TaxTMI 
TaxTMI 
2020 (1) TMI 647
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....ounds of appeal raised by the appellant before him. I. Addition on account of alleged unexplained cash credit u/s.68 of the I.T.Act, 1961 on account of relinquishment of right - Rs. 18,02,53,000/-. 1. The Ld.CIT(A) has erred in law and on facts in confirming the addition of Rs. 18,02,53,000/- as made by the Ld.A.O. while treating the compensation received for relinquishment of right to sue as taxable business income and accordingly revenue receipt as against the4 capital receipt not assessable either as capital gains or business income. 2. That the Ld.CIT(A) has failed to consider the fact that the rights acquired by the appellant company under different development agreements was a "Right to Sue" and as per the provisions of section 6(e) of the Transfer of Property Act, "Right to Sue" is not a property and thereby it is not a "Capital Asset" and as a consequence, impugned receipt of Rs. 18,02,53,000/- received as compensation/damages for relinquishment of right to sue in the Courts of law is a "capital receipt" in the hands of the appellant company not assessable either as capital gains or business income in view of the Hon'ble Jurisdictional Gujarat Hig....
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....he assessee. 2. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of construction and engineering activities. The AO during the assessment proceedings observed that the assessee has received certain amount for relinquishment of its right which was treated as capital receipt, not chargeable to tax. However, the AO was of the view that such receipt in the hands of the assessee is revenue receipt and chargeable to tax. Accordingly he show caused the assessee vide notice dated 20th March 2015 proposing to treat such amount as revenue receipts. 2.1. However, the assessee in response to such notice did not make any submission on merit. Therefore the AO in the absence of any documentary evidence, and further observing that similar receipt was treated as income of the assessee in the earlier assessment year, treated the same as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT(A). 3. The assessee before the learned CIT (A) submitted that it has entered into the agreements with different societies which were holdin....
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....n the court of law against the society for termination of the agreement, represents the capital receipt not chargeable to tax. 4. The learned CIT (A) on the details filed by the assessee called for the remand report from the AO vide letter dated 7th February 2017. The AO accordingly filed the remand report vide letter dated 24th April 2017. The AO in the remand report submitted that the case of the assessee does not fall within the circumstances specified under Rule 46A for admitting the additional evidences, therefore the AO objected on the admission of the additional evidences filed by the assessee before the learned CIT-A. 4.1. The AO without prejudice to the above also doubted on the termination of the agreement with the societies and observed certain defects as detailed under: i. All the development agreements were made at the fag end of March 2007. ii. All the development agreements were unregistered. iii. All the development agreements were made in the same fonts which were notarized by the common notary public. iv. Similarly all the termination agreements were made at the fag end of March 2011. v. All the termination agr....
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....d CIT (A) pointed out such differences in the facts as detailed under: i. During the A.Y. 2009-10 all the activities/ transactions such as signing of the development agreement, termination of the agreement and sale of the land to the others persons happened in same financial year i.e. 2008-09 corresponding to A.Y. 2009- 10 whereas in the year under consideration the signing of the development agreement was done in the assessment year2007- 08, termination of the agreement was done in the assessment year 2011-12 and the compensation received by the assessee was in the assessment year 2012-13 i.e. the year under consideration. ii. During the assessment year 2009-10, there was no payment made by assessee to the societies whereas for the year under consideration the assessee has made the payment to the societies as detailed under: Sr.No. Name of Society Amount as per the Agreement (Rs.) to be paid by the appellant Date of payment Payment to Mandali 1. Saheli Samudayik Kheti Sah.Mandli Ltd. 35,00,000 - - 2. Someshwara Darshan Co-op.H.S.L. V-6 50,00,000 10-04-2007 12-05-2007 01-02-2008 21-03-2008 2000000 1014000 ....
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....ty to purchase land. As such the fund was provided by the assessee with pre-emptive purchase right. There was no information received with respect to the remaining 5 societies from the registration office despite the same was requisitioned. b. There was change in the managing committee /members of the societies when the development agreement was signed by the assessee with such societies and when the termination agreement was signed by the assessee with such societies. As such the managing committee /members of the societies continued to be the same from the date of the agreement i.e. 2007 to March 2010. Thereafter there was the change in the managing committee/members of the society when the termination agreement was signed in the year March 2011 and the sale deed was executed. c. Further the major amount of the sale consideration received by the societies was given by it (societies) as compensation to the assessee which is constituting on an average 85% of the gross sales consideration. The details of the buyers of the land with the relationship of the assessee and the amount of compensation against the gross sales consideration is contained in tabular ....
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.... which the termination agreement took place, the share holders or the related parties were no more the member of the society or the managing committee. The final buyers or the third parties are none other than the CMD, Director, shareholders or the related parties of the appellant company. An artificial scenario of 'dispute' is created resulting into termination agreement and payment of compensation. The glaring contradictions in the final sale document and the development/termination agreements cannot be ignored. On the contrary, the real grievance lies with the societies/vendors for non performance or breach of the contract by the appellant. They have the right to sue the appellant. However, the facade created by the appellant has resulted into a large chunk of fund remaining within the 'Popular Group' as mentioned earlier and the appellant taking the shield of capital receipt argument to avoid payment of taxes. One has to look beyond what is not apparent. This has happened not only in this year but as mentioned, in earlier years as well the appellant has entered into similar set of agreements to claim capital receipts and avoid payment of taxes. In three years i.....
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.... and the subsequent sale of the lands to the parties and the amount of the compensation received by the assessee is nothing but a device used to escape from the tax liability. Accordingly the amount of compensation received by the assessee was treated as business income of the assessee. The ld. CIT-A subsequently confirmed the order of the AO. 8. Now from the preceding discussion, the following issues emerge for our consideration. i. Whether the case of the assessee is covered by the order of this tribunal in its own case for the assessment year 2009-10 as discussed above. ii. Whether the amount of compensation received by the assessee represents the income of it (the assessee). 9. Regarding the above questions, we note that the learned CIT (A) has distinguished the facts of the present case with the case of the assessee for the earlier assessment year 2009-10 on account of mainly four reasons which have been duly elaborated somewhere in the preceding paragraph. Now, we proceed to analyze the reasons as observed by the learned CIT (A) in the following paragraphs. I. In the assessment year 2009-10 all the activities i.e. the development, termination ....
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.... in R. S. No. 231 in Village & Taluk Sanand, Dist. Ahmedabad for Rs. 81 lacs to be paid on as and when required basis. The assessee entered into similar 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. 251acs. It issued a cheque of Rs.l4.541acs in favour of the said body. It further agreed to provide remaining sum of Rs.l0.461acs 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." 9.3. Thus, in these facts of circumstances we are of the view that the facts of the present case for the year under conside....
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....roceedings these facts were disclosed. The appellant is/was very much aware of these facts for the reason that appellant itself had given funds to the society, its own shareholders/directors/related parties were members of the society as well as managing committee, and had withdrawn from the membership at the time of termination agreement or signing of final sale deed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 7.14 it can be seen from the tabulation given above that the final buyers who paid consideration to various societies were also the CMD, Director, shareholders or the related party of the appellant company. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The appellant had also submitted the bank statements reflecting the receipt of funds from the societies. It was observed from these bank statements that as and when the funds have been received from societies within a day or two the funds have been transferred or given further to related entities by the appellant. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 7.15... ... Thus, right from the societies till the final recipient of funds fro....
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....ur considered view, if this finding of the learned CIT (A) is taken as the gospel truth, then the aforesaid transactions are nothing but the circular transaction among the parties forming part of the group. Now the question arises whether such circular transaction among the group can result income in the hands of the assessee. To our mind, the answer is in negative. It is because, first of all, the source of payment made by the buyer of the land has not been doubted. It means the buyer made the payment to the society which in turn made payment to the company and company in turn made the payment to the parties connected with it. Thus the entire circular of transaction does not give rise to any income in the hands of the assessee if the theory of the learned CIT (A) is accepted. As such, there was no real income in the hands of the assessee which is chargeable to tax. IV. Similarly, the termination agreements between the assessee and the societies viz a viz the sale agreements between the societies and the buyers of the lands were not considered by the ITAT in its order which is quite vital for deciding the issue on hand. 9.9. Details given by the societies in the sale de....
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....siness income or capital gains. The Revenue on the other hand draws support from both the lower authorities' action assessing the same as business income. The assessee admittedly is in real - estate development business. It entered into the above identical verdict three development agreements with as many vendor parties followed by the latter paying it variable amounts in question totaling to Rs. 3.87 crores in lieu of getting former's right to preemptive purchase or right to use for specific performance surrendered in their favour. There is no evidence in the case file indicating the assessee to have undertaken even a single activity of development is all three parcels of land. We notice in this factual backdrop that hon'ble jurisdictional high court's decision in Baroda Cement and Chemical case (supra) holds that the amount received in lieu of such a right to sue available after a vendor breaching the relevant agreement is not an actionable claim so as to be transferred u/s.6(e) of the Transfer and Property Act giving rise to assessable capital gains. Their lordships of Calcutta High Court (supra) further reiterate the same view Mr. Madhusudan's case is that t....
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....in they have claimed the impugned payments made to the assessee as expenses in computation of their respective income without questioning any genuineness element therein. So is the outcome of Revenue's next plea that the assessee had surrendered its right to sue without taking any legal recourse. We observe in this context with the assessee could very well be treated as an aggrieved party against its vendors' action executing sale deed in favour of third party vendees. The Revenue's argument that the cancellation document had been purchased well in advance is also not relevant since it is not mandatory that the same ought to have been purchased on the date of cancellation only. What is material in these facts is that there should be a valid document. There is no bar in stamp law that any party cannot purchase such documents in advance. The Revenue fails to quote any such rule which could be held as to have been violated in such an advance purchase of stamp papers. We find that Revenue's further argument that no prudent assessee would enter into such a transaction also does not deserve acceptance since the assessee in fact has acted as a prudent entity where....
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....ing in a decided matter, no Co-ordinate Bench of the Tribunal has any right or jurisdiction to record a contrary decision, entirely contrary to the one reached by another Co ordinate Bench of the same Tribunal on same set of facts and circumstances. Mere difference in the Members manning the Tribunal does not vest the subsequent Bench with such power. The principle is based on judicial propriety and the confidence which the litigating public has in judicial hierarchy and the institution. The only course, that is open to the subsequent Co-ordinate Bench, would be to make a reference to the President of the Tribunal as provided in section 255 (3) of the IT Act, 1961 ('the Act') to constitute a Special Bench to resolve the controversy." 9.15. We also find support and Guidance from the judgment of Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under: "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and deci....
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....f agrarian reform and so, the constitutionality of the Act has to be tested on the touchstone of Art 31A which is the relevant protective armour for land reform laws. Even here, we must state that while we do refer to the range of constitutional immunity Art. 31Aconfers on agrarian reform measures we do not rest our decision on that provision. Independently of Art. 31A, the impugned legislation can withstand constitutional invasion and so the further challenge to Art. 31A itself is of no consequence. The comprehensive vocabulary of that purposeful provision obviously catches within its protective net the present Act and, broadly speaking, the antiseptic effect of that Article is sufficient to immunise the Act against invalidation to the extent stated therein. The extreme argument that Art. 31A itself is void as violative of the basic structure of the Constitution has been negatived by my learned brother, Bhagwati, J. in a kindred group of cases of Andhra Pradesh. The amulet of Art. 31A is, therefore, potent, so far as it goes, but beyond its ambit it is still possible, as counsel have endeavoured, to spin out some sound argument to nullify one section or the other. Surely,....
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.... 10. In view of the identical issue raised before us in the ground of appeal which has already been considered by the ITAT as discussed above, we are taking the same view for the year under consideration. 11. It is also pertinent to note that the parties involved in the entire flow of transactions namely, the assessee, societies and the buyers of the land who are separate taxable and independent persons/ entities viz a viz complying the provisions of the Act. Thus the amount of the compensation received by the assessee for relinquishment of its right to sue from societies to avoid the litigation cannot be treated as a colorable device. Hence, the amount received as compensation in view of said right is not chargeable to tax. In this regard we find support and guidance from the order of this tribunal in the case of Bhojison Infrastructure Pvt. Ltd. Vs. ITO reported in 99 Taxmann.com 26 wherein it was held as under: 10.1 The essence of long list of judicial pronouncements cited on behalf of assessee is that Section 6 of the Transfer of Property Act which uses the same expression 'property of any kind' in the context of transferability makes an exception in the ca....
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....he use of the word 'include' in the definition of the word 'transfer' in s. 2(47) was intended to enlarge the meaning of 'transfer' beyond its natural import so as to include extinguishment/relinquishment of rights in the capital asset for the purpose of s. 45 of the Act. Since the transfer contemplated by s. 45 is one as a result whereof consideration has passed to the assessee or has accrued to him, extinguishment of the right must relate to that 'capital asset', corporeal or incorporeal. It is, therefore obvious that a transfer of a capital asset in order to attract liability to tax under the head 'Capital gains' must be a 'transfer' as a result whereof some consideration is received by or accrues to the assessee. If the transfer does not yield any consideration, the computation of profits or gains as provided by s. 48 of the Act would not be possible. If the transfer takes effect on extinguishment of a right in the capital asset, there must be receipt of consideration for such extinguishment to attract liability to tax. Now, in legal parlance, the terms 'consideration' and 'compensation' or 'damages' have d....
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....further, the learned Chief Justice stated (p. 425) : 'In my opinion, it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party. As already stated, the only right which he has the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court, Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already exists. The Court in the first place must decide that the defendant is liable is liable and then it proceeds to assess what that....