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2016 (5) TMI 119 - DELHI HIGH COURT

2016 (5) TMI 119 - DELHI HIGH COURT - [2016] 384 ITR 161 - Amount received covered under Section 10(3) - whether receipts which are of a casual and non-recurring nature? - Held that:- 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 immovable property as part of his business. While it could if at all be said to be .....

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he Act. Having held that it could not be in the nature of capital gain it was not open to the Revenue to seek to bring it to a tax under the revenue 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:- 28-4-2 .....

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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. Goel, Mr. Virender Kumar Goel and Mr. Jitender Kumar Goel against the security of a property situated at 7-A, Friends Colony, New Delhi, which was mortgaged to PNB. On 29th January 1981, the suit was d .....

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red with the office of the Sub-Registrar, Delhi on 6th February 1989. 4. The Judgment Debtors ( JDs ), however, challenged the order of the Civil Court. The matter ultimately reached the Supreme Court by way of Civil Appeal No. 1003 of 1992. The terms of the compromise that was reached between the parties were recorded by the Supreme Court in its order dated 28th February 1992 as under: With the consent of all the learned counsel appearing for the respective parties, the following order is made: .....

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the Delhi High Court which was registered with the Sub-Registrar, Delhi on 6.2.1989. iii) Respondent nos. 2 and 5, namely, Girish Bansal and Gyanender Bansal undertakes to hand over the vacant possession of the plot to the appellants before they withdraw the money from the Court. iv) The first respondent, namely, Punjab National Bank undertakes to deposit the original lease deed of the plot before the Court in case the documents have not been deposited in the Court so far. v) If the original lea .....

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hs 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 .....

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oceedings, the Assessing Officer ( AO ) framed the following questions for consideration: (i) Whether the amount of ₹ 10,00,000/- revised by the assessee is a sale consideration and chargeable to tax under the head of capital gain or not? (ii) Whether the amount received is not a capital gain as claimed by the assessee in the revised return? (iii) Whether the assessee had claimed exemption of this amount and if so under what provision of Income-tax Act? (iv). Whether, the amount received i .....

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cerned, the AO concluded that the sum of ₹ 10,00,000 paid was not covered under any exemption clause of the Act and further that the Assessees had failed to quote any provision of the Act under which they were claiming exemption. The AO concluded that the Assessees had failed to demonstrate that ₹ 10,00,000 was not chargeable to tax. On the fourth issue, the AO concluded that a sum of ₹ 10,00,000 in the hands of each of the Assessees was of a casual and non-recurring nature and .....

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f the Act, the receipt must be both casual as well as non-recurring. In CIT v. Gulab Chand 192 ITR 495 (All), the Allahabad High Court held that even if the receipt did not fall within the ambit of any of the clauses under Section 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 unde .....

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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 April 2003, the ITAT concluded as under: (i) The submission of the Revenue .....

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Court, the Assessees could never be said to have acquired any right in the property, and therefore, they could not have transferred any right therein as well. The ITAT agreed with the counsel for the Assessees that the Assessees had not acquired any capital asset and the receipt was not a capital receipt accessible to tax . Accordingly, the first question was answered in favour of the Assessees. (iii) The word any receipt is of wide aptitude. Again relying on the decision of the Allahabad High C .....

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tion in ITA 136 of 2003: Whether in the facts of the case the amount received covered under Section 10(3) of the IT Act, 1961 deals with receipts which are of a casual and non-recurring nature, or not? 12.1 This court also framed a similar question in ITA 138 of 2003 by an order also dated 14th February 2005: Whether in the facts of the case the amount receive by the Assessee under a compromise recorded by the Supreme Court is a receipt of a casual and non-recurring nature within the meaning of .....

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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 .....

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d non-recurring nature that could be taxed under Section 10(3) of the Act. That provision was not a charging provision but an exemption provision. He submitted that this course was not available to the Revenue as was explained by the Supreme Court in CIT vs. D.P. Sandu Bros. 273 ITR 1 (SC), in which it upheld the decision of the Bombay High Court in V.D. Vakhaskar (supra). He also referred to the decision of the Karnataka High Court in C. Kamala v. CIT (supra) to point out that in similar circum .....

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venue that it was never the case of the Revenue that the sum of ₹ 20,00,000 received by the Assessees was a capital receipt or that it attracted capital gains that could be brought to tax as such. He submitted that at the time when the AO framed the assessments and the CIT (A) heard the appeals thereagainst, the decision of the Allahabad High Court in Gulab Chand (supra) was still good law and, therefore, they were justified in treating the receipt to be of casual and non-recurring nature .....

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229 (Del.). 17. Mr. Singh sought to develop an alternative argument that if the Court is not inclined to sustain the impugned order on the ground that the receipt in question could not be brought to tax under Section 10(3) of the Act, then the plea that it was in the nature of a revenue receipt should be considered. According to him the difference between the auction sale consideration of ₹ 10,05,000 paid by the Assessees and the sum of ₹ 20 lakhs received by them constituted the int .....

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ounsel 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 t .....

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ich is paid, on the receipt of which amount they cease to have right . It was specifically recorded in para 11 of the impugned order by the ITAT that The Ld. DR submitted that the assessee in their wisdom agreed and consented to take the compensation for giving up of the right in the property and once having received the amount be it given in any name the said amount is to be brought to the tax and taxed not only under the proper hands but also in the proper heads . After having said so, learned .....

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er words the case of the Revenue was not that a sum of ₹ 20,00,000 was in the nature of revenue receipt in the hands of the Assessees. Realising this difficulty, it was urged by Mr. Singh, that the above stand was taken by the Revenue only in the light of the decision of the Allahabad High Court in Gulab Chand (supra) which at the relevant time was still good law. 21. Be that as it may, the Court finds that the Revenue cannot be permitted to shift its stand from one forum to another. The c .....

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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 .....

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of the Revenue that the above sum of ₹ 20 lakhs constituted revenue receipt in the hands of the Assessees. Not a receipt taxable under Section 10 (3) 23.1 The settled legal position is that all receipts do not constitute income. For a receipt sought to be taxed as income, the burden lies upon the Revenue to prove that it is within the taxing provision. Among the earlier decisions of the Supreme Court is Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC). There the Assessee explained .....

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e of the Assessee that the receipts were income that was exempted from taxation. Her case was that the receipt does not fall within the taxing provisions at all. It was explained by the Supreme Court as under: In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing, provision. Where however a receipt is of the nature of income, the burden of proving, that it is not taxable because it falls within in exemption prov .....

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f the disclosure. 23.4 After analysing the evidence it was concluded that what the Assessee had received was not accessible to tax. 24.1 In C. Kamala (supra), the facts were more or less similar to the facts on hand. The Assessee was declared purchaser of certain immovable property for ₹ 125 at a court auction held in 1962. The JDs then filed an application under Rule 90 Order 21 of CPC to get the sale set aside. After their application was dismissed by the executing court the JDs filed an .....

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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 t .....

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20,000 which was received by the Assessee could not be treated as long term capital gains. 25.1 In Travancore Rubber (supra) the Assessee was the plantation company engaged in the business of growing rubber and tea. It entered into three agreements with the purchasers for sale of old rubber trees. The purchasers paid a certain amount by way of earnest money and another sum by way of advance under the three respective agreements. The total amount of earnest money received by the Assessee under t .....

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ble as revenue receipt. While the AO agreed with the Assessee, the CIT (A) sought to revise the order of the AO by exercising revisional power under Section 263 of the Act and held that the amounts forfeited were revenue income. The Assessee succeeded in its appeal before the ITAT. However, the High Court remanded the matter to the ITAT. On remand, the ITAT came to the conclusion that the receipt was not accessible as revenue receipt but as income from other sources . Upon a reference, the High .....

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was held that the amount forfeited was a capital asset of the Assessee and directly related 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 amo .....

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he 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. Srinivasa Setty (1981) 128 ITR 294 (SC) even if a receipt is of capital nature it might not attract capital gains chargeable under Section 45 of the Act for the simple reason that there was no cost of acquisition for the t .....

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ill Co. Pvt. Ltd. (supra). The Bombay High Court followed the decision of the Calcutta High Court in B.K. Roy (supra) and dissented from the decision in Gulab Chand (supra). The question before the Bombay High Court was whether the money received upon surrender of tenancy rights and whether such receipt could be construed to be a casual and non-recurring receipt within the meaning of Section 10(3) of the Act and as such is exigible to tax under Section 56 of the Act. 28.2 In Cadell Weaving Mill .....

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In fact, in the present matter, the surrender value received by the assessee has accrued on transfer of the capital asset but it is not chargeable under section 45 for want of cost of acquisition. However, from that, one cannot bring such a receipt under Section 10(3) because section 10(3) refers to types of income which do not from part of total income. In other words, a receipt has to be income before it comes within the purview of Section 10(3). Section 10(3) does not apply to a capital recei .....

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nstitute "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 asce .....

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ing receipt under Section 10(3). In order to attract Section 10(3), two conditions are required to be satisfied, viz., that the receipt should be casual and non-recurring and that it should not arise by way of business income, salary income or capital gains chargeable under Section 45. Therefore, the aforestated three types of incomes constitute exceptions to Section 10(3). That capital receipts do not fall under Section 10(3). 29.1 The decision of the Bombay High Court was carried in appeal by .....

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nder any other Section since income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate Section and no other . The amount received on surrender of the tenancy right would attract Section 45 and the amounts derived if at all would be taxable only under the head capital receipt and assessable if at all only under Item E of Section 14. That being so, it cannot be treated as a casual or non recurring r .....

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25 ITR 422 (SC), the Assessee had entered into an agreement for supply of a cement plant with a condition that in the event of delay caused in delivery of the machinery, the Assessee would be compensated at 5% of the price of the respective 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 th .....

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