TMI Blog2019 (7) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... RT] . In the light of above legal position, the amount of compensation received by the assessee cannot held to be a revenue receipt, but is a capital receipt and not liable to tax and it cannot be brought to tax under capital gain for the reason that it is not a capital asset. Thus, we reverse the orders of lower authorities and allow the appeal filed by the assessee. - ITA No.3204/Chny/2018 - - - Dated:- 10-5-2019 - Shri N.R.S. Ganesan, Judicial Member And Shri Inturi Rama Rao, Accountant Member For the Appellant : Shri S.Sridhar, Sr. Advocate For the Respondent : Shri M. Srinivasa Rao, CIT ORDER PER INTURI RAMA RAO, ACCOUNTANT MEMBER: This is an appeal filed by the assessee directed against the order of the learned Commissioner of Income Tax (Appeals)-3, Coimbatore (hereinafter called as CIT(A) ) dated 07.11.2018 for the assessment year 2009-10. 2. The appellant raised the following grounds of appeal: 1. The order of the learned CIT(A) is erroneous in law and against the principles of natural justice. 2) The learned CIT (A) erred in no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,000/-. The said return of income was processed u/s. 143(1) of the Income Tax Act, 1961 (in short the Act ) and there was no scrutiny assessment. Subsequently, notice dated 24.09.2015 u/s. 148 of the Act was issued proposing to reassess the total income. In response to the said notice, the appellant filed return of income disclosing income of ₹ 3,09,880/- and net agricultural income of ₹ 4,50,000/-. Against the said return of income, the assessment was completed by the ITO, Ward-1(4), Chennai (hereinafter called AO ) vide order dated 26.12.2016 passed u/s. 143(3) r/w. 147 of the Act at total income of ₹ 3,03,09,880/-. While doing so, the AO brought to tax sum of ₹ 3 crores being the amount received by the appellant towards consideration of compensation for relinquishing rights in the agreement entered on 20.04.2007 with one Shri B. Rangasamy Naidu Orchards Pvt. Ltd. 4. The background facts of the issue as culled out by the AO are as under: 6.1. The assessee entered into an agreement dated 20.04.2007 with M/s. B. Rangasamy Naidu Orchards Pvt. Ltd. for purchase of 3.34 acres of land situated at Kurichi Village, Coimbatore f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. and M/s. Gestione consulting India Pvt. Ltd. and the appellant. 6. Being aggrieved by the above addition, an appeal was preferred before ld. CIT(A), contending that there was no reason to believe that income escaped assessment and therefore, the initiation of proceeding u/s. 148 of the Act are not valid in law and contending that the right to compensation had accrued to the appellant as on 01.7.2007 and therefore, the issue of taxability or otherwise can be considered only in the assessment year 2008-09 not in 2009-10. Finally, it is contended that the compensation received was not taxable to tax as it is a capital receipt and there is no transfer is involved, hence, not liable to capital gains. The ld. CIT(A) considering the submissions made on behalf of the assessee the dismissed the appeal by holding that the compensation is taxable in the year 2009-10 as the compensation had accrued to the appellant in terms of the memorandum of agreement entered between the assessee and other two parties on 18.09.2008. Being aggrieved, the appellant is in appeal before us in the present appeal. 7. It is submitted that the compensation had accrued to the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of ₹ 3 Cr. stated to be in consideration of foregoing the rights in the agreement held by him with M/s. B. Rangasamy Naidu Orchards Pvt. Ltd. and others and the compensation of ₹ 3 Cr. Was received as under: ₹ 1,00,00,000/- By P.O on Axis Bank Ltd. dated 13.11.2008. ₹ 1,50,00,000/- By RTGS on Axis Bank Ltd. dated 15.11.2008 ₹ 50,00,000/- By RTGS on Axis Bank Ltd. dated 27.04.2009 9. Then, the issue that arises for consideration whether or not this compensation of ₹ 3 Cr. is taxable. The identical issue was recently considered by the Co-ordinate Bench of Tribunal, Ahmedabad in the case of Bhojison Infrastructure Pvt. Ltd. (supra) held as follows: 10.1 The essence of long list of judicial pronouncements cited on behalf of assessee is that 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. The decisions thereunder make it abundantly clear that the right to sue' for damages is not an actionable claim. It ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended to enlarge the meaning of 'transfer' beyond its natural import so as to include extinguishment /relinquishment of rights in the capital asset for the purpose of s. 45 of the Act. Since the transfer contemplated by s. 45 is one as a result whereof consideration has passed to the assessee or has accrued to him, extinguishment of the right must relate to that 'capital asset ' , corporeal or incorporeal . It is, therefore obvious that a transfer of a capital asset in order to at tract liability to tax under the head 'Capital gains' must be a ' transfer' as a result whereof some consideration is received by or accrues to the assessee. If the transfer does not yield any consideration, the computation of profits or gains as provided by s. 48 of the Act would not be possible. If the transfer takes effect on extinguishment of a right in the capital asset, there must be receipt of consideration for such extinguishment to at tract liability to tax. Now, in legal parlance, the terms 'consideration' and 'compensation' or 'damages' have distinct connotations. The former in the context of ss. 45 and 48 would connote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 425 ) : 'In my opinion, it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to s ay that the other par ty to the contract who complains of the breach has any amount du e to him from the other party. As already stated, the only right which he has the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court, Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already exists. The Court in the first place must decide that the defendant is liable is liable and then it proceeds to assess what that liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to hold that the receipt towards compensation in lieu of right to sue' is of capital nature which is not chargeable to tax under s.45 of the Act. 10. Thus, once the compensation is held to be is only on account of foregoing right to sue, which is a right in personam the same cannot be brought to tax in the light of the judicial precedent discussed above. Furthermore, the Hon'ble Supreme Court in the case of Oberoi Hotels (P.) Ltd. vs. CIT [1999] 236 ITR 903 (SC) held that the amount received by the assessee for giving up its right to purchase or for getting it on lease is a capital receipt. 11. Further, clause (ix) to sub s. (2) of s. 56 of the Act was inserted w.e.f assessment year 2015-16 providing to assets to tax the amount any sum of money received as an advance otherwise in the course of negotiation for transfer of capital asset if sum is forfeited and does not result in transfer of capital asset only w.e.f 01.04.2015. 12. The amount received in giving up the right for specific performance was held to be capital receipt to the same effect in the decision of Hon ble High Court of Madhya Pradesh in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
