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2016 (9) TMI 948 - ITAT DELHI

2016 (9) TMI 948 - ITAT DELHI - TMI - Taxing of compensation - revenue or capital receipt - Held that:- Huge compensation was awarded by the arbitrator. The basis of award remained the lost profit due to non-supply of the knowhow and not on loss of profit and that newly installed machinery in absence of supply of knowhow have gone completely wasted. Reliance was placed on several decisions. After dealing with the issue in detail, the ITAT has decided the issue in favour of the assessee. When we .....

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JMA Buildcom.(P) Ltd. In other words, the basis of award remained the lost profit due to non-supply of the land i.e. profit making apparatus and not on loss of profit. We thus find that the only inference can be drawn is that the compensation received by way of reward due to non-supply of land by JMA Buildcom (P) Ltd. under the agreement was capital receipt. - ITA No. 5054/Del/2011, ITA No.5058/Del/2011 - Dated:- 12-8-2016 - SHRI I.C. SUDHIR AND SHRI J.S. REDDY For The Assessee : Shri P.C. Yada .....

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in the circumstances of the case, the Learned CIT(Appeals) has wrongly rejected the additional evidence, I the shape of fard of land and resolution of the company, produced by the as per the provision of Rule 46A. 3. The Learned CIT(Appeals) has erred in not appreciating that sufficient cause was there due to which the assessee could not place these evidences before the A.O. 4. Learned CIT(Appeals) has erred in ignoring that the assessee was not the dealer of agricultural land and the object cl .....

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7. Learned CIT(Appeals) has failed to appreciate that the additional evidences which were produced before him as per the provision of Rule 46A proves beyond doubt that the land in relation to which the compensation was received by the assessee was an agricultural land. 8. Learned CIT(Appeals) has further failed to appreciate that from day 1 the assessee has treated this amount as investment in his books of account and has neither claimed the amount as Revenue expenses nor capitalized. 9. The Lea .....

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and 8 questioning the action of the Learned CIT(Appeals) in rejection of the application for additional evidence have not been pressed. These grounds assessee accordingly rejected as not pressed. 4. The main issue raised in ground No.2 is as to whether the Learned CIT(Appeals) was justified in upholding the action of the Assessing Officer in taxing the compensation of ₹ 1 crore as Revenue receipts against the claim of the assessee as capital receipts. 5. The relevant facts are that the ass .....

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, namely, A.R. Developers (P) Ltd. entered into an agreement to sell dated 02.03.2005 with GMA Buildcom (P) Ltd. to purchase 10 acres of land for a consideration of ₹ 15 crores in village Bhattian, Tehsil and District Ludhiana (Punjab). Since GMA Buildcom (P) Ltd. failed to transfer minimum land of 10 acres within the prescribed and extended time limits as per the terms of the agreement. The matter was settled through arbitration award dated 11.8.2006 wherein following compensations were a .....

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ore particularly in the audited profit and loss account. In the notes of accounts, the auditor has commented that the said income was earned by the assessee in pursuance to an agreement dated 05.03.2006, executed with JMA Buildcom (P) Ltd. towards non-fulfillment of terms and conditions of the earlier agreement, however, in the computation of income the assessee claimed this income as exempt and reduced this income while computing its taxable profit. The Assessing Officer, however, held that the .....

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nue receipt, is that the agreement was entered into normal course of business by the consortium. Finding/ observation of the CIT(A) in this regard are at Page No 17 Para-11 of the CIT(A) order:- In rebuttal to this observation the submissions of the assessee are as under:- a. Consortium was formed for the first time in 2005 and there is no material on record to prove otherwise. It is submitted that expression normal course of business presuppose some business and in this case the assessee and it .....

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O and CIT (A), though categorically observed in their respective orders that the assessee and its associates have entered into agreement to sell with JMA buildcon, however failed to appreciate that the assessee in its individual capacity, had not entered into agreement to sell with JMA buildcon. It is submitted that had it been a case where assessee would have entered into the agreement independently then situation would have been completely different. c. The lower authorities failed to apprecia .....

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osition completely ruled out. e. It is settled position of law that under taxing provisions every step of a transaction would have to be seen carefully before reaching to any conclusion. A reference can be made to the decision of Hon ble Apex Court in the case of Vodaphone reported in 341 ITR 1 (SC). f. Further assessee seeks to rely on the judgment of Hon ble Pune Bench of the Tribunal in the case of Aquapharam in ITA No 372/Pune/2002 dated 29.02.2012. Copy of the decision is enclosed in Paper .....

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y case of Aquapharam the Hon ble Bench of the ITAT while dealing objection C of the revenue, has held that compensation received by the assessee for an injury because of which an assessee failed to commence a new business would be capital receipt.( See Page No 19 of the PB) 2. Object clause of assessee does not exclude deals of agriculture land and the assessee was not an agriculturist:- The CIT(A) in its order in Para 8 at Page no 16 and in Para 12 at Page No 17, has observed that the objects o .....

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agreement entered into by the assessee in normal course of business then too the amount is not taxable as revenue receipt because what was lost was agriculture land and not a piece of land ready for sale immediately after purchase. b. However, the CIT (A) wrongly interpretating the clauses of the MOA of the Company has held that the object clause does not exclude agriculture land The Copy of Memorandum of association and Article of association of the assessee company are in Paper Book page No 3- .....

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re land. d. The AO in his two remand reports (Page No 81-82 and 93-97) have not denied the status of the impugned land as agriculture land. However discarded the claim of the assessee on the ground that assessee was not an agriculturist and intention of the assessee was to develop the upcoming project- See observation of the AO at Page No 81-82 and in subsequent remand report. Therefore, it can be said that the AO has accepted that the land in question was an agriculture land on the date when th .....

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egard the AO and CIT (A) have relied on the decision of Sarifabibi reported in 204 ITR 631 (SC) for holding that cultivation of land is sine-qua-non for treating some land as agriculture land. Finding of CIT(A) in this regard as page no 17 of the CIT(A) order.- 3. In this regard it is submitted that status of an assessee whether he is agriculturist or not is not relevant and what is relevant is the character of land at the time of entering into the agreement to sell. This proposition is further .....

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ces Vs ACIT reported in 335 ITR 77 (Del) wherein it has been held that the fact that the assessee has not cultivated the land since long does not change the character of the land. Relevant observations of their lordship are reproduced hereunder:- The fact that the assessee intended to use the land for industrial purposes did not in any way alter the nature and character of the land. The further fact that the assessee did not carry out any agricultural operations did not also result in any conver .....

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clear finding given by the Tribunal that on the date of the purchase and as also on the date of acquisition, the land in question was agricultural land. Having come to such a conclusion, the Tribunal ought not to have gone into question of intention of the assessee and definitely not into the question of intention of the land acquiring authority, the latter being a wholly irrelevant consideration. In these circumstances, the land acquired from the ownership of the assessee was agricultural land .....

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o been shown therein. The area mentioned in the extract of 7/12 has been classified as cultivable land. In the 7/12 extracts, it is also indicated that the land was cultivated by the owner himself, i.e. Khudd. The nature of crop produced is mentioned as rice and animal feed grass in Gat Nos. 418, 419, 420, 421 and 422, rice and jawar in Gat No. 423, animal feed grass in Gat No. 424 and rice and animal feed grass in Gat No. 426. On perusal of the details of 7/12 extracts, the following facts are .....

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een produced by the assessee to show and establish that the agricultural produce in the nature of rice, jawar andanimal feed grass were produced from the said land. On the other hand, no evidence has also been produced by the Revenue to show and establish that the land was used for some other purposes other than agricultural purposes. It is nobody s case that the assessee had used the land for nonagricultural purposes before selling the same. No permission for non-agricultural use has also been .....

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ment thereupon or without establishing and proving that the land was put into use for non-agricultural purposes does not and cannot convert the agricultural land into non-agricultural land 7. Similarly the Pune Bench of the ITAT in the case of lavleen Singhal Vs DCIT reported in 111 TTJ 326 has held that merely because a land is not cultivated since last 14 years that does not mean that it has losses its character of agricultural land. Copy of the judgment is annexed with this synopsis- 8. It is .....

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where the real estate dealers purchase some agricultural land, the dealers don t include the land in their stock in trade till the conversion of the same into developed land. The AO in his first remand report has also accepted that land in question was to be converted into nonagriculture land after taking approvals from Govt. 10.It is submitted that no material has been brought on record either from the balance sheet and other documents to prove that the assessee has taken steps towards the dev .....

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submitted that the observation of the AO in the body of assessment order and in remand report number-1 also support the factum land was never become the stock in trade of assessee. This fact is also evident from the words in the present case of the assessee, the land was proposed to be purchased as part of stock in trade by the assessee Company . 12.It is view of the facts mentioned in Asst order and remand report it is an admitted fact that stock in trade was never conceived by the assessee the .....

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inciple of law as laid down by the apex court in the case of Universal Radiator reported in 201 ITR 800 are squarely applicable to the facts of the assesee s case. Copy of the decision is annexed decision Paper Book, wherein it has been held that compensation received on destruction of some product from which stock in trade was to be manufactured is a capital receipt . 8. The Learned DR on the other hand placed reliance on the orders of the authorities below. He submitted that initially compensa .....

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the knowhow against which compensation was awarded. He placed reliance on the following decisions: i) Sumati Dayal Vs. CIT (1995) - 214 ITR 801 (SC); ii) Durga Prasad More vs. CIT (1971) - 82 ITR 540 (SC). 9. In rejoinder, the Learned AR submitted that there is no any allegation of colorable device to obtain the award and the only issue involved is as to whether the compensation received on the breach of the agreement by the assessee is Revenue or capital in nature. 10. Considering the above su .....

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nd the Assessing Officer has held it as revenue in nature. In support of its claim, as discussed above, the assessee contended that the agreement with JMA Buildcom (P) Ltd. to arrange land was entered into normal course of business observed by the Assessing Officer has no relevance as the consortium between some entities as one part and JMA Buildcom (P) Ltd. as other part of the agreement had for the first time joined hands together to carry on business in the state of Punjab. However, before th .....

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normal course of business proposition by the Assessing Officer does not stand. It was contended that under taxing provisions, every step of a transaction would have to be seen carefully before reaching to any conclusion. Heavy reliance has been placed by the Learned AR on the decision of Pune Bench of the ITAT in the case of Aquapharm Chemical Co. Ltd. vs. JCIT (supra). Having gone through that decision, we find that in that case the assessee company was incorporated in 1974 with its primary ob .....

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f technical knowhow fees and it received certain technical information and drawing from AIK. Since the information provided by AIK was not sufficient, the assessee could not start its manufacturing activity of fire retardant chemicals. Despite repeated requests by it, AIK refused to divulge any further information and took the stand that it had supplied all the necessary information. The assessee company left with no alternative but to go into arbitration as per technical knowhow agreement and t .....

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