TMI Blog2016 (5) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue receipt. Following the decision in Cadell Weaving Mill (2001 (2) TMI 105 - BOMBAY High Court ), there can be no manner of doubt that what is in the nature of capital receipt, cannot be sought to be brought to tax by resorting to Section 10(3) read with Section 56 of the Act. - Decided against the Revenue - ITA 136/2004, ITA 138/2004 - - - Dated:- 28-4-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr. Sanjiv Sabharwal, Senior Advocate with Mr. Gautam Chopra and Mr. Vinay Gupta, Advocates For the Respondents : Mr. Praveen Kumar Jain, Advocate for Respondent No.1. Mr. Raghvendra Singh, Advocate for Mr. Rahul Chaudhary, Senior Standing counsel ORDER Dr. S. Muralidhar, J. 1. These appeals by the Assessees under Section 260A of the Income Tax Act, 1961 ( Act ) are directed against the common order dated 21st April 2003 passed by the Income Tax Appellate Tribunal in ITA Nos. 2731-32/D-98 for the Assessment Years ( AYs ) 1993-94 and 1994-95 respectively. Background facts 2. The background facts are that the Punjab National Bank ( PNB ) filed a suit for recovery of the loan advanced to M/s The Table Ware Craft Cottage, Mr. R.K. Goe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) The High Court is directed to refund the balance of ₹ 10,05,000 with the accrued interest to the appellants after satisfying the decree of the fist respondent, namely, Punjab National Bank (which amount according to the learned Counsel for the Bank is ₹ 80,000/- in addition to the amount already withdrawn) within two months from today. vii) Immediately after handing over the possession of the plot to the appellants the respondent Nos. 2 and 5, namely, Girish Bansal Gyanendra Bansal are permitted to withdraw the amount of ₹ 20 lakhs deposited in the Registry of this Court. There is no order as to costs. The appeal is disposed of accordingly. 5. Consequent upon the above settlement, each of the Appellants/Assessees received ₹ 10,00,000. The Assessment orders 6. Initially in the returns filed for AY 1996-97 each Assessee disclosed ₹ 10,00,000 as sale price of the plot and declared capital gains of ₹ 2,30,613. In the subsequent revised return the Assessees deleted the amount shown as capital gains. A note was furnished stating Return has been revised due to the reason that the amount received by virtue of decree passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2 (24) of the Act, it would still be 'income' within the natural meaning of that word. There could be capital receipts which at the same time were not taxable under Section 45 of the Act. Therefore, even if the receipt was capital in nature but not taxable under Section 45, they could still be brought to tax under Section 10(3) of the Act. (ii) The amount received by each of the Assessees pursuant to the decision of the Supreme Court was casual and non-recurring income under Section 10(3) of the Act. Impugned order of the ITAT 10. Against the aforementioned order of the CIT (A) dismissing their appeals, the Assessees filed ITA Nos. 2731 and 2732 of 1998 for the aforementioned AYs. The question framed for consideration by the ITAT for consideration was Whether the Assessee had acquired any right in the said property and if the answer to this question is in the affirmative, then what is the nature of that right which the Assessee had acquired? The further issue was if the answer to the question is in the negative, whether the amount received by the two Assessees was liable to be taxed and if so then under what head? 11. In the impugned order dated 21st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the nature of the receipt of ₹ 10,00,000 each in the hands of the two Assessees and whether the AO, the CIT and the ITAT were justified in treating it as a receipt of a casual and non-recurring nature which could be brought to tax under Section 10(3) of the Act? 14. This Court has heard the submissions of Mr. Sanjiv Sabharwal, learned Senior counsel appearing for the Appellant Assessees and Mr. Raghvendra Singh, learned Junior Standing counsel for the Revenue. Submissions of counsel 15. The submission of Mr.Sanjiv Sabharwal is that the sum of ₹ 20,00,000 that was deposited in the Supreme Court was directed to be paid to the Appellant Assessees in view of the order dated 28th February 1992, in lieu of the Assessees agreeing to the cancellation of the sale certificate and the sale deed in their favour. Mr. Sabharwal maintained that in view of the law explained by the Supreme Court in CIT v. Saurashtra Cement Ltd. 325 ITR 422 (SC) and Travancore Rubber Tea Co. Ltd. v. CIT (2000) 243 ITR 158 (SC), it was a capital receipt not taxable under Section 45 of the Act. He submitted that the AO, CIT as well as the ITAT erred in proceeding on the basis that the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration of ₹ 10,05,000 paid by the Assessees and the sum of ₹ 20 lakhs received by them constituted the interest component which was envisaged even under Order 21 Rule 89 Code of Civil Procedure, 1908 ( CPC ). Referring to Section 65 CPC and Order 21 of the CPC he pointed out that the auction purchaser does not perfect his title till the sale deed is actually executed although it would relate to the date of confirmation of sale. He referred to the decision of the Supreme Court in Ramanathan Chettiar v. CIT (1967) 63 ITR 458 (SC). New plea cannot be permitted 18. As far as the last submission of the counsel for the Revenue is concerned, the Court finds that such a plea that the receipt is of revenue nature is being raised for the first time in the proceedings by the Revenue in this Court. As far as the assessment proceedings were concerned, the case of the Revenue was that the receipt was in fact of a casual and non-recurring nature and therefore exigible to tax under Section 10(3) of the Act. Before the ITAT, the submission of the Department Representative ( DR ) as recorded in para 11 of the impugned order was that the Assessees had acquired a valuab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if one were to test the above plea of the Revenue, it appears to be untenable for a simple reason that the receipt of ₹ 20,00,000 by the Assessees was consequent upon the order recorded by the Supreme Court on 28th February 1992 in Civil Appeal No.1003 of 1992. There is no indication in the said order that the said amount constitutes the interest on the sum of ₹ 10,05,000 as is sought to be urged by Mr. Singh. On the other hand, in Clause (vi) of the compromise, extracted hereinbefore, there is a specific direction to the High Court to release the balance of ₹ 10,05,000 with the accrued interest to the appellants after satisfying the decree of the fist respondent, namely, Punjab National Bank.. Where the sum had to be paid together with interest, which was to be deposited in the Registry of the Supreme Court, it is not possible to the Court to presume that the said sum constituted the interest on the auction sale consideration that had been paid by the Assessees. Consequently, the Court is not prepared to accept the plea of the Revenue that the above sum of ₹ 20 lakhs constituted revenue receipt in the hands of the Assessees. Not a receipt taxable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and during the pendency of the appeal, the dispute between the parties was compromised. Under the compromise the Assessee agreed to the sale being set aside on payment of ₹ 20,000 by the person in whose favour the JDs had agreed to execute a sale deed conveying the property in question. Consequently, a compromise was recorded by the Civil Judge and the sale was set aside. The question arose as to the taxability of the sum of ₹ 20,000. The Income Tax Officer ( ITO ) held that the said sum represented long term capital gains and was liable to be taxed as such under the Act. The case of the Assessee was that she had not acquired any title in the property in question and therefore the question of transferring any interest for a consideration of ₹ 20,000 did not arise. The case of the Revenue was that the receipt should be treated as consideration for relinquishment of her interest in a capital asset. 24.2 The Supreme Court C. Kamala (supra) negatived the plea of the Revenue holding that there cannot be any transfer of interest in a capital asset by the auction purchaser when the sale itself is set aside in appeal . It was reiterated The department cannot be permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the sale of such capital. Accordingly, it was held that the forfeited amount ought to be treated as a capital receipt. 26.1 In Gulab Chand (supra) the Assessee was an individual carrying on the business of pawning and dealing in shares. During the relevant AY, he received a sum of ₹ 15,000 for surrendering the tenancy of the godown occupied by him as tenant. Initially, in the return filed the amount was disclosed as a capital gain. Later he contended before the ITO that this was not at all taxable since it was not a revenue receipt. The ITO held it to be a casual receipt within the meaning of Section 10(3) of the Act and after exempting a sum of ₹ 10,000 brought a sum of ₹ 14,000 to tax. The ITAT in appeal considered the amount as representing capital gain. Thereafter, at the instance of Revenue a reference was made to the High Court. 26.2 After discussing Section 10(3) of the Act which talks of receipts which are of casual and non-recurring nature which are exempted to the extent that they do not exceed to ₹ 5,000 to the aggregate, the High Court of Allahabad in Gulab Chand (supra) concluded that in the light of the decision in CIT v. B.C. Srin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstance to show as to how such a receipt would constitute income item. 28.4. It was further observed as under: 45. They did apply the head, viz., Capital gains . However, when it came to computation, the Department found that cost of acquisition cannot be computed. Hence, it is now sought to be argued that such capital gains would constitute income from other sources under Section 56. In the case of United Commercial Bank Ltd. v. CIT , it has been held that income which falls under one specific head could not be brought to tax under any other head. If for any reason, the computation machinery fails, it is not open to the Department to apply the residuary clause . 28.5 In Cadell Weaving Mill Co. Pvt. Ltd. (supra), the Bombay High Court summarized its findings as under: Whenever there is a receipt, one has to ascertain its source. If it is a business income or salary income or capital gains chargeable under Section 45 and, if so, it is taxable under that head, then no further inquiry has to be made, viz.; whether the receipt is casual and non-recurring. Since capital gains are brought within the tax net under Section 45, they cannot fall in Section 10(3); If an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e portion of the machinery without proof of actual loss. With the supplier failing to supply the machinery within the stipulated time, the Assessee received ₹ 8,50,000 by way of liquidated damages, whereby the ITAT held this to be a capital receipt and the High Court answered in favour of the Assessee, the Revenue went in appeal before the Supreme Court. 30.2 Affirming the decision of the High Court, the Supreme Court in CIT v. Saurashtra Cement Ltd. (supra) held the damages received by the Assessee were directly and intimately linked with the procurement of a capital asset viz., the cement plant. The amount received by the assessee towards compensation for sterilization of the profit-earning source, not in the ordinary course of business, was a capital receipt in the hands of the assessee. 31. Examined in light of the legal position explained in the above decisions, the Court is of the view that as far as the present case is concerned, the sum of ₹ 20 lakhs received by the Assessees was in the context of the cancellation of the sale certificate and the sale deed executed in their favour in relation to an immovable property and neither Assessee was dealing in im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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