Gee Gee Holding Pvt Ltd., CHENNAI V. ITO, CHENNAI

CO 94/CHNY/2013

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2317 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 12-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-06-2013
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Business income; Speculation loss; Capital receipt

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.775/MDS/2013 & CO NO.94/MDS/2013 / ASSESSMENT YEAR : 2008-09 THE INCOME TAX OFFICER COMPANY WARD II(1) CHENNAI VS. M/S GEE GEE HOLDING PVT. LTD OLD NO.31, NEW NO.6 DR. RADHAKRISHNAN SALAI 9 TH STREET, MYLAPORE CHENNAI 600 004 [PAN AABCG 1035 D ] ( APPELLANT ) ( RESPONDENT/CROSS OBJECTOR ) DEPARTMENT BY : SHRI A.B KOLI, JCIT ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE ! ' # $%& / DATE OF HEARING : 12 - 04 - 2016 '( # $%& / DATE OF PRONOUNCEMENT : 26 - 05 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE REVENUE AND THE CROSS OBJECTI ON OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CO MMISSIONER OF INCOME-TAX (APPEALS)-I, COIMBATORE, (CAMP OFFICE AT CHENNAI) DATED 7.1.2013 FOR ASSESSMENT YEAR 2008-09. 2. SHRI A.B KOLI, LD. DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT FOR DEVELOP MENT OF LAND WITH ITA NO.775/13 CO 94/13 :- 2 -: SHRI A.M.P.A PALIAPPAN, SMT. A.M.P.A VALLIAMMAI ACH I AND SMT. A.P.L NACHAMMAI. ACCORDING TO THE LD. DR, THE LAND BELON GS TO SHRI A.M.P.A PALIAPPAN, SMT. A.M.P.A VALLIAMMAI ACHI AND SMT. A.P.L NACHAMMAI. THE ASSESSEE ENTERED INTO AN AGREEMENT FOR DEVELOPMENT OF THE LAND, HOWEVER, THE DEVELOPMENT C OULD NOT BE PROCEEDED WITH, THEREFORE, THE MATTER WAS REFERRED TO THE ARBITRATION FOR BREACH OF THE DEVELOPMENT AGREEMENT. THE SOLE ARBITRATOR JUSTICE J. KANAKARAJ, A RETIRED JUDGE OF THE MADRAS HIGH CO URT AWARDED ` 2.75 CRORES AS COMPENSATION, OUT OF WHICH, ` 1.25 CRORES WAS PAID ON VARIOUS INSTALLMENTS DURING THE ASSESSMENT YEAR 200 8-09. THE ASSESSEE OFFERED A SUM OF ` 50 LAKHS AS INCOME FROM BUSINESS. HOWEVER, THE ASSESSING OFFICER ADDED THE BALANCE AM OUNT OF ` 75 LAKHS ALSO AS BUSINESS INCOME DURING THE YEAR UNDER CONSIDERATION. REFERRING TO THE ARBITRATION AWARD, THE COPY OF WHI CH IS AVAILABLE AT PAGE 9 OF THE PAPER BOOK, THE LD. DR SUBMITTED THAT THE COMPENSATION AWARDED BY THE ARBITRATOR WAS FOR BREACH OF DEVELOP MENT AGREEMENT BY THE PARTIES, THEREFORE, THE AMOUNT RECEIVED CONS EQUENT TO THE ARBITRATION CANNOT BE CONSTRUED AS BUSINESS INCOME. HOWEVER, THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THA T THE AMOUNT RECEIVED CONSEQUENT TO THE ARBITRATION HAS TO BE TR EATED EITHER AS CAPITAL GAIN OR AS INCOME FROM OTHER SOURCES AND CL AIMED SET OFF OF THE SPECULATION LOSS. ACCORDING TO THE LD. DR, THE LAND BELONGS TO THREE ITA NO.775/13 CO 94/13 :- 3 -: PERSONS. THE ASSESSEE ENTERED INTO AN AGREEMENT F OR DEVELOPMENT IN THE COURSE OF ITS REGULAR ACTIVITY, THEREFORE, ANY PROFIT RECEIVED EITHER BY SALE OF THE BUILDING CONSTRUCTED CONSEQUENT TO T HE DEVELOPMENT AGREEMENT OR BY THE ARBITRATION AWARD, THE SAME HAS TO BE TREATED AS BUSINESS INCOME. AT ANY STRETCH OF IMAGINATION, THE ARBITRATION AWARD RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS EITH ER CAPITAL RECEIPT OR AS INCOME FROM OTHER SOURCES, THEREFORE, SPECULATIO N LOSS SUFFERED BY THE ASSESSEE CANNOT BE SET OFF. 3. ON THE CONTRARY, SHRI R.VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE RECEIVED ` 50 LAKHS OUT OF ` 2.75 CRORES AWARDED BY THE ARBITRATOR DURING THE YE AR UNDER CONSIDERATION. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE ENTERED INTO AN AGREEMENT FOR DEVELOPMENT OF THE LAND WITH OWNER S OF THE PROPERTY. CONSEQUENT TO THE BREACH OF DEVELOPMENT AGREEMENT BY THE OWNERS, THE MATTER WAS REFERRED TO THE ARBITRATOR A ND THE ARBITRATOR AWARDED THE COMPENSATION. SINCE THE AGREEMENT WAS RELATING TO THE CAPITAL ASSET, ACCORDING TO THE LD. COUNSEL, THE CO MPENSATION AWARDED BY THE ARBITRATOR HAS TO BE TREATED AS CAPITAL RECE IPT. AT THE BEST, THE SAME CAN BE TREATED AS INCOME FROM OTHER SOURCES. IN EITHER WAY, THE SPECULATION LOSS SUFFERED BY THE ASSESSEE HAS TO B E SET OFF. ACCORDING TO THE LD. COUNSEL, THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THE COMPENSATION WAS RECE IVED FOR GIVING UP ITA NO.775/13 CO 94/13 :- 4 -: THE RIGHT TO DEVELOP THE PROPERTY. HOWEVER, THE CI T(A) DISALLOWED THE CLAIM OF THE ASSESSEE FOR SETTING OFF THE LOSS SUF FERED IN THE SPECULATION, THEREFORE, THE ASSESSEE HAS FILED THE CROSS OBJECTION. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMI TTEDLY, THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION. IN TH E COURSE OF ITS BUSINESS ACTIVITY, THE ASSESSEE ENTERED INTO AN AG REEMENT WITH THE LAND OWNERS FOR DEVELOPMENT OF LAND. FOR THE REASO NS BEST KNOWN TO THE ASSESSEE, IT CANNOT PROCEED WITH CONSTRUCTION AND ULTIMATELY, THE MATTER WAS REFERRED TO THE ARBITRATOR. THE SOLE AR BITRATOR, JUSTICE J. KANAKARAJ, A RETIRED JUDGE OF THE MADRAS HIGH COURT AWARDED ` 2.75 CRORES AS COMPENSATION IN FAVOUR OF THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED ` 50 LAKHS. THE ASSESSEE CLAIMED THAT THE RECEIPT OF ` 50 LAKHS IS CAPITAL RECEIPT AND THEREFORE, NOT TAXABLE. THE CIT(A) FOUND THAT THE COMPENSATION AWARDED BY THE ARBITRATOR WAS FOR GIVING UP THEIR R IGHT TO DEVELOP THE LAND. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IT IS NOT FOR GIVING UP THE RIGHT FOR DEVELOPMENT OF THE LAND, IT IS IN THE COURSE OF REGULAR BUSINESS ACTIVITY THE ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR DEVELOPMENT OF THE LAND. HAD THE ASSESSEE DEVELOP ED THE PROPERTY AND CONSTRUCTED THE BUILDING, THE PROFIT ARISING ON SALE OF SUCH BUILDING HAS TO BE NECESSARILY TREATED AS INCOME FROM BUSINE SS. THEREFORE, THE ITA NO.775/13 CO 94/13 :- 5 -: COMPENSATION AWARDED BY THE ARBITRATOR FOR BREACH O F THE CONTRACT HAS TO BE NECESSARILY TREATED AS INCOME FROM BUSINESS. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF TH E ASSESSEE BY TREATING THE CLAIM AS FOR GIVING UP THE DEVELOPMENT RIGHT ON THE PROPERTY. IT IS NOT A CASE OF GIVING UP THE DEVELOPMENT RIGHT ON TH E PROPERTY BUT IT IS A CASE OF LOSS SUFFERED IN THE COURSE OF BUSINESS D UE TO BREACH OF CONTRACT BY THE LAND OWNERS. THEREFORE, THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS R IGHTLY TREATED ` 50 LAKHS RECEIVED BY THE ASSESSEE CONSEQUENT TO THE A RBITRATION AS BUSINESS INCOME. CONSEQUENTLY, THE LOSS SUFFERED I N THE SPECULATION BUSINESS IN SALE AND PURCHASE OF SHARES CANNOT BE S ET OFF AS CLAIMED BY THE ASSESSEE. THEREFORE, THIS TRIBUNAL IS UNAB LE TO UPHOLD THE ORDER OF THE CIT(A) AND ACCORDINGLY, THE SAME IS SE T ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOW ED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MAY, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER *+, ' / CHENNAI -. / DATED: 26 TH MAY, 2016 RD ITA NO.775/13 CO 94/13 :- 6 -: .+/ # 0 $12 3+2$ / COPY TO: 1 . 45 / APPELLANT 4. ! 6$ / CIT 2. 0745 / RESPONDENT 5. 289 0 $ : / DR 3. ! 6$ () / CIT(A) 6. 9< =' / GF