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2015 (4) TMI 838 - BOMBAY HIGH COURT

2015 (4) TMI 838 - BOMBAY HIGH COURT - [2015] 374 ITR 474 (Bom) - Revision u/s 263 - whether the Order passed by the AO under Section 143(3) r.w.s. 144A was erroneous and prejudicial to the interest of the revenue? - whether compensation received by the Appellant as per the Consent Terms dated 19.08.1994 was on account of relinquishment of the claim for specific performance and, therefore, the same was liable to capital gains tax ? - Held that:- In the present Appeal, the Tribunal failed to note .....

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Court applies its mind and records a satisfaction that the terms are not contrary to law or public policy. That they can be accepted and based on that a Decree 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 Court and in terms of Order XXIII Rule 3 of the Civil Procedure Code, 1908. In such circumstances, even if there was any interim order in favour of the Assessee i .....

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ourt, 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 Court has not undertaken any mechanical exercise or has not casually and lightly accepted .....

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any person sues for specific performance of a contract for the transfer of immovable property.The agreement for sale of immovable property itself does not create any right, title or interest in the immovable property, which is subject matter of such agreement but creates a right to obtain performance of the agreement by approaching Court of law and seeking a Decree of specific performance in terms of the Specific Relief Act, 1963. It is that limited right which is recognised by law and the diff .....

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swer is in favour of the Assessee holding that the amount of compensation received by the Assessee/Appellant was not liable to capital gains tax.

It is held that the Appellant's case was covered by the ratio of this Court in the case of Commissioner of Income Tax vs. Abbasbhoy A. Dehgamwalla and Ors. [1991 (4) TMI 38 - BOMBAY High Court] - Decided in favour of assessee. - Income Tax Appeal No. 1126 of 2000 - Dated:- 9-4-2015 - S. C. Dharmadhikari And A. K. Menon,JJ. For the Petitioner .....

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e Commissioner was passed by invoking the powers conferred in him under section 263 of the Income Tax Act, 1961 (for short the "IT Act"). 3. This Appeal has been admitted on the following substantial questions of law: "(i) Whether the Tribunal was justified in holding that the Order passed by the AO under Section 143(3) read with Section 144A was erroneous and prejudicial to the interest of the revenue and, therefore, the CIT was justified in exercising the jurisdiction under Sect .....

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bbasbhoy A. Dehgamwalla (195 ITR 28) ? (iv) Whether the Tribunal was justified giving in a judgment on the merits of the case in spite of the fact that the CIT had directed the AO to make fresh assessment as per law ?" 4. Somewhere around June, 1989, the Appellant had entered into an oral agreement with one M/s. Eastern Ceramics Limited (hereinafter referred to as "ECL") to purchase a factory premises at Goregaon, Mumbai along with a vacant piece of land for a total consideration .....

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Understanding (MOU) dated 23rd February, 1990. 5. During the period relating to the assessment year 199091, number of meetings took place between the Appellant and the said ECL for finalizing the Sale Agreement, but ultimately, the said ECL backed out of the said oral agreement. The Appellant filed a Suit in October, 1990 before this Court with a prayer, inter alia, for specific performance and in the alternative, for grant of damages for breach of the said agreement. After prolonged litigation .....

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Arbitration Award dated 30th September, 1995 by the Arbitrator, the Appellant was required to pay ₹ 15 lakhs to the said CEL as compensation or damages for breach of the said agreement. 7. The Appellant was advised by Mr. V. H. Patil, Advocate, vide his opinion dated 9th January, 1996 that the amount of ₹ 5 crores received by them under the said Consent Decree from the said ECL was by way of damages after the breach of oral agreement and hence, the same represented a capital receipt .....

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t. Accordingly, he made a reference to the Commissioner of Income Tax, who confirmed his view and directed him to decide this issue in regular assessment proceedings after discussing the matter with Range Deputy Commissioner of Income tax. 9. The Appellant, vide his letter dated 24th May, 1996, made an application to the Deputy Commissioner of Income Tax (Range-21), Mumbai, under section 144A of the IT Act, enclosing brief facts, case laws, opinion of Mr. V. H. Patil, Advocate and requested him .....

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e Assessing officer vide his order dated 27th May, 1996 under section 144A of the IT Act which are reproduced by the Assessing Officer in his assessment order. As per the said directions, said receipt of damages was not taxable in the hands of the Appellant neither as business income nor as capital gains, nor as casual or non recurring receipt. Accordingly, the Assessing Officer completed the assessment. 12. The Assessing Officer passed order as per the directions of the Deputy Commissioner of I .....

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onsider the decision of the Bombay High Court in the case of Commissioner of Income Tax vs. Vijay Flexible Containers, reported in (1990) 186 ITR 693 and therefore, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. It needs to be appreciated that the documents filed by the Appellant before the Deputy Commissioner of Income Tax, contained reference to the said decision, but the Appellant urged that the said decision is not applicable to .....

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ch has confirmed the order of the Commissioner of Income Tax. 16. Mr. Toprani, learned Advocate appearing for the Appellant submits that the impugned order is contrary to law. Mr. Toprani submits that on the available material, the Commissioner could not have concluded that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The Assessing Officer made inquiries and arrived at certain conclusions which cannot be interfered with or upset merely because a .....

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rt has held that the Appellant had no right, title or interest in the suit premises. The appellant had merely a right to sue for which it has been awarded damages. 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 case of a mere right to sue. It has made clear that the right to sue for damages is not an actionable claim and is not a capital asset, and therefore, damages received pu .....

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ng that if there are two decisions of the same High Court holding two different views, then, in that case, later decision has to be followed and therefore the later decision of this Court in the case of Abbasbhoy Dehgamwalla and Ors. (supra) should be followed. He therefore submits that the Appeal be allowed. 19. On the other hand, Mr. Pinto appearing for the Revenue supports the view taken by the Tribunal. He submits that the questions of law though termed as substantial, would have to be answe .....

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cable. The questions of law be answered accordingly. 20. We have heard both sides and with their assistance, we have perused the Appeal paper book. The facts are not in dispute, inasmuch as the Appellant had entered into an oral agreement with ECL to purchase an immovable property for total consideration of ₹ 5.80 crores. He paid ₹ 5 lacs as earnest money on 21st July, 1989. We are not concerned as much with the other agreement executed by the Appellant/Assessee. In the present case .....

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e of an Appeal against certain interim orders, the matter was settled and Consent Terms came to be drawn between the parties. These Consent Terms, copy of which is at page 21 to 23 of the Appeal paper book, read as under: "CONSENT TERMS 1. Declared that the Plaintiffs have no right, title or interest in the property described in Ex. 'A' to the Plaint save and except as provided herein. 2. The Defendants do pay to the Plaintiffs the sum of ₹ 5 Crores on or before 28th February, .....

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us sale proceeds if any to be paid to the Defendants. 5. Till the decretal debt is paid the order dated July 10, 1994 to continue. 6. Save as above the Plaintiffs have to other claim against the Defendants. 7. No order as to costs. Dated this 19th day of August, 1994." 21. The Division Bench of this Court accepted these Consent Terms and decreed the Suit by Consent Decree dated 19th August, 1994. It was held that the Plaintiff, namely, the Appellant before us has no right, title or interest .....

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ement with one Captain B. V. Dhuru and others on 10th November, 1959, whereunder the Assessee agreed to purchase from the said Dhuru and others the immovable property described in the schedule thereto at the rate of ₹ 35 per square yard to be paid in the manner set out. Upon the execution of the said agreement for sale, the Assessee paid to the vendors as required by the said agreement for sale, the sum of ₹ 17,500/- as earnest money. The Assessee was constrained to file a Suit in th .....

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cer found that deducting the cost of acquisition of the capital asset in the amount of ₹ 17,500/- and expenses and legal charges in the sum of ₹ 17,904/- the capital gain to be ₹ 82,086/-. The Assessee was aggrieved by this order or view of the Assessing Officer and therefore, preferred an Appeal and in which he succeeded. The First Appellate Authority held that the Agreement for Sale did not bring a capital asset into existence. The Revenue preferred an Appeal against this dec .....

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vendors but also against a transferee with notice or a gratuitous transferee. He could assign that right. What he acquired under the said agreement for sale was, therefore property within the meaning of the IT Act and consequently a capital asset. In the Suit that he filed, a settlement was arrived at, at which point of time, the Assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him of the imm .....

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breach of agreement even if worded the receipt of that sum could be taxed as the Assessee's income under the head capital gains. That could not have been taxed as such after the Assessee's right to obtain specific performance was extinguished when the Court refused to grant such a relief. 25. Thereafter, the alternate argument of the Revenue that the right to receive damages for breach of contract represented the consideration of the original right has been dealt with. The Division Bench .....

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ch a transfer cannot be obtained as the Decree for specific performance has been refused, then, the receipt of monetary sum cannot be taxed as claimed by the Revenue. This is apparent from a reading of paras 8 and 9 of the Division Bench Judgment. In these circumstances, the reliance placed on another Division Bench Judgment of this Court need not be considered. 26. In the present Appeal, the Tribunal failed to note that in this case as well the specific performance of the agreement was refused. .....

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y to law or public policy. That they can be accepted and based on that a Decree 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 Court and in terms of Order XXIII Rule 3 of the Civil Procedure Code, 1908. In such circumstances, even if there was any interim order in favour of the Assessee in the present case eventually the Suit ended in the Assessee's claim for spec .....

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quirement 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 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 an .....

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clearly refused. The other observations of the Division Bench deciding the case of Abbasbhoy A. Dehgamwalla and Ors. (supra) and Vijay Flexible Containers (supra) need not be considered. We do not think that the Assessee had any right left or remaining in him to claim the immovable property, which is subject matter of the oral agreement. That right got extinguished once the specific performance was refused. Even if the refund of earnest money or compensation is the relief granted, it is apparen .....

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tiff may also claim compensation for its breach, either in addition to, or in substitution of such performance. When such relief is claimed in substitution of performance, then, by virtue of subsection (2) of section 21, the Court can award the Plaintiff compensation even if it decides the specific performance ought not be granted. However, there are specific provisions which the Plaintiff must comply with. Eventually, the jurisdiction to decree specific performance conferred in a Court is discr .....

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d right which is recognised by law and the difference between contract for sale of an immovable property and sale as emerging from section 54 of the Transfer of property Act, 1882 is thus explained. 28. In this context, the following observations of the Hon'ble Supreme Court in the case of Bai Dosabai vs. Mathurdas Govinddas and Ors. Reported in AIR 1980 SC 1334 are pertinent. "..... The ultimate paragraph of Section 54 of the Transfer of Property Act, expressly enunciates that a contra .....

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