The DCIT, Circle-9, Ahmedabad V. Shri Shekhar G.Patel L/h. late Govindbhai C.Patel, Ahmedabad

ITA 1997/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73144 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Assessee Lawyers: DHIREN SHAH AR
• Keywords: Capital asset; Question of law; Cost of acquisition; Capital receipt
• Section: 143(3); 2(14); 54

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BENCH, AHMEDABAD .., ! '# '# '# '# $ %&, ! BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER #./ I.T.A. NO.1997/AHD/2010 ( ( ')( ( ')( ( ')( ( ')( / / / / ASSESSMENT YEAR : 2007-08) DCIT CIRC.9 AHMEDABAD / VS. SHRI SHEKHAR G.PATEL L/H.OF LATE SHRI GOVINDBHAI C.PATEL 2 ND FLOOR, MUNICIPAL BLDG PATHARKUVA, RELIEF ROAD AHMEDABAD !* #./+, #./ PAN/GIR NO. : AEHPP 8754 K ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI VIMALENDU VERMA CIT-DR ./*- 1 0 / RESPONDENT BY : SHRI DHIREN SHAH, AR $'2 1 & / / / / DATE OF HEARING : 19/02/2014 34) 1 & / DATE OF PRONOUNCEMENT : 19/03/2014 5 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XV, AHMEDABA D (CIT(A) FOR SHORT) DATED 13/04/2010 PERTAINING TO ASSESSME NT YEAR (AY) 2007- 08. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. THE LD.COMMISSIONER OF INCOME-TAX(A)-XV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE RIGHTS HELD BY THE ASSESSEE WERE NOT PROPERTY U/S.6(E) OF THE TRANSFER OF PRO PERTIES ACT AND NOT A CAPITAL ASSET AS DEFINED UNDER THE INCOME T AX ACT 1961. ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 2 - 2. THE LD.COMMISSIONER OF INCOME-TAX(A)-XV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETING THE AD DITION OF RS.10,44,08,966/- MADE ON ACCOUNT OF LONG TERM CAPI TAL GAINS EARNED BY THE ASSESSEE ON RECEIPT OF COMPENSATION O N RELINQUISHMENT OF RIGHT TO OBTAIN CONVEYANCE OF LAN D AS PER THE AGREEMENT ENTERED WITH THE VENDOR COMPANIES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)- XV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD.CO MMISSIONER OF INCOME-TAX(A)-XV, AHMEDABAD MAY BE SET ASIDE AND TH AT OF THE ASSESSING OFFICER BE RESTORED. 2. GROUND NOS.1 & 2 ARE INTER-CONNECTED. BRIEFLY S TATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT,1961 (H EREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 30.12. 2009, THEREBY THE ASSESSING OFFICER(AO) MADE ADDITION OF RS.10,44,08, 966/- ON ACCOUNT OF LONG TERM CAPITAL GAIN RECEIVED AS DAMAGES AWARD ED UNDER THE ARBITRATION AND CONCILIATION ACT, 1996. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERI NG THE SUBMISSIONS AND FOLLOWING THE DECISION OF THE HONBLE GUJARAT H IGH COURT RENDERED IN THE CASE OF BARODA CEMENT AND CHEMICALS LTD. VS. C IT REPORTED AT 53 CTR 260 :: 158 ITR 636 DELETED THE ADDITION. 3. THE LD.CIT-DR REITERATED THE SUBMISSIONS AS WERE MADE IN THE STATEMENT OF FACTS AND SUBMITTED THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. HE SUBMITTED THAT LD.CIT(A) FAILED TO APPRECIATE THE FACT THAT RIGHT IN A CAPITAL ASSET IS A BUNDLE OF RIGHTS. ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 3 - 3.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE R ELIED ON THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF BARODA CEMENT AND CHEMICALS LTD. VS. CIT (SUPRA) A ND DECISION OF HONBLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF CIT VS. ASHOKA MARKETING LTD. (164 ITR 664). HE ALSO RELIED ON TH E DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. HIRALAL MANILAL MODY REPORTED AT 131 ITR 421 (GUJ.). HE SUBMITTED THAT THE HONBLE COORDINATE BENCH OF THIS TRIBUNAL (ITAT B BENCH AHMEDABAD) IN ITA NO.1675/AHD/2009 FOR AY 2005-06 TITLED AS SHRI GOVINDBHAI C.PATEL VS. DCIT VIDE ORDER DATED 30/10/2009 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. HE ALSO PLACED RELIANCE ON THE JUDGEMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. J. DALMIA (149 ITR 215). HE SUBMITTED THAT BEFORE THE AO, IT WAS SUB MITTED THAT THE ASSESSEE AND FIVE COMPANIES; NAMELY, VIBHOR REALIT Y (P) LTD., MANDAL (THALTEJ) COMPLEX (P) LTD., GASVENDU LAND DEVELOPER S (P) LTD.,, SANAT COMPLEX (P) LTD. AND SHUSHNA COMPLEX (P) LTD. ARE S EPARATE LEGAL ENTITIES. HE SUBMITTED THAT PRIOR TO CONVERSION IN TO PRIVATE LIMITED COMPANY, THESE FIVE ENTITIES WERE CO-OPERATIVE SOCI ETIES WITH WHOM THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR SALE. H E SUBMITTED THAT THE AGREEMENT FOR SALE WAS EXECUTED WAY BACK IN THE YEA R 2001. HE SUBMITTED THAT THE COMPANIES FAILED TO PERFORM THE IR PART OF CONTRACT, THEREFORE, A NOTICE DATED 10/09/2002 WAS ISSUED TO THE SAID COMPANIES FOR COMPLETING THE SALE OF THE LANDS IN QUESTION. HE SUBMITTED THAT WHEN THE SAID COMPANIES DID NOT EXECUTE THE SALE DEED TH E ASSESSEE APPROACHED TO THE ARBITRATOR AND THE ARBITRATION PROCEEDINGS W ERE INITIATED UNDER THE ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 4 - ARBITRATION AND CONCILIATION ACT, 1996. HE SUBMITT ED THAT THE AO ERRONEOUSLY OBSERVED THAT THE ASSESSEE HAD NO RIGHT TO GO TO THE COURT, THEREFORE, HE HAD NO RIGHT TO SUE. HE SUBMITTED TH AT THIS IS COMPLETELY A MISINTERPRETATION OF THE ARBITRATION CLAUSE. HE FU RTHER SUBMITTED THAT THE ASSESSEE HAS ONLY OPTED A FORUM OTHER THAN CIVIL CO URT FOR ENFORCING HIS RIGHT TO SUE. HE SUBMITTED THAT AS PER THE SETTL EMENT ARRIVED AT THE LD.ARBITRAL TRIBUNAL DATED 03/10/2006, IT WAS CLEAR LY STIPULATED IN THE SETTLEMENT THAT THE ASSESSEE SHALL ACCEPT THE AMOUN T IN FULL AND FINAL SETTLEMENT FOR RELINQUISHING THE RIGHT TO SUE FOR T HE SPECIFIC PERFORMANCE OF THE AGREEMENT. HE SUBMITTED THAT THE DAMAGES WE RE RECEIVED ONLY AS A COMPENSATION TO EXTINGUISH THE RIGHT TO SUE. HE SU BMITTED THAT THE LAW IS WELL SETTLED THAT IN A BREACH OF CONTRACT WHAT SURV IVE IS ONLY RIGHT TO SUE. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DEC ISION OF HONBLE APEX COURT RENDERED IN THE CASE OF UNION OF INDIA VS. RA MAN IRON FOUNDRY AIR 1974 SC 1265. HE SUBMITTED THAT THE ISSUE IS S QUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT R ENDERED IN THE CASE OF BARODA CEMENT AND CHEMICALS LTD. VS. CIT(SUPRA). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE CONTENTION OF THE REVENUE AS SUBMITTED BY WAY O F STATEMENT OF FACTS IS REPRODUCED AS UNDER:- STATEMENT OF FACTS REG:- SHRI SHEKHAR G. PATEL L/H OF LATE SHRI GOVINDBHAI C PATEL A.Y:- 2007-08. ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 5 - IN THE CASE OF THE ASSESSEE, ASSESSMENT U/S 143(3) OF THE ACT WAS MADE ON 30.12.2009 DETERMINING THE TOTAL INCOME AT RS. 10,57,37,886/- AS AGAINST RETURNED INCOME OF RS. 13,28,920/-. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED T HAT THE ASSESSEE HAD ENTERED INTO AGREEMENTS FOR PURCHASE/SALE FOR ACQUIRING DIFFEREN T PIECE OF LANDS FROM THE FIVE DIFFERENT COMPANIES AS STATED BELOW: FROM VIBHOR REALITY (P) LTD. FROM MANDAL (THALTEJ) COMPLEX (P) LTD. FROM GAVENDU LAND DEVELOPERS (P) LTD. FROM SANAT COMPLEX (P) LTD. FROM SHUSHNA COMPLEX (P) LTD. THE ASSESSEE HAD MADE PART PAYMENT WHILE ENTER ING INTO THE AGREEMENT. SUBSEQUENTLY, THE SAID FIVE COMPANIES BREACHED THE AGREEMENT FOR SALE AND DID NOT SELL THE LAND TO THE ASSESSEE. THE COMPANIES HAD PA ID RS. 10,44,15,000/- AS COMPENSATION/DAMAGES TO THE ASSESSEE FOR BREACH OF AGREEMENT WHICH WAS CONSEQUENT OF RIGHT TO SUE OF THE ASSESSEE. UNDOUBT EDLY, THE AMOUNTS RECEIVED WERE OUT OF THE AGREEMENTS THAT THE ASSESSEE HAD ENTERED INTO EARLIER. IT IS ADMITTED FACT THAT THE ASSESSEE HAD EARNED RS . 10,44,15,000/- OUT OF AFORESAID TRANSACTION. YET THE ASSESSEE CLAIMED THAT IT WOULD NOT BE A GAIN TAXABLE IN HIS HANDS. IT WAS CLAIMED THAT IT DID NOT CONSTITUTE A CAPITAL ASSET WHICH COULD BE TRANSFERRED UNDER THE TRANSFER OF PROPERTY ACT AS WELL AS DID N OT FALL WITHIN THE PROVISIONS OF SECTION 2(14) R.W.S. 45 OF THE IT.ACT. THE ASSESSEE 'S CLAIM AND STAND WERE REJECTED IN ASSESSMENT AND THE AMOUNTS RECEIVED BY HIM FROM THE TRANSACTIONS MADE, WAS TAXED AS CAPITAL GAIN U/S 45 OF THE IT. ACT. THE FACTS OF THE CASE HAVE BEEN DISCUSSED ELABORATELY IN THE ASSESSMENT ORDER AND FOR THE SAK E OF CONVENIENCE THE SAME IS NOT REPEATED HERE. THE LD.CIT(A) HAS DELETED THE ADDITION RELYING ON T HE DECISION IN THE CASE OF BARODA CEMENT & CHEMICALS LTD. VS. CIT - 158 ITR 636 (GUJ .) AND HELD THAT COMPENSATION RECEIVED CANNOT BE TREATED AS CONSIDERATION BECAUSE 'RIGHT TO SUE' IS NOT A PROPERTY UNDER SECTION 6(E) OF THE PROPERTY ACT AND THUS DID NOT BECOME A CAPITAL ASSET UNDER SECTION 2(14) OF THE I.T.ACT. THE CIT(A) HAS DIRECTED TO DE LETE THE ADDITION. THE LEGAL POSITION OF THE CASE WITH REFERENCE TO DE FINITION OF 'CAPITAL ASSET' U/S 2(14) AND 'TRANSFER' U/S 2(47) OF THE I.T.ACT HAS BEEN VE RY WELL LAID IN THE ASSESSMENT ORDER WITH REFERENCE TO DEFINITION OF TRANSFER U/S 2(47 ) OF THE ACT. RELIANCE WAS ALSO PLACED ON THE CASE OF SUNIL SIDHARTHBHAI VS. CIT 156 ITR 509 AND THE OTHER DECISIONS IN FAVOUR OF REVENUE HAVE BEEN RELIED. IT MAY BE FURTHER NOTED THAT THE CIT(A) HAS FAILED TO APPRECIATE THE TRUE NATURE OF THE RECEIPTS IN THE HANDS OF THE ASSESSEE. BY ENTERING INTO AN AGREEMENT, FOR SALE(PURCHASE) OF LAND WITH THE VENDOR COMPANIES TH E ASSESSEE HAD IN FACT ACQUIRED A ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 6 - RIGHT TO HAVE THE IMMOVABLE PROPERTY CONVEYED TO HI M WHICH RIGHT WAS ASSIGNABLE, HAD TO BE CONSIDERED TO BE 'PROPERTY' AND, THEREFOR E, A 'CAPITAL ASSET' AS HELD BY BOMBAY HIGH COURT IN CIT V. STERLING INVESTMENT COR PORATION LTD. [1980] 123 ITR 441. HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TAT A SERVICES LTD. [1980] 122 ITR 594 HAD FURTHER OBSERVED THAT A CONTRACT FOR THE SALE O F LAND WAS CAPABLE OF SPECIFIC PERFORMANCE AND WAS ASSIGNABLE AND IN THIS BEHALF, RELIED UPON THE OLD MADRAS HIGH COURT'S JUDGMENT REPORTED IN VENKATESWA RA AIYAR V. KALLOR ILLATH RAMAN NAMUBDHRI, AIR 1917 MAD 358. IT CONCLUDED THA T A RIGHT TO OBTAIN CONVEYANCE OF IMMOVABLE PROPERTY WAS PROPERTY AS CO NTEMPLATED BY SECTION 2(14) OF THE INCOME-TAX ACT. THE FACTS OF THE CASE IN 122 IT R 594 WERE IDENTICAL AS THAT OF THE ASSESSEE. A SIMILAR ISSUE ALSO CAME UP FOR DISCUSSION BEFORE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. VIJAY FLEXIBLE CONTAINERS [1990] 186 ITR 693 WHERE IN THE THE QUESTION WAS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. S. P. BHARUCHA J. (AS HIS LORDSHIP THEN WAS A JUDGE OF TH E BOMBAY HIGH COURT AND LATER CJI) SPEAKING FOR THE BENCH AFFIRMED THE VIEW TAKEN BY THE BOMBAY BENCH IN THE AFOREMENTIONED TWO CASES, I.E., TATA SERVICES LTD. [1980] 122 ITR 594 AND STERLING INVESTMENT CORPORATION LTD; [1980] 123 ITR 441 (BOM ). THE LEARNED JUDGE AFTER EXAMINING THE QUESTION IN THE CONTEXT OF THE DEFINI TION CONTAINED IN SECTION 2(14) AND SECTION 2(47) OF THE INCOME-TAX ACT COUPLED WITH TH E PROVISIONS OF THE TRANSFER OF PROPERTY ACT CONTAINED IN SECTION 6 AND SECTION 54 IBID AND THE CASES RELIED UPON HELD AS UNDER (PAGE 699): 'HAVING REGARD TO THE STATUTORY PROVISIONS AND THE AUTHORITIES WHICH WE HAVE CITED ABOVE, WE CANNOT, WITH RESPECT, AGREE THAT THE RIGH T ACQUIRED UNDER AN AGREEMENT TO PURCHASE IMMOVABLE PROPERTY IS A MERE RIGHT TO SUE. THE ASSESSEE ACQUIRED UNDER THE SAID AGREEMENT FOR SALE THE RIGHT TO HAVE THE IMMOV ABLE PROPERTY CONVEYED TO HIM. HE WAS, UNDER THE LAW, ENTITLED TO EXERCISE THAT RI GHT NOT ONLY AGAINST HIS VENDORS BUT ALSO AGAINST A TRANSFEREE WITH NOTICE OR A GRATUITO US TRANSFEREE. HE COULD ASSIGN THAT RIGHT. WHAT HE ACQUIRED UNDER THE SAID AGREEMENT FO R SALE WAS, THEREFORE, PROPERTY WITHIN THE MEANING OF THE INCOME-TAX ACT AND, CONSE QUENTLY, A CAPITAL ASSET. WHEN HE FILED THE SUIT IN THIS COURT AGAINST THE VENDORS, H E CLAIMED SPECIFIC PERFORMANCE OF THE SAID AGREEMENT FOR SALE BY CONVEYANCE TO HIM OF THE IMMOVABLE PROPERTY AND, ONLY IN THE ALTERNATIVE, DAMAGES FOR BREACH OF THE AGREEMEN T. A SETTLEMENT WAS ARRIVED AT WHEN THE SUIT REACHED HEARING AT WHICH POINT OF TIM E THE ASSESSEE GAVE UP HIS RIGHT TO CLAIM SPECIFIC PERFORMANCE AND TOOK ONLY DAMAGES. H IS GIVING UP OF THE RIGHT TO CLAIM SPECIFIC PERFORMANCE BY CONVEYANCE TO HIM OF THE IMMOVABLE PROPERTY WAS A RELINQUISHMENT OF A CAPITAL ASSET. THERE WAS, THERE FORE, L A TRANSFER OF A CAPITAL ASSET WITHIN THE MEANING OF THE INCOME-TAX ACT. WE MAY; A T THIS STAGE, ALSO DEAL WITH THE FURTHER ARGUMENT THAT THERE WAS NO CONSIDERATION FO R THE ACQUISITION OF THE CAPITA] ASSET. IN OUR VIEW, THIS COURT WAS RIGHT IN THE VIE W THAT IT TOOK THAT THE PAYMENT OF EARNEST MONEY UNDER THE AGREEMENT FOR SALE WAS THE COST OF ACQUISITION OF THE CAPITAL ASSET.' ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 7 - IN VIEW OF THE ABOVE DISCUSSION AND LOOKING TO THE FACTS OF THE CASE, THE DECISION OF THE HON'BLE CIT(A) IS NOT ACCEPTABLE AND IT IS PRAYED THAT THE ORDER OF T HE CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. SD/- DY.CIT, CIRCLE-9, AHMEDABAD 4.1. WE HAVE TO EXAMINE THE RIVAL CONTENTIONS IN TH E LIGHT OF VARIOUS CASE-LAWS RELIED UPON BY THE PARTIES. WE FIND THAT THE AO RELIED ON THE JUDGEMENT OF HONBLE APEX COURT IN SUPPORT OF HIS C ONTENTION THAT THE DEFINITION OF TRANSFER U/S.2(47) OF THE ACT IS ME RELY INCLUSIVE AND DOES NOT EXHAUST OTHER KINDS OF TRANSFER. THE RATIO LAI D DOWN BY THE HONBLE APEX COURT, IN THIS CASE, IS NOT APPLICABLE AS IN T HE CASE OF SUNIL SIDDHARTHBHAI VS. CIT (156 ITR 509), THE HONBLE AP EX COURT HELD WHEN THE ASSESSEE TRANSFERRED HIS SHARES TO THE PA RTNERSHIP-FIRM, HE RECEIVED NO CONSIDERATION WITHIN THE MEANING OF SEC TION 48 OF THE INCOME-TAX ACT, 1961, NOR DID ANY PROFIT OR GAIN AC CRUE TO HIM FOR THE PURPOSE OF SECTION 45 OF THE INCOME-TAX ACT, 1961 . THE UNDISPUTED FACTS IN THIS CASE REMAIN AS NOTED BY THE AUTHORITI ES BELOW THAT THE ASSESSEE HAD ENTERED INTO AGREEMENTS FOR PURCHASE/S ALE FOR ACQUIRING DIFFERENT PIECE OF LANDS FROM THE FIVE DIFFERENT C OMPANIES. SUBSEQUENTLY, THE SAID FIVE COMPANIES BREACHED THE AGREEMENT FOR SALE AND DID NOT SELL THE LAND TO THE ASSESSEE. THE SAI D COMPANIES HAVE PAID COMPENSATION/DAMAGES TO THE ASSESSEE FOR BREACH OF AGREEMENT IN PURSUANCE OF THE AWARD MADE BY THE ARBITRAL TRIBUNA L. THE ASSESSING OFFICER TAXED THE AMOUNT OF COMPENSATION/DAMAGES AS CAPITAL GAIN. WHILE DOING SO, THE AO DID NOT ACCEPT THE CONTENTIO N OF THE ASSESSEE THAT THE CASE IS SQUARELY COVERED BY THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF BARODA CEMENT AN D CHEMICALS LTD. ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 8 - VS. CIT(SUPRA). THE AOS REASONING FOR NOT FOLLOW ING THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IS THAT THE D EFINITION OF TRANSFER U/S.2(47) OF THE ACT IS INCLUSIVE AND, THEREFORE, D EFINITION CANNOT BE IMPORTED FROM ANY OTHER ACT. THE AO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF K.R.SRINA TH VS. CIT (80 ITD 193). HOWEVER, THE LD.CIT(A) FOLLOWING THE DECISIO N OF HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF B ARODA CEMENT AND CHEMICALS LTD. VS. CIT(SUPRA) ALLOWED THE APPEAL OF THE ASSESSEE. IN THE CASE OF BARODA CEMENT AND CHEMICALS LTD. VS. CIT(SU PRA), THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ONE M/S K.C.P. L TD., MADRAS, CONTRACTED TO SELL A SECOND HAND GHH MILL SUBSEQ UENTLY, THE VENDOR COMMITTED A BREACH OF THE CONTRACT BY DEFAULTING TO SELL THE MACHINERY TO THE ASSESSEE-COMPANY. THE ASSESSEE AND THE VENDOR ARRIVED AT THE SETTLEMENT AND THE ASSESSEE IN THAT CASE RECEIVED C OMPENSATION. THE COMPENSATION SO RECEIVED WAS TAXED BY THE A.O. THE FOLLOWING QUESTION HAD BEEN REFERRED TO THE HONBLE HIGH COURT FOR IT S OPINION:- WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE AMOUN T RECEIVED BY THE ASSESSEE-COMPANY BY WAY OF DAMAGES FOR BREACH O F CONTRACT OF SALE OF MOVABLE PROPERTY WAS CHARGEABLE TO TAX UNDE R THE HEAD CAPITAL GAINS? 4.2. THE HONBLE GUJARAT HIGH COURT AFTER EXAMININ G VARIOUS JUDICIAL PRONOUNCEMENTS AT LENGTH OBSERVED THAT PAYMENT BY W AY OF COMPENSATION OR DAMAGES IS DISTINCT FROM CONSIDERAT ION FOR COMPLYING WITH THE CONTRACT. THE HONBLE HIGH COURT AFTER EX AMINING ALL ASPECTS ANSWERED THE QUESTION AGAINST THE REVENUE. ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 9 - 4.3. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. J.DALMIA REPO RTED AT 149 ITR 215. THE QUESTION BEFORE THE HONBLE DELHI HIGH COURT WA S WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMO UNT OF RS.1,02,500/- IS ASSESSABLE AS CAPITAL GAINS OTHER THAN LONG TERM CA PITAL GAINS IN THE HANDS OF THE ASSESSEE ?' THE FACTS IN THAT CASE WERE THA T M/S.SATISH KUMAR SOOD & SONS WERE THE OWNERS OF THIS PROPERTY. THE Y ENTERED INTO AN AGREEMENT TO SELL WITH ONE KRISHAN PRASAD. THERE WA S A DEFAULT OF AGREEMENT AND THE DISPUTE WAS REFERRED TO THE ARBIT RAL TRIBUNAL. THE ARBITRATOR GAVE HIS AWARD AMOUNTING TO RS.1,02,500/ - 'AS DAMAGES FOR COMPENSATION FOR BREACH OF THE CONTRACT'. IN HIS INCOME-TAX RETURN THE ASSESSEE DID NOT CLAIM IT AS A CAPITAL GAIN. THE I TO REJECTED HIS CONTENTION AND THE MATTER TRAVELLED UPTO THE TRIBUN AL AND AT THE INSTANCE OF THE REVENUE THE TRIBUNAL REFERRED THE AFORESAID QUESTION OF LAW FOR DETERMINATION BEFORE THE HONBLE DELHI HIGH COURT. THE HONBLE DELHI HIGH COURT OBSERVED AS UNDER:- WE ARE TO DETERMINE WHETHER DAMAGES RECEIVED BY TH E ASSESSEE WERE IN RESPECT OF TRANSFER OF A CAPITAL ASSET'. THERE WAS A BREACH OF CONTRACT AND THE ASSESSEE RECEIVED DAMAGES IN SATISFACTION T HEREOF. HE HAD A MERE RIGHT TO SUE FOR DAMAGES. ASSUMING THE SAME TO BE PROPERTY' THIS COULD NOT BE TRANSFERRED UNDER S. 6(E) OF THE TRANSFER OF PROPERTY ACT. THE RELEVANT PROVISION MAY BE REPRODUCED: '6. PROPERTY OF ANY KIND MAY BE TRANSFERRED, EXCEPT AS OTHERWISE PROVIDED BY THIS ACT OR BY ANY OTHER LAW FOR THE TI ME BEING IN FORCE:..... (E) A MERE RIGHT TO SUE CANNOT BE TRANSFERRED.' ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 10 - WE DO NOT FIND ANY EXCEPTION UNDER THE IT ACT THOUG H THE WORD TRANSFER' IN RELATION TO CAPITAL ASSET HAS BEEN DEFINED IN S. 2(47) OF THE ACT WHICH INCLUDES SALE, EXCHANGE OR RELINQUISHMENT OF THE A SSET OR THE EXTINGUISHMENT OF ANY RIGHT THEREIN'. THE DAMAGES W HICH WERE RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE ON ACCOUNT OF RELINQUISHMENT OF ANY OF HIS ASSETS OR ON ACCOUNT OF EXTINGUISHMENT OF HI S RIGHT OF SPECIFIC PERFORMANCE UNDER THE CONTRACT FOR SALE. 4.4. THE HONBLE HIGH COURT FURTHER HELD AS UNDER:- UNDER S. 5 OF THE TRANSFER OF PROPERTY ACT, TRANS FER OF PROPERTY' MEANS AN ACT BY WHICH A PERSON CONVEYS PROPERTY TO ANOTHER AND TO TRANSFER PROPERTY' IS TO PERFORM SUCH ACT. A ME RE RIGHT TO SUE MAY OR MAY NOT BE PROPERTY BUT IT CERTAINLY CANNOT BE TRANSFERRED. THERE CANNOT BE ANY DISPUTE WITH THE PROPOSITION TH AT IN ORDER THAT A RECEIPT OR ACCRUAL OF INCOME MAY ATTRACT THE CHAR GE OF TAX ON CAPITAL GAINS THE SINE QUA NON IS THAT THE RECEIPT OR ACCRUAL MUST HAVE ORIGINATED IN A TRANSFER' WITHIN THE MEANING OF S. 45 R/W S. 2(47) OF THE ACT. SINCE THERE COULD NOT BE ANY TRAN SFER IN THE INSTANT CASE, IT HAS TO BE HELD THAT THE AMOUNT OF RS.1,02,500/- RECEIVED BY THE ASSESSEE AS DAMAGES W AS NOT ASSESSABLE AS CAPITAL GAINS. 4.5. WE FIND THAT THE HONBLE CALCUTTA HIGH COURT I N THE CASE OF CIT VS. ASHOKA MARKETING LTD. (164 ITR 664) HAD FORMULA TED FOLLOWING TWO QUESTIONS:- '1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE SUM O F RS. 1 LAKH RECEIVED BY THE ASSESSEE AS DAMAGES FROM NEW CENTRAL JUTE MI LLS LTD. FOR NON- PERFORMANCE OF THE AGREEMENT IS NEITHER A REVENUE R ECEIPT NOR A SHORT- TERM CAPITAL GAINS ? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL MISDIRECTED ITSELF IN LAW IN HOLDING THAT A SUM OF RS. 1 LAKH RECEIVED BY THE ASSESSEE AS DAMAGES FOR NON- PERFOR MANCE OF THE AGREEMENT WAS A CAPITAL RECEIPT NOT LIABLE TO CAPIT AL GAINS TAX ?' ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 11 - 4.6. THE FACTS BEFORE THE HONBLE CALCUTTA HIGH COU RT IN THE ABOVE CASE WERE THAT THE CONTENTION OF THE REVENUE THAT THE SUM OF RS. 1 LAKH WHICH WAS RECEIVED OUT OF A CONTRACT BY WAY OF LIQU IDATED DAMAGES WAS IN THE NATURE OF A BUSINESS TRANSACTION AND IT WAS THUS A REVENUE RECEIPT. IT WAS AGREED IN THE AGREEMENT ITSELF THAT IF THE TRAN SACTION COULD NOT BE COMPLETED BECAUSE OF ANY FAULT ON THE PART OF THE V ENDOR, A SPECIFIED AMOUNT OF LIQUIDATED DAMAGES TO THE TUNE OF RS. 1 L AKH IS TO BE PAID TO THE INTENDING PURCHASER. THE HONBLE HIGH COURT DECIDE D BOTH THE QUESTIONS IN FAVOUR OF ASSESSEE. 4.7. IN THE STATEMENT OF FACTS, THE REVENUE HAS REL IED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TA TA SERVICES LTD. (1980) 122 ITR 594. WE FIND THAT THIS DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN DISTINGUISHED BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF BARODA CEMENT AND CHEMICALS LT D. VS. CIT(SUPRA) AND HELD THAT THIS DECISION IS, THEREFORE, NOT AN A UTHORITY FOR THE PROPOSITION THAT PAYMENT OF COMPENSATION OR DAMAGES FOR BREACH OF CONTRACT WOULD ALSO ATTRACT THE APPLICATION OF SECT ION 45 OF THE ACT. FURTHER, RELIANCE HAS BEEN PLACED ON THE DECISION O F THE HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. VIJAY FL EXIBLE CONTAINERS (1980) 186 ITR 693. WE FIND THAT THIS DECISION IS AGAINST THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER:- WE SEE, WITH RESPECT, NO CONVINCING REASONS TO TAKE A VIEW OTHER THAN THAT WHICH HAS BEEN TAKEN BY THIS COURT IN THE CASE S OF TATA SERVICES LTD. (1980) 122 ITR 594 AND STERLING INVESTMENT COR PORATION LTD. (1980) 123 ITR 441. WE MUST HOLD, THEREFORE, THAT T HE ASSESSEE ACQUIRED A CAPITAL ASSET BY REASON OF THE SAID AGREEMENT FOR SALE, THAT THERE WAS A ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 12 - TRANSFER OF THAT CAPITAL ASSET WHEN THE ASSESSEE EN TERED INTO CONSENT TERMS AND RELINQUISHED IT, AND THAT THE CAPITAL ASS ET HAD BEEN ACQUIRED FOR THE COST OF RS. 17,500 PAID AS AND BY WAY OF EA RNEST MONEY UNDER THE SAID AGREEMENT FOR SALE. THE QUESTION THAT IS POSED ASKS WHETHER THE AMOUNT OF RS. 1,00,000 CAN BE TREATED AS A CAPITAL GAIN IN THE HANDS OF THE AS SESSEE. WE FIND THAT THE ITO HAD DEDUCTED FROM OUT OF THE TOTAL SUM OF R S. 1,17,500 RECEIVED BY THE ASSESSEE UNDER THE CONSENT TERMS THE AMOUNT OF RS. 17,500 AS BEING THE COST OF ACQUISITION OF THE ASSET AND THE SUM OF RS. 17,904 ON ACCOUNT OF EXPENSES AND LEGAL CHARGES. THE ASSESSME NT WAS MADE BY HIM, RIGHTLY, ON THE BASIS THAT THE CAPITAL GAIN WA S OF RS. 82,086. ACCORDINGLY, WE ANSWER THE QUESTION THUS : THE AMOU NT OF RS. 82,086 SHALL BE TREATED AS A CAPITAL GAIN IN THE HANDS OF THE ASSESSEE. 5. FROM THE ABOVE CASE-LAWS CITED BY THE RESPECTIVE PARTIES, WE FIND THAT THERE IS A DIVERGENT VIEW OF HONBLE HIGH COUR TS ON THIS ISSUE. THE HONBLE BOMBAY HIGH COURT AND HONBLE MADRAS HIGH C OURT ARE AGAINST THE ASSESSEE; WHEREAS THE HONBLE JURISDICTIONAL HI GH COURT, HONBLE DELHI HIGH COURT AND HONBLE CALCUTTA HIGH COURT A RE IN FAVOUR OF ASSESSEE. THE LAW IS WELL SETTLED IF THERE IS TWO VIEWS ARE POSSIBLE, THE VIEW WHICH IS IN FAVOUR OF ASSESSEE IS TO BE ADOPTE D. THE HONBLE APEX COURT IN THE CASE OF PRADIP J. MEHTA V. CIT (2008) 300 ITR 231 (SC) HAS HELD IT IS WELL-SETTLED THAT WHEN TWO INTERPRETATIONS AR E POSSIBLE, THEN INVARIABLY, THE COURT WOULD ADOPT THE INTERPRETATIO N WHICH IS IN FAVOUR OF THE TAXPAYER AND AGAINST THE REVENUE . THE REVENUE HAS NOT PLACED ON RECORD ANY JUDGEMENT OF HONBLE APEX COURT, WHEREBY THE RATIO LAID IN THE JUDGEMENTS OF HONBLE DELHI HIGH COURT IN THE C ASE OF J.DALMIA(SUPRA) AND HONBLE GUJARAT HIGH COURT IN B ARODA CEMENT AND CHEMICALS LTD.(SUPRA) IS OVERRULED. THEREFORE, RESPECTFULLY FOLLOWING THE BINDING JUDGEMENT OF THE HONBLE GUJARAT HIGH C OURT RENDERED IN THE ITA NO.1997/AHD /2010 DCIT VS. SHRI SHEKHAR G.PATEL- (L/H.OF LATE SHRI GOVINDBHAI C.PATEL) ASST.YEAR 2007-08 - 13 - CASE OF BARODA CEMENT AND CHEMICALS LTD. VS. CIT (S UPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD.CIT(A), THE S AME IS HEREBY UPHELD. THUS, GROUND NOS.1 & 2 OF THE REVENUES APPEAL IS D ISMISSED. 6. GROUND NOS.3 & 4 ARE GENERAL IN NATURE REQUIRE N O INDEPENDENT ADJUDICATION. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) ($ %&) ! ! ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 19/ 03/2014 8.., '.../ T.C. NAIR, SR. PS 5 1 .&9 :9)& 5 1 .&9 :9)& 5 1 .&9 :9)& 5 1 .&9 :9)&/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. ## & $; / CONCERNED CIT 4. $;() / THE CIT(A)-XV, AHMEDABAD 5. 9'%< .& , , / DR, ITAT, AHMEDABAD 6. <( =2 / GUARD FILE. 5$ 5$ 5$ 5$ / BY ORDER, /9& .& //TRUE COPY// > >> >/ // / #+ #+ #+ #+ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 27.2.14/ 3.3.14 (DICTATION-PA D 25-PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 4.3.14 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BE FORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 19.3.14. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.3.14 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER