TMI Blog2022 (8) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as a matter of diversion of income opted for any colorable device by including Mr. Kishore Manusukhani the whole scenario of the matter clearly indicates that the assessee was suffering with the illegal occupancy of her land and requires a help to come out this adverse situation. Without any advance payment or any commitment to Mr. Kishore Manusukhani other than on successful outcome. This material fact can t be ignored by the authorities below and this amount is clearly not a diversion of income rather it s an expense deductible u/s 48 of the act. This amount is in extricable part of the whole transaction hence allowable u/s 48, in the result ground no 1 and 2 of the assessee are allowed and A.O. is directed to delete the disallowance while computing the income of the assessee. Cost inflation index (CII) till F.Y. 1994-95 instead of CII for Financial year 2010-11 - HELD THAT:- As in our considered view assessee is entitled for CII till F.Y. 2010-11 in the light of above Ground No. 3 of the appellant is allowed and A.O. is hereby directed to give effect of this finding while computing the income of assessee. Quantum of interest received by the assessee on compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fence Special Land Acquisition Officer pursuant to the Supreme Court order and tax the same under the head 'Capital Gain in terms of section 45(5)(b) r.w.s. 48 of the I.T Act and the balance interest paid to assessee for any delay in payment of the compensation from the date of acquisition of the property in pursuance to High Court/Supreme Court order, as 'Income from Other Sources? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow a deduction of 50% of that portion of the aggregate compensation received by the assessee liable to be taxed under the head 'Income from Other Sources? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow the legal expenses, if any, directly incurred by the assessee, u/s. 48(1) of the Act, while working out the Capital Gain as directed.? 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow the deduction under section 54F to the extent of the amount eligible and calculated as per provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orli. The said compensation consist of interest component on the originally awarded amount the appellant has 1/3rd share of the property and the consideration awarded along with interest component was offered as sales consideration and was declared under the head business income. A.O. issued show cause notice to the appellant asking her to explain why the amount of interest received should not be treated as income from other sources and compensation received shouldn t be treated under the head capital gains. The A.O. also questioned the estimation of land at Rs 2,00,000/- per square meter as on 01-04-2000 and the basis of adopting the FMV as on 01-04-1981 at Rs 10,000/- per square meter and why the same shouldn t be treated at Rs 1000 per square meter. A.O. called for other details also w.r.t the eligible investment claimed as deduction u/s 54F and the professional fee claimed of Rs 4,80,12,787/- 6. After obtaining the explanations and submissions of the assessee, A.O. analyzed the details furnished w.r.t assessee s contention of income to be assessed under the head business income considering the plot as stock in trade is reversed by the A.O. stating that no business income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view of the fact that neither the appellant, his mother or sister could undertake the development of land themselves, the appellant and the co-owner entered into the joint venture agreement on 23 May 2000 with Mr. Kishore Manusukhani to maximize the gains on the commercial exploitation of the land. iv) Under the circumstances, the capital asset being land, was converted into Stock-in Trade. Mr. Kishore Manusukhani was mandated to commence the development process after obtaining possession of the land from the Ministry of Defense v) Mr. Kishore Manusukhani thereafter started making all efforts to obtain vacant possession of the land, but was not able to do so up to 31 March 2001. At this stage, it became evident to all the parties concerned that the Ministry of Defense did not intend to relinquish possession of the land. The terms of the Joint Venture Agreement dated 23 May 2000, could therefore not be implemented as per its agreed intent and accordingly , the appellant along with the co-owners and Mr. Kishore Manusukhani jointly decided to maximize return on the said land by negotiating the best possible compensation from the Ministry of Defense. vi) The fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o this joint venture agreement was annulled and a fresh agreement was executed with Mr. Kishore Manusukhani on 2nd April 2001 (vide pg no 50-53 of P.B) 14. After prolonged legal process the assessee obtained a favorable decision in her favour with the help of Mr. Kishore Manusukhani from the honorable Bombay High Court in July 2009. This decision of honorable Bombay High Court was challenged by the Government through SLP in honorable Supreme Court. This SLP of the Govt. was dismissed by the honorable Supreme Court in Oct 2009(vide pg no 54-76 of the PB). subsequently Government of India addressed a letter to the chief of navy staff conveyed the sanctions of the President of India for the acquisition of the subject land for a total consideration of Rs 72,01,91,805/- 15. From the above discussion of the facts and various submissions by the assessee at various stages it is apparently clear that right from the beginning of the agreement with Mr. Kishore Manusukhani that all the expenses involved in the process of obtaining vacant possession by evicting the Indian Navy would be borne by Mr. Kishore Manusukhani (pg 45, clause-3 and pg 46, clause-9 of the PB). Considering the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The entire risk was that of Mr. Mansukhani while the assessees just had to pay the expenditure once they received payment. This is exactly what was agreed in the case of plot 53A and the Hon'ble Tribunal has held that entire payment to be eligible expenditure under section 48 of the Income-tax Act, 1961. 20. The claim for this expenditure has been restricted by holding that legal expenses incurred by Mr. Mansukhani would be allowed as deduction. There is no such restriction in section 48 confining the deduction to legal expenses. Any expenditure is allowable so long as it is incurred in connection with the transfer. Reference is made to the following cases where various kinds of payments have been held allowable under section 48 of the Act. CIT v/s Abrar Alvi [2001] 247 ITR 312(Bom) CIT vs. Smt. Shakuntala Kantilal [1991] 190 ITR 56 (Bom) Kaushalya Devi vs. CIT [2018] 92 taxmann.com 335 (Del) 21. Mr. Mansukhani has offered a sum of Rs. 9.28 crores to tax in his income tax return for AY 2011-12, as the balance amount was kept in an Escrow account and released on completion of the milestone. Kindly see page 81 of paper-book in the head Income from Bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso assessee availed the same services in the similar circumstances. A.O. and LD CIT (Appeal) himself observed that the matter was in litigation in court and compensation could be enhanced, if at all, only in a legal manner. It is not the case that there was no legal battle and just to avoid tax liability assessee as a matter of diversion of income opted for any colorable device by including Mr. Kishore Manusukhani the whole scenario of the matter clearly indicates that the assessee was suffering with the illegal occupancy of her land and requires a help to come out this adverse situation. [2001] 117 Taxman 95 (Bombay) Commissioner of Income-tax v. Abrar Alvi Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of - Assessee sold certain property in which he was tenant - Tribunal held that what was to be allowed as deduction for working out capital gains was not cost of tenancy but cost of ownership rights - Tribunal remanded matter to Assessing Officer to work out market value of property as on 4-8-1983 and allow as a deduction to work out capital gains - Whether Tribunal's finding was a pure finding of fact and order of remand was justified - Held, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee sold property subsequently to another buyer, she had to pay certain amount as liquidated damages to 'A' in terms of earlier agreement to sell - Assessee claimed deduction of payment of liquidated damages under section 48(i) - Assessing Officer as well as Tribunal rejected assessee's claim on ground that payment was not incurred wholly and exclusively in connection with transfer of property to purchaser - Whether since there was a close nexus and connect between payment of liquidated damages and transfer of property resulting in income by way of capital gains, it had to be treated as expenditure incurred wholly and exclusively in connection with transfer of immovable property and, thus, allowable as a deduction under clause (i) of section 48 of Act - Held, yes [Para 26] [In favour of assessee] [1986] 29 TAXMAN 215 (DELHI) Commissioner of Income-tax v.Smt. Shakuntala Rajeshwar As regards the question as to whether a sum of Rs. 1 lakh paid to the tenant was an allowable deduction, it was clear that the said sum was paid to persuade the tenant to vacate the property in order to facilitate its development. If this was so, it was clear that the said sum was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usukhani other than on successful outcome. This material fact can t be ignored by the authorities below and this amount of 4, 80, 12,787/- is clearly not a diversion of income rather it s an expense deductible u/s 48 of the act. This amount of 4, 80, 12,787/- is in extricable part of the whole transaction hence allowable u/s 48, in the result ground no 1 and 2 of the assessee are allowed and A.O. is directed to delete the disallowance while computing the income of the assessee. 28. In Ground no -3 appellant challenged the action of the A.O. where he considered cost inflation index (CII) till F.Y. 1994-95 instead of CII for Financial year 2010-11. As the complete chronology of events has already been discussed (supra), based on that it can be reasonably concluded that the order of the land acquisition officer dated 05-01-1995 was rendered void ab-initio by the subsequent withdrawal of such land acquisition order dated 21-01-1999 29. This matter for all the purposes of transfer of property as discussed in the act for the purposes of computation of Capital gains came to an end only after dismissal of SLP before the Supreme Court dated 05-10-2009. 30. Before dismissal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years, respectively. 31. Considering the facts mentioned (supra), provisions of law and pronouncements mentioned (supra), in our considered view assessee is entitled for CII till F.Y. 2010-11 in the light of above Ground No. 3 of the appellant is allowed and A.O. is hereby directed to give effect of this finding while computing the income of assessee. 32. In the result, appeal of the assessee is partly allowed. ITA No. 3286/Mum/2016 (A.Y. 2011-12) 33. Appellant revenue raised total 6 grounds of appeal against the order of the Ld. CIT (A). It s a cross appeal filed by the revenue. Out of these six grounds ground no. 3 had already been considered and disposed off in assessee s favor vide assesses appeal in ITA No. 2270/Mum/2016. Those findings are applicable here also mutatis mutandis hence no separate adjudication required here. 34. Ground no. 5 and 6 are general in nature hence no adjudication is required 35. Ground no. 1 pertains to . Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to ascertain the quantum of interest received by the assessee on such compensation u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established from the above facts that the appellant didn t have any right to receive any sum. The appellant received compensation for the complete extinguishment of her right, title and interest in the said land only pursuant to the said order of the court. 39. On this issue detailed findings of the Ld. CIT (A) in his order are pertinent to mention and discuss here in verbatim as under: It is clearly established from the above facts that the appellant and her co owners did not have any right to receive any sum from the MOD except the lease rental till the date of the Order of Hon'ble Bombay High Court dated 17 June 2009 wherein the Hon'ble Court directed the MOD to compensate the appellant and her coowners in accordance with the provisions of the Land Acquisition Act, 1894. The said Order was challenged by the MoD before the Supreme Court which dismissed the SLP vide Order dated 05 October 2009. The appellant and her co-owners received compensation for the complete extinguishment of their right, title and interest in the said Land only pursuant to the said Order of the Supreme Court confirming the order of the Bombay High Court. The said compensation was compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of [nine per centum], per annum from the time of so taking possession until it shall have been so paid or deposited: [Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date or expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry] The foregoing establishes the following issues: a. The appellant acquired right to receive the compensation only after the date of the Bombay High Court/ Supreme Court order; b. The said compensation was to be computed in accordance with the provisions of the LAA. c. The transfer/relinquishment of ownership rights of the appellant in favour of the Government of India took place on the Order of Hon'ble Bombay High Court / affirmed by the Supreme Court. d. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall apply also in a case where the transfer took place prior to the 1st day of April, 1988; iii) Where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause shall be deemed to be the income, chargeable to tax under the head Capital gains , of such other person. ][Emphasis supplied] 56. Income from other sources (2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely:- (viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A.] 57. Deductions The income chargeable under the head Income from other sources shall be computed after making the following deductions, namely:- (iv) in the case of income of the nature referred to in clause (viii) of subsection (2) of section 56, a deduction of a sum equal to fifty per cent of such of income and no deduction shall be allowed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, I find that the appellant's case falls squarely within the provisions of the said section and I hold that addition to the original compensation of Rs. 9,29,09,769/- is to be taxed under the head Capital Gain . As such, the purported interest component is to be taxed under this provision of law in the peculiar perspective of the appellant's case as detailed above of this order which resulted in the compensation to the appellant after a protracted legal battle for her right subsequent to Hon'ble Bombay High Court and Hon'ble Supreme Court of India's order. The appellant has in detail. explained, vide the written submissions, the concept of interest in view of section 28 and section 34 of the Land Acquisition Act, 1894 as against the definition of interest income under the IT Act. In light of the above discussions, the remaining portion of the compensation aggregating to Rs. 14,71,54,166/- which the appellant received along with the original compensation is to be treated as Capital Gains in terms of Section 45(5)(b) of the Income Tax Act read with Section 48 of the Income Tax Act in view of the fact that the appellant did not have any right over the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but no tax was deducted at source by DDA with meaning of section 194A. It was held that interest credit to allotte's account represented an act on DDA s part in compensating him for delay in construction of dwelling unit whereby allottee was prevented from taking physical possession and moving in, and as such, it did not fall under any of the categories in section 2(28A) and merely represented a measure for qualifying compensation for delay in construction. b) Ghaziabad Development Authority vs. Dr. NK Gupta in the National Consumer Dispute Redressal Commission of New Delhi where it was held that the amounts which were paid to the GDA by the Complainant were not paid by way or any deposit or GDA had not borrowed that money. And, as a matter of fact, interest as defined in sub-section (28) of Section 2 of the Income Tax Act is not that interest as was directed to be paid to the Complainant by the GDA. Interest to the Complainant (here Dr. Gupta) has not been awarded on the basis of any deposit made by the Complainant or GDA being the borrower of any money of the Complainant. Here interest payment is by way of damages. Merely describing the damages as by way of interest do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the date when possession is Jakes. In this case, the possession was never taken under the Land Acquisition Act, and the government withdrew from the acquisition. The possession with the government was in the capacity of a tenant and it continued to remain so till the High Court decided in favour of the assessee. (v) On 28.4.2010, when possession was taken pursuant to the President's approval for acquisition conveyed vide letter dated 12th February 2010, the entire amount was paid and the whole amount thus represented the consideration received for transfer of capital asset. (vi) The assessee have made a separate claim for interest under section 34 of the Land Acquisition Act on the amount of solatium and that issue was sent by the High Court, vide order dated 01.12.2010, for determination. This interest, when quantified and awarded, would be in the nature of interest as contemplated under section 34, whereas the interest referred to in the letter of acquisition was merely used as a yardstick for computing the compensation. In fact, in the High Court order on 1.12.2019, the sum of Rs. 64,81,72,626 (excluding the amount of solatium and additional component) has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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