brought into sharp focus the distinction between property and a mere right to sue. Before the amendment, only the right to sue for damages arising out of a tortuous act fell within the ambit of the said clause. The right to sue arising ex-contractual, therefore, did not fall within the mischief of the clause even if it were a mere right to sue. After the amendment, a mere right to sue, whether arising out of tortuous act or ex- contractual is not transferable." 6.10. As already stated, the only right which the present appellant has is the right to go to court of law and recover damages of acquisition of property. Now, damages are the compensation which a court of law gives to a party for the injury which he has sustained over the year. Here, the Apex Court has agreed that the Cost of Sale of Property is Rs. 4 crore and additional compensation in the form of damages of Rs. 9Crore has been given to the appellant alone for time, effort, and cost incurred by him over the years for being engaged in litigation in order to get ....
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.... covered under the definition of transfer within the meaning of section 2(47) of the IT Act, its cost of acquisition cannot be determined. In the absence of such cost of acquisition, the computation provisions failed and capital gains cannot be calculated. Therefore, "right to sue" cannot be subjected to income tax under the head 'capital gains'. Above point of view is extensively discussed in the case of Aberdeen Claims Administration Inc by the Authority for Advance Rulings (Income Tax), New Delhi (2016) 65 taxmann.com246 (AAR-New Delhi.) The Jaipur ITAT Bench in the case of Satyam Food Specialities (P.) Ltd. v. Deputy Commissioner of Income-tax, Central Circle-2, Jaipur, [2015] 57 taxmann.com 194 (Jaipur - Trib.) has held as under: "2.19 Assessee has vehemently denied having anywhere admitted that part of the compensation was for non-competition. In our considered view, the compensation in question was meant, intended and paid for withdrawal of aforesaid litigation instituted by assessee which could have resulted in many adverse consequences for the reputation of Coca Cola/Atlantic besides entailing huge cost and efforts of litigation. Relinquishment of right to....
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.... can be passed. Therefore, it is not an agreement between the parties, by which the suit was disposed of but on that agreement, there is a seal of approval or satisfaction of the Apex Court. In such circumstances, in the present case eventually the suit ended in the appellant's claim for additional compensation. In the consent terms, which are drawn up and based on which the suit is decreed by the Court, it does not deal with the rival cases on merits. There is no requirement of the Court then passing an order and judgment on merits of the claim of the parties. The Court is required to apply its mind and consider as to whether the arrangement reached by the parties can be accepted by it. Once it is accepted and an order or decree is passed in terms thereof, then, it is an order of the Court. Thus, the Apex Court has not undertaken any mechanical exercise or has not casually and lightly accepted the terms and approved the same. It has performed a conscious act and in terms of Order in the four corners of law of the land. There cannot be any transfer of a "right to sue" under Indian Law and any capital receipt arising from a right to sue cannot thus be considered capital....
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.... order. 5. We have carefully considered the rival submissions and perused relevant material on record. The undisputed position that emerges is the fact that the property under consideration was subject matter of extensive litigation which ultimate got culminated into sale of the property by the assessee in terms of consent terms dated 03/01/2012 between the assessee and certain other parties. The assessee, along with others, has executed deed of conveyance on 31/12/2011 in favor of Hubtown Limited for aggregate sale consideration of Rs. 4 Crores. The additional compensation of Rs. 9 Crores was payable to the assessee only pursuant to consent terms dated 03/01/2012 filed before Hon'ble Supreme Court. As per Clause-5 of the consent terms, the assessee was to be paid the said compensation for time, money and effort put in by him to challenge the acquisition of the suit property and for pursuing litigation before the Authorities, Hon'ble Bombay High Court and Hon'ble Supreme Court. The additional compensation was towards time, cost and effort of the assessee in pursuing the litigation. This being so, we are unable to concur with the submissions of Ld. DR that the said compensation w....