TMI Blog2014 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... spute relating to shares and land was involved - for the purpose of taxability/assessability of sum of ₹ 1.20 crores, the amount of ₹ 33,38,135, and ₹ 15 lakhs has to be segregated, because, the sum of ₹ 33,38,135, pertains to transaction of shares which is to be assessed and taxed under the head capital gains, which is not taxable by virtue of Article–14(6). The balance sum of ₹ 71,61,865, i.e. can neither be taxed as capital gain nor as income from other sources for the reason that the lump sum amount which has been agreed under the terms of settlement is basically a kind of compensation on account of personal damage done by Ms. Rashmi Agarwal, on the assessee for committing fraud, misappropriation of assets and breach of trust - it is not a case here, where the compensation has been paid on some kind of a breach of any agreement in the course of business or any transaction or any breach of contract between the two parties - Neither it is in the form of any interest on some principal amount, because nowhere it has been mentioned that M/s. Rashmi Agarwal, will pay any interest on the delayed payment of shares sold by her in the year 2002 - Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld.CIT (Appeals), without verification of facts, erred in concluding that the consideration of Rs.l.20 crores (received in addition to ₹ 60.32 lacs received in May, 2002) represents payments payments received for transfer of shares, though there was no proof of such transfer and whether the amount received was share consideration. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in coming to the conclusion that shares were sold in Assessment Year 2005-06 when there was no evidence of their sale at that point of time. In fact if at all the shares can be considered as sold- it is in 2002. The Ld. CIT (Appeal) ought to have verified the actual date of sale before deciding the issue especially when the part sale proceeds of ₹ 60.32 lacs were allegedly received by the assessee as early as in May, 2002. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in coming to the conclusion that the amount of ₹ 33.38 lacs mentioned in the 'Settlement' is out of the sale proceeds of the said shares. No evidence exists to prove that these proceeds were relatable to the sale of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the dispute. Hence, the total consideration received for the shares is taken at ₹ 1,62,29,000/ . Since the assessee gave up her claim to the said shares on reaching the settlement on 11.6.2004, i.e. in the previous year ended 31.3.2005, the transfer of those shares has taken place in the previous year ended 31.3.2005, i.e. in the. A.Y. 2005-06. Hence, the tax consequence, if any, of the resultant capital gains that arose to the assessee on the alienation of the said shares is considered in the A Y. 2005-06. Being a resident of France, the assessee claims total exemption in respect of the capital gains that arose on the alienation of the shares referred to in paragraph (2) above. The claim for exemption is based on the provisions of Article 14(6) of the Indo French Tax Treaty, which are reproduced below for ready reference: x x x x x 4. Without prejudice to the above, and only for the sake of completeness of the information, the assessee has worked out the capital gains, if any, on the alienation of the said shares as under; through as stated above, the same are not taxable in India under the Indo French Tax Treaty: Consideration received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the shares were sold for sum ₹ 93,70,135, by Ms. Rashmi Agarwal, on behalf of the assessee in the year 2002 itself. After realising the foul play and cheating on the part of Ms. Rashmi Agarwal, the assessee sent a legal notice and later on implicated her and others, who were involved for the alleged fraud of selling of shares perpetrated by then in the criminal complaint filed before the Addl. Chief Metropolitan Magistrate. On the direction of the Magistrate, Police conducted an enquiry and investigation in the whole matter and gave a prima facie finding that Ms. Rashmi Agarwal, and one Mr. Ambasthan, have fraudulently sold these shares and have cheated the assessee. Once the finding of the police was filed before the Magistrate, Ms. Rashmi Agarwal, sought to settle the dispute with the assessee and come forward with settlement agreement dated 31st Mary 2004, wherein she paid a sum of ₹ 1,20,00,000. It was agreed in the terms of settlement that the assessee will withdraw all the complaints filed against Ms. Rashmi Agarwal and others. Regarding the transfer of shares, the records suggest that Ms. Rashmi Agarwal, had sold these shares for sum of ₹ 93,70,135, out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwal, that compensation was received by the assessee. Hence, the Assessing Officer concluded that the income chargeable under the head capital gain on transfer of shares had arisen in the assessment year 2003 04 and, therefore, such shares cannot be held to be transferred once again in the assessment year 2005 06. In the settlement agreement, there is no mention or any clause about agreeing for a high rise of the market price of the shares for the consideration for compensation. Thus, he held that if at all, any capital gain is to be taxed, then the same is taxable in the assessment year 2003 04 and what the assessee has received in this year i.e., ₹ 1.20 crores, the same is to be taxed as income from other sources. He categorically noted that the compensation received was only to avoid further legal disputes against Ms. Rashmi Agarwal, and, therefore, the consent agreement was signed for receiving the consideration of ₹ 1.20 crores, which cannot be attributed to transfer of shares, but should be taxed as income from other sources, which is characterized as other income under Article 23 fo DTAA between India and France. Since the income of ₹ 1.20 crores has aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was offered the compensation on account of shares. Thus, it could not be conclusively proved that the shares that were sold in the year 2002. Even Ms. Rashmi Agarwal, could not establish that the shares were actually sold in the year 2002. Therefore, it cannot be said that transfer or sale of shares took place in the year 2003 04. As regards second issue, it was submitted that in the terms of settlement agreement, the sum of ₹ 1.20 crores was bifurcated into two parts viz. ₹ 33,38,135, in lieu of dispute of shares and ₹ 86,61,865 for all other disputes which included sum of ₹ 15 lakhs for Alibaug land. It was clarified that there was no other dispute except for Alibaug land and shares, therefore, the major portion of compensation, in real sense was with regard to the dispute of shares only. It was also pointed out that the market value of these shares as on May 2004, was ₹ 1.67 crores and what Ms. Rashmi Agarwal, has deposited earlier was only a sum of ₹ 60.32 lakhs. Therefore, more than sum of ₹ 1.00 crore was on account of higher value of shares at the time of settlement agreement. Thus, the said compensation should be treated as part a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding circumstances, which has been dealt the learned Commissioner (Appeals) in Para 3.8, and, therefore, drew the conclusion that the major amount in question received by the assessee, is closely linked with the main dispute of shares only and partly of Alibaugh land. The value of shares at the time of settlement was around ₹ 1.67 crores and, therefore, approximately ₹ 1.06 crores was towards shares only, because the assessee had earlier received ₹ 63.32 lakhs. Finally, he held that the major amount received from out of Court settlement pertained to misappropriation of shares by fraud and unfair means and, therefore, the assessee s claim to the extent of ₹ 102 lakhs approximately is towards sale of shares; ₹ 15 lakhs towards Alibaug land dispute; and balance for cash withdrawal of ₹ 2.40 lakhs and ₹ 0.63 lakhs for share transfer stamps made by Ms. Rashmi Agarwal. Accordingly, he directed the Assessing Officer to tax the amount of ₹ 15 lakhs for Alibaug land dispute, as short term capital gain and the balance was held to be long term capital gain on sale of shares which admittedly is exempt under Article 14(6) of the DTAA. The relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs in respect of Alibag land transaction. Since I have deleted the main addition of ₹ 1.20 Crore as above. I do not consider it necessary to go into the other alternative grounds and contentions raised by the appellant in this appeal though they support the case of appellant if case is perused from other angle also. Subject to above, this ground of appeal is partly allowed. 8. Before us, the learned Departmental Representative, in her written submission, she submitted that from the facts it is evident that after the death of assessee s father in January 2000, there was dispute with her brothers with regard to the distribution of Estate property including shares. The assessee had given power of attorney in the name of Ms. Rashmi Agarwal, to transfer the shares in her name. In May 2002, Ms. Rashmi Agarwal, has deposited the amount of ₹ 60.32 lakhs, in assessee s bank account, which means that the assessee has received the amount on account of sale / transfer of shares way back in the year 2002. Thus, transfer of shares took place in fy 2002 03 (i.e., A.Y. 2003 04). The dispute and the compliant by the assessee was against her brother and when there was misappropriati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount pertaining to shares mentioned is ₹ 33.38 lakhs only and balance is for other disputes including sale of land at Alibaug at ₹ 15 lakhs. Therefore, it cannot be said that the entire amount should be treated for the purpose of sale of shares. There is no specific mention in the settlement agreement that the amount of compensation is towards shares only. The learned Commissioner (Appeals) himself admits that the settlement document do not throw any light about other disputes, therefore, the amount other than shares is nothing but taxable under the head income from other sources. The ultimate finding of the learned Commissioner (Appeals) are based on surmises that the majority of the compensation received was on account of high market value of shares, because there is no such mention either in the settlement agreement or in some other documents. Thus, the excess income received by the assessee cannot be taxed under the head capital gain and it has to be taxed under the head income from other sources only. 9. The learned counsel filed rejoinder submissions in response to the written submissions filed by the learned Departmental Representative wherein he has rebutted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the assessee and her brothers regarding the distribution of estate reached the stage of Police investigation and when the assessee had filed criminal complaint against her brother, the issue of shares came into lime light, it was then the assessee realised about the fraudulent misappropriation of the shares by Ms. Rashmi Agarwal. The assessee had then sent a legal notice to Ms. Rashmi Agarwal, and later on her name was also implicated in the Police complaint and in the criminal suit; v) When the Police gave a prima facie finding that Ms. Rashmi Agarwal, had fraudulently misappropriated the shares or had sold the shares, thereby cheating the assessee, Ms. Rashmi Agarwal, offered to pay the balance sum of ₹ 33,38,135, as she claimed that the shares were sold for ₹ 93,73,135, in the year 2002 itself; vi) In order to resolve the issue and save herself from criminal proceedings, Ms. Rashmi Agarwal, came forward with out of Court settlement and settlement agreement was executed on 31st May 2004, with the assessee, wherein Ms. Rashmi Agarwal, agreed to pay a sum of ₹ 1.20 crores, which included sum of ₹ 33,38,135, on account of shares. The settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of shares in respect of which Police complaint against Ms. Rashmi Agarwal, was filed by the assessee. The total sale consideration for sale of shares has been said to be for ₹ 93,70,135, out of which sum of ₹ 60,32,000, admittedly has been received by the assessee on 14th May 2002 i.e., in the A.Y. 2003 04. This amount of ₹ 60,32,000, is not the subject matter of dispute before us, in the sense that admittedly it is not the part of compensation amount of ₹ 1.20 crores. The balance amount of ₹ 86,61,865, has been stated in the settlement agreement, as other disputes and differences . One of the other major dispute has been said to be on account of the sale of Alibaugh land for ₹ 15 lakhs, which has been fraudulently done by Ms. Rashmi Agarwal, without the knowledge of the assessee. Insofar as the amount of ₹ 15 lakhs is concerned, the learned Commissioner (Appeals) has directed the Assessing Officer to tax the same under the head short term capital gain against which the assessee is not in appeal. Thus, for this amount, there is no dispute. The balance sum of ₹ 71,61,865, has been stated to be for other disputes . From the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar and to wringgle out from criminal case, Ms. Rashmi Agarwal, agreed to pay the compensation amount. In this situation, such an amount of compensation is nothing else, but a capital receipt which beyond the purview of charging section, that is it is not taxable under the Income Tax Act. Admittedly, it is not a case here, where the compensation has been paid on some kind of a breach of any agreement in the course of business or any transaction or any breach of contract between the two parties. Neither it is in the form of any interest on some principal amount, because nowhere it has been mentioned that M/s. Rashmi Agarwal, will pay any interest on the delayed payment of shares sold by her in the year 2002. Thus, it cannot be taxed as income from other sources under section 56.. Such a compensation is mainly towards damage for breach of trust or fraud which and has no co relation with any such business transactions and, therefore, the compensation amount received by the assessee cannot be taxed under any heads of income. 16. It is trite law that all the receipts in the hands of an assessee would not necessarily be income or deemed to be income for the purpose of income tax, becau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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