TMI Blog2009 (10) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. vs. CIT (1999) 152 CTR (SC) 474 : (1999) 236 ITR 903 (SC) as also the decision of the apex Court in the case of P.H. Divecha Anr. vs. CIT (1963) 48 ITR 222 (SC), opined that the order of the Tribunal in the case of Ansal Properties Industries Ltd., without considering the aforementioned cases of the Supreme Court, has rendered per incuriam and the decisions of the Supreme Court, cited supra, have a substantial bearing upon the appeals of the assessee. A suggestion was made to the President, Tribunal, for constitution of a Special Bench with the following questions: "(i) Whether the receipt of Rs. 2.85 crores by the assessee from DCM for the termination of the agreement to build on the land belonging to DCM along with right to sell such portions of the super built area in the construction falling to the share of the assessee is a revenue receipt or a capital receipt? (ii) Whether, on the facts and circumstances of the case, a sum of Rs. 2.85 crores has accrued to the assessee as income of the year under consideration or it was to be taxed in the year the said amount is received as held by the CIT(A)?" 3. The Hon'ble President agreeing with the above suggestion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by KNA to DCM within 7 days of the KNA obtaining the approval of the plans from the municipal authorities. 6. According to the assessee, the assessee had entered into the above agreement beyond its capacity to execute the same within the means available with it and therefore, DCM and KNA mutually agreed vide second agreement dt. 24th Nov., 1988 to appoint M/s Ansal Properties Industrial Ltd. ('Ansals' in short) as associate developers to undertake the development and construction of 50 per cent of the project. 7. On 24th June, 1998 the DCM cancelled and terminated the collaboration agreement. The said termination by DCM was challenged by the assessee in the Delhi High Court and since it was felt that the legal proceedings would take a long time, the assessee entered into a settlement agreement with DCM out of Court. The agreement was in a shape of an arbitral award given by the Conciliator under the Arbitration and Conciliation Act of 1996. As per terms of this agreement the assessee firm abandoned its rights to carry on business under the collaboration agreement dt. 24h Nov., 1988 and DCM agreed to pay compensation. The compensation, as agreed, is to be payable to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on delayed payments. Provision of interest is also made if payments are delayed. (d) Necessary provisions have been made to protect the interest of the assessee. (e) The assessee's right to receive an amount of Rs. 6.75 crores is created legally. 9. The right to receive amount has been created vide settlement agreement dt. 30th Oct., 2000 and since the assessee is following mercantile system of accounting the income and expenditure are to be booked on accrual basis. According to him, all the terms leave no scope for not assessing the income of Rs. 6.75 crores in the year of accrual. He cited various decisions on pp. 6 and 7 of his order to draw support therefrom and to bring to tax the amount accruing as a result of the said settlement agreement. Since the amount was inclusive of security deposit of Rs. 3.9 crores the remaining amount of Rs. 2.85 crores is to be assessed as income of the assessee from the said DCM project. The total income of Rs. 350 returned by the assessee was assessed at an income of Rs. 3,18,68,487, after including therein the disputed sum of Rs. 2.85 crores as a revenue receipt, as stated earlier. 10. Feeling aggrieved, the assessee challenged thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurity deposit of Rs. 3.9 crores and the balance Rs. 2.85 crores was to be paid to them subsequently as compensation. However, the DCM after paying Rs. 2.3 crores, relying on the due diligence clause has stopped all payments to the assessee, even though it was four years from the date of the agreement and they are yet to receive any money from the DCM project. They are not even certain whether at the end of the day they will receive any money from the DCM because according to them, the DCM has already started putting in counter-claims of payments against the assessee. Hence, according to the learned CIT(A), treating the said income of Rs. 2.85 crores as having been accrued to the assessee was not accepted and he directed the same to be taxed in the year in which it was received. Therefore, on this ground the Revenue is equally aggrieved by the order of the CIT(A) and has questioned his direction in its appeal. 13. The main ground in the assessee's appeal is as to the taxability of Rs. 2.85 crores received in terms of the agreement dt. 13th Oct., 2000 with DCM for cancellation of the collaboration agreement. 14. The grounds taken by the Revenue read as under: "1. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , according to him, clearly showed that these payments were in respect of the project that was partially executed by the assessee. The learned counsel for the assessee stated that the entire accounts of the incomplete projects are still open and are not closed due to different types of disputes that are raised but it is fairly agreed that the assessee is required to transfer all the incomplete work in favour of the DCM and the DCM is also bound to give credit of the receipts in respect of the projects which were booked by the assessee firm. The Bench examined the accounts and tried to appreciate some more details. It came out that the accounts showed that the assessee firm had incurred the project expenses to the extent of Rs. 6,98,47,768 and has also received from the prospective buyers the booking amount to the extent of Rs. 16,48,58,688 and larger questions were raised as to the taxability of net receipts from the projects after the adjustment of loss incurred on such project if we reach a conclusion that the project in question got determined as a result of settlement agreement dt. 13th Oct., 2000. 17. We will examine the settlement agreement in the light of these financial f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fulfil all liabilities, duties, contracts and engagements of the KNA and Ansals in relation to their respective prospective buyers and under the provisional bookings made with them. The parties state that this is in consonance with the undertaking given by DCM before this Hon'ble Court and recorded in its order dt. 21st Aug., 1998 to the effect that it will honour all the commitments made by the KNA and Ansals to their respective prospective buyers and to which DCM continues to be committed. 18. All these clauses in the settlement agreement point out to one thing that the incomplete project is the subject-matter of abandonment or transfer in favour of the DCM. The assessee has received Rs. 16,48,58,688 in respect of the project from the persons who booked flats in the project. He has transferred these liabilities to DCM. It has spent Rs. 6,98,47,768 on the project and the same was transferred to DCM clearly meaning thereby that if the project is taken as complete on such termination, the assessee has clear surplus of over Rs. 9.50 crores. The AO has not even examined the tax implications of these issues upon the said settlement, but confined himself as to the taxability in r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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