ITO (IT)-2(1), MUMBAI V. SHRI VINAY P. KARVE L/H OF LATE MS. ASHA PREMILA WAGLE, MUMBAI

ITA 2551/MUM/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83827 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 16-05-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 21-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V G GINDE
• Keywords: Double taxation relief; Cost of acquisition; Fair market value; Capital receipt
• Section: 234B; 133(6); 131; 15

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEM BER . / ITA NO. 2551 / MUM./ 2009 ( / ASSESSMENT YEAR : 20 05 06 ) INCOME TAX OFFICER (I.T) WARD 2(1), ROOM NO.14 SCINDIA HOUSE, BALLARD PIER MUMBAI 400 038 .. / APPELLANT V/S SHRI V INAY P. KARVE L/H OF LATE MRS. ASHA PRAMILA WAGLE 52, MARIA MANSION, 1368 L.T. ROAD OPP. MAHATMA PHULE MARKET MUMBAI 400 003 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAAPW2266Q / REVENUE BY : SMT. NEER AJA PRADHAN / ASSESSEE BY : SHRI V.G. GINDE / DATE OF HEARING 27 .0 6 .2014 / DATE OF ORDER 12.09.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT AP PEAL HAS BEEN PREFERRED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER DATED 30 TH JANUARY 2009, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXXI, MUMBAI, FOR THE QUANTUM SHRI V INAY P. KARVE 2 OF ASSESSMENT PASSED UNDER SECTION 143(3), OF THE INCOME TAX ACT, 1961 (FOR SHORT 'TH E ACT' ) FOR THE ASSESSMENT YEAR 2005 06, ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (APPEALS), WITHOUT VERIFICATION OF FACTS, ERRED IN CONCLUDING THAT THE CONSIDERATION OF RS.L . 20 CRORES (RECEIV ED IN ADDITION TO RS.60 . 32 LACS RECEIVED IN MAY, 2002) REPRESENTS PAYMENTS PAYMENTS RECEIVED FOR TRANSFER OF SHARES, THOUGH THERE WAS NO PROOF OF SUCH TRANSFER AND WHETHER THE AMOUNT RECEIVED WAS SHARE CONSIDERATION. 2. ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN COMING TO THE CONCLUSION THAT SHARES WERE SOLD IN ASSESSMENT YEAR 2005 - 06 WHEN THERE WAS NO EVIDENCE OF THEIR SALE AT THAT POINT OF TIME. IN FACT IF AT ALL THE SHARES CAN BE CONSIDERED AS SOLD - IT IS IN 2002. THE LD. CIT (APPEAL) OUGHT TO HAVE VERIFIED THE ACTUAL DATE OF SALE BEFORE DECIDING THE ISSUE ESPECIALLY WHEN THE PART SALE PROCEEDS OF RS.60.32 LACS WERE ALLEGEDLY RECEIVED BY THE ASSESSEE AS EARLY AS IN MAY, 2002. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN COMING TO THE CONCLUSION THAT THE AMOUNT OFRS . 33.38 LACS MENTIONED IN THE 'SETTLEMENT ' IS OUT OF THE SALE PROCEEDS OF THE SAID SHARES. NO EVIDENCE EXISTS TO PROVE THAT THESE PROCEEDS WER E RELATABLE TO THE SALE OF SHARES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO ASSESS THE SUM OF RS.1 0 1.97 LACS (OUT OF THE TOTAL OF RS.1 . 20 CRORES RECEIVED BY THE A SSESSEE) AS 'CAPITAL GAINS'. IT IS NOT PROVED THAT THESE SHARES WERE SOLD AT ALL HENCE THE QUESTION OF THE AMOUNTS BEING TREATED AS ' CAPITAL GAINS ' CANNOT ARISE IN THE ABSENCE OF SUCH PROOF. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT (APPEALS) ERRED IN HOLDING THAT SINCE THE ASSESSEE IS A NON - RESIDENT AND HER INCOME WAS SUBJECT TO TDS AND THEREFORE, SHE IS NOT LIABLE TO PAY ADVANCE TAX AND ACCORDINGLY IN DELETING THE INTEREST CHARGED UNDER SECTION 234B OF THE ACT AMOUNTIN G TO RS.12, 50,801/ - . SHRI V INAY P. KARVE 3 2. BRIEF FACTS, QUA THE ISSUE INVOLVED ARE THAT THE ASSESSEE, SINCE DECEASED, WAS NON RESIDENT BRITISH CITIZEN, DOMICILED IN FRANCE , AS SHE WAS MARRIED TO A FRENCH PAINTER, MR. BRUCE TIPPET. SHE HAD FILED HER RETURN OF INCOME ON 29 TH JANUARY 2007, DECLARING TOTAL INCOME OF ` 9,156. IN THE RETURN OF INCOME, THE ASSESSEE HAS GIVEN AN EXPLANATORY NOTE CLAIMING EXEMPTION FROM CAPITAL GAIN ON ALIENATION OF SHARES IN VIEW OF ARTICLE 14(6) OF THE INDO FRENCH DTAA. THE SAID EXPLANATORY NOTE RE AD AS UNDER: 2 . DURING THE PREVIOUS YEARS ENDED 31 . 3 . 2005, THE ASSESSEE SETTLED THE DISPUTES WITH MS . RASHMI AGRAWAL, CONCERNING , AMONG OTHERS, THE PRINCIPAL DISPUTE RELATING TO THE FRAUDULENT DISPOSAL BY MS.RASHMI AGMWA L OF THE SHORES (IN CERTAIN INDIA N LISTED COMPANIES) BELONGING TO THE ASSESSEE . A COPY OF THE SETTLEMENT DATED 11 . 6 . 2004 IS ENCLOSED HEREWITH . AS A RESULT OF THE SETTLEME N T REACHED , THE ASSESSEE ACCEPTED MONETARY COMPENSATION OF RS . 1,20,00,000 / - , I NC L UDING THE COMPENSAT I ON I N LIE U O F THE SA I D SHARES . HAVING REGARD TO THE NATURE OF THE PRINCIPA L DISPUTE RELATING TO THE SHARES , THE SUBS T ANCE OF THE SETT L EMENT REACHED IN THAT CONTEXT AND THE TOTAL I TY OF THE FACTS AND C I RCUMSTANCES O F THE CASE , TH E AMOUNT OF COMPENSAT I ON ATTR IB U T ABLE T O T H E S A I D SHARES IS WORKED OUT A T RS . 1, 0 1 , 97 , 000/ . A C CORDING TO T HE A SSESSEE, HIS SUM WHEN AGGREGATED TO T HE SUM OF RS . 60 , 32,000/ EARL I ER R ECE IV ED FOR THE SHARES F R OM MS . RASHMI AGRAWAL PENDING THE RESOLU T ION OF THE DISPU T E , CONSTITUTES THE TOTAL CONSIDERAT I O N RECEIVED BY THE ASSESSEE FOR G I VING UP HER CLAIM T O THE SA I D SHARES UNDE R THE DISPUTE . HENCE, THE TOTAL CONSIDE R AT I ON RECEIVED FOR THE SHARES IS TAKEN A T RS . 1,62,29, 000/ . SINCE THE ASSESSEE GAVE UP HER CLAIM TO THE SAID SHARES ON REACHING THE SETTLEMENT ON 1 1 . 6 . 2004 , I.E. IN THE PREVIOUS YEAR ENDED 31 . 3 . 2005, TH E TRANSFER OF THOSE SHARES HAS TAKEN PLACE IN THE PREVIOUS YEAR ENDED 31 . 3 . 2005 , I. E. IN THE . A . Y. 2 005 - 06 . HENCE , THE TAX CONSEQUENCE, IF ANY , OF THE RESULTANT CAPITAL GAINS THAT AROSE TO THE ASS ESSEE ON TH E ALIENATION OF THE SAID SHARES IS CONSIDERED IN THE A Y. 2005 - 06 . BEING A RESIDENT OF FRANCE, THE ASSESSEE CLAIMS TOTAL EXEMPTION IN RESPECT OF THE CAPITAL GAINS THAT AROSE ON THE ALIENATION OF THE SHRI V INAY P. KARVE 4 SHARES REFERRED TO IN PARAGRAPH (2) ABOVE. T HE CLAIM FOR EXEMPTION IS BASED ON THE PROVISIONS OF ARTICLE 14(6) OF THE INDO FRENCH TAX TREATY, WHICH ARE REPRODUCED BELOW FOR READY REFERENCE: X X X X X 4. WITHOUT PREJUDICE TO THE ABOVE, AND ONLY FOR THE SAKE OF COMPLETENESS OF THE INFORMATION, THE ASSESSEE HAS WORKED OUT THE CAPITAL GAINS, IF ANY, ON THE ALIENATION OF THE SAID SHARES AS UNDER; THROUGH AS STATED ABOVE, THE SAME ARE NOT TAXABLE IN INDIA UNDER THE INDO FRENCH TAX TREATY: CONSIDERATION RECEIVED ON ALIENATION OF SHARES (NOTE 2 ABOVE) ` 1,62,29,000 LESS: DEDUCTIONS U/S 48 (1) EXPENSES INCURRED IN CONNECTION WITH THE ALIENATION (NOTE 5 BELOW) ` 22,64,115 (2) COST OF ACQUISITION / FMV AS ON 1.4.1981 OF THE SHARES ALIENATED ` 16,07,571 LONG TERM CAPITAL GAIN (WITHOUT INDEXATION) ` 1,23,57, 314 ========= 5. THE ASSESSEE HAS INCURRED THE FOLLOWING EXPENSES IN CONNECTION WITH THE AFORESAID DISPUTE AND ITS SETTLEMENT, WHICH ARE DEDUCTIBLE U/S 48 OF THE ACT, BEING THE EXPENSES INCURRED IN CONNECTION WITH THE ALIENATION (TRANSFER): TRAVELLING EXPENSES ` 4,73,655 LEGAL EXPENSES ` 17,90,460 TOTAL: ` 22,64,115 3. THE GENESIS OF THE CONTROVERSY REGARDING SALE OF SHARES AND RECEIPT OF SUM OF ` 1.20 CRORES, AFTER THE DEATH OF HER FATHER , LATE SHRI NITYANAND VAGLE, IN JANUARY 2000, WHEN DISPUTE AR OSE BETWEEN THE ASSESSEE AND HER BROTHERS , SHRI N.N. VAGLE AND SHRI K.N. MALOO, OVER SHRI V INAY P. KARVE 5 THE DISTRIBUTION OF THE ESTATE OF HER LATE FATHER. THE ESTATE INCLUDED SHARES OF 17 BLUE CHIP COMPANIES (THE DETAILS OF W HICH HAVE BEEN GIVEN AT PAGE 4 O F THE ASSESSMENT O RDER), WHICH WERE STANDING IN THE JOINT NAMES OF THE ASSESSEES LATE FATHER EITHER WITH SHRI K.N. MALOO, OR WITH THE ASSESSEE. IN ORDER TO TRANSFER THOSE SHARES IN THE NAME OF THE ASSESSEE ALONE AND FOR HANDLING THE AFFAIRS IN INDIA, SHE HAD EXECUTED A GEN ERAL POWER OF ATTORNEY IN FAVOUR OF HER FRIEND MS. RASHMI AGARWAL, IN INDIA ON 16 TH JUNE 2000. THE SHA RE CERTIFICATES WERE SENT TO MS. RASHMI AGARWAL, FOR GETTING THEM TRANSFERRED IN THE NAME OF THE ASSESSEE. THEREAFTER, IT APPEARS THAT THE ASSESSEE DID NO T FOLLOW UP WITH MS. RASHMI AGARWAL. LATER ON, WHEN THE DISPUTE BETWEEN THE ASSESSEE AND HER BROTHER REACHED THE STAGE OF CRIMINAL COMPLAINT AND INVESTIGATION BY POLICE IN THE YEAR 2003, THE ASSESSEE WAS REQUIRED TO GIVE THE DETAILS OF THE SHARES WHICH FOR M ED PART OF THE ESTATE OF HER LATE FATHER . AT THIS STAGE, THE ASSESSEE SOUGHT INFORMATION FROM MS. RASHMI AGARWAL, ABOUT THE SHARES AND AT THIS STAGE, IT WAS INFORMED TO HER THAT ALL THE SHARES WERE SOLD FOR SUM ` 93,70,135, BY MS. RASHMI AGARWAL, ON BEHAL F OF THE ASSESSEE IN THE YEAR 2002 ITSELF. AFTER REALISING THE FOUL PLAY AND CHEATING ON THE PART OF MS. RASHMI AGARWAL, THE ASSESSEE SENT A LEGAL NOTICE AND LATER ON IMPLICATED HER AND OTHERS , WHO WERE INVOLVED FOR THE ALLEGED FRAUD OF SELLING OF SHARES P ERPETRATED BY THEN IN THE CRIMINAL COMPLAIN T FILED BEFORE THE ADDL. CHIEF METROPOLITAN MAGISTRATE. ON THE DIRECTION OF THE MAGISTRATE, POLICE SHRI V INAY P. KARVE 6 CONDUCTED AN ENQUIRY AND INVESTIGATION IN THE WHOLE MATTER AND GAVE A PRIMA FACIE FINDING THAT MS. RASHMI AGARWAL, AND ONE MR. AMBASTHAN, HAVE FRAUDULENTLY SOLD THESE SHARES AND HAVE CHEATED THE ASSESSEE. ONCE THE FINDING OF THE POLICE WAS FI LED BEFORE THE MAGISTRATE, MS. RASHMI AGARWAL, SOUGHT TO SETTLE THE DISPUTE WITH THE ASSESSEE AND COME FORWARD WITH SETTLEMENT A GREEMENT DATED 31 ST MARY 2004, WHEREIN SHE PAID A SUM OF ` 1,20,00,000 . I T WAS AGREED IN THE TERMS OF SETTLEMENT THAT THE ASSESSEE WILL WITHDRAW A LL THE COMPLAINT S FILED AGAINST MS. RASHMI AGARWAL AND OTHERS. REGARDING THE TRANSFER OF SHARES, THE RECORD S S UGGEST THAT MS. RASHMI AGARWAL, HAD SOLD THESE SHARES FOR S UM OF ` 93,70,135, OUT OF WHICH SHE HA D DEPOSITED SUM OF ` 60,32,000, IN THE BANK ACCOUNT OF THE ASSESSEE ON 14 TH MAY 200 2 , WITHOUT INTIMATING TO THE ASSESSEE. THE BALANCE AMOUNT OF ` 33,38,135, WA S NOT PAID. WHEN THE ASSESSEE REALISED ABOUT THE FRAUD COMMITTED BY MS. RASHMI AGARWAL, AND THE SAME WAS CONFRONTED THROUGH CRIMINAL COMPLAINT, THEN SHE, VIDE HER LETTER DATED 16 TH APRIL 2004, HAD OFFERED TO PAY THE ASSESSEE THE BALANCE SUM OF ` 33,38,135. THUS, WHEN THIS ENTIRE MATTER OF FRAUD AND APPROPRIATION WAS INVESTIGATED BY POLICE AND ADVERSE FINDING WAS GIVEN THEN IN ORDER TO SAVE HERSELF, MS. RASHMI AGARWAL, WAS FORCE TO SETTLEMENT WHICH WAS ARRIVED FOR A LUMP SUM PAYMENT OF ` 1.20 CRORES , WHICH A LSO INCLUDED THE SUM OF ` 33,38,135. THE BALANCE SUM OF ` 86,61,865 [ ` 1.20 CRORES ( ) ` 33,38,135] WAS STATED TO BE ATTRIBUTION OF SETTLEMENT OF SHRI V INAY P. KARVE 7 OTHER DISPUTES INCLUDING APPROPRIATION AND SALE OF ALIBAUG LAND BELONGING TO THE ASSESSEE. THE ENTIRE SETTLEME NT AMOUNT OF ` 1.20 CRORES WAS CREDITED TO THE BANK OF THE ASSESSEE ON 9 TH JUNE 2004. THE ASSESSEE HAD CLAIMED THAT THE ENTIRE AMOUNT OF MONITORY COMPENSATION OF ` 1.20 CRORES, IS TOWARDS DISPUTE RELATING TO SHARES , BECAUSE AT THE TIME OF SETTLEMENT, THE V ALUE OF THESE SHARES WERE MORE THAN 1.62 CRORES AND SINCE THE ASSESSEE HAD RECEIVED 60.30 LAKHS EARLIER, THEREFORE, THE BALANCE AMOUNT OF ` 1.02 CROR E S ( APPROX. ) PERTAIN S TO COMPENSATION TOWARDS ONLY . THUS, THE TRANSFER OF THESE SHARES CA N BE SAID TO HAVE ARISEN IN THE ASSESSMENT YEAR 2005 06 , BECAUSE THE SETTLEMENT HAD REACHED ON 31 ST MAY 2004, WHEN THE ASSESSEE HAD GIVEN UP HER CLAIM ON THE SHARES. 4. THE ASSESSING OFFICER ON THE OTHER HAND HELD THAT THE SHARES UNDER CONSIDERATION WERE SOLD BY MS. RASHMI AG ARWAL, IN THE YEAR 2002, ON BEHALF OF THE ASSESSEE WHICH WAS MUCH BEFORE THE SETTLEMENT DATE TOOK PLACE IN THE FINANCIAL YEAR 2004 05 AND, THEREFORE, THE ASSESSEES CLAIM THAT S UM OF ` 1.20 CRORES RECEIVED IN THE YEAR 2004, WAS TOWARDS TRANSFER OF SHARES I S NOT TENABLE. THE ASSESSEE HAD ALREADY RECEIVED SUM OF ` 60.32 LAKHS ON 14 TH MAY 2002, AND INSTEAD OF RECEIVING BALANCE AMOUNT OF ` 33,38,135, THE ASSESSEE HAS RECEIVED ` 1.20 CRORES , WHICH CANNOT BE SAID TO BE ON ACCOUNT OF SHARES BECAUSE IT WAS ONLY IN PURSUANCE OF CRIMINAL COMPLAINTS UNDER VARIOUS SHRI V INAY P. KARVE 8 PROVISIONS OF IPC AGAINST MS. RASHMI AGARWAL, THAT COMPENSATION WAS RECEIVED BY THE ASSESSEE . HENCE, THE ASSESSING OFFICER CONCLUDED THAT THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN ON TRANSFER OF SHARES HAD ARISE N IN THE ASSESSMENT YEAR 2003 04 AND, THEREFORE, SUCH SHARES CANNOT BE HELD TO BE TRANSFERRED ONCE AGAIN IN THE ASSESSMENT YEAR 2005 06. IN THE SETTLEMENT AGREEMENT, THERE IS NO MENTION OR ANY CLAUSE ABOUT AGREEING FOR A HIGH RISE OF THE MARKET P RICE OF THE SHARES FOR THE CONSIDERATION FOR COMPENSATION. THUS, HE HELD THAT IF AT ALL , ANY CAPITAL GAIN IS TO BE TAXED , THEN THE SAME IS TAXABLE IN THE ASSESSMENT YEAR 2003 04 AND WHAT THE ASSESSEE HAS RECEIVED IN THIS YEAR I.E., ` 1.20 CRORES, THE SAME IS TO BE TAXED AS INCOME FROM OTHER SOURCES. HE CATEGORICALLY NOTED THAT THE COMPENSATION RECEIVED WAS ONLY TO AVOID FURTHER LEGAL DISPUTES AGAINST MS. RASHMI AGARWAL, AND, THEREFORE, THE CONSENT AGREEMENT WAS SIGNED FOR RECEIVING THE CONSIDERATION OF ` 1. 20 CROR E S, WHICH CANNOT BE ATTRIBUTED TO TRANSFER OF SHARES , BUT SHOULD BE TAXED AS INCOME FROM OTHER SOURCES , WHICH IS CHARACTERIZED AS OTHER INCOME UNDER ARTICLE 23 FO DTAA BETWEEN INDIA AND FRANCE . S INCE THE INCOME OF ` 1.20 CRORES HAS ARISEN IN INDIA , THEREFORE, THE SAME IS TAXABLE IN INDIA AS PER SAID THE ARTICLE. IN THE NUT SHELL, THE CONCLUSION OF THE ASSESSING OFFICER IS TWO FOLD; (I) THE AMOUNT RECEIVED BY THE ASSESSEE IN LIEU OF TRANSFER OF SHARES IS TAXABLE AS CAPITAL GAIN IN THE ASSESSMENT YEA R 2003 04, AS THE SHARES WERE TRANSFERRED / SOLD IN THE FINANCIAL YEAR SHRI V INAY P. KARVE 9 2002 03; AND (II) THE AMOUNT OF COMPENSATION OF ` 1.20 CRORES RECEIVED BY THE ASSESSEE IN TERMS OF SETTLEMENT AGREEMENT DATED 31 ST MAY 2004, IS TO BE TAXED AS INCOME FROM OTHER SOURCES AND NOT ON ACCOUNT OF SHARES AS CLAIMED BY THE ASSESSEE. 5. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE SUBMITTED THAT SHE HAD ATTRIBUTED MAJOR PORTION OF THE SETTLEMENT AMOUNT TO THE SHARES ( WHICH WERE FRAUDULENTLY SOLD / APPROPRIATED BY MS. RAS HMI AGARWAL ) , BECAUSE IT WAS ON ACCOUNT OF SHARES ONLY THAT SUCH A COMPENSATION WAS RECEIVED , LOOKING TO THE MARKET VALUE OF THE SHARES IN 2004. SINCE THE SETTLEMENT ON ACCOUNT OF SHARES WAS MADE IN THE ASSESSMENT YEAR 2005 06, WHICH IS ADMITTEDLY NOT TAXA BLE UNDER ARTICLE 14(6) OF INDO FRANCE DTAA , THEREFORE, CAPITAL GAIN WAS CLAIMED EXEMPT IN THIS YEAR. IT WAS REITERATED THAT THE ASSESSEE NEVER INSTRUCTED FOR S ELLING OF SHARES TO MS. RASHMI AGARWAL, BUT ONLY FOR GETTING IT TRANSFERRED IN HER NAME. THE ASS ESSEE WAS NOT AWARE THAT THE SHARES HAVE BEEN SOLD AND PART OF THE SALE PROCEEDS HAVE BEEN DEPOSITED HER BANK ACCOUNT IN 200 2 . IT WAS ONLY WHEN THE COMPLAIN T WAS LODGED AND CRIMINAL SUIT WAS FILED, THAT SETTLEMENT WAS ARRIVED WITH THE ASSESSEE HEREIN SHE R ECEIVED THE TRUE VALUE OF THE SHARES . ALL THIS HAPPENED IN THE FINANCIAL YEAR 20 04 05. THE ASSESSEES SUBMISSIONS WERE TWO FOLD, FIRSTLY, THE TRANSACTIONS AND SETTLEMENT OF SHARES TOOK PLACE IN A.Y. 2005 06 AND SECONDLY, AMOUNT OF SETTLEMENT SHRI V INAY P. KARVE 10 WAS IN LIEU OF SHARES ONLY. REGARDING FIRST ISSUE, IT WAS SUBMITTED THAT THE PAYMENT OF ` 33,38,135, (PART OF THE SALE PROCEEDS OF ` 93,70,135) WAS OFFERED TO THE ASSESSEE IN THE F.Y. 2004 05 I.E., VIDE LETTER DATED 16 TH APRIL 2004, BY MS. RASHMI AGARWAL, WHICH WAS DONE ONLY WHEN THE POLICE COMPLAIN T WAS LODGED AND INVESTIGATION WAS CARRIED. FURTHER, WH EN THE STATEMENT WAS RECORDED BY THE ASSESSING OFFICER OF SHRI BINOD AMBASTHA, UNDER SECTION 1 31 AND SUMMONS WERE ISSUED UNDER SECTION 133(6) TO THE BROKING FIRMS AND NONE OF THEM COULD GIVE DETAILS OF THE SALE OF SHARES , THE ASSESSEE WAS OFFERED THE COMPENSATION ON ACCOUNT OF SHARES . THUS, IT COULD NOT BE CONCLUSIVELY PROVED THAT THE SHARES THAT WERE SOLD IN THE YEAR 2002. EVEN MS. RASHMI AGARWAL, COULD NOT ESTABLISH THAT THE SHARES WERE ACTUALLY SOLD IN THE YEAR 2002. THEREFORE, IT CANNOT BE SAID THAT TRANSFER OR SALE OF SHARES TOOK PLACE IN THE YEAR 2003 04. AS REGARDS SECOND ISSUE , IT WAS SUBMITTED THAT IN THE TERMS OF SETTLEMENT AGREEMENT, THE SUM OF ` 1.20 CRORES WAS B IF U RCATED INTO TWO PARTS VIZ. ` 33,38,135, IN LIEU OF DISPUTE OF SHARES AND ` 86,61,865 FOR ALL OTHER DISPUTES WHICH INCLUDED S U M OF ` 15 LAKHS FOR ALIBAUG LAND. IT WAS CLARIFIED THAT THERE WAS NO OTHER DISPUTE EXCEPT FOR ALIBAUG LAND AND SHARES, THEREFORE , THE MAJOR PORTION OF COMPENSATION, IN REAL SENSE WAS WITH REGARD TO THE DISPUTE OF SHARES ONLY. IT WAS ALSO POINTED OUT THAT THE MARKET VALUE OF THESE SHARES AS ON MAY 2004, WAS ` 1.67 CRORES AND WHAT MS. RASHMI A G ARWAL, HAS DEPOS I TED EARLIER WAS ONLY A SUM OF ` 60.32 LAKHS. TH EREFORE, MORE SHRI V INAY P. KARVE 11 THAN SUM OF ` 1.00 CRORE WAS ON ACCOUNT OF HIGHER VALUE OF SHARES AT THE TIME OF SETTLEMENT AGREEMENT. THUS, THE SAID COMPENSATION SHOULD BE TREATED AS PART AND PA RCEL OF TRANSFER OF SHARES ONLY, HENCE TAXABLE AS LONG TERM CAPITAL GAIN. 6. THE LEARNED COMMISSIONER (APPEALS), AFTER REITERATING THE ENTIRE FACTS , OBSERVED THAT MAINLY THERE ARE TWO ISSUES INVOLVED , ONE , WHETHER THE AMOUNT RECEIVED BY THE ASSESSEE IN TERMS OF SETTLEMENT AGREEMENT IS TOWARDS THE DISPUTE OF SHAR E S OR WAS IT PAID TO AVOID LEGAL COMPLICATIONS AND OTHER DISPUTES , I.E., WHETHER IT IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN IF IT IS AN AMOUNT OF SALE OF SHARES OR INCOME FROM OTHER SOURCES . THE SECOND ISSUE INVOLVED IS IN WHICH YEAR TRANSFER OF SHA RES TOOK PLACE I.E., WHETHER THE LONG TERM CAPITAL GAIN ON TRANSFER OF SHARES SHOULD BE TAXED IN THE ASSESSMENT YEAR 2003 04 OR IN THE ASSESSMENT YEAR 2005 06. AFTER ANALYSING THE ENTIRE FACTS IN AN ELABORATE MANNER, THE LEARNED COMMISSIONER (APPEALS) CAME TO THE CONCLUSION THAT MS. RASHMI AGARWAL, DID NOT SELL THOSE SHARES ON BEHALF OF THE ASSESSEE , BUT THE SAME WERE SOLD WITHOUT HER CONSENT AND KNOWLEDGE AND, THEREFORE, THE SHARES WERE NOT TRANSFERRED IN THE YEAR 2002, BUT ONLY WHEN THE MATTER WAS SETTLED IN MAY 2004, WHEN THE ASSESSEE HAS RELINQUISHED HER RIGHTS IN THOSE SHARES. ACCORDINGLY, HE HELD THAT FOR THE PURPOSE OF SECTION 45, THE SHRI V INAY P. KARVE 12 SHARES WERE TRANSFERRED IN THE YEAR 2005 06 AND NOT IN THE ASSESSMENT YEAR 2003 04. 7. REGARDING WHAT IS THE NATURE OF COMPENSATION RECEIVED BY THE ASSESSEE, HE OBSERVED THAT THE AMOUNT RECEIVED THROUGH SETTLEMENT AGREEMENT EXECUTED ON 31 ST MAY 2004, HAD TWO COMPONENTS VIZ. ` 33,38,135, WHICH WAS IN LIEU OF SHARES AND SUM OF ` 86,61,865, FOR OTHER DISPUTES INCLUDING SUM OF ` 15 LAKHS FOR DISPUTE REGARDING ALIBAUG LAND. INSOFAR AS THE AMOUNT OF ` 33,38,135, IS CONCERNED, THERE IS NO DISPUTE THAT THE SAME PERTAINS TO SHARES IN QUESTION WHICH HAS BEEN WRONGLY ASSESSED AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER. REGA RDING SECOND PART OF THE AMOUNT OF ` 86,61,865, HE OBSERVED THAT OUT OF THE SAID AMOUNT, ADMITTEDLY, ` 15 LAKHS WAS FOR ALIGAUG LAND AND BALANCE ` 71,61,865, WAS FOR OTHER DISPUTES. HOWEVER, HE NOTED THAT THERE WAS NO OTHER DISPUTE EXCEPT FOR TRANSFER OF S HARES FOR WHICH THE ASSESSEE COULD HAVE CLAIMED ANY SUBSTANTIAL AMOUNT FROM MS. RASHMI AGARWAL. HAD IT NOT BEEN SHARES, THEN SUCH A HUGE COMPENSATION WOULD NOT HAVE BEEN PAID TO HER. AFTER CONSIDERING THE ENTIRE MATERIAL ON RECORD AND SURROUNDING CIRCUMSTA NCES, WHICH HAS BEEN DEALT THE LEARNED COMMISSIONER (APPEALS) IN PARA 3.8 , AND, THEREFORE , DREW THE CONCLUSION THAT THE MAJOR AMOUNT IN QUESTION RECEIVED BY THE ASSESSEE , IS CLOSELY LINKED WITH THE MAIN DISPUTE OF SHARES ONLY AND PARTLY OF ALIBAUGH LAND. T HE SHRI V INAY P. KARVE 13 VALUE OF SHARES AT THE TIME OF SETTLEMENT WAS AROUND ` 1.67 CRORES AND, THEREFORE, APPROXIMATELY ` 1.06 CRORES WAS TOWARDS SHARES ONLY , BECAUSE THE ASSESSEE HAD EARLIER RECEIVED ` 63.32 LAKHS. FINALLY, HE HELD THAT THE MAJOR AMOUNT RECEIVED FROM OUT OF COURT SETTLEMENT PERTAIN ED TO MISAPPROPRIATION OF SHARES BY FRAUD AND UNFAIR MEANS AND, THEREFORE, THE ASSESSEES CLAIM TO THE EXTENT OF ` 102 LAKHS APPROXIM ATELY IS TOWARDS SALE OF SHARES; ` 15 LAKHS TOWARDS ALIBAUG LAND DISPUTE ; AND BALANCE FOR CASH WITH DRAWAL OF ` 2.40 LAKHS AND ` 0.63 LAKHS FOR SHARE TRANSFER STAMPS MADE BY MS. RASHMI AGARWAL. ACCORDINGLY, H E DIRECTED THE ASSESSING OFFICER TO TAX THE AMOUNT OF ` 15 LAKHS FOR ALIBAUG LAND DISPUTE , AS SHORT TERM CAPITAL GAIN AND THE BALANCE WAS HELD TO BE LONG TERM CAPITAL GAIN ON SALE OF SHARES WHICH ADMITTEDLY IS EXEMPT UNDER ARTICLE 14(6) OF THE DTAA. THE RELEVANT CONCLUSION DRAWN BY THE LEARNED COMMISSIONER (APPEALS), READS AS UNDER: 9. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES. I AM OF THE CONS IDERED VIEW THAT THE AMOUNT RECEIVED FROM 'OUT OF COURT SETTLEMENT' INDEED PERTAINED TO MISAPPROPRIATION OF SHARES BY FRAUD AND UNFAIR MEANS, HENCE I AM INCLINED TO ACCEPT THE APPELLANT'S CLAIM THAT THE SUM OFS.101.97 LAKHS I.E. (RS.120 LAKHS MINUS 15 LAK HS FOR ALIBAG LAND+2.40 FOR CASH WITHDRAWAL AND 0.63 FOR STAMP DUTY ON SHARES TRANSFER = 101.97) IS RECEIVED AS CONSIDERATION. THE SUM OF RS.15 LAKHS CAN BE ATTRIBUTED TO ALIBAG LAND DISPUTE, AND BALANCE RS 2.40 LAKHS FOR CASH WITHDRAWALS AND RS.0.63 LAKHS FOR SHARE TRANSFER STAMPS. THE OTHER ITEMS DO NOT HAVE TAX IMPLICATION AS THE SAME ARE MERELY REFUNDED; BUT THE SLIM ATTRIBUTABLE TO SHARES AND ALIBAG LAND WILL HAVE TO BE CONSIDERED UNDER THE HEAD CAPITAL GAINS. AS REGARDS CAPITAL GAINS ON SHARES IN THI S CASE, THE SAME IS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 14(6) OF THE DTAA BETWEEN INDIA AND FRANCE. SHRI V INAY P. KARVE 14 10. AS REGARDS ALIBAG LAND, IT IS SEEN FROM DETAILS FILED BY THE APPELLANT THAT THE SAID LAND WAS PURCHASED ON 26/3/2002 FOR RS.10.40 LAKHS, AND OTHER INCIDENTAL EXPENSES INCURRED BY WAY OF STAMP DUTY AND REGISTRATION CHARGES WERE RS.93,780 / - . IT IS SEEN THAT LEGAL NOTICE MENTIONED THE PAYMENT OF RS. 10.40 LAKHS TOWARDS PURCHASE OF THIS LAND, AND SETTLEMENT DTD 31.5 . 2004 MENTION CONSIDERATION OF RS.15 LAKHS. THUS THE APPELLANT HAS EARNED CAPITAL GAIN OF RS.4.60 LAKH AS SHORT TERM CAPITAL GAIN. THE CLAIM OF THE ADDITIONAL COST IS RS.93,780 / - AS CLAIMED BY APPELLANT IS NOT ACCEPTABLE AS NO SUCH DETAIL FILED BEFORE AO . THE A PPELLANT CLAIMED THIS GAIN AS NO T TAXABLE BECAUSE THE LAND WAS AGRICULTURAL LAND IS ALSO NOT ACCEPTABLE AS NO FURTHER DETAILS TO PROVE ITS NATURE AND THE EXACT DISTANCE FROM THE NEAREST MUNICIPALITY ETC. HAVE BEEN FILED OR EXAMINED. THE GAIN IS THEREFORE TAXABLE AS SHORT TERM CAPITAL GAI N BECAUSE T H E LAND HAS BEEN RETRANSFERRED BY THE APPELLANT TO MRS. AGARWAL WITHIN THREE YEARS OF ITS ACQUISITION. THE AO IS THEREFORE DIRECTED TO TAX CAPITAL GAIN AT RS . 4.60 LAKHS ON THIS ACCOUNT . 11. IN VIEW OF ABOVE DISCUSSION, THE ADDITION OF RS. 1 .20 CRORES MADE BY THE AO TREATING IT AS 'OTHER INCOME' IS DELETED. THE AO IS ALSO DIRECTED TO ASSESS SHORT TERM CAPITAL GAINS OF RS . 4 .60 LAKHS IN RESPECT OF ALIBAG LAND TRANSACTION. SINCE I HAVE DELETED THE MAIN ADDITION OF RS. 1.20 CRORE AS ABOVE. I DO NOT CONSIDER IT NECESSARY TO GO INTO THE OTHER ALTERNATIVE GROUNDS AND CONTENTIONS RAISED BY THE APPELLANT IN THIS APPEAL THOUGH THEY S UPP ORT T HE CASE OF APPELLANT IF CASE IS PERUSED FROM OTHER ANGLE ALSO. SUBJECT TO ABOVE, THIS GROUND OF APPEAL IS PARTLY ALL OWED. 8. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE , IN HER WRITTEN SUBMISSION, SHE SUBMITTED THAT FROM THE FACTS IT IS EVIDENT THAT AFTER THE DEATH OF ASSESSEES FATHER IN JANUARY 2000, THERE WAS DISPUTE WITH HER BROTHERS WITH REGARD TO THE DISTRI BUTION OF ESTATE PROPERTY INCLUDING SHARES. THE ASSESSEE HAD GIVEN POWER OF ATTORNEY IN THE NAME OF MS. RASHMI AGARWAL, TO TRANSFER THE SHARES IN HER NAME. IN MAY 2002, MS. RASHMI AGARWAL, HAS DEPOSITED THE AMOUNT OF ` 60.32 LAKHS, IN ASSESSEES BANK ACCOU NT, WHICH MEANS THAT THE ASSESSEE HAS SHRI V INAY P. KARVE 15 RECEIVED THE AMOUNT ON ACCOUNT OF SALE / TRANSFER OF SHARES WAY BACK IN THE YEAR 2002. THUS, TRANSFER OF SHARES TOOK PLACE IN FY 2002 03 (I.E., A.Y. 2003 04). THE DISPUTE AND THE COMPLIAN T BY THE ASSESSEE WAS AGAINST H ER BROTHER AND WHEN THERE WAS MISAPPROPRIATION OF PROPERTIES AND ENQUIRIES ABOUT SHARES WERE UNDERTAK E N, THE ASSESSEE THEN FILED CRIMINAL COMPLAINT AGAINST MS. RASHMI AGARWAL, THAT SHE HAD FRAUDULENTLY S OLD THE SHARES. THE ASSESSEE HAS DULY ACKNOWLEDGED TH AT SHE HAS RECEIVED SUM OF ` 60.32 LAKHS PAID EARLIER IN THE YEAR 2002 AND THE BALANCE AMOUNT OF ` 33.88 LAKHS WAS PAID LATER ON . IN THE PA PER BOOK FILED BY THE DEPARTMENT, SHE POINTED OUT THAT THE POWER OF ATTORNEY IN THE FAVOUR OF MS. RASHMI AGARWAL, WIL L GO TO SHOW THAT IT WA S GIVEN TO RECOVER OR ENFORCE THE PAYMENT ON BEHALF OF THE ASSESSEE; TO PAY DEPOSIT, OPERATE BANK, TO APPEAR IN LEGAL MATTERS, ETC. THE POWER OF ATTORNEY FOR IS SILENT WITH REGARD TO THE AUTHORITY FOR TRANSFER OF SHARES AND ALSO NUMB ER OF SHARES OWNED BY THE ASSESSEE. THUS, WHEN THE SHARES WERE SOLD AND MONEY WAS RECEIVED, THE ASSESSEE WAS VERY MUCH IN KNOWLEDGE , AS THERE IS NO FIR ON RECORD AGAINST MS. RASHMI AGARWAL, FOR FRAUDULENT SALE OF SHARES , BECAUSE THE POLICE COMPLIAN T WAS AG A IN ST THE ASSESSEES BROTHER . S ECONDLY THE AMOUNT OF ` 60.32 LAKHS WAS RECEIVED THROUGH CHEQUE FROM MS. RASHMI AGARWAL, WHICH WAS DEPOSITED IN ASSESSEES BANK ACCOUNT ON 14 TH MAY 2002 . AT THAT TIME THE ASSESSEE NEVER QUESTIONED MS. RASHMI AGARWAL, A S TO WH Y SHE HAS GIVEN THIS MONEY TO HER. THE MONEY WAS SHRI V INAY P. KARVE 16 LYING IN ASSESSEES BANK ACCOUNT FOR TWO YEARS , WITHOUT ANY KNOWLEDGE OF ASSESSEE SEEMS TO BE COMPLETELY IMPROBABLE SITUATION . NO COMPLIAN T WAS FILED AGAINST MS. RASHMI AGARWAL, AGAINST THIS FRAUDULENT SHARE S BETWEEN 2002 TO 2004. IT IS ONLY WHEN THE POLICE QUESTION ED THE ASSESSEE ABOUT THE SHARES (WHICH WAS PART OF THE ESTATE) DURING THE COURSE OF ENQUIRY AGAINST HER BROTHER THAT THE ASSESSEE DECIDED TO INCLUDE MS. RASHMI AGARWALS NAME IN THE COMPLIAN T . AT LEAST, THE SUM OF ` 60.32 LAKHS WHICH MAY BE CLAIMED TO PERTAIN TO SHARES SHOULD HAVE BEEN DECLARED IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003 04. THE ASSESSEE HAS ADMITTED THE FACT THAT VIDE LETTER DATED 16 TH APRIL 2004, MS. RASHMI AGARWAL, HAD OFFERED THE BALANCE AMOUNT OF ` 33.38 LAKHS FOR THE BALANCE SALE VALUE OF SHARES, THEREFORE, OUT OF COMPENSATION OF ` 1.20 CRORES , ONLY SUM OF ` 33.38 LAKHS CAN BE SAID TO PERTAINING TO SHARES AND BALANCE CANNOT BE SAID TO BE ON ACCOUNT OF SHARES AS HELD B Y THE LEARNED COMMISSIONER (APPEALS). EVEN IN THE SETTLEMENT AGREEMENT DATED 31 ST MAY 2004, THE AMOUNT PERTAINING TO SHARES MENTIONED IS ` 33.38 LAKHS ONLY AND BALANCE IS FOR OTHER DISPUTES INCLUDING SALE OF LAND AT ALIBAUG AT ` 15 LAKHS . T HEREFORE, IT CAN NOT BE SAID THAT THE ENTIRE AMOUNT SHOULD BE TREATED FOR THE PURPOSE OF SALE OF SHARES. THERE IS NO SPECIFIC MENTION IN THE SETTLEMENT AGREEMENT THAT THE AMOUNT OF COMPENSATION IS TOWARDS SHARE S ONLY. THE LEARNED COMMISSIONER (APPEALS) HIMSELF ADMITS THAT THE SETTLEMENT DOCUMENT DO NOT THROW ANY LIGHT ABOUT OTHER DISPUTES, SHRI V INAY P. KARVE 17 THEREFORE, THE AMOUNT OTHER THAN SHARES IS NOTHING BUT TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ULTIMATE FINDING OF THE LEARNED COMMISSIONER (APPEALS) ARE BASED ON SURMISES T HAT THE MAJORITY OF THE COMPENSATION RECEIVED WAS ON ACCOUNT OF HIGH MARKET VALUE OF SHARES , BECAUSE THERE IS NO SUCH MENTION EITHER IN THE SETTLEMENT AGREEMENT OR IN SOME OTHER DOCUMENTS. THUS, THE EXCESS INCOME RECEIVED BY THE ASSESSEE CANNOT BE TAXED UN DER THE HEAD CAPITAL GAIN AND IT HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES ONLY. 9. THE LEARNED COUNSEL FILED REJOINDER SUBMISSIONS IN RESPONSE TO THE WRITTEN SUBMISSIONS FILED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE WHEREIN HE HAS REBUTTED ALL THE POINT S RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE , BASED ON MATERIAL ON RECORD AND ALSO THE RELEVANT FINDINGS AND OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). THE SUM AND SUBSTANCE OF HIS ARGUMENT IS THAT THE AMOUNT RECEIVED IN 2002 WAS NOT IN THE KNOWLEDGE OF THE ASSESSEE AND ONLY WHEN SHE HAD COME TO KNOW ABOUT THE FRAUD DONE BY MS. RASHMI AGARWAL, SHE HAD SENT A LEGAL NOTICE AND LATER ON INCLUDED HER NAME FOR COMMITTING FRAUD. HAD THE ASSESSEE GIVEN ANY CONSENT OR KNOWN ABOUT THE T RANSFER OF SHARES, THEN THERE W OULD HAVE BEEN ACTION ON MS. RASHMI A G ARWAL, AND SHE WOULD NOT HAVE AGREED TO PAY THE ASSESSEE SUCH A COMPENSATION AMOUNT. EXCEPT FOR THE AMOUNT SHRI V INAY P. KARVE 18 OF ` 15 LAKHS, FOR DISPUTE OF ALIBAUG LAND AND SOME OTHER ITEMS AS POINTED OUT B Y THE LEARNED COMMISSIONER (APPEALS), THE REST IS ON ACCOUNT OF SHARES ONLY BECAUSE THERE WAS NO OTHER DISPUTE ON WHICH THE SETTLEMENT WAS AGREED UPON, THEREFORE, THE SAME HAS RIGHTLY BEEN TREATED AS LONG TERM CAPITAL GAIN , WHICH IS NOT TAXABLE IN THE CASE OF THE ASSESSEE. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD. THE MAIN CONTROVERSY REVOLVES AROUND THE TAXABILITY OF SUM OF ` 1.20 CRORES RECEIVED BY THE ASSESSEE IN THIS Y EAR. THE FACTS LEADING TO RECEIPT OF ` 1.20 CRORES HAS BEEN INCORPORATED IN DETAIL, HOWEVER, FOR THE PURPOSE OF ADJUDICATION OF THE ISSUE, FOLLOWING FACTS AND EVENTS ARE REITERATED : I) AFTER THE DEATH OF THE ASSESSEES FATHER IN JANUARY 200 0 , CERTAIN DISPUT E AROSE BETWEEN THE ASSESSEE AND HER BROTHERS OVER THE DISTRIBUTION OF THE ESTATE OF HER LATE FATHER , WHICH INCLUDED SHARES OF 17 BLUE CHIP COMPANIES STANDING IN THE JOINT NAME OF ASSESSEE AND HER FATHER AND HER BROTHERS; II) THE ASSESSEE HAD EXECUTED A GENER AL POWER OF ATTORNEY IN FAVOUR OF MS. RASHMI AGARWAL, TO MANAGE THE SHRI V INAY P. KARVE 19 AFFAIRS OF THE ASSESSEE IN INDIA, INCLUDING OPERATION OF BANK, APPEARING IN LEGAL MATTERS, ETC. III) MS. RASHMI AGARWAL, ALLEGEDLY SOLD THE SHARES FOR ` 93,70,135, SOMEWHERE IN THE YEAR 2002, AND DEPOSITED SUM OF ` 60.32 LAKHS IN THE BANK ACCOUNT OF THE ASSESSEE IN MAY 2002, I.E., IN A.Y. 2003 04 . THIS DEPOSIT OF THE AMOUNT HAS BEEN CLAIMED BY THE ASSESSEE THAT IT WAS NOT IN HER KNOWLEDGE AT ALL , WHICH FACT HAS BEEN ACCEPTED BY THE LEARNED COMM ISSIONER (APPEALS); IV) ONCE THE DISPUTE BETWEEN THE ASSESSEE AND HER BROTHER S REGARDING THE DISTRIBUTION OF ESTATE REACHED THE STAGE OF POLICE INVESTIGATION AND WHEN THE ASSESSEE HAD FILED CRIMINAL COMPLAINT AGAINST HER BROTHER , THE ISSUE OF SHARES CAME INTO LIME LIGHT , IT WAS THEN THE ASSESSEE REALISE D ABOUT THE FRAUDULENT MISAPPROPRIATION OF THE SHARES BY M S . RASHMI AGARWAL . THE ASSESSEE HAD THEN SENT A LEGAL NOTICE TO MS. RASHMI AGARWAL, AND LATER ON HER NAME WAS ALSO I MPLICATED IN THE POLICE COMPLAINT AND IN THE CRIMINAL SUIT ; V) WHEN THE POLICE GAVE A PRIMA FACIE FINDING THAT MS. RASHMI AGARWAL, HA D FRAUDULENTLY MISAPPROPRIATED THE SHRI V INAY P. KARVE 20 SHARES OR HAD SOLD THE SHARES , THEREBY CHEAT ING THE ASSESSEE, MS. RASHMI AGARWAL, OFFERED TO PAY THE BALANCE SUM OF ` 33,38,135 , AS SHE CLAIMED THAT THE SHARES WERE SOLD FOR ` 93,73,135, IN THE YEAR 2002 ITSELF ; VI) IN ORDER TO RESOLVE THE ISSUE AND SAVE HERSELF FROM CRIMINAL PROCEEDINGS, MS . RASHMI AGARWAL, CAME FORWARD WITH OUT OF COURT SETTLEMENT AND SETTLEMENT AGREEMENT WAS EXECU TED ON 31 ST MAY 2004, WITH THE ASSESSEE , WHEREIN MS. RASHMI AGARWAL, AGREED TO PAY A SUM OF ` 1.20 CRORES, WHICH INCLUDED SUM OF ` 33,38,135, ON ACCOUNT OF SHARES. THE SETTLEMENT AGREEMENT SPECIFICALLY MENTIONS THAT THE CHEQUE AMOUNT OF ` 33,38,135, WAS GI VEN TO THE ASSESSEE TOWARDS BALANCE CONSIDERATION OF SHARES . THE BALANCE LUMP SUM AMOUNT OF ` 86,61,865, WHICH WA S INCLUSIVE OF ` 15 LAKHS IN RESPECT OF ALIGAUG LAND DISPUTE WAS MAINLY ON ACCOUNT OF SETTLEMENT OF OTHER DISPUTES AND DIFFERENCE S ; VII) THE ENTIRE AMOUNT OF ` 1.20 CRORES, AS RECEIVED BY THE ASSESSEE IN TERMS OF SETTLEMENT AGREEMENT DATED 31 ST MAY 2004, HAS BEEN ASSESSED AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER , WHEREAS THE LEARNED COMMISSIONER (APPEALS) HAS HELD THAT MAJOR AMOUNT OF SHRI V INAY P. KARVE 21 APPROXIMATELY ` 102 LAKHS IS TOWARDS CONSIDERATION OF TRANSFER OF SHARES , HENCE, TAXABLE AS CAPITAL GAINS . 11. HERE, ON E OTHER ISSUE WHICH IS EMANATING FROM THE IMPUGNED ORDER, IS THE YEAR OF TAXABILITY. THE ASSESSING OFFICER HAS HELD THAT CAPITAL GAIN ON ALL EGED SALE OF SHARES AROSE IN THE A.Y. 2003 04 AND WHAT THE ASSESSEE HAS RECEIVED IN THIS YEAR IS TAXABLE AS INCOME FROM OTHER SOURCES IN THIS YEAR I.E., A.Y. 2005 06. THE LEARNED COMMISSIONER (APPEALS) ON THE OTHER HAND HAS HELD THAT THE CAPITAL GAIN HAS A RISEN IN A.Y. 2005 06 ONLY FOR THE REASONS STATED IN THE FOREGOING PARAGRAPHS. 12. IN OUR OPINION, THE MAJOR ISSUE FOR ADJUDICATION IS , WHETHER THE AMOUNT OF COMPENSATION OF ` 1 . 20 CRORES IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES OR CAPITA L GAIN { OR PARTLY AS CAPITAL GAIN AND OR ANY OTHER HEAD OF INCOME. IF THE AMOUNT IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN THEN , ADMITTEDLY THE SAME IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE IN VIEW OF ARTICLE 14(6) OF INDO FRANCE DTAA AND, THEREFORE, THE YEAR OF TAXAB ILITY OF CAPITAL GAIN IS NOT O F MUCH RELEVANCE , BECAUSE EVEN IF IT IS HELD TO BE TAXABLE IN THE ASSESSMENT YEAR 2003 04, THEN ALSO IT WOULD BE EXEMPT IN THE HANDS OF THE ASSESSEE AND IF IT IS HELD TO BE TAXABLE IN ASSESSMENT YEAR 2005 06, THEN ALSO IT IS EXEMPT FROM TAXATION IN THE HANDS OF THE SHRI V INAY P. KARVE 22 ASSESSEE. THUS, YEAR OF TAXABILITY, IN OUR VIEW IS NOT A SUBJECT MATTER OF MAJOR DISPUTE. 13. FROM THE PERUSAL OF THE SETTLEMENT AGREEMENT DATED 31 ST MAY 2004, THROUGH WHICH THE DISPUTED AMOUNT OF ` 1.2 0 CRORES HAS BEEN PAID TO THE ASSESSEE, IT IS AMPLY EVIDENT THAT IT HAS BEEN SPECIFICALLY MENTIONED THAT OUT OF SUM OF ` 1.20 CRORES, ONLY SUM OF ` 33,38,135, PERTAINS TO SETTLEMENT TOWARDS TRANSACTION OF SHARES IN RESPECT OF WHICH POLICE COMPLAINT AGAINST MS. RASHMI AGARWAL, WAS FILED BY THE ASSESSEE . THE TOTAL SALE CONSIDERATION FOR SALE OF SHARES HAS BEEN SAID TO BE FOR ` 93,70,135, OUT OF WHICH SUM OF ` 60,32,000, ADMITTEDLY HAS BEEN RECEIVED BY THE ASSESSEE ON 14 TH MAY 2002 I.E., IN THE A.Y. 2003 04. T HIS AMOUNT OF ` 60,32,000, IS NOT THE SUBJECT MATTER OF DISPUTE BEFORE US, IN THE SENSE THAT ADMITTEDLY IT IS NOT THE PART OF COMPENSATION AMOUNT OF ` 1.20 CRORES. THE BALANCE AMOUNT OF ` 86,61,865, HAS BEEN STATED IN THE SETTLEMENT AGREEMENT , AS OTHER DI SPUTES AND DIFFERENCES . ONE OF THE OTHER MAJOR DISPUTE HAS BEEN SAID TO BE ON ACCOUNT OF THE SALE OF ALIBAUGH LAND F OR ` 15 LAKHS, WHICH HAS BEEN FRAUDULENTLY DONE BY MS. RASHMI AGARWAL, WITHOUT THE KNOWLEDGE OF THE ASSESSEE. INSOFAR AS THE AMOUNT OF ` 15 LAKHS IS CONCERNED, THE LEARNED COMMISSIONER (APPEALS) HA S DIRECTED THE ASSESSING OFFICER TO TAX THE SAME UNDER THE HEAD SHORT TERM CAPITAL GAIN AGAINST WHICH THE ASSESSEE IS NOT IN APPEAL. THUS, FOR THIS SHRI V INAY P. KARVE 23 AMOUNT, THERE IS NO DISPUTE. THE BALANCE SUM OF ` 71,61,865, HAS BEEN STATED TO BE FOR OTHER DISPUTES . FROM THE RECORDS AND THE IMPUGNED ORDER, IT IS AN ADMITTED FACT THAT IN THIS CASE , NO DISPUTE OTHER THAN THE DISPUTE RELATING TO SHARES AND LAND WAS INVOLVED . THUS, FOR THE PURPOSE OF TAXABILITY / ASSE SSABILITY OF SUM OF ` 1.20 CRORES , THE AMOUNT OF ` 33,38,135, AND ` 15 LAKHS HAS TO BE SEGREGATED , BECAUSE, T HE SUM OF ` 33,38,135, PERTAINS TO TRANSACTION OF SHARES WHICH IS TO BE ASSESSED AND TAXED UNDER THE HEAD CAPITAL GAINS , WHICH IN THE PRESENT CASE IS ADMITTEDLY NOT TAXABLE BY VIRTUE OF ARTICLE 14(6). 14. REGARDING BALANCE SUM OF ` 71,61,865, WHETHER IT CAN BE HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR CAPITAL GAINS OR NOT TAXABLE AT ALL. I N OUR OPINION, THE SAID AMOUNT FIRST LY, CANNOT BE TAXED UNDER THE HEAD CAPITAL GAIN , BECAUSE THE TERMS OF SETTLEMENT AGREEMENT IS VERY CLEAR THAT TRANSACTION OF SHARES WAS FOR SUM OF ` 93,70,135, OUT OF WHICH ONLY ` 33,38,135, WAS DUE TO THE ASSESSEE AND THERE CANNOT BE ANY INFERENCE THAT THE BALANCE AMOUNT WAS ALSO IN LIEU OF SHARES , FOR THE REASON THAT AT THE TIME OF SETTLEMENT OF AGREEMENT, THE MARKET VALUE OF THESE SHARES WAS VERY HIGH. NOTHING HAS BEEN BROUGHT ON RECORD , EITHER IN THE SETTLEMENT AGREEMENT OR ANY COMMUNICATION BETWEEN T HE ASSESSEE AND MS. RASHMI AGARWAL, THAT HIGH RISE AND HIGH VALUE OF THE SHARES AS ON MAY 2004, WAS S THE CONSIDERATION FOR SETTLEMENT OF AMOUNT OF SHRI V INAY P. KARVE 24 COMPENSATION. IN VIEW OF THE CLEAR CUT TERMS OF SETTLEMENT AGREEMENT THROUGH WHICH THE ASSESSEE HAS RECEIVED COMPENSATION OF ` 1.20 CRORES, ONLY THE AMOUNT OF ` 33,38,135, PERTAINS TO THE DISPUTE REGARDING SHARES AND NOT THE WHOLE OF TH E SUM OR MAJOR PART OF THE SUM, AS HELD BY THE LEARNED COMMISSIONER (APPEALS). 15. THE BALANCE SUM OF ` 71,61,865, I.E., [ ` 1,20,00, 000 CRORES ( ) ` 33,38,135 (+) ` 15,00,000] IN THE PRESENT FACTS, CAN NEITHER BE TAXED AS CAPITAL GAIN NOR AS INCOME FROM OTHER SOURCES FOR T HE REASON THAT THE LUMP SUM AMOUNT WHICH HAS BEEN AGREED UNDER THE TERMS OF SETTLEMENT IS BASICALLY A KIND OF COMPE NSATION ON ACCOUNT OF PERSONAL DAMAGE DONE BY MS. RASHMI AGARWAL, ON THE ASSESSEE FOR COMMITTING FRAUD , MISAPPROPRIATION OF ASSETS AND BREACH OF TRUST. THE SETTLEMENT HAS BEEN AGREED ONLY TO WITHDRAW THE POLICE COMPLAINT AND CRIMINAL CASE FILED IN THE COURT OF CHIEF METROPOLITAN MAGISTRATE AGAINST MS. RASHMI AGARWAL. IT WAS OUT OF FEAR AND TO WRINGGLE OUT FROM CRIMINAL CASE, MS. RASHMI AGARWAL, AGREED TO PAY THE COMPENSATION AMOUNT. IN THIS SITUATION, S UCH AN AMOUNT OF COMPENSATION IS NOTHING ELSE , BUT A CAP ITAL RECEIPT WHICH BEYOND THE PURVIEW OF CHARGING SECTION , THAT IS IT IS NOT TAXABLE UNDER THE I NCOME T AX ACT . ADMITTEDLY, IT IS NOT A CASE HERE, WHERE THE COMPENSATION HAS BEEN PAID ON SOME KIND OF A BREACH OF ANY AGREEMENT IN THE COURSE OF BUSINESS OR AN Y TRANSACTION OR ANY BREACH OF CONTRACT BETWEEN THE TWO PARTIES. NEITHER IT IS IN THE FORM OF SHRI V INAY P. KARVE 25 ANY INTEREST ON SOME PRINCIPAL AMOUNT, BECAUSE NOWHERE IT HAS BEEN MENTIONED THAT M/S. RASHMI AGARWAL, WILL PAY ANY INTEREST ON THE DELAYED PAYMENT OF SHARES SOLD BY HER IN THE YEAR 2002. THUS, IT CANNOT BE TAXED AS INCOME FROM OTHER SOURCES UNDER SECTION 56. . SUCH A COMPENSATION IS MAINLY TOWARDS DAMAGE FOR BREACH OF TRUST OR FRAUD WHICH AND HAS NO CO RELATION WITH ANY SUCH BUSINESS TRANSACTION S AND, THEREFORE, TH E COMPENSATION AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE TAXED UNDER ANY HEADS OF INCOME. 16. IT IS TRITE LAW THAT ALL THE RECEIPTS IN THE HANDS OF AN ASSESSEE WOULD NOT NECESSARILY BE INCOME OR DEEMED TO BE INCOME FOR THE PURPOSE OF INCOME TAX, BECAUSE IT W ILL DEPEND UPON THE NATURE OF RECEIPT AND THE TRUE SCOPE AND EFFECT OF THE RELEVANT TAXING PROVISIONS. HERE THE PAYMENT IS TOWARDS COMPENSATION ON ACCOUNT OF PERSONAL INJURY CAUSED BY FRAUD AND BREACH OF PERSONAL TRUST. THE AMOUNT HAS BEEN PAID TO WITHDR A W THE CRIMINAL COMPLAINT AND SUIT. THE NATURE AND CHARACTER OF SUCH KIND OF RECEIPT CANNOT BE BROUGHT UNDER CHARGING SECTION AND HENCE CANNOT BE TAXED UNDER ANY OTHER PROVISION. 17. THUS, IN OUR CONCLUSION, FIRSTLY, OUT OF SUM OF ` 1.20 CRORES, SUM OF ` 33,38, 135, IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN WHICH CANNOT BE TAXED IN CASE OF THE ASSESSEE DUE TO BENEFIT UNDER ARTICLE 14(6) OF INDO FRENCH DTAA , SECONDLY, SUM OF ` 15 LAKHS TOWARDS SALE OF ALIBAUGH LAND HAS ALREADY BEEN DIRECTED BY THE LEARNED SHRI V INAY P. KARVE 26 COMMIS SIONER (APPEALS) TO BE TAXED AS SHORT TERM CAPITAL GAIN ; AND LASTLY, THE SUM OF ` ` 71,61,865, CANNOT BE TAXED UNDER THE CHARGING PROVISION OF THE ACT, AS THE SAME IS COMPENSATION IN THE FORM OF CAPITAL RECEIPT. ACCORDINGLY, THE GROUND RAISED BY THE DEPART MENT STANDS DISMISSED AND THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS ONLY PARTLY AFFIRM ED IN THE MANNER INDICATED ABOVE. IN THE RESULT, G ROUND NO.1 TO 4, ARE DISMISSED . 18. IN GROUND NO.5, AS ADMITTED BY BOTH THE PARTIES, THIS ISSUE IS SQUARELY COVERE D BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) V/S NGC NETWORK ASIA LLC, [2009] 313 ITR 187 (BOM.), WHICH HAS BEEN FOLLOWED BY THE LEARNED COMMISSIONER (APPEALS). ACCORDINGLY, THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) IS AFFIRMED AND GROUND NO.5, IS DISMISSED. 19. 1 9 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 12 TH SEPTEMBER 2014 ORDER PRONOUNCED IN T HE OPEN COURT O N 12 TH SEPTEMBER 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH SEPTEMBER 2014 SHRI V INAY P. KARVE 27 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE ; (2) / THE REVENUE; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI