TaxTMI 
TaxTMI 
2025 (10) TMI 1304
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....Notice under Section 143(2) was duly served upon the assessee by the assessee on 28.08.2015. After the change of jurisdiction the case was transferred to DCIT, Circle-2, Gurgaon. Notice under Section 142(1) along with questionnaire was issued on 30.11.2016. In response to the notices, the counsel of assessee Shri Gaurav Singhal, Chartered Accountant attended the assessment proceedings and filed necessary information and details. On completion of assessment proceeding, Ld. AO passed the order dated 22.12.2016 making an addition of Rs. 1,17,527/- being interest from S.B. Account jointly held by the assessee and his father. 3. Against order dated 22.12.2016 of Ld. AO, appellant/assessee preferred appeal before the Ld. CIT(A) which was dismissed vide order dated 22.01.2018. 4. Being aggrieved, appellant/assessee preferred present appeal with following concise grounds: "1. That on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in not holding that the assessment order dated 22.12.2016 passed under section 143(3) of the Income tax Act, 1961 ('the Act') is beyond jurisdiction, bad in law and liable to be quashed. ....
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....ct with Mr. Miguel Mier (COO of Cinepolis Mexico) who was their classmate, expressing their interest in the potential of modern cinema industry in India. Mr. Miguel Mier suggested them to contact Cinepolis Group, a well-known operator of cinema theatres in Mexico and in other Latin American countries. The Group, on being contacted by the appellant and Mr. Deepak Marda for development and operation of cinema multiplex theatres in India, saw immense potential in the idea put forward, especially considering that the said group had no presence in Asia and agreed to the business proposal. As per the appellant, it was agreed between the parties that in consideration of the efforts put in by the said management team (including appellant), in establishing the business in India, after five years from the start of the prospective company in India (CIPL), the management team would be entitled to equity in the said company based on the internal rate of return (IRR) generated on the investment; that apart, the management team would also be entitled to a fixed compensation starting from USD 12,500/ month which would subsequently be enhanced to USD 18,000/ month after six months or signing of fir....
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....vil Judge, Gurgaon restraining the Cinepolis group from terminating the agreement (email) dated 06.10.2007 without allocating the agreed equity shares to the appellant- pages 238-260 of the paperbook; iv) Copy of the order dated 20.04.2013 passed by the Additional District Judge, Gurgaon denying injunction to the parties- pages 261-271 of the paperbook; v) Copy of the interim order dated 14.05.2013 passed by the Company Law Board, New Delhi acknowledging dispute between the appellant, Sh. Deepak Marda and the Cinepolis Group and directing the parties to maintain status-quo- pages 272-274 of the paperbook; vi) Copy of the criminal complaint dated 25.05.2013 filed by the appellant before the Haryana Police, Enquiry Officer, in charge economic offences, Gurgaon- pages 275-276 of the paperbook; vii) Copy of FIR dated 17.08.2013 lodged at the Sushant Lok Police station, Gurgaon by the appellant and Sh. Deepak Marda against the Cinepolis Group- pages 277-289 of the paperbook; viii) Copy of the letter filed by the appellant and Sh. Deepak Marda before the Commissioner of Police, Gurgaon- pages 290-301 of the paperbook; ix) List of Civi....
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....specially considering that cases were filed for criminal wrongdoings also. * Importantly, the settlement was without prejudice to each parties' contentions on facts and law; no party had conceded on its claim by virtue of settlement. * It is noteworthy that quantum of shares, value of shares etc. is not determined and compensation is not based on any value of shares; the same was based on mutual negotiations. 6.6 Accordingly, the amount of Rs. 33,55,12,980 was paid by Cinepolis Group to the appellant during financial year 2013-14 [assessment year 2014- 15]. In the return of income, the appellant reported and offered the said compensation as LTCG assuming that the same was for relinquishment of appellant's rights and interest in equity shares of CIPL. 6.7 At this juncture, it may be noted that though the appellant had offered to tax the compensation received, the appellant, before the lower authorities, contested that the same was not taxable (i) vide letter dated 09.11.2016 filed before the assessing officer, the appellant mentioned that since cost of acquisition is not determinate, the gains should not be taxable [refer pages 17-70@ pg 20 onwards of....
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....be broadly stated that what is received for loss of capital is a capital receipt; what is received as profit in a trading transaction is taxable income". e. The Supreme Court in the case of Emil Webber vs. CIT: 200 ITR 483, held that the definition of "income" in clause (24) of section 2 of the Act is an inclusive definition; adds several artificial categories to the concept of income but on that account the expression "income" does not lose its natural connotation. f. While considering the issue of taxation of compensation received on surrender of tenancy right, their Lordships of the Bombay High Court in the case of Cadell Weaving Mills Company Ltd vs. CIT: 249 ITR 266 elucidated the principle relating to taxation of income in the following words: "...... It is well-settled that all receipts are not taxable under the Income-tax Act. Section 2(24) defines "income". It is no doubt an inclusive definition. However, a capital receipt 'is not income under section 2(24) unless it is chargeable to tax as capital gains under section 45. It is for this reason that under section 2(24)(vi) that the Legislature has expressly stated, inter alia, that income shall include....
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....f a transfer'. Resultantly, such compensation would not be amenable to tax under the head of capital gains and was in essence a capital receipt. j. The New Delhi Bench of AAR in the case of Lead Counsel of Qualified Settlement Fund (QSF), In re: [2016] 381 ITR 1 held that Settlement amount received for surrender of capital asset of 'right to sue' has to be treated as 'capital receipt' not liable to tax. k. In the following cases, it is held that settlement compensation in lieu of giving up the right to sue/ claims is a capital receipt not liable to tax in the hands of the assessee: (a) CIT vs. Abbasbhoy A. Dehgamwalla: [1992] 195 ITR 28 (Bombay) (b) Bharat Forge Co Ltd vs CIT: [1994] 205 ITR 339 (Bombay) (c) CIT v. Ashoka Marketing Ltd.: [1987] 164 ITR 664 (Cal.) (d) Aberdeen-Claims-Administration-Inc-1.[2016] 65 taxmann.com 246 (AAR) (e) Bhojison Infrastructure (P.) Ltd. vs. ITO: [2018] 173 ITD 436 (Ahm Trib) (f) Popular Estate Management v. DCIT: ITA No. 2703/Del/2017 (Ahd) (g) ITO vs. Ganeshsagar Infrastructure (P.) Ltd.: [2022] 135 taxmann.com 313 (Ahm Trib.) (h) Chheda....
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....vs. Shard Sinha [2016] 237 Taxman 111 (Del HC) (ix) PCIT vs. Pawa Infrastructure (P.) Ltd.: [2023] 457 ITR 392 (Del HC) (x) CIT v. Ambadi Enterprises Ltd.: (2004) 267 ITR 702 (Mad) (xi) CIT v. J. L. Morrison (India) Ltd. [2014] 366 ITR 593 (Cal) b. Section 28(ii)(e) of the Act provides that any compensation received/ receivable in connection with the termination or the modification of the terms and conditions of any contract relating to the business shall be taxable as business income; importantly, the said provision was introduced prospectively w.e.f. assessment year 2019-20. The same also supports that the compensation received prior to AY 2019-20 is a capital receipt not liable to tax. 6.10 Re: Concise GOA Nos.1 to 5: Compensation taxable as long-term capital gains is a capital receipt not liable to tax in the hands of the appellant. The amount of Rs. 33.55 crores received as compensation could partake the character of long term capital gains since the compensation so received could at best, be attributed to the right/ entitlement of the appellant to the carry equity shares of CIPL, in terms of the agreement (email dated 06.10.2007). ....
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....ting shareholding in the company, comes into existence when the company decides to come out with the rights offer. Prior to that, such right, though embedded in the original shareholding, remains inchoate. The same crystallizes only when the rights offer is announced by the company. Therefore, in order to determine the nature of gains/ loss or renunciation of right to subscribe for additional shares/debentures, the crucial date is the date on which such right to subscribe for additional shares/ debentures comes into existence and the date of transfer (renunciation) of such right. The said right to subscribe for additional shares/debentures is a distinct, independent and separate right, capable of being transferred independently of the existing shareholding, on the strength of which such rights are offered." (d) The decision of the Karnataka High Court in the case of Chittharanjan A. Dasannacharya vs. CIT: [2020] 429 ITR 570 (Kar) wherein the assessee was provided an option to subscribe to the shares of the company at a time where the assessee was an independent consultant of company and there was no relationship of employer and employee between company and assessee. In the....
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....case of Mr. Deepak Marda which was quashed by the Bombay High Court (refer pages 420-431 of the paperbook). Being so, the assessment of identical compensation as long-term capital gains has attained finality. (i). Applying the ratio decidendi of above noted judicial pronouncements to the facts of the present case, it is respectfully submitted that the entire consideration (aggregating to Rs. 33,55,12,980) received by the appellant in lieu of relinquishment of his rights/ interest in equity shares of CIPL, if at all, is assessable under the head 'capital gains' arising from transfer of long-term capital asset. 6.11 Re: Attempt of lower authorities to tax compensation under the head 'Salary' or 'PGBP or as 'Short term capital gains' is invalid; rebuttal to allegations/ observations of the assessing officer and CIT(A) (a). Ld. Assessing Officer has assessed the aforesaid compensation received from Cinepolis Group as income under the head PGBP applying provisions of section 28(iv) of the Act. Further, the CIT(A) held (i) the compensation received by the appellant from Cinepolis Group is taxable as 'salary'; (ii) alternatively, upheld the ....
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.... sue was not assessable as capital gains and was in effect a capital receipt. The relevant extracts of the judgement are reproduced hereunder: "7. We are, therefore, left with the question as to whether the right to claim damages in the instant case is a 'property of any kind and thus, a 'capital asset' under section 2(14)of the Act. The further question as to whether there was a transfer of such a 'capital asset', would arise only if the right to claim damages is held to be a 'capital asset'. But, again, it will have to be examined if such a right could be transferred. Relying on the decision of the Bombay High Court in CIT v. Tata Services Ltd. [1980] 122 ITR 594 it was contended by Shri Wadhera the learned counsel for the revenue, that any right which can be called property will be included in the definition of 'capital asset' and that a contract for sale of land is capable of specific performance and is also assignable, and he referred to section 15 of the Specific Relief Act, 1963. Therefore, according to Shri Wadhera, a right to obtain conveyance of immovable property is clearly a property, as contemplated by section 2(14). This ar....
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....at the right of the assessee under the contract for sale of immovable property was not in the nature of property in that the assessee was having no interest in or right of property. The Supreme Court was concerned with the question of right to purchase property by a tenant under the Madras City Tenants Protection Act, 1922, with reference to article 19(1)(f) of the Constitution of India. Reliance was placed on the following passage of the judgment: "... The law of India does not recognise equitable estates. No authority has been cited in support of the contention that a statutory right to purchase land is, or confers, an interest or a right in property. The fact that the right is created not by contract but by a statute cannot make a difference in the content or the incidents of the right: that depends upon the nature and the scope of the right conferred. The right conferred is a right to purchase land. If such a right conferred under a contract is not a right of property, the fact that such a right stems from a statute cannot obviously expand its content or make it any the less a non-proprietary right. In our view, a statutory right to apply for the purchase of land is no....