TMI Blog2023 (6) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... a suit for specific performance amount was paid, therefore, the said amount cannot be said to be liable to capital gains tax. As regards the reliance placed on Clause No.10 of the consent decree, we are of the considered view that the said clause is merely an arrangement amongst the parties, whereby the payment will be directly made to the partners as set out in the consent terms instead of the assessee and thus, cannot be said to be a relinquishment of any right in favour of the partners giving rise to any capital gains in the hands of the assessee. Thus the amount received by the assessee pursuant to the consent decrees dated 20/01/2011 and 15/07/2015 passed by the Hon ble Bombay High Court is not in respect of the transfer of any right, title, or interest in the property i.e. Villa Nirmala, and therefore, cannot be taxed under the head capital gains in the hands of the assessee. Decided in favour of assessee. - ITA no.802/Mum./2023, ITA no.803/Mum./2023, ITA no.804/Mum./2023 And ITA no.805/Mum./2023 - - - Dated:- 29-5-2023 - Shri G.S. Pannu, President, And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri P.J. Pardiwala a/w Shri Niraj Sheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect to the consideration received towards right to sue . The reasons given by him for doing so, are wrong, contrary to the facts of the case and against the provision of law; 5. The AO/CIT(A) failed to appreciate that the consideration received by the assessee is against the assessee's right to sue which is a capital receipt not chargeable to tax as the same does not constitute a capital asset within the meaning of section 2(14) of the Act. 6. The above grounds/sub-grounds are without prejudice to each other. 7. The appellant craves the leave to add, amend or alter all or any of the grounds of appeal. 4. Grounds no.1-3 raised in assessee s appeal, challenging the initiation of reassessment proceedings under section 147 of the Act, were not pressed during the hearing. Accordingly, grounds no.1-3 are dismissed as not pressed. 5. The issue arising in grounds no.4 and 5, raised in assessee s appeal, is pertaining to the addition of a sum of Rs.134,58,72,917 as long-term capital gains. 6. The brief facts of the case pertaining to this issue are: The assessee is a firm, which did not conduct any business during the year under consideration and had orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of its partners, and as a result of relinquishment, capital gains accrued in the hands of the assessee which was not offered to tax. The AO further observed that none of the sums paid to any of the partners were offered to tax, either in the hands of the partners or in the hands of the assessee firm except the interest income of Rs.94,82,41,119 and Rs.2,77,71,683 offered to tax in the assessment years 2016-17 and 2017-18, respectively. Accordingly, the assessee was asked to explain as to why the amount of Rs.135 crore, as per the consent decree, be not treated as sale consideration/compensation towards interest in the property named Villa Nirmala and capital gains be worked out accordingly. In response thereto, the assessee submitted that the property was sold and conveyed to the two tenants and therefore the assessee had no right in the property but only the right to sue to get compensation or damages. It was further submitted that since the tenants had a full title to the property, the same was sold to the developer. It was also submitted that the sum of Rs.135 crore was agreed among the parties to the suit in order to settle the suit filed by the assessee and the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the property, i.e. Villa Nirmala and not in lieu of the right to sue, and therefore the action of the AO in bringing the sum to tax as long-term capital gains deserve to be upheld. Being aggrieved, the assessee is in appeal before us. 9. During the hearing, the learned Sr. Counsel, appearing for the assessee, submitted that the original vendor has conveyed the property to the tenant and the tenant thereafter transferred the same to R A Realty and therefore there was no transfer by the assessee. The learned Sr. Counsel further submitted that pursuant to the consent decree passed by the Hon ble Bombay High Court, assessee s claim of specific performance of the Agreement to Sell was rejected and as a consequence, the assessee received the damages, which is in nature of capital receipt and thus not taxable. 10. On the contrary, the learned Departmental Representative ( learned DR ) by vehemently relying upon the orders passed by the lower authorities submitted that there is no mention of right to sue in the consent decree and therefore, it cannot be held that the payment received by the assessee from R A Realty is in lieu of the right to sue. By referring to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties agreed to settle the same outside the court and entered into consent terms. Simultaneously with the execution of the aforesaid consent terms, the tenants/the legal heirs executed consent terms with R A Realty transferring and conveying the property to R A Realty as the ultimate transferee/owner of the property. Under the aforesaid consent terms, R A Realty agreed to settle all claims of the assessee in the suit for specific performance of the Agreement to Sell and/or in respect of the property for a total consideration of Rs.135 crore. The said consent terms were filed before the Hon ble Bombay High Court and the Hon ble Court vide order dated 28/01/2011 disposed of the suit for specific performance of the Agreement to Sell as per the consent terms agreed between the parties. Since R A Realty could not deliver the flats as per the consent terms, the said terms were revised vide consent decree dated 15/07/2015 passed by the Hon ble Bombay High Court and R A Realty agreed to pay Rs.70.20 crore along with interest of Rs.94.30 crore. 13. Thus, the dispute, in the present case, is regarding the taxability of Rs.135 crore received by the assessee as per the consent decree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in the immovable property but only grants the right to obtain specific performance of the agreement by approaching the court of law and seeking a decree of specific performance. Further, it is undisputed that the vendor executed the conveyance deed dated 03/05/1975 in favour of its tenants and possession of the property, i.e. Villa Nirmala, was also handed over to the tenants. Thus, only the tenants of the vendor, in the present case, can be said to have any right, title, or interest in the immovable property, which was subsequently transferred to R A Realty. Therefore, we are of the considered view that the reliance placed on Clause No.5 or Clause No.24 of the consent decree by the Revenue does not lead to the conclusion that the assessee had the right, title, or interest in the property, which was transferred to R A Realty for payment of Rs.135 crore. 16. We find that in Sterling Construction Investments v/s ACIT, [2015] 374 ITR 474 (Bom.), inter alia, the following question of law came up for consideration before the Hon ble jurisdictional High Court:- (ii) Whether the Tribunal was justified in holding that the compensation received by the Appellant as per the Conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessee in the present case eventually the Suit ended in the Assessee's claim for specific performance being refused and he being entitled to receive the sum stipulated in this Court's order in lieu of the specific performance. In these circumstances, the Assessee was right in urging that he has no right, title or interest in the immovable property. The Tribunal completely misread and misconstrued this Court's order. 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 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 XXIII Rule 3 of the Civil Procedure Code, 1908. This clearly means that the relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suit is not disposed off on the basis of the agreement between the parties but on the basis of the consent order passed by the Court after the application of its mind. Accordingly, the Hon ble jurisdictional High Court held that once the suit for specific performance has been refused then the receipt of monetary sum cannot be taxed as claimed by the Revenue as the same is in the nature of compensation in money for breach of the contract. Since in the present case also, pursuant to the consent decree in a suit for specific performance amount was paid, therefore, the said amount cannot be said to be liable to capital gains tax. 19. Further, as regards the reliance placed on Clause No.10 of the consent decree, we are of the considered view that the said clause is merely an arrangement amongst the parties, whereby the payment will be directly made to the partners as set out in the consent terms instead of the assessee and thus, cannot be said to be a relinquishment of any right in favour of the partners giving rise to any capital gains in the hands of the assessee. 20. Therefore, in view of the above, we are of the considered opinion that the amount of Rs.135 crore received b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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