TMI Blog2019 (8) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... DR that the said compensation was part and parcel for the sale transaction and received by the assessee as a consideration of sale of property. On the other hand, the learned CIT(A), in our considered opinion, has clinched the issue in the proper perspective. As rightly held, there could not be any transfer of a right to sue under Indian Law and any capital receipt arising from a right to sue cannot thus be considered capital gains u/s 45. Additionally, the cost of the said right being indeterminable, the charging Section would fail as per the cited decision of Hon ble Supreme Court rendered in CIT V/s B.C.Srinivasa Shetty [ 1981 (2) TMI 1 - SUPREME COURT] . Therefore, no infirmity could be found on the issue in adjudication done by learned CIT(A). The same is further fortified by the decision of this Tribunal rendered in Sushmita Sen V/s ACIT [ 2018 (11) TMI 792 - ITAT MUMBAI] wherein it has been held that compensation received for loss of reputation and not to initiate civil or criminal proceedings would be capital in nature. Similar is the decision in ACIT V/s Jackie Shroff [ 2018 (9) TMI 1006 - ITAT MUMBAI] wherein it has been held that compensation / damages received fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court. 2.2 During assessment proceedings, it transpired that the assessee had sold a plot at Gaoli, Village Gundavalli, Andheri (E), Mumbai on 31.12.2011 for a sale consideration of ₹ 4 Crores. The indexed cost of plot was taken at ₹ 66.02 lakhs. The assessee invested ₹ 250.62 lakhs in a new residential flat and further ₹ 50 lakhs in REC bonds and offered the balance amount of ₹ 33.34 lakhs as long-term capital gains on sale of this property. 2.3 Upon perusal of factual matrix, it was noted that the aforesaid land was under dispute and subject matter of extensive litigation which ultimately got culminated by consent terms dated 03/01/2012 between the assessee and the purchaser before Hon ble Supreme Court. Upon perusal of consent terms, it was noted that the assessee received additional sum of ₹ 9 Crores as compensation which was not considered as a part of sale consideration while computing the capital gains. Accordingly, the assessee was show-caused as to why capital gains should not be charged on amount received as compensation of ₹ 9 crores. 2.4 The assessee, on the strength of legal opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that this issue has not been addressed at all. The AO has mechanically considered this amount as part of sale consideration. 6.4 it is pertinent to glimpse of chronology of events that lead to present situation of the instant case, may instant issue at hand. In 1969 Appellant s father wanted to develop the aforesaid properties but could not get plan approved from Bombay Municipal Corporation, as property was reserved for Public Purpose. In 1973, property was encroached by some slum lords, who constructed chawls shops with commercial structures [as claimed by the appellant] and gave small rooms on rent to various persons and the said encroachment on the land continued till the end of the litigation. In 1977, appellant s (Anil Shah) father expired. In Govt Notification dated 15th October 1977, appellants and other s properties were declared Slum Clearance Area due to overcrowding densely populated due to over construction. In 1980 Appellant filed Suit No.4109 of 1980 in Bombay City Civil Court for vacating encroachment to preserve property. Hon'ble Court was pleased to appoint Court Receiver of High Court. The Govt of Maharashtra by notification dated 1977, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 501 of 2008 21. Supreme court SLP No.2758 of 2010 22. Supreme court SLP No.2749 of 2010 23. Contempt Petition No 31 of 2010 24. High court Suit No.870 of 2010 (₹ 100 Crore Claim by Akruti City Ltd against Assess for defamation) 25. Criminal Writ Petition No. 1977 of 2010 26. Supreme court SLP No.35188 of 2010 27. Supreme court SLP No.35441 of 2010. 28. Supreme court SLP No.445 of 2011. 29. Supreme Court SLP No.446 of 2011 30. Supreme court SLP No. 80 of 2011 31. Supreme court SLP No. 81 of 2011 6.5. It is pertinent to note that all these single-handed efforts of the appellant over a long period of time seems to be very rare and unique fact. Such efforts have culminated to amicable resolution of the dispute by 'way of filing Consent Terms by both the parties before the Hon'ble Supreme Court, The Consent Terms were taken on record after accepting the same the Apex Court disposed of the SLPs in terms of settlement arrived between the parties. Apex Court also disposed of all other pending applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Leave Petitions are disposed of in terms of the settlement arrived at between the parties. These facts clearly establish that the Hon'ble Supreme Court has duly approved that the Appellant must receive ₹ 4,00,00,000/- as consideration for sale of property and ₹ 9,00,00,000/- for time and effort put in by him over decades in challenging the acquisition of suit properties. This claim is special to the appellant as per para 5 of the Consent Terms. 6.6 On careful perusal of Consent Terms and the Conveyance Deed it clear that by agreeing into these terms and conditions the appellant along with other petitioners have unconditionally withdraw all the claims in or arising out of all the petitions at various forums be it the Supreme Court, the High Court, Maharashtra Govt. or various other authorities like the Slum Rehabilitation Authority, Corporation, Environmental Authorities, and Police Authorities etc. Breach of this may lead to contempt of court before the Apex Court. Above all, the Consent Terms shall be binding on both the parties and also their legal heirs, successors, administrators, executors, and assignees etc. All these facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 2 (14) defines Capital Asset as under: Capital asset means property of any kind held by an assessee .. {Explanation:- For the removal of doubts, it is clarified that property includes and shall be deemed to have included any rights in or in relations to an Indian company,, including rights of Management or control or any other rights whatsoever,} Further Section 2(24) provides as under: (24) income includes- (vi) any capital gains chargeable under section 45 6.7.2. Section 2 (47) defines transfer as under: transfer , in relation to a capital asset. includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or Explanation 2.-For the removal of doubts, it is hereby clarified that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f compensation of a court, Tribunal or other authority shall be deemed to be income chargeable under the head Capital gains of the previous year in which the final order of such court, Tribunal or other authority is made; (c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced compensation or consideration referred to in clause (b), and subsequently such compensation or consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or other authority to be the full value of the consideration. Explanation.-For the purposes of this sub-section,- (i) in relation to the amount referred to in clause (b the cost of acquisition and the cost of improvement shall be taken to be nil: (//) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecify, in this behalf. 6.8. Now we may consider whether the compensation amount of ₹ 9 crore in the form of damages received by the appellant on account of time and effort and cost put in by him alone in the Court of Law and further warding off of his right to sue at any forum/authority/court of law can be treated as capital gains in the hands of appellant. Section 2(24) of the Act specifically includes (vi) any capital gains chargeable under section 45 within the ambit of income. Thus, a capital receipts would be chargeable to tax only if it falls under section 45 of the Act (as capital gains) though capital receipt as such is not taxable. This principle was described by the Income Tax Appellate Tribunal (Mumbai) in Dhruv A. Shah v. Commissioner of Income Tax [20041 88 ITD 118 as follows: Further, all receipts are not taxable under the Income Tax Act. Section 2(24) defines income . It is no doubt that this is an inclusive definition. However, a capital receipt is not income under section 2(24^ unless it is chargeable to tax as capital gain under section 45. It is for that reason that under section 2(24) (vi), the Legislature has expressly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising out of a tortuous act fell within the ambit of the said clause. The right to sue arising ex-contractual, therefore, did not fall within the mischief of the clause even if it were a mere right to sue. After the amendment, a mere right to sue, whether arising out of tortuous act or ex- contractual is not transferable. 6.10. As already stated, the only right which the present appellant has is the right to go to court of law and recover damages of acquisition of property. Now, damages are the compensation which a court of law gives to a party for the injury which he has sustained over the year. Here, the Apex Court has agreed that the Cost of Sale of Property is ₹ 4 crore and additional compensation in the form of damages of ₹ 9Crore has been given to the appellant alone for time, effort, and cost incurred by him over the years for being engaged in litigation in order to get justice. 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 compensation/damages. Therefore, when compensation/damages are assessed, it would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to sue cannot be subjected to income tax under the head 'capital gains'. Above point of view is extensively discussed in the case of Aberdeen Claims Administration Inc by the Authority for Advance Rulings (Income Tax), New Delhi (2016) 65 taxmann.com246 (AAR-New Delhi.) The Jaipur ITAT Bench in the case of Satyam Food Specialities (P.) Ltd. v. Deputy Commissioner of Income-tax, Central Circle-2, Jaipur, [2015] 57 taxmann.com 194 (Jaipur - Trib.) has held as under: 2.19 Assessee has vehemently denied having anywhere admitted that part of the compensation was for non-competition. In our considered view, the compensation in question was meant, intended and paid for withdrawal of aforesaid litigation instituted by assessee which could have resulted in many adverse consequences for the reputation of Coca Cola/Atlantic besides entailing huge cost and efforts of litigation. Relinquishment of right to sue is neither a capital asset nor taxable u/s 28 which provides specific types of receipt to be held taxable as business income. Relinquishment of right to sue does not find any mention therein. In this eventuality, we have no hesitation to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case eventually the suit ended in the appellant's claim for additional compensation. In the consent terms, which are drawn up and based on which the suit is decreed by the Court, it does not deal with the rival cases on merits. There is no requirement of the Court then passing an order and judgment on merits of the claim of the parties. The Court is required to apply its mind and consider as to whether the arrangement reached by the parties can be accepted by it. Once it is accepted and an order or decree is passed in terms thereof, then, it is an order of the Court. Thus, the Apex Court has not undertaken any mechanical exercise or has not casually and lightly accepted the terms and approved the same. It has performed a conscious act and in terms of Order in the four corners of law of the land. There cannot be any transfer of a right to sue under Indian Law and any capital receipt arising from a right to sue cannot thus be considered capital gains under section 45 of the Act. It is amply clear that when the cost of acquisition of the capital receipts are indeterminable, the computation provision of Section 48 of the Act fails and consequently, the charging provision of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was subject matter of extensive litigation which ultimate got culminated into sale of the property by the assessee in terms of consent terms dated 03/01/2012 between the assessee and certain other parties. The assessee, along with others, has executed deed of conveyance on 31/12/2011 in favor of Hubtown Limited for aggregate sale consideration of ₹ 4 Crores. The additional compensation of ₹ 9 Crores was payable to the assessee only pursuant to consent terms dated 03/01/2012 filed before Hon ble Supreme Court. As per Clause-5 of the consent terms, the assessee was to be paid the said compensation for time, money and effort put in by him to challenge the acquisition of the suit property and for pursuing litigation before the Authorities, Hon ble Bombay High Court and Hon ble Supreme Court. The additional compensation was towards time, cost and effort of the assessee in pursuing the litigation. This being so, we are unable to concur with the submissions of Ld. DR that the said compensation was part and parcel for the sale transaction and received by the assessee as a consideration of sale of property. On the other hand, the learned CIT(A), in our considered opinion, ha ..... 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