TMI Blog2018 (4) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... taxability and section 56 (2) (viii) the head under which it is chargeable - the character of income should be interest on compensation or enhanced compensation. As held that it is not interest but compensation. Section 56 (2) (viii) also does not provide for taxation of compensation but only interest on such compensation. In the present case, the assessee has received compensation. Ld DR also could not show that if the amount received is interest on compensation what the amount of compensation itself is. In view of this, we reject the contention of the revenue that provision of section 56 (2) (viii) applies to the impugned amount. - Decided in favour of assessee Rectification of mistake u/s 154 - Held that:- Section 154 of the Act was not applicable in this case. Right to rectify mistakes under section 154 could not be invoked in a case of mere change of opinion. A rectifiable mistake was a mistake, which was obvious, and not something, which had to be established by a long drawn process of reasoning or where two opinions were possible. A decision on a debatable point of law could not be treated as a mistake apparent from the record. In the present case, firstly it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee is subjudice and not final and further is a capital receipt. Therefore, revenue is in appeal before that order of CIT (A) in ITA no 3099 / Del/2016. 5. In ITA No 505/ Del/2016 by assessee, Ground No 1 is against the charging of ₹ 31907676/- to tax by the ld AO where the claim of the assessee is that it is a capital receipt. It was found by the AO that in the balance sheet of the assessee ₹ 31907676/- was added in capital reserve and assessee has claimed TDS credit of ₹ 5441122/-. On query, the assessee submitted that it has received compensation from Debt Recovery Tribunal (DRT) on sum paid in auction for purchase of property, which after issue of sale certificate was cancelled. Hence, above sum is capita receipt. Therefore, above compensation received from DRT is transferred to capital reserve in the books of accounts. It was further stated that above compensation is on cancellation of auction for purchase of land. The main contention of the assessee was that above sum is a capital receipt and not chargeable to tax. The assessee submitted that it originally acquired right for purchase of property because of auction carried out by Punjab Nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st but remains the damages. He submitted that before considering any sum as interest it needs to be tested whether such sum is in relation to any debt incurred by the assessee. He further referred to the order of the Hon ble Punjab Haryana High Court dated 25.8.2010, 21.09.2010 to state that amount received by the assessee is not interest but capital receipt. 9. The Ld. DR vehemently contested the argument of the Ld. AR and submitted that in the appeal the CIT (A) has correctly held that above sum is chargeable to tax as interest. He further stated that there is an amendment u/s 56 (1) (viii) wherein any income by way of interest received on compensation is chargeable to tax as income from other sources. He further stated that such income is revenue receipt. 10. We have carefully considered the rival contentions and perused the orders of lower authorities. Admittedly, assessee is not in business of real estate. Brief facts shows that Assessee Company participated in the auction carried out by Punjab National Bank, Chandigarh on 5.12.2006 through Debt Recovery Tribunal in respect of property mortgaged by M/s. Sanmati Rice Mills as a security for borrowed fund. The assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f DRT. The revenue could not show that at the time of auction there was any condition of payment of interest to the assessee in case the auction is cancelled. In fact as per certificate of sale dated 02.03.2007 even the possession of the property was also given confirming the sale absolutely in favour of the assessee. Even otherwise as per the provisions of section 2(28A) of the Act interest means interest payable in any manner in respect of money borrowed or debt incurred including a deposit, claim or other similar rights. In the present case, the above sum was not payable to the assessee because of any such debt incurred. The assessee purchased a property in auction which was transferred to assessee, subsequently the sale was cancelled, so assessee was paid original sum and some further amount which was earned by bank as interest thereon from the date assessee paid to the bank till the date of order. Therefore, above sum cannot be considered as interest. Now, it is required to be examined that whether such sum received by the assessee is a capital receipt or revenue in nature. As held by the Hon ble Supreme Court in CIT Vs. Saurashtra Cement Ltd. 325 ITR 422 that the question whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reon (reserve price Rs . 3 crores) . Item 19: Furnitue in item No. 17 (reserve prices ₹ 4 lakhs) Item 20: Air conditioners and generator sets in item No. 17 (reserve priced ₹ 15 Lakhs). The assessee company gave its bid to these three items i.e. item No. 17, 19 20 at ₹ 3.14 crores, ₹ 4.5 lakhs and ₹ 15.5.lakhs respectively. On 10.12.2004 there was an inter se bidding between the assessee company and two other perspective tenderers namely M/s Star Point Financial Services Ltd. and M/s S.K. Khaitan Pvt Ltd. The assessee company increased the offer in respect of item No. 17 to ₹ 3.16 crores. Ultimately the Company Judge vide his order dated 10.12.2004 accepted the offer of Winsome. Winsome had deposited balance sale price on 13.12.2004 and took the possession of various items on 16.12.2004. Since plot No. B-77 comprised in item No. 17 was a lease hold property taken on lease from Punjab Small Industries and Export Corporation Ltd (In short PSIEC), the official liquidator gave no objection certificate for transfer of the lease from the name of Punwire to the name of Winsome on 29.12.2004. In pursuance of it Winsome applied to PSIE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rested to purchase plot No. B-77, Ph VII, IA, Mohali and Sun Group was willing to offer the same price of ₹ 11.6 crores for the property (item No. 17). The Employees Union further submitted that in the interest of workers Winsome should take reasonable profit and give up the property in favour of Sun Group so that the workers and creditors will be benefited. At this juncture the Hon'ble Supreme Court asked Winsome whether Winsome was interested to consider the offer of Sun Group. After sometime and due deliberations ultimately Winsome agreed to the proposal provided it received a sum of ₹ 6.36 crores for item No. 17, 19 20 for expenses towards interest etc. and compensation for deprivation of its property. There was no objection to the proposal by the other parties. In view of these facts the Hon'ble Supreme Court exercised its powers under Article 142 of the Constitution and accepted the settlement. Accordingly the Hon'ble Supreme Court accepted the settlement on the following terms: Sun group shall pay a sum of ₹ 6.36 crores to Winsome forwards the refund of the sale price and as compensation for depriving Winsome from the enduring benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee received the amount of ₹ 269.83 lakhs on the basis of negotiated settlement and therefore nature of receipt was capital and was not for transfer of any capital asset so as to be liable to tax under the provisions of the Act. It is to be appreciated that legal effect of the order of the Hon'ble Supreme Court was that sale of land in the first instance, in favour of assessee was set aside which mean that sale was not valid or in other words, the sale through auction itself was honest. Therefore this amount could not be treated as consideration for extinguishment of any capital asset. It was further pleaded that the amount could not be treated as compensation because the amount was received for the settlement arrived at by the Hon'ble Supreme Court and the compensation was not for transfer of rights. 14. The Ld. CIT(A) found force in the submissions and referred to the decision of Hon'ble Supreme Court in case of CIT v. Saurashtra Cement Ltd. [2010] 325 ITR 422/192 Taxman 300 and Kettlewell Bullen Co. Ltd. v. CIT [1964] 53 ITR 261 (SC) and ultimately decided the appeal in favour of the assessee vide para 37 which is as under: 'In the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the lease from the name of Punwire to the name of Winsome on 29.12.2004. In pursuance of this NOC the assessee had applied for transfer of lease to PSIEC and also paid transfer fee amounting to ₹ 1178550/-. Thereafter the lease was transferred in the name of assessee on 25.10.2005. This clearly mentions that the assessee became complete owner of this property and it cannot be said that the assessee was not owner of the property. If this property goes out of existence in view of certain legal operations then same would amount to extinguishment and capital gain on such extinguishment has been rightly charged by the Assessing Officer. In this regard he relied on the decision of Hon'ble Calcutta High Court in case of CIT v. Pramia Engineering (P.) Ltd. [1993] 202 ITR 298/[1992] 63 Taxman 579 where surrender of lease was held to be transfer. Similarly Hon'ble Allahabad High Court held in case of Anand Bala Bhushan v. CIT [1996] 217 ITR 144/[1995] 83 Taxman 548. 16. On the other hand, the Ld. Counsel for the assessee submitted that sale was ultimately set aside by the Hon'ble Supreme Court in pursuance of settlement arrived at among Sun Group, Employees Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully. The assessee has originally purchased an industrial plot bearing NO. B-77, Ph VII, IA, Mohali through auction. The auction was conducted by sale committee appointed by Court on winding upon of Punwire. The sale was challenged before the Company judge by Sun Group. The Company judge allowed the application of Sun Group and directed the assessee-company to deliver back the possession of this industrial shed. The assessee challenged this order before Hon'ble High Court and the Hon'ble High Court allowed the appeal of the assessee and confirmed the sale. Aggrieved by this order Sun Group and the Employees Union challenged before the Hon'ble Supreme Court where Sun group offered to pay more consideration and the employees Union also submitted that sale of the plot to Sun Group would be more beneficial to the Employee's Union. Considering these facts the Hon'ble Supreme Court in Civil Appeal No. 3490 of 2006 vide order dated 8.8.2006 set aside this sale. The Hon'ble Supreme Court has referred to the offer made by Sun Group and the decision vide para 12 to 14 which are as under: 12. After the matter was argued for sometime the Ld. Counsel for SUNGROU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als in part accepting the settlement on the following items: ( i) to (iv) ** ** ** ( v) On receipt of the payments as aforesaid by WINSOME and the official liquidator the sale in favour of WINSOME in respect of items 17, 19, 20 shall stand set aside and sale of said item No. 17 (Plot No. b-77 and structure thereon) shall stand confirmed in favour of SUNGROUP. The official liquidator or shall issue a fresh NOC to enable SUNGROUP to obtain transfer of lease from PSIEC in respect of Plot No. B-77. Reading of above para would clearly show that sale in favour of assessee i.e. WINSOME was clearly set aside. The expression set aside has been defined in the Black's Law Dictionary, 6th Edition as under: To reverse, vacate, cancel, annul or revoke a judgment, order etc. From above it becomes clear that set aside would also include cancel , annul and therefore in the present case what has happened is that by setting aside the same the Hon'ble Supreme Court has cancelled the original sale made to the assesseecompany. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an item of capital gain which attracted tax. 20. When the matter traveled to the Hon'ble Karnataka High Court it was held as under: Held, that since the court sale itself was set aside ultimately by the appellate court, the assessee never acquired any interest in the property and that it never became a capital asset of the assessee. The department cannot treat the transaction as a transfer of capital asset by he assessee when the assessee had not acquired any interest in the property and had not done any act which would either directly or indirectly amount to a transfer of an asset. The Tribunal was therefore in error in holding that the sum of ₹ 20,000 which was received by the assessee under the compromise represented long term capital gains liable to tax. Thus from above it becomes clear that if sale itself is set aside by a Court then it can be said that the assessee never acquired any interest in such property. In the case before us, sale has been set aside by the Hon'ble Supreme Court and therefore it cannot be said that the assessee ever acquired any interest in the property. No doubt extinguishment is also covered in the definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an interest in land. The assessee had acquired the leasehold right for 99 years. This valuable right was acquired by virtue of an agreement entered into by the assessee with the lessor. The interest in land cannot be equated with self created goodwill. The land was acquired by the assessee by an agreement and for possession of the land, moneys were regularly paid under the agreement. This valuable right was surrendered by the lessee and compensation was received for premature termination of the lease. Transfer of a capital asset includes not only relinquishment of the asst or extinguishment of any rights therein but also the compulsory acquisition of the asset. The Govt. had acquired the land and the assessee as a leaseholder was given compensation. The assessee prematurely surrendered the lease. This was a clear case of capital gains and the transaction squarely comes within section 45 (See penalty proceedings 300G, H, 301A) From above it becomes clear that in this case lease was never set aside by any authority or any Court. In fact the Government repurchased the property through an agreement and therefore this case is distinguishable on facts. 23. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, (ii) to procure repayment of all loans made by the appellant to that managed company and (iii) to procure that the managed company will compensate the appellant for loss of office by the payment of the sum of ₹ 350,000 after the appellant resigned its managing agency and reimburse that amount to the managed company, the appellant company tendered resignation of the managing agency, and received the sum of ₹ 350,000/- from the managed company. Under the terms of the managing agency agreement, the managed company was not obliged to pay any compensation to the appellant for voluntary resignation of the managing agency. 27. On these facts the question arose whether the amount received by the assessee-company to relinquish the managing agency was a revenue receipt liable to tax. It was held as under: Held on the facts that the arrangement with Mungeeram Bangur and Co. was not in the nature of a trading transaction, but was one in which the appellant parted with an asset of an enduring value., What the assessee was paid was to compensate it for loss of a capital asset and was not, therefore in the nature of a revenue receipt. It mattered little that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the property. The right to exercise its option was given up by the assessee. It was agreed that the receiver would be at liberty to sell or otherwise dispose of the said property at such price and on such terms as he may deem fit and was not under any obligation regarding the purchaser thereof to enter into any agreement with the operator (assessee) for the purpose of operating and managing the hotel or otherwise and in its return agreed consideration was to be paid to the assessee. On the basis of the agreement the assessee received the amount of ₹ 2947500/- and claimed that it was a capital receipt. 29. When the matter traveled to the Hon'ble Supreme Court it was held as under: Held, reversing the decision of the Hon'ble High Court that the amount received by the assessee was the consideration for giving up its right to purchase and/or to operate the property or for getting it on lease before it was transferred or let out to other persons. It was not for settlement of rights under a trading contract, but the injury was inflicted on the capital asset of the assessee and giving up the contractual right on the basis of he principal agreement had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per principles enunciated by the Hon Sc, we respectfully following it hold that ₹ 31907676/- is a capital receipt and is not chargeable to tax therefore. Hence, Ground no 1 of the appeal of the assessee is allowed. 13. In view of our decision in Ground no 1, Ground no 2 3 are not required to be adjudicated and hence, dismissed. 14. In the result, appeal of the assessee in ITA No 505/Del/2016 is partly allowed. ITA No 3099/Del/2016 A Y 2011-12 15. Now coming to the appeal of the revenue in ITA No 3099/Del/2016 against the order of the ld CIT (A) passing rectification order u/s 154 of the act. 16. The grievances of the revenue is that when once the ld CIT (A) has passed an order giving detailed reasoning for holding a sum is chargeable to tax, subsequently rectifying it and giving exhaustive further reasoning holding it to be capital receipt itself proves that issue is debatable and hence out of the purview of section 154 of the act. 17. The ld DR also reiterated the same arguments. The ld AR relied up on the order of the ld CIT (A) and submitted that when there was an apparent error the dl CIT (A) has rectified it n accordance with the law. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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