TMI Blog2020 (1) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of entering into agreement with these parties paid or agreed to pay certain amount as per the understanding. Therefore it is clear that the assessee has made or agreed to make the payment of certain amount to these parties from whom it has received the compensation in the assessment year 2009-10. Similarly, the assessee for the year under consideration has also made or agreed to make the payment of certain amount to the societies which has been detailed somewhere in the preceding paragraph. Therefore, we are of the view that the finding of the learned CIT (A) that there was no payment made to the parties by the assessee in the assessment year 2009-10 is factually incorrect. Transaction between the assessee and the society was not representing the related party transaction as alleged by the learned CIT (A). As such we note that the learned CIT (A) has given contrary findings about the fact whether the assessee and the societies were related to each other either directly or indirectly. The parties involved in the entire flow of transactions namely, the assessee, societies and the buyers of the land who are separate taxable and independent persons/ entities viz a viz comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment of right to sue in the Courts of law is a capital receipt in the hands of the appellant company not assessable either as capital gains or business income in view of the Hon ble Jurisdictional Gujarat High Jurisdictional High Court in the case of (i) Baroda Cement Chemicals Ltd vs. CIT 158 ITR 636 (Guj.), (ii) CIT vs. Hiralal Manilal Mody 131 ITR 421 (Guj.), (iii) Hon ble Calcutta High Court in the case of CIT vs. Ashoka Marketing Ltd. 164 ITR 664 (Cal.), (iv) CIT vs. J. Dalmia 149 ITR 215 (Del.) (v) Satyam Food Specialties (P) Ltd. vs. DCIT, Central Circle-2, Jaipur [2015] 57 taxmann.com 194. 3. The Ld.CIT(A) has grossly erred in law and on facts in failing to consider the fact that Hon ble ITAT, Ahmedabad A Bench in the case of appellant company s own case rendered the appellate order vide ITA No.212/Ahd/2014 dated 29/08/2017 for AY 2009-10, wherein, the compensation for relinquishment of right to sue was the grounds of appeal being the said compensation whether subject to tax or not was the issue and the Hon ble ITAT, Ahmedabad, A Bench has allowed the appeal of the appellant company in favour of the appellant company by holding that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , treated the same as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT(A). 3. The assessee before the learned CIT (A) submitted that it has entered into the agreements with different societies which were holding the agriculture lands. As per the agreement, the assessee was appointed by the societies as project consultant and organizer to develop such agricultural lands. There was also a clause in the agreement that in case the society terminates the development agreement or wishs to sale the land, then the assessee shall have the pre-emptive right for the purchase of such land. Similarly, there was also a clause in the agreement that in case the society terminates the agreement and does not wish to sell the land to the assessee, then the societies will pay compensation to the assessee. 3.1 As such, the societies terminated the agreement and decided to sell the land to different persons after making the payment of the compensation to the assessee. Accordingly the assessee claimed to have received a sum of ₹ 18,02,53,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of the agreement with the societies and observed certain defects as detailed under: i. All the development agreements were made at the fag end of March 2007. ii. All the development agreements were unregistered. iii. All the development agreements were made in the same fonts which were notarized by the common notary public. iv. Similarly all the termination agreements were made at the fag end of March 2011. v. All the termination agreements were unregistered. vi. All the termination agreements were made in the same fonts which were notarized by the common notary public. 4.2. The AO in the remand report further observed that the termination of the development agreement with all the parties/societies does not appear to be true. It is because the story of terminating the agreement with 8 parties cannot be considered reasonable/possible in the common business parlance. Furthermore, the character of the compensation amount received on account of the termination agreement is of the business receipt. Therefore the same should be taxable as the business income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee was in the assessment year 2012-13 i.e. the year under consideration. ii. During the assessment year 2009-10, there was no payment made by assessee to the societies whereas for the year under consideration the assessee has made the payment to the societies as detailed under: Sr.No. Name of Society Amount as per the Agreement (Rs.) to be paid by the appellant Date of payment Payment to Mandali 1. Saheli Samudayik Kheti Sah.Mandli Ltd. 35,00,000 - - 2. Someshwara Darshan Co-op.H.S.L. V-6 50,00,000 10-04-2007 12-05-2007 01-02-2008 21-03-2008 2000000 1014000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the ld. CIT-A there were four persons who were controlling the entire Popular Group along with their family members namely Chhaganbhai Bholidas Patel, Ramanbhai Bholidas Patel, Dasrathbhai Bholidas Patel and Natwar Lal Bholidas Patel. The name of these four persons and their family members can be found either as signatory of societies or ultimate buyer of the land. The details of such persons along with family members are contained on pages 60 to 63 of ld. CIT-A order. iv. Similarly, the termination agreements between the assessee and the societies viz a viz the sale agreements between the societies and the buyers of the lands were not considered by the ITAT in its order which is quite vital for deciding the issue on hand. 4.9. In view of above difference in facts of the case the ld. CIT (A) disagreed with the decision of Hon ble ITAT Ahmedabad A bench in assessee s own case as discussed above. Accordingly the Ld. CIT(A) further made his own observation after considering the submission of the assessee and the remand report of the AO which are detailed as under: a. As per the information received from society registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction going on in the nearby area. As such there was no reference of any kind of dispute between the assessee and the societies which entailed the payment of the compensation by the society to the assessee. Thus the payment of the compensation is nothing but a concocted story which far from the truth. 4.10. In view of the above, the learned CIT (A) concluded that the amount of compensation received by the assessee does not represent as a result of breach of contract. As such the assessee by using dubious method tried to avoid the payment of tax. Accordingly, the learned CIT(A) rejected the contention of the assessee and confirmed the order of the AO by observing as under: 12. Thus, I am of the considered view that as rightly pointed out by the A.O in his remand report, there seems to be a distinct modus operandi emerging out of these arrangements. The appellant itself had given funds to the societies to buy the land. Its own share holders, related parties are the members of the managing committee or the society. This fact was never disclosed either during the assessment or remand or appellate proceedings. Then the appellant entered into Developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to ₹ 18,02,53,000/- under the head income from business and profession is hereby confirmed. The ground of appeal is hereby dismissed. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 5. The learned AR before us filed a paper book running from pages 1 to 1081 and submitted that this tribunal in the own case of the assessee in the earlier assessment year 2009-10 involving identical facts and circumstances has deleted the addition. 6. On the other hand, the learned DR vehemently supported the order of the authorities below. 7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the assessee has received the compensation for relinquishment of right to sue from certain societies as there was the breach of contract by the societies. As such the assessee has entered into the development agreement along with preemptive purchase right with the societies for the lands owned by them. But, subsequently the societies terminated the agreement with the assessee after making the payment of the compensation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration cannot be distinguished with the facts of the earlier assessment year 2009-10 as observed by the learned CITA. II. During the assessment year 2009-10, there was no payment made by assessee to the societies whereas for the year under consideration the assessee has made the payment to the societies. 9.2. On perusal of the ITAT order for the assessment year 2009-10, we find that the assessee received the compensation from the 3 parties. And the assessee at the time of entering into agreement with these parties paid or agreed to pay certain amount as per the understanding. Therefore it is clear that the assessee has made or agreed to make the payment of certain amount to these parties from whom it has received the compensation in the assessment year 2009-10. Similarly, the assessee for the year under consideration has also made or agreed to make the payment of certain amount to the societies which has been detailed somewhere in the preceding paragraph. Therefore, we are of the view that the finding of the learned CIT (A) that there was no payment made to the parties by the assessee in the assessment year 2009-10 is factually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market value and there is no allegation by the authorities below that the impugned transaction was not carried out at the fair market value. Moreover, we also note that there was no discussion in the order of the ITAT for the assessment year 2009-10 whether the transactions were among the related parties. Thus in the absence of any specific information there can be two situations, firstly there may be transactions with the related parties or secondly there may not be the transactions with the related parties. Hence, it cannot be concluded that there was no transaction with the related parties in the assessment year 2009-10 in the absence of any specific information. Moreover, the ld. CIT-A has not brought anything on record suggesting that the transaction in the AY 2009-10 was not with the related parties. 9.5 As such we note that the principles were laid down by the Tribunal after relying the judgment of the Hon ble Gujarat High Court as discussed above for the assessment year 2009-10 cannot be altered merely on the ground that the transaction was entered with the related parties. Accordingly we are not impressed with the finding of the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... many of the persons in the societies, the appellant and its directors and shareholders and finally the final buyers being all belonged to the same Popular group . Therefore these are not real transactions. I am convinced that the appellant has created fa ade of development and termination agreements whereby pre-emptive purchase rights were given and surrendered. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The final buyers or the third parties are none other than the CMD, Director, shareholders or the related parties of the appellant company. An artificial scenario of 'dispute' is created resulting into termination agreement and payment of compensation. 9.7. The allegation of the learned CIT (A) is that the entire flow of transaction was within the popular group. As per the learned CIT (A) the flow of transaction can be represented in the following manner: 1. Assessee made Payment to the Societies in A.Y 2004-05, 2. Entered into development agreement with societies and acquired pre-emptive purchase right in March 2007 3. Societies terminated the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the above, We also note that the CIT (A) has given its finding that there was change of managing committee/ members in the society when the development agreement was made viz a viz when the termination agreement was made as well as when the compensation was paid by the societies to the assessee. The relevant finding of the learned CIT (A) stands as under: 7.12.4 . The Director, Shareholders or the related parties were the part of the Managing Committee of the societies or member of the societies when the development agreement was signed in March 2007 or even till March 2010. These same person were no more in the Managing committee or were the members of the society in March 2011 i.e. when the termination agreement and the sale deed took place. 9.11. The finding of the learned CIT-A as discussed above suggest that the transaction between the assessee and the society was not representing the related party transaction as alleged by the learned CIT (A). As such we note that the learned CIT (A) has given contrary findings about the fact whether the assessee and the societies were related to each other either directly or indirectly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er could not have entered into full fledged possession in performance of the agreement in view of statutory bar u/s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948 (applicable in Gujarat state). There is no material indicating the above lands being converted to non agricultural. The same sufficiently indicates that assessee's license right existed on paper only. Hon'ble Bombay high court's decision in Manoj B. Joshi's case (supra) holds that such an amount is not to be taxed as income u/s.2(24) of the Act. This tribunal's co-ordinate bench decision in Govindbhai C. Patel's case (supra) also is of the view that an identical compensation sum as in facts of the instant case is not a business income as well since not covered under specific instances u/s.28(va) of the Act. The Revenue's stands therefore holding both development and cancellation agreements in all cases is not sustainable in view of the same unregistered documents does not carry any merit as Section 17 of the Registration Law could not have been applied in view of bar on transfer of the lands in question. We thus observe that assessee's above development license acquired in its al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting treatment is not a determinative factor in deciding taxability of receipt. 18. The Revenue's next argument is based on the hon'ble apex court's landmark decision in Me Dowell Co. Ltd., Sumati Dayal and Durga Prasad More cases (supra) in seeking to treat assessee's above development and cancellation agreement to be a method employed to evade payment of tax as by adopting colorable device. We have already concluded in preceding paragraphs that assessee's above transactions are well within the four corners of law i.e. Transfer of Property Act, Indian Registration Act as well as Bombay Tenancy Agricultural Lands Act (supra). There is no law violated in the same. Its instant case is therefore squarely covered by the above judicial precedent(s) holding the amount received of ₹ 3.87 crores as a capital receipt no assessable either as capital gains or business income. We take into account the same to conclude that the above case law quoted at Revenue s behest in seeking to pierce corporate veil is without any merit as the assessee s above transactions are genuine ones in view of our forgoing discussion. We therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution (First Amendment) Act exceeded the constituent power still categorically declared that the said amendment and a few other like amendments would be held good based on the doctrine of prospective overruling. The result, for our purpose, is that even Golak Nath's case has held Art. 31A valid. The note struck by later cases reversing Golaknath does not militate against the vires of Art. 31A. Suffice it to say that in the Kesavananda Bharati's case. Article 31A was challenged as beyond the amendatory power of Parliament and, therefore, invalid. But, after listening to the marathon erudition from eminent counsel, a 13 Judges Bench of this Court upheld the vires of Article 31A in unequivocal terms. That decision binds, on the simple score of stare decisis and the constitutional ground of Art. 141. Every now discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. In this view, other submissions sparkling with creative ingenuity and presented with high-pressure advocacy, cannot persuade us to re-open, what was laid down for the guidance of the nation as a solemn preposion by the epic Fundamental Rights cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it tantamounts to gambling in litigation. Hence, such a 'right to sue' does not constitute a 'capital asset' which in turn has to be 'an interest in property of any kind'. Despite the definition of expression 'capital asset' in the widest possible terms in Section 2(14) of the Act, a right to a capital asset must fall with the expression 'property of any kind' subject to certain exclusions. Notwithstanding widest import assigned to the term 'property' which signifies every possible interest which a person can hold and enjoy, the 'right to sue' is a right in personam and such right cannot certainly be transferred. In order to attract the charge of tax on capital gains, the sine qua non is that the receipt must have originated in a 'transfer' within the meaning of Section 45 r.w.s. 2(47) of the Act. In the absence of its transferability, the compensation/damages received by assessee is not assessable as capital gains. 10.2 The co-ordinate bench of ITAT, Ahmedabad in the case of Shekhar G. Patel dated 19.03.2014 relied upon on behalf of the assessee has made reference to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to make amends for loss or injury occasioned on the breach of contract or tort. Both ss. 45 and 48 postulate the existence of a capital asset and the consideration received on transfer thereof. But, as discussed earlier, once there is a breach of contract by one party and the other party does not keep it alive but acquiesces in the breach and decides to receive compensation therefor, the injured party cannot have any right in the capital asset which could be transferred by extinguishment to the defaulter for valuable consideration. That is because a right to sue for damages not being an actionable claim, a capital asset, there could be no question of transfer by extinguishment of the assessee's rights therein since such a transfer would be hit by s. 6(e) of the Transfer of Property Act. In any view of the matter, it is difficult to hold that the sum of ₹ 1,40,000 received by way of compensation by the assessee was consideration for the transfer of a capital asset. 10.3 The Hon'ble Gujarat High Court in Baroda Cement (supra), in turn, referred to the concept of breach of contract as discussed by the Hon'ble Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant.' It would appear from the above observations that on breach of contract the defaulter does not incur any pecuniary liability nor does the injured party becomes entitled to any specific amount, but he only has a right to sue and claim damages which may or may not be decreed in his favour. He will have to prove (i) that the opposite party had committed breach of contract and (ii) that he had suffered pecuniary loss on account thereof. 11. The above observations of Chagla, CJ., were quoted with approval by the Supreme Court in Union of India v. Raman Iron Foundry AIR 1974 SC 1265. In para 9 of the judgment, the Supreme Court considered the claim for liquidated damages for breach of contract between the parties. Pointing out that so far as the law in India is concerned, there is no qualitative difference in the nature of the claim, whether it be for liquidated damages or unliquidated damages, the Supreme Court proceeded to state the law as under (p. 1273): ''When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party compla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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