DCIT, Madurai V. Shri T.Kannan, Madurai

ITA 1496/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5057 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 13-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Assessee Lawyers: R SRINIVAS
• Keywords: Capital asset; Search and seizure; Cost of acquisition; Capital receipt
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI HARI OM MARATHA, J.M. AND SHRI N.S. SAINI, AM .. I.T.A. NO. 1496/MDS/2010 ASSESSMENT YEAR 2007-08 THE DY. C.I.T CIRCLE 1 MADURAI VS. SHRI T. KANNAN THIAGARAJAR PREMISES KAPPALUR MADURAI (PAN NO. AAQPK 8713 Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R. SRINIVAS DEPARTMENT BY : SHRI B. SRINIVAS O R D E R PER HARI OM MARATHA, JM THIS APPEAL OF THE DEPARTMENT FOR ASSESSMENT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF THE LD. CI T(A)-I, MADURAI DATED 03.03.2009. PAGE 2 OF 9 I.T.A. NO. 1496/MDS/2010 2. FACTS LEADING TO THIS APPEAL ARE THAT FOR ASSESS MENT YEAR 2007-08, ASSESSEE FILED RETURN OF INCOME [ROI] ON 2 7.10.2007 USING E-FILING MODE ADMITTING AN INCOME OF RS. 3,13,65,02 0/-. DURING THE YEAR ENDED MARCH 2004, THE ASSESSEE HAD PURCHASED L AND MEASURING 2 ACRES 51 CENTS SITUATED AT SURVEY NO. 143/1A OF P ATTANTURU AGRAHARA VILLAGE, KRISHNARAJAPURAM, HUBLI BANGALORE EAST TALUK FROM ONE MR. P.C.D NAMBIAR, CHENNAI AT A COST OF RS . 2,24,54,580/-. IT WAS NOTICED THAT ON THE EASTERN SIDE OF THE PROP ERTY, ONE M/S PARANJAPE SCHEME CONSTRUCTIONS LTD, A PUBLIC COMPAN Y OF DEVELOPERS HAD TRESPASSED ASSESSEES PROPERTY BY US ING A PRIVATE ROAD TO REACH THEIR LAND LOCATED BEHIND ASSESSEES PROPERTY. TO GET THE ENCROACHED PORTION RETRIEVED, THE ASSESSEE FILE D CIVIL SUIT WHICH WAS NUMBERED OS NO. 1340/2005 FOR RESTRAINING THAT COMPANYS ENTRY ON ASSESSEES LAND. AFTER TWO YEARS OF PURSU ING OF THIS CIVIL SUIT, THE DEFENDANTS M/S PARANJAPE SCHEME CONSTRUCT IONS LTD., CAME FOR A OUT-OF-COURT SETTLEMENT PLEADING FOR GIV ING RIGHT OF EASEMENT TO REACH THEIR PROPERTY. AS PER THIS AGR EEMENT, THE ASSESSEE PERMITTED THE USE OF THE PRIVATE ROAD ENAB LING THEM TO REACH THEIR PROPERTY AND IN TURN, THE SAID PARTY PA ID A SUM OF RS. 25 PAGE 3 OF 9 I.T.A. NO. 1496/MDS/2010 LAKHS TO THE ASSESSEE. AFTER DEDUCTING EXPENSES, T HE NET AMOUNT OF RS. 24,82,500/- WAS CREDITED TO THE LAND ACCOUNT. THE ASSESSEE TREATED THE SAID SUM AS CAPITAL RECEIPT AND MENTION ED THIS FACT IN THE RETURN AS UNDER: NOTE NO. 5 : DURING THE YEAR, THE ASSESSEE RECEIVED A SUM OF RS. 24,82,500/- [NET OF EXPENSES] FROM M/S PARANJAP E SCHEME CONSTRUCTIONS LTD., FOR PROVIDING EASEMENT RIGHT IN PRIVATE ROAD SITUATED ON THE EASTERN SIDE OF THE LAND AT S. NO. 143/1A OF PATTANDURU AGRAHARA VILLAGE , KRISHNARAJAPURAM HUBLI , BANGALORE EAST TALUK, BANGALORE DISTRIT AND THE SAME IS CREDITED TO THE LAND ACCOUNT AS THE RECEIPT IS IN TH E NATURE OF CAPITAL RECEIPT. 3. THE ASSESSING OFFICER ISSUED NOTICE TO THE ASSES SEE U/S 143(2) OF THE INCOME-TAX ACT, 1961 [IN SHORT, THE ACT] PRO POSING TO TREAT THE IMPUGNED RECEIPT OF RS. 25 LAKHS AS CAPITAL GAI NS AND INVITED OBJECTIONS OF THE ASSESSEE, IF ANY. THE ASSESSEE F ILED HIS REPLY STATING THAT THERE WAS NO TRANSFER OF PROPERTY, AND EVEN FOR THE SAKE OF ARGUMENT, IF IT WAS TREATED AS TRANSFER IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. V.B. SRINIVASA SHETTY 128 ITR 294, THE COMPUTAT ION PROVISIONS AS PAGE 4 OF 9 I.T.A. NO. 1496/MDS/2010 PRESCRIBED U/S 48 COULD NOT BE APPLIED SINCE THERE WAS NO COST OF ACQUISITION IN RESPECT OF THE TRANSFER OF THE RIGHT S, IF ANY. SO, ACCORDING TO THE ASSESSEE, AMOUNT RECEIVED WAS ONLY CAPITAL RECEIPT AND COULD NOT BE TREATED A CAPITAL GAIN OR ANY OTHE R INCOME FOR THAT MATTER. SENSING THAT HE COULD NOT TAX THIS RECEIPT UNDER THE HEAD CAPITAL GAINS, ASSESSING OFFICER TRIED TO TAX THI S RECEIPT AS RENT FOR THE USE OF PRIVATE ROAD AND ACCORDINGLY, HE TREATED THE NET AMOUNT OF RS. 24,82,500/- AS RENT RECEIVED FOR USING LAND UNDER THE HEAD INCOME FROM OTHER SOURCES. BEING AGGRIEVED, THE ASSESSEE FILED FIRST APPEAL AND THE COMMISSIONER OF INCOME-TAX [AP PEALS] HAS FINALLY EPILOGUED THAT THIS RECEIPT CANNOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES AND THAT THIS RECEIPT I S ONLY CAPITAL RECEIPT AND UNDER THE PROVISIONS OF THE ACT, THE SA ME CANNOT BE TAXED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY CONSIDERED THE ENTIRE MATERIAL ON RECORD. IT WAS A RGUED BY THE LD. D.R. THAT THIS IS A COMPENSATION AMOUNT RECEIVED FR OM THE COMPANY TOWARDS USING ASSESSEES PORTION OF LAND AND OUGHT TO HAVE BEEN CONFIRMED BY THE COMMISSIONER OF INCOME-TAX [APPEAL S] AS INCOME PAGE 5 OF 9 I.T.A. NO. 1496/MDS/2010 UNDER THE HEAD INCOME FROM OTHER SOURCES BEING RE NT RECEIVED FROM THIS LAND. IN FACT, A PIQUANT SITUATION HAS A RISEN IN THIS CASE. M/S PARANJAPE SCHEME CONSTRUCTIONS LTD. DID NOT HAV E EGRESS OR INGRESS TO ITS PROPERTY AND THAT IS WHY IT ENCROACH ED UPON THE PROPERTY OF THE ASSESSEE. FOR THAT MATTER, THE ASSE SSEE WAS COMPELLED TO FILE CIVIL SUIT TO STOP THIS COMPANY F ROM TRESPASSING UPON HIS LAND. AS PER THE COURT DECREE, RESULTED I NTO BY WAY OF COMPROMISE BETWEEN THE PARTIES, A RIGHT TO EASEMEN T WAS GRANTED TO THE COMPANY FOR WHICH THE ASSESSEE RECEIVED RS. 25 LAKHS. AS PER THIS AGREEMENT, WHICH WE HAVE GONE THROUGH, THE OWNERSHIP OF THAT PROPERTY WOULD ALWAYS REMAIN WITH THE ASSESSEE . IN ANY CASE, IF THE ASSESSEE EVER SELLS THIS PROPERTY TO ANY THI RD PARTY, THE RIGHT OF EASEMENT WILL STILL CONTINUE WITH THE COMPANY AN D HE WILL HAVE TO SELL THE SAME ALONGWITH THAT ENCUMBRANCE RESULTI NG AS PER THE COURT DECREE, MEANING THEREBY, ASSESSEE HAS NOT SOL D ANY PART OF HIS PROPERTY, YET HE IS PRECLUDED TO UNILATERALLY DEAL WITH THE SAME IN ANY MANNER HE LIKED TO. LEGALLY, HE CONTINUES TO B E ITS OWNER BUT PRACTICALLY HE CANNOT STOP USE OF THIS PORTION OF T HE LAND BY THE COMPANY. IT IS A FACT THAT HE HAS RECEIVED RS. 25 LAKHS AND HAS ALSO SHOWN THIS AMOUNT IN THE NOTE APPENDED TO HIS RET URN OF INCOME, PAGE 6 OF 9 I.T.A. NO. 1496/MDS/2010 AS CAPITAL RECEIPT IN THE LAND ACCOUNT. INITIALL Y, THE ASSESSING OFFICER PROPOSED TO TAX THIS RECEIPT UNDER THE HEAD CAPITAL GAINS, BUT WHEN THE ASSESSEE EXPLAINED THAT ALTHOUGH THIS IS CAPITAL RECEIPT, BUT THIS CANNOT BE TAXED UNDER ANY PROVISI ON OF LAW BECAUSE THE RIGHT OF EASEMENT BEING AN INTANGIBL E ASSET HAVING NO COST THEREOF CANNOT BE TAXED, AS SUCH IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT RENDERED IN T HE CASE OF V.B. SRINIVASA SHETTY [SUPRA]. BEING CONVINCED ABOUT SEN SING THIS LEGAL POSITION, THE ASSESSING OFFICER HAS TAXED THIS RECE IPT UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THE OPINION OF THE ASSESSING OFFICER, THIS IS A RENT RECEIPT GIVEN BY THE COMP ANY FOR THE USE OF ASSESSEES LAND FOR REACHING TO LAND LOCKED PROPERT Y. THE COMMISSIONER OF INCOME-TAX HAS REPELLED THIS REASON OF THE ASSESSING OFFICER AND AFTER DISCUSSING ALL ASPECTS, HE HAS FINALLY GONE WITH THE CLAIM OF THE ASSESSEE. WE ARE ALSO OF THE SAME VIEW. THIS RECEIPT CANNOT BE TREATED AS RENT BY ANY STRETCH OF IMAGINATION, BECAUSE FOR RECEIVING A RENT, THERE HAS TO BE A REL ATIONSHIP OF LANDLORD AND TENANT, BETWEEN THE PARTIES. IN TH IS CASE, NOBODY IS LAND LORD AND TENANT. ASSESSEE IS NOT A LANDLORD, RATHER, HE IS THE OWNER OF THE PROPERTY. COMPANY IS NOT TENANT BUT I S GRANTED ONLY A PAGE 7 OF 9 I.T.A. NO. 1496/MDS/2010 EASEMENT RIGHT AND CAN USE THIS PIECE OF LAND FOR G OOD WITHOUT HINDRANCE FROM ASSESSEES SIDE. THERE IS NO TRANSF ER OF PROPERTY, NEITHER THE COMPANY IS A TENANT, RECEIPT HAS BEEN G AINED BY ASSESSEE BY VIRTUE OF USE OF THIS PROPERTY AS PER C OURT DECREE BY WAY OF EASEMENT RIGHT. THIS RECEIPT BEING CAPITAL R ECEIPT IN RELATION TO CAPITAL ASSET CAN ONLY BE TAXED UNDER THE HEAD CAPITAL GAIN, IF IT ALL IT CAN BE TAXED. SINCE, IN THIS CASE, IT BE ING INTANGIBLE ASSET HAVING NO COST, CANNOT BE TAXED IN VIEW OF THE DICT UM OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF V. B. SRINIVASA SHETTY [SUPRA]. NOW THE QUESTION ARISES AS TO WHETHER ANY INCOME CAN GO UNTAXED WHEN THERE IS A RESIDUE CLAUSE PROVIDED IN SECTION 56(1) OF THE ACT. WE ARE AFRAID THAT THIS IS A CASE WHERE T HIS INCOME CANNOT BE TAXED AND IF IT CANNOT BE TAXED UNDER THE ACT, N O TAX CAN BE LEVIED UNDER ONE PRETEXT OR THE OTHER. OUR ABOVE V IEW IS SUPPORTED BY THE DECISION OF THE HON'BLE SUPREME COURT TAKEN IN THE CASE OF SANDHU BROTHERS REPORTED IN 273 ITR 1 WHEREIN IT HA S BEEN HELD THAT IT WOULD BE ILLOGICAL AND AGAINST LOGIC OF SECTION 56 OF THE ACT TO HOLD THAT THAT WHICH IS NOT CHARGEABLE TO CAPITAL G AIN COULD BE TAXED AS INCOME U/S 56 OF THE ACT. DECISION OF TH E HON'BLE ALLAHABAD HIGH COURT RELIED ON BY THE LD. D.R. IN 1 23 ITR 24 IN THE PAGE 8 OF 9 I.T.A. NO. 1496/MDS/2010 CASE OF RAJA BULUND SUGAR COMPANY LTD. VS. CIT IS E NTIRELY ON DIFFERENT ISSUE AND DIFFERENT FACTS, AND IS, THEREF ORE, NOT AT ALL APPLICABLE EVEN REMOTELY TO THE FACTS OF THIS CASE. THE RATIO OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F STATE OF PUNJAB VS. BRITISH INDIA CORPORATION [1964] 2 SCR 1 14:AIR 1963 SC 1459 ALSO SUPPORTS, TO SOME EXTENT, THE CASE OF THE ASSESSEE. CONSEQUENTLY WE DO NOT FIND ANY INFIRMITY IN THE AP PELLATE ORDER AND DECLINE TO INTERFERE WITH THE SAME. 5. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT 20 TH MAY, 2011 SD/- SD/ - (N.S. SAINI) ((HARI OM MARATHA ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 20 TH MAY, 2011. VL PAGE 9 OF 9 I.T.A. NO. 1496/MDS/2010 COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE