MAHESH J JHAVERI, MUMBAI V. ITO 21(1)(3), MUMBAI

ITA 1560/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2119 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KETAN PANCHMIA
• Keywords: Capital asset; Cost of acquisition; Capital receipt
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1560/MUM/2011 ASSESSMENT YEAR: 2006-07 M/S MAHESH J. JHAVERI, 401/02 PURNA URVI NS RD 2, SWASTIK SOCIETY, VILE PARLE(W) MUMBAI -400056 / VS. ITO 21(1)(3) MUMBAI (ASSESSEE ) (REVENUE) P.A. NO. AAEPJ8678F / ASSESSEE BY SHRI KETAN PANCHMIA (AR) / REVENUE BY SHRI SATYAJIT MANDAL (DR) / DATE OF HEARING : 29/10/2015 / DATE OF ORDER: 30/11/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-3 2, MUMBAI {(IN SHORT LD. CIT(A)} DATED 29.12.2010 FOR THE ASSESSMENT YEAR 2006-07, DECIDED AGAINST THE ASSESS MENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO ) U/S 143(3) OF THE ACT, ON THE FOLLOWING GROUNDS OF APPEAL: MAHESH J. JHAVERI 2 1. CIT(A) ERRED IN CONFIRMING ACTION OF TREATING COMPENSATION RS.5,74,000/- RECEIVED AS INCOME FROM OTHER SOURCES. 2. HE FAILED TO APPRECIATE THAT THE SAID RECEIPT WA S RECEIVED FOR DISPLACEMENT AND CONVENIENCE IN SHIFTI NG FROM EXISTING RESIDENCE, THE SAME CAN ONLY BE TREATED AS CAPITAL RECEIPTS AND CANNOT BE TREATED AS INCOME. 3. THE APPELLANT PRAYS THAT THE ADDITION OF RS.5,74 ,000/- BE DELETED. WITHOUT PREJUDICE TO ABOVE 4. THE APPELLANT PRAYS THAT THE RECEIPT OF RS.5,74, 000/- IS ON ACCOUNT OF CAPITAL ASSETS, SAME CAN BE CHARGED T O CAPITAL GAINS TAX ONLY. 5. THE APPELLANT PRAYS THAT THE RECEIPT OF RS.5,74, 000/- BE CHARGED TO TAX AS LONG TERM CAPITAL GAIN TAX, AS HE LD BY CIT(A) IN CASE OF PART OF THE RECEIPTS. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2 . DURING THE COURSE OF HEARING, SHRI KETAN PANCHMIA AUTHORISED REPRESENTATIVE (LD COUNSEL) ON BEHALF OF THE ASSESSEE AND SHRI SATYAJIT MANDAL DEPARTMENTAL REPRESENTATIVE (LD DR) ON BEHALF OF THE REVENUE, AR GUED THE CASE. 3 . THE SOLITARY GROUND RAISED BY THE ASSESSEE IN THI S APPEAL IS WITH REGARD TO THE ACTION OF AO PARTLY CONFIRMED BY THE LD. CIT(A) BY TREATING THE CAPITAL RECEIPT AS INCOME OF THE ASSESSEE FOR AN AMOUNT OF RS.5,74,000/-. 3.1 THE BRIEF FACTS ARE THAT THE ASSESSEE WAS TENANT I N THE BUILDING CALLED ASHIRWAD SINCE MANY YEARS. DURING THE F.Y. 2005-06, LANDLORD OF THIS PROPERTY ENTERED INTO AN AGREEMENT WITH THE DEVELOPER FOR RE-DEVELOPMENT OF THIS PROPE RTY. MAHESH J. JHAVERI 3 ACCORDINGLY THE ASSESSEE, LANDLORD AND THE DEVELOPE R ENTERED INTO AN AGREEMENT DATED 28.10.2005, IN TERMS OF WHI CH, THE ASSESSEE TENANT SURRENDERED HIS PROPERTY (FLAT) AND IN LIEU OF THE SAME, HE GOT A NEW FLAT ON THE SAME PLACE IN TH E NEW BUILDING ALONG WITH FOLLOWING PAYMENTS:- RS.2,94,000/- AS PAYMENT FOR SHORT AREA GIVEN RS.3,00,000/- TOWARDS CASH RS.2,74,000/- TOWARDS TRANSIT ACCOMMODATION. 3.2. THE ASSESSEE CLAIMED ALL THE ABOVE SAID RECEIPTS A S EXEMPT BEING CAPITAL RECEIPT, WHEREAS THE AO ADDED ALL THESE RECEIPTS AS INCOME OF THE ASSESSEE UNDER THE HEAD I NCOME FROM OTHER SOURCES. IN THE APPEAL BEFORE THE LD. CI T(A), RELIEF WAS GIVEN WITH RESPECT TO SUM OF RS.2,94,000/- BUT REMAINING TWO AMOUNTS AGGREGATING TO RS.5,74,000/- WERE TREAT ED AS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, C ONFIRMING THE ACTION OF LD. AO PARTLY. 3.3. BEING AGGRIEVED, THE ASSESEE HAS APPROACHED THE TR IBUNAL AND CONTENDED THAT THE AFORESAID AMOUNT IS CAPITAL RECEIPT AND THEREFORE, NOT TAXABLE UNDER THE INCOME TAX ACT , AND IN HIS SUPPORT HE HAS ARGUED THAT THE ISSUE IS COVERED WITH THE JUDGMENT OF COORDINATE BENCH IN FOLLOWING TWO CASES : (I)KUSHAL K. BANGIA ITA NO.2349/MUM/2011 (II)MRS. KIRANBEN S. SHAH ITA NO.7209/MUM/2010 MAHESH J. JHAVERI 4 3.4 ON THE OTHER HAND, LD. DR HAS RELIED UPON THE ORDER S OF THE LOWER AUTHORITIES. 3.5. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS JUDGMENTS OF THE COORDINATE BENCH RELIED UPON BEFORE US. IT IS NOTED THAT THE ISSUE HAS ALREADY B EEN RESOLVED IN THE JUDGMENT RELIED UPON BY LD. COUNSEL. FOR THE SAKE OF READY REFERENCE, WE HAVE REPRODUCED RELEVANT PARA F ROM THE JUDGMENT OF BOMBAY BENCH OF ITAT IN THE CASE OF KUS HAL K. BANGIA (SUPRA): IN OUR CONSIDERED VIEW, IT IS ONLY ELEMENTARY THAT THE CONNOTATION OF INCOME HOWSOEVER WIDE AND EXHAUSTIVE , TAKE INTO ACCOUNT ONLY SUCH CAPITAL RECEIPTS ARE SP ECIFICALLY TAXABLE UNDER THE PROVISIONS OF THE INCOME TAX ACT. SECTION 2(24)(VI)PROVIDES THAT INCOME INCLUDES ANY CAPITAL GAINS CHARGEABLE UNDER SECTION 45, AND, THUS, IT IS CLEA R THAT A CAPITAL RECEIPT SIMPLICITOR CANNOT BE TAKEN AS INCO ME. HONBLE SUPREME COURT IN THE CASE OF PADMRAJE R. KARDAMBANDE VS CIT (195 ITR 877) HAS OBSERVED THAT ..,, WE HOLD THAT THE AMOUNTS RECEIVED BY THE ASSESSEE D URING THE FINANCIAL YEARS IN QUESTION HAVE TO BE REGARDED AS CAPITAL RECEIPTS, AND, THEREFORE,(EMPHASIS SUPPLIED BY US), ARE NOT INCOME WITHIN MEANING OF SECTION 2(24) OF T HE INCOME TAX ACT. THIS CLEARLY IMPLIES, AS IS THE S ETTLED LEGAL POSITION IN OUR UNDERSTANDING, THAT A CAPITAL RECEIPT IN PRINCIPLE IS OUTSIDE THE SCOPE OF INCOME CHARGEA BLE TO TAX AND A RECEIPT CANNOT BE TAXED AS INCOME UNLESS IT IS IN THE NATURE OF REVENUE RECEIPT OR IS BROUGHT WITHIN THE AMBIT MAHESH J. JHAVERI 5 OF INCOME BY WAY OF A SPECIFIC PROVISION IN THE ACT . NO MATTER HOW WIDE BE THE SCOPE OF INCOME U/S.2(24) IT CANNOT OBLITERATE THE DISTINCTION BETWEEN CAPITAL R ECEIPT AND REVENUE RECEIPT. IT IS NOT EVEN THE CASE OF THE ASSESSING OFFICER THAT THE COMPENSATION RECEIVED BY THE ASSESSEE IS IN THE REVENUE FIELD, AND RIGHTLY SO BE CAUSE THE RESIDENTIAL FLAT OWNED BYTHE ASSESSEE IN SOCIET Y BUILDING IS CERTAINLY A CAPITAL ASSET IN THE HANDS OF THE ASSESSEE AND COMPENSATION IS PREFERABLE TO THE SAME . AS HELD BY HONBLE SUPREME COURT, IN THE CASE OF DR. G EORGE THOMAS K VS CIT(156 ITR 412), THE BURDEN IS ON THE REVENUE TO ESTABLISH THAT THE RECEIPT IS OF REVENUE NATURE THOUGH ONCE THE RECEIPTS FOUND TO BE OF REVENUE CH ARACTER, WHETHER IT COMES UNDER EXEMPTION OR NOT, IT IS FOR THE ASSESSEE TO ESTABLISH. THE ONLY DEFENCE PUT UP BY LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT CASH COMPENSATI ON RECEIVED BY THE ASSESSEE IS NOTHING BUT HIS SHARE I N PROFITS EARNED BY THE DEVELOPER WHICH ARE ESSENTIALLY REVEN UE ITEMS IN NATURE. THIS ARGUMENT HOWEVER PROCEEDS ON THE FALLACY THAT THE NATURE OF PAYMENT IN THE HANDS OF PAYER ALSO ENDS UP DETERMINING ITS NATURE IN THE HANDS O F THE RECIPIENT. AS OBSERVED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. KAMAL BEHARILAL SINGHA (82 ITR 460) , IT IS NOW WELL SETTLED THAT, IN ORDER TO FIND OUT WHETHER IT IS A CAPITAL RECEIPT OR REVENUE RECEIPT, ONE HAS TO SEE WHAT IT IS IN THE HANDS OF THE RECEIVER AND NOT WHAT IT IS IN THE HANDS OF THE PAYER. THE CONSIDERATION FOR WHICH THE AMOU NT HAS BEEN PAID BY THE DEVELOPER ARE, THEREFORE, NOT REAL LY MAHESH J. JHAVERI 6 RELEVANT IN DETERMINING THE NATURE OF RECEIPT IN TH E HANDS OF THE ASSESSEE. IN VIEW OF THESE DISCUSSION, IN OU R CONSIDERED VIEW, THE RECEIPT OF RS.11,75,000 BY THE ASSESSEE CANNOT BE SAID TO BE OF REVENUE NATURE, AN D, ACCORDINGLY, THE SAME IS OUTSIDE THE AMBIT OF INCOM E UNDER SECTION 2(24) OF THE ACT. HOWEVER, IN OUR CONSIDERE D OPINION AND AS LEARNED COUNSEL FOR THE ASSESSEE FAI RLY AGREES, THE IMPUGNED RECEIPT ENDS UP REDUCING THE C OST OF ACQUISITION OF THE ASSET, I.E. FLAT, AND, THEREFORE , THE SAME WILL BE TAKEN INTO ACCOUNT AS SUCH, AS AND WHEN OCC ASION ARISES FOR COMPUTING CAPITAL GAINS IN RESPECT OF TH E SAID ASSET. SUBJECT TO THESE OBSERVATIONS, GRIEVANCE OF THE ASSESSEE IS UPHELD. 3.6. SIMILAR VIEW WAS TAKEN IN ANOTHER JUDGMENT IN THE CASE OF MRS. KIRANBEN S. SHAH, THE RELEVANT PORTION IS REPR ODUCED BELOW: I HAVE NOTICED THAT IT IS NOT EVEN ASSESSING OFFIC ERS CASE THAT THE RECEIPT OF COMPENSATION IS A REVENUE RECEI PT IN NATURE, AS IT HAS BEEN TAXED AS A CAPITAL GAIN. HOW EVER, IT IS NECESSARY TO APPRECIATE THAT, AS DEFINED U/S.2(2 4)(VI), ONLY SUCH CAPITAL GAINS CAN BE TREATED AS INCOME AS ARE CHARGEABLE UNDER SECTION 45. IN TERMS OF THE PROV ISIONS OF SECTION 45, ONLY SUCH CAPITAL GAINS AS ARISE ON TRANSFER OF A CAPITAL ASSET CAN BE DEEMED TO BE INCOME OF TH E PREVIOUS YEAR IN WHICH TRANSFER TAKES PLACE. THE COMPENSATION PAID IN THE PRESENT CASE DOES NOT REFE R TO ANY TRANSFER OR SURRENDER OF RIGHTS BUT IS FOR INCO NVENIENCE MAHESH J. JHAVERI 7 AND HARDSHIP CAUSED TO THE ASSESSEE DUE TO CONSTRUC TION ACTIVITY IN THE BUILDING. SUCH A COMPENSATION, IN M Y CONSIDERED VIEW, CANNOT BE TREATED AS COMPENSATION FOR A RIGHT OR ASSET, AND IS THEREFORE, NOT IN THE NATURE OF COMPENSATION WHICH CAN BE TAXED UNDER SECTION 45. LEARNED DEPARTMENTAL REPRESENTATIVE HAS MERELY PLAC ED HER RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND DID NOT SPECIFICALLY POINT OUT THE ASSET WHICH IS TRANS FERRED IN CONSIDERATION OF THIS COMPENSATION. I HAVE ALSO NOT ICED THAT SO FAR RIGHT OF USAGE OF ADDITIONAL FLOOR SPAC E INDEX IS CONCERNED, IT HAS BEEN SEPARATELY PAID FOR, AND I H AVE NO REASONS TO COME TO THE CONCLUSION THAT COMPENSATION FOR HARDSHIP AND INCONVENIENCE PAID TO THE ASSESSEE IS MERELY A GARB OF PAYING COMPENSATION FOR USE OF ADDITIONAL FLOOR SPACE INDEX. IN VIEW OF THESE DISC USSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, I UPH OLD THE GRIEVANCE OF THE ASSESSEE. 6. FOR THE REASONS SET OUT ABOVE, I DIRECT THE ASSE SSING OFFICER TO DELETE THE IMPUGNED ADDITION OF RS.1,55, 000. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 3.7. THUS, RESPECTFULLY FOLLOWING THESE JUDGMENTS, WE H OLD THAT THE IMPUGNED AMOUNT IS NOT TAXABLE AS INCOME I N THE HANDS OF THE ASSESSEE. FURTHER, IT WAS ALSO HELD IN THE ABOVE SAID JUDGMENT, THE IMPUGNED AMOUNT OF RECEIPT SHOUL D BE REDUCED FROM THE COST OF ACQUISITION. RELEVANT OBSE RVATIONS ARE REPRODUCED: MAHESH J. JHAVERI 8 .ENDS UP REDUCING THE COST OF ACQUISITION OF THE ASSET, I.E. FLAT, AND, THEREFORE, THE SAME WILL BE TAKEN I NTO ACCOUNT AS SUCH, AS AND WHEN OCCASION ARISES FOR COMPUTING CAPITAL GAINS IN RESPECT OF THE SAID ASSET. THE AO IS DIRECTED TO REDUCE THE COST OF ACQUISITIO N. SUBJECT TO THESE OBSERVATIONS THE IMPUGNED ADDITION IS DELETED AND GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 4 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2015. SD/- (SAKTIJIT DEY ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED :30/11/2015 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()*# ! + , $# # + - , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI