DCIT, Chandigarh V. M/s Winsome Yarns Ltd., Chandigarh

ITA 337/CHANDI/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7093 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Capital asset; Capital receipt
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 337/CHD/2011 ASSESSMENT YEARS : 2007-08 D.C.I.T. CIRCLE 4(1) V M/S WINSOME YARNS LTD CHANDIGARH SCO 191-192, SEC 34-A CHANDIGARH AAACW 1911 H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI MANJIT SINGH RESPONDENT BY: SHRI SUDHIR SE HGAL DATE OF HEARING 14.7.2014 DATE OF PRONOUNCEMENT 28.8.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 15.11.2010 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSE SSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 1070480/- BY DISALLOWING PRIOR PERIOD EXPENSES WHICH WAS SET OFF AGAINST PRIOR PERIOD INCOME BY THE ASSESSEE WHO IS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING AND THE ASSESSEE SHOULD HAVE CLAIMED EXPENSES IN THE RELEVANT ASSESSMENT YEAR . 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 26983000/- ON ACCOUNT OF SHORT TERM CAPITAL GAIN GIVEN BY RELYIN G ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF M /S SAURASTRA CEMENT LTD. AND OTHER CASE LAWS. 3 GROUND NO. 1 IS OF GENERAL NATURE AND THEREFORE N O SEPARATE ADJUDICATION IS REQUIRED. 4 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED 2 THAT DURING THE YEAR THE ASSESSEE HAS DEBITED PRIOR PERIOD EXPENSE OF RS. 6031289/- TO PROFIT AND LOSS ACCOUNT . ON FURTHER ENQUIRY IT WAS NOTICED THAT IN FACT PRIOR PERIOD EX PENSES WERE RS. 7101769/-. THIS AMOUNT WAS ADJUSTED AGAINST PR IOR PERIOD INCOME OF RS. 1070480/-. NET PRIOR PERIOD EXPENSES WERE ADDED TO THE INCOME IN THE COMPUTATION CHART. THE ASSESSING OFFICER OBSERVED THAT SINCE THE ASSESSEE WAS FOLLOW ING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE PRIOR PE RIOD EXPENSES SHOULD NOT BE ALLOWED IN THE PRESENT YEAR. ACCORDINGLY HE DISALLOWED A SUM OF RS. 1070480/-. 5 ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY CON TENDED THAT PRIOR PERIOD EXPENSES WERE REQUIRED TO BE DISA LLOWED AND ON THE SAME ANALOGY EVEN THE PRIOR PERIOD INCOME WA S EXCLUDIBLE. THE ASSESSEE HAD ADJUSTED THE PRIOR PER IOD EXPENSES AGAINST PRIOR PERIOD INCOME AND THE BALANC E AMOUNT HAS ALREADY BEEN ADDED TO THE INCOME. IN THIS REGA RD RELIANCE WAS PLACED ON THE DECISION OF DELHI BENCH OF THE TR IBUNAL IN CASE OF MODI INDUSTRIES LTD V DCIT, ITA NO. 2245/ D EL/2007. THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AND D ELETED THE ADDITION. 6 BEFORE US. LD. D.R FOR THE REVENUE STRONGLY SUPPO RTED THE ORDER OF THE ASSESSING OFFICER. 7 ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( A) AND SUPPORTED THE IMPUGNED ORDER. HE ALSO RELIED ON TH E ORDER OF HON'BLE DELHI HIGH COURT IN CASE OF CIT V. EXXON MO BIL LUBRICANTS P. LTD, 328 ITR 17. 3 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT THIS ISSUE HAS BEEN ADJUDICATED BY THE LD. CIT(A) VIDE P ARA 11 WHICH IS AS UNDER: I HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS AND MATERIAL ON RECORD. I FIND THAT THE ASSESSING OFFICER DISALLOW ED PRIOR PERIOD EXPENSES AMOUNTING TO RS. 1070480/- AS THE SAME WER E SET OFF AGAINST PRIOR PERIOD INCOME OF RS. 1070480/- SIMPLY STATING THAT FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSE SSEE SHOULD HAVE CLAIMED EXPENSES IN THE RELEVANT ASSESSMENT YE AR . IN MY VIEW, THE ASSESSING OFFICER FAILED TO GIVE REASON W HY PRIOR PERIOD INCOME COULD NOT BE SET OFF AGAINST THE EXPENSES, W HILE ON THE OTHER HAND THE ASSESSING OFFICER HAS NOT ONLY GIVEN ENOUGH REASON BUT HAS RELIED ON VARIOUS JUDICIAL DECISIONS WHEREI N PRIOR PERIOD INCOME WAS ALLOWED TO BE SET OFF AGAINST PRIOR PERI OD EXPENSES. THE PERTINENT OBSERVATION OF THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MODI INDUSTRIES LTD. IN ITA NO. 2245/ DEL/2007 IS EXTRACTED BELOW: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF T HE AUTHORITIES BELOW. WE FIND THAT AS PER THE DETAILS FURNISHED BY THE ASSESSEE ON PAGE 19 OF THE PAPER BOOK, IN TH E PRESENT YEAR, THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF PRIOR PERIOD EXPENSES OF RS. 15.38 LAKH S AND AT THE SAME TIME, THE ASSESSEE HAS OFFERED PREVIOUS YE AR INCOME TO THE EXTENT OF RS. 18.78 LAKHS. THIS SHOW S THAT INCOME OFFERED ON ACCOUNT OF PREVIOUS YEARS IS MOR E THAN THE CLAIM OF THE ASSESSEE RELATING TO PREVIOUS YEAR EXPENSES. IF THE PREVIOUS YEAR EXPENSES RE NOT ALLOWABLE IN THE PRESENT YEARS THEN ON THE SAME LOGIC, PREVIO US YEAR INCOME IS ALSO NOT ASSESSABLE IN THE PRESENT Y EAR AND BOTH OF THEM SHOULD BE CONSIDERED IN THE RELEVA NT YEAR. SINCE THE ASSESSING OFFICER HAS ALREADY ASSESSED PREVIOUS YEAR INCOME IN THE PRESENT YEAR, WE FIND N O REASON TO DISALLOW THE CLAIM OF THE ASSESSEE REGARDING PRE VIOUS YEAR EXPENSES SINCE THERE EXPENSES ARE LESSER THAN SUCH INCOMES, BUT AT THE SAME TIME, THIS HAS TO BE SEEN AS TO WHETHER SUCH PREVIOUS YEAR EXPENSES ARE OTHERWISE ALLOWABLE OR NOT BECAUSE WE HAVE NOTED THAT SOME OF THE EXPENSES ARE ON ACCOUNT OF PENALTY AND SOME OF THE EXPENSES ARE INFRASTRUCTURE EXPENSES WHICH MAY NOT TO BE FOUND OTHERWISE ALLOWABLE. WE, THEREFORE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE T HIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION. THE ASSESSING OFFICER SHOULD EXAMINE THE NATURE OF THESE EXPENSES AND THE SAME SHOULD BE ALLOWED IF IT IS FO UND THAT THESE EXPENSES ARE OTHERWISE ALLOWABLE. THIS GROUN D OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ABOVE CLEARLY SHOW THAT THE LD. CIT(A) HAS CORRECTL Y ADJUDICATED THE ISSUE. NORMALLY PRIOR PERIOD EXPEN SES CANNOT BE ALLOWED BUT IF THERE IS SOME INCOME IN THE PRIOR PERIOD THEN DEFINITELY THE EXPENSES CAN BE SET OFF AGAINST SUCH INCOME. THEREFORE IN OUR OPINION, THE LD. CIT(A) HAS CORREC TLY ADJUDICATED THIS ISSUE AND WE UPHOLD HIS ORDER. 4 9 GROUND NO. 3 DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CRE DITED A SUM OF RS. 269.83 LAKHS IN THE PROFIT AND LOSS ACCOUNT. THE RECEIPT WAS STATED TO BE ON SALE OF FIXED ASSETS. THE RECEI PT WAS STATED TO BE RS. 6.36 CRORES AND THE COMPENSATION W AS RECEIVED ON CANCELLATION OF LEASE DEED WHICH HAS BE EN REDUCED FROM PROFIT IN THE COMPUTATION CHART. ON FURTHER EN QUIRY IT WAS NOTICED THAT THERE WAS A COMPANY KNOWN AS M/S PUNJA B WIRELESS SYSTEMS LTD (IN SHORT PUNWIRE) WHICH WAS O RDERED TO BE WOUND UP ON 1.2.2001. LATERON ON 4.1.2002 COMPAN Y JUDGE PERMITTED THE OFFICIAL LIQUIDATOR TO SELL THE ASSET S OF PUNWIRE. SALE COMMITTEE WAS CONSTITUTED (CONSISTING OF THE O FFICIAL LIQUIDATOR AND TWO OF THE MAJOR CREDITORS, NAMELY C ANARA BANK AND IFCI) TO CHALK OUT THE MODALITIES OF SALE. SAL E COMMITTEE DIVIDED THE ASSETS OF PUNWIRE TO BE SOLD INTO 25 SE PARATE LOTS FOR CONVENIENT SALE. OFFICIAL LIQUIDATOR ISSUED A SALE NOTIFICATION DATED 15.6.2004 INVITING SEALED TENDER S. SALE NOTICE WAS WIDELY PUBLISHED ON 25.6.2004 IN LEADING NEWSPAPERS. RESERVE PRICES OF ITEM NO. 17, 19 & 20 AS PER SAID NOTICE WERE AS UNDER: I) ITEM 17: INDUSTRIAL PLOT BEARING NO. B-77, PHASE VII, INDUSTRIAL AREA, MOHALI (NEAR CHANDIGARH), PUNJAB. MEASURING 14,550 SQYDS WITH THE STRUCTURE THEREON ( RESERVE PRICE RS. 3 CRORES). II) ITEM 19: FURNITUE IN ITEM NO. 17 (RESERVE PRIC ES RS. 4 LAKHS) III) ITEM 20: AIR CONDITIONERS AND GENERATOR SETS I N ITEM NO. 17 (RESERVE PRICED RS. 15 LAKHS). THE ASSESSEE COMPANY GAVE ITS BID TO THESE THREE IT EMS I.E. ITEM NO. 17, 19 & 20 AT RS. 3.14 CRORES, RS. 4.5 LA KHS AND RS. 15.5.LAKHS RESPECTIVELY. ON 10.12.2004 THERE WAS A N INTER SE BIDDING BETWEEN THE ASSESSEE COMPANY AND TWO OTHER 5 PERSPECTIVE TENDERERS NAMELY M/S STAR POINT FINANCI AL SERVICES LTD. AND M/S S.K. KHAITAN PVT LTD. THE ASSESSEE CO MPANY INCREASED THE OFFER IN RESPECT OF ITEM NO. 17 TO RS . 3.16 CRORES. ULTIMATELY THE COMPANY JUDGE VIDE HIS ORDER DATED 1 0.12.2004 ACCEPTED THE OFFER OF WINSOME. WINSOME HAD DEPOSIT ED BALANCE SALE PRICE ON 13.12.2004 AND TOOK THE POSSE SSION OF VARIOUS ITEMS ON 16.12.2004. SINCE PLOT NO. B-77 C OMPRISED IN ITEM NO. 17 WAS A LEASE HOLD PROPERTY TAKEN ON LEAS E FROM PUNJAB SMALL INDUSTRIES AND EXPORT CORPORATION LTD (IN SHORT PSIEC), THE OFFICIAL LIQUIDATOR GAVE NO OBJECTION C ERTIFICATE FOR TRANSFER OF THE LEASE FROM THE NAME OF PUNWIRE TO T HE NAME OF WINSOME ON 29.12.2004. IN PURSUANCE OF IT WINSOME A PPLIED TO PSIEC FOR TRANSFER OF THE LEASE IN ITS FAVOUR AND O N PAYMENT OF A TRANSFER FEE OF RS. 1178550/- THE LEASE IN RESPEC T OF PLOT NO. B-77 WAS TRANSFERRED TO WINSOME AND THE LEASE DEED WAS EXECUTED ON 25.10.2005 FOR A PERIOD OF 99 YEARS FRO M THE DATE OF ALLOTMENT TO THE ORIGINAL ALLOTTEE. 10 IN THE MEANTIME SUN GROUP FILED C.A. NO. 72/2005 IN JAN 2005 BEFORE THE COMPANY JUDGE OFFERING TO TAKE OVER THE ENTIRE ASSETS OF PUNWIRE (ITEM NO. 1 TO 25) AS A GOING CON CERN FOR A PRICE OF RS. 12 CRORES. COMPANY JUDGE VIDE ORDER DA TED 30.3.2005 ALLOWED THE APPLICATION OF SUN GROUP IN P ART AND SET ASIDE THE CONFIRMATION OF SALE DATED 10.12.2004 AND DIRECTED WINSOME TO DELIVER BACK POSSESSION OF ITEMS 17, 19 & 20 TO THE OFFICIAL LIQUIDATOR. COMPANY JUDGE FURTHER HELD TH AT WINSOME WOULD BE ENTITLED TO REFUND OF THE SALE PRICE ALONG WITH INTEREST PAID BY IT TO ITS BANKERS ON THE LOANS TAKEN BY IT. THE SAID ORDER WAS CHALLENGED BY WINSOME IN COMPANY APPEAL N O. 11 6 OF 2005 BEFORE THE DIVISION BENCH OF HON'BLE HIGH C OURT OF PUNJAB & HARYANA. THE HON'BLE HIGH COURT VIDE ORD ER DATED 6.10.2005 ALLOWED THE SAID APPEAL AND SET ASIDE THE ORDER OF THE COMPANY JUDGE DATED 30.3.2005 AND RESTORED HIS ORDER DATED 10.12.2004 CONFIRMING THE SALE IN FAVOUR OF W INSOME. 11 THE ORDER OF THE DIVISION BENCH OF HON'BLE HIGH COURT WAS CHALLENGED BY THE EMPLOYEES UNION AND SUN GROUP BEFORE THE HON'BLE SUPREME COURT . IT WAS CONTENDED BY SU N GROUP BEFORE THE HON'BLE SUPREME COURT THAT SALE PRICE A T WHICH THE ITEM NO. 17, 19 & 20 WERE SOLD TO WINSOME WAS VERY LOW AND IT WAS FURTHER ALLEGED THAT DURING THE INTER SE BIDDIN G ON 10.12.2004 NAMELY STAR POINT FINANCIAL SERVICES LTD . WAS A SISTER CONCERN OF WINSOME AND THEREFORE SALE WAS NO T LEGAL. THE EMPLOYEES UNION OF PUNWIRE FURTHER CONTENDED TH AT NOTICE SHOULD HAVE BEEN ISSUED BY THE COMPANY COURT TO THE UNION BEFORE CONFIRMING THE SALE IN FAVOUR OF WINSOME AS THE EMPLOYEES WERE VITALLY INTERESTED IN THE OUTCOME OF THE SALE. IN RESPONSE WINSOME GROUP CONTENDED BEFORE THE HON' BLE SUPREME COURT THAT THEY HAVE PURCHASED ITEM NO. 17 , 19 & 20 AT THE PREVAILING MARKET RATE AND SALE NOTIFICATION WAS RIGHTLY PUBLISHED IN ALL THE LEADING NEWSPAPERS. DURING DET AILED ARGUMENTS BEFORE THE HON'BLE SUPREME COURT THE SUN GROUP FURTHER SUBMITTED THAT THEY HAVE PURCHASED THE ADJO INING PROPERTY AND THEREFORE THEY WERE INTERESTED TO PURC HASE PLOT NO. B-77, PH VII, IA, MOHALI AND SUN GROUP WAS WILL ING TO OFFER THE SAME PRICE OF RS. 11.6 CRORES FOR THE PROPERTY (ITEM NO. 17). THE EMPLOYEES UNION FURTHER SUBMITTED THAT IN THE INTEREST OF WORKERS WINSOME SHOULD TAKE REASONABLE PROFIT AN D GIVE UP THE PROPERTY IN FAVOUR OF SUN GROUP SO THAT THE WOR KERS AND 7 CREDITORS WILL BE BENEFITED. AT THIS JUNCTURE THE H ON'BLE SUPREME COURT ASKED WINSOME WHETHER WINSOME WAS INTERESTED TO CONSIDER THE OFFER OF SUN GROUP. AFTE R SOMETIME AND DUE DELIBERATIONS ULTIMATELY WINSOME AGREED TO THE PROPOSAL PROVIDED IT RECEIVED A SUM OF RS. 6.36 CRO RES FOR ITEM NO. 17, 19 & 20 FOR EXPENSES TOWARDS INTEREST ETC. AND COMPENSATION FOR DEPRIVATION OF ITS PROPERTY. THER E WAS NO OBJECTION TO THE PROPOSAL BY THE OTHER PARTIES. IN VIEW OF THESE FACTS THE HON'BLE SUPREME COURT EXERCISED ITS POWER S UNDER ARTICLE 142 OF THE CONSTITUTION AND ACCEPTED THE SE TTLEMENT. ACCORDINGLY THE HON'BLE SUPREME COURT ACCEPTED THE SETTLEMENT ON THE FOLLOWING TERMS: I) SUNGROUP SHALL PAY A SUM OF RS. 6.36 CRORES TO WINSOME FORWARDS THE REFUND OF THE SALE PRICE AND AS COMPEN SATION FOR DEPRIVING WINSOME FROM THE ENDURING BENEFIT OF ITS CAPITAL ASSETS. II) ON RECEIPT OF THE PAYMENTS AS AFORESAID BY WINS OME AND THE OFFICIAL LIQUIDATOR, THE SALE IN FAVOUR OF WINSOME IN RESPECT OF ITEMS 17, 19 & 20 SHALL STAND SET ASIDE AND SALE OF SAID ITEMS NO. 17 (PLOT NO. B-77 AND STRUCTURES THEREON) SHALL STA ND CONFIRMED IN FAVOUR OF SUNGROUP. THE OFFICIAL LIQUIDATOR SHALL ISSUE A FRESH NOC TO ENABLE SUN GROUP TO OBTAIN TRANSFER OF LEASE FRO M PSIEC IN RESPECT OF PLOT NO. B-77. IN THIS WAY THE ASSESSEE RECEIVED RS. 6.36 CRORES. ACCORDING TO THE ASSESSING OFFICER THIS AMOUNT WAS RECEIVED I N EXTINGUISHMENT OF ITS RIGHTS IN PLOT NO. B-77, PH V II, IA, MOHALI. ACCORDING TO HIM AS PER THE PROVISIONS OF SECTION 2 (47)(II) EXTINGUISHMENT OF RIGHTS IN A CAPITAL ASSET AMOUNTS TO TRANSFER AND THE CAPITAL GAIN ARISING THEREON SHALL BE TAXAB LE AS PER PROVISIONS OF SECTION 45. HE FURTHER OBSERVED THA T THE ASSESSEE ACQUIRED THE SAID CAPITAL ASSET BY MAKING PAYMENT OF RS. 3.16 CRORES ON 13.12.2004 AND POSSESSION OF THE SAME WAS TAKEN ON 16.12.2004 WHEREAS TOTAL SALE CONSIDERATIO N ON TRANSFER OF THE PROPERTY TO SUN GROUP WAS RS. 6.36 CROES WHICH WAS RECEIVED BY THE ASSESSEE IN AUGUST, 2006. SINCE THE 8 HOLDING PERIOD OF THE ASSET WAS LESS THAN THREE YEA RS THE ASSESSEE WOULD BE LIABLE TO SHORT TERM CAPITAL GAIN AND THE AMOUNT OF RS. 26983000/- WAS TAXED AS SHORT TERM CA PITAL GAIN. 12 THE ASSESSING OFFICER FURTHER OBSERVED THAT WIT HOUT PREJUDICE TO THE ABOVE, IF IT IS CONSIDERED THAT GA IN OF RS. 26983000/- CANNOT BE TREATED AS SHORT TERM CAPITAL GAIN THEN SAME CAN BE SAID TO BE IN THE FORM OF COMPENSATION BY WAY OF INTEREST GIVEN TO THE ASSESSEE BY THE HON'BLE SUPRE ME COURT FOR DEPRIVING THE RIGHTS OF THE ASSESSEE IN PROPERT Y B-77, PH VII, IA, MOHALI. IN THAT CASE RECEIPT OF RS. 26983 000/- WOULD BE TREATED AS INTEREST INCOME AND WOULD BE TAXABLE AS REVENUE RECEIPT. 13 ON APPEAL IT WAS MAINLY CONTENDED THAT THE HON'B LE SUPREME COURT HAD SET ASIDE THE ORDER OF HON'BLE H IGH COURT BY INVOKING ARTICLE 142 OF CONSTITUTION OF INDIA. R EFERENCE WAS ALSO MADE TO ARTICLE 142 AND IT WAS CONTENDED THAT BASED ON THIS ARTICLE, THE HON'BLE SUPREME COURT TOOK THE D ECISION FOR ENFORCING THE SETTLEMENT BY INVOKING ITS EXTRAORDIN ARY POWERS UNDER ARTICLE 142, KEEPING IN MIND THE LARGER INTER EST OF ALL THE PARTIES, INCLUDING THE EMPLOYEES OF PUNWIRE. THIS WOULD MEAN THAT THE ASSESSEE RECEIVED THE AMOUNT OF RS. 269.83 LAKHS ON THE BASIS OF NEGOTIATED SETTLEMENT AND THEREFORE NA TURE OF RECEIPT WAS CAPITAL AND WAS NOT FOR TRANSFER OF ANY CAPITAL ASSET SO AS TO BE LIABLE TO TAX UNDER THE PROVISIONS OF T HE ACT. IT IS TO BE APPRECIATED THAT LEGAL EFFECT OF THE ORDER OF TH E HON'BLE SUPREME COURT WAS THAT SALE OF LAND IN THE FIRST IN STANCE, IN FAVOUR OF ASSESSEE WAS SET ASIDE WHICH MEAN THAT SA LE WAS NOT VALID OR IN OTHER WORDS, THE SALE THROUGH AUCTION I TSELF WAS NONEST. THEREFORE THIS AMOUNT COULD NOT BE TREATED AS 9 CONSIDERATION FOR EXTINGUISHMENT OF ANY CAPITAL ASS ET. IT WAS FURTHER PLEADED THAT THE AMOUNT COULD NOT BE TREATE D AS COMPENSATION BECAUSE THE AMOUNT WAS RECEIVED FOR TH E SETTLEMENT ARRIVED AT BY THE HON'BLE SUPREME COURT AND THE COMPENSATION WAS NOT FOR TRANSFER OF RIGHTS. 14 THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AN D REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. SAURASHTRA CEMENT LTD, 192 TAXMAN 300 AND KE TTLEWELL BULLEN AND CO., 53 ITR 261 AND ULTIMATELY DECIDED T HE APPEAL IN FAVOUR OF THE ASSESSEE VIDE PARA 37 WHICH IS AS UNDER: IN THE CASE OF SAURASHTRA CEMENT (SUPRA) THE HON'BL E HIGH COURT WAS DEALING WITH THE COMPENSATION PAID FOR DELAYED SUPPLY OF A PLANT AND IT WAS HELD THAT THE DELAY IN SUPPLY COULD BE OF THE WHOLE PLANT OR A PART THEREOF BUT THE DETERMINATION OF DAMAGES WAS NOT BASED UPON THE CALCULATION MADE IN RESPECT OF L OSS OF PROFIT ON ACCOUNT OF SUPPLY OF A PARTICULAR PART OF THE PLANT . IT IS EVIDENT THAT THE DAMAGES TO THE ASSESSEE WAS DIRECTLY AND I NTIMATELY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET, I.E . THE CEMENT PLANT, WHICH WOULD OBVIOUSLY LEAD TO DELAY IN COMIN G INTO EXISTENCE OF THE PROFIT MAKING APPARATUS, RATHER THAN A RECEI PT IN THE COURSE OF PROFIT EARNING PROCESS. APPLYING THE RATIO OF THIS DECISION IF THE RECEIPT IS NOT CONNECTED WITH THE LOSS OR PROFI T BUT INTIMATELY CONNECTED WITH THE CAPITAL ASSET, THE RECEIPT WOULD NOT BE IN THE NATURE OF REVENUE RECEIPT BUT WOULD BE IN THE NATUR E OF CAPITAL RECEIPT BECAUSE THE VERY SOURCE OF INCOME IS CAPITA L ASSET. IN THE INSTANT CASE THE HON'BLE SUPREME COURT HAS CONCLUD ED THAT THE COMPENSATION IS ON ACCOUNT OF DEPRIVING THE APPELLA NT FROM THE ENDURING BENEFIT OF CAPITAL ASSET. TO QUOTE THE HO N'BLE SUPREME COURT ON THIS SUNGROUP SHALL PAY A SUM OF RS. 6.36 CRORES TO WINSOME TOWARDS THE REFUND OF THE SALE PRICE AND AS COMPENSATION FOR DEPRIVING WINSOME TOWARDS THE REFU ND OF THE SALE PRICE AND AS COMPENSATION F OR DEPRIVING WINSO ME FROM THE ENDURING BENEFIT OF ITS CAPITAL ASSET IN THE FOLLOW ING MANNER THIS CLEARLY SHOWS THAT THE COMPENSATION HAS A DIRECT AND INTIMATE CONNECTION/NEXUS WITH THE CAPIT AL ASSET I.E. PLOT NO. B-77 AND STRUCTURE THEREON. IN VIEW OF TH IS THE AMOUNT OF COMPENSATION DETERMINED BY BOTH THE PARTIES AND DUL Y ENDORSED BY HE HON'BLE APEX COURT IS HEREBY TREATED AS CAPITAL RECEIPT AND THE ADDITION OF RS. 26983000/- ON ACCOUNT OF SHORT TER M CAPITAL GAIN MADE BY THE ASSESSING OFFICER IS DELETED. 15 BEFORE US, THE LD. D.R FOR THE REVENUE CARRIED U S THROUGH THE FACTS MENTIONED IN THE ASSESSMENT ORDER AND SUB MITTED THAT AFTER THE HON'BLE HIGH COURT OF PUNJAB & HARYANA C ONFIRMED THE SALE IN FAVOUR OF THE ASSESSEE THEN ASSESSEE BE CAME ABSOLUTE OWNER OF THIS PROPERTY. HE REFERRED TO TH E CONTENTS AT PAGE 7 OF THE ASSESSMENT ORDER WHEREIN IT IS CLEARL Y MENTIONED 10 THAT AS PROPERTY WAS LEASE HOLD AND OFFICIAL LIQUID ATOR HAD GIVEN NO OBJECTION TO FOR TRANSFER OF THE LEASE FROM THE NAME OF PUNWIRE TO THE NAME OF WINSOME ON 29.12.2004. IN P URSUANCE OF THIS NOC THE ASSESSEE HAD APPLIED FOR TRANSFER O F LEASE TO PSIEC AND ALSO PAID TRANSFER FEE AMOUNTING TO RS. 1 178550/-. THEREAFTER THE LEASE WAS TRANSFERRED IN THE NAME OF ASSESSEE ON 25.10.2005. THIS CLEARLY MENTIONS THAT THE ASSE SSEE BECAME COMPLETE OWNER OF THIS PROPERTY AND IT CANNO T BE SAID THAT THE ASSESSEE WAS NOT OWNER OF THE PROPERTY. I F THIS PROPERTY GOES OUT OF EXISTENCE IN VIEW OF CERTAIN L EGAL OPERATIONS THEN SAME WOULD AMOUNT TO EXTINGUISHMENT AND CAPITAL GAIN ON SUCH EXTINGUISHMENT HAS BEEN RIGHTL Y CHARGED BY THE ASSESSING OFFICER. IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT V PRAMIA ENGINEERING PVT LTD, 202 ITR 298 WHERE SURR ENDER OF LEASE WAS HELD TO BE TRANSFER. SIMILARLY HON'BLE A LLAHABAD HIGH COURT HELD IN CASE OF SMT. ANAND BALA BHUSHAN V CIT, 217 ITR 144. 16 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT SALE WAS ULTIMATELY SET ASIDE BY THE HON'BLE SUPREME COURT IN PURSUANCE OF SETTLEMENT ARRIVED A T AMONG SUN GROUP, EMPLOYEES UNIT AND THE ASSESSEE-COMPANY. IN THIS REGARD HE REFERRED TO THE ORDER OF THE HON'BLE SUPR EME COURT (COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PAGE 100-106). HE PARTICULARLY INVITED OUR ATTENTION TO PAGE 111 W HERE IT IS CLEARLY MENTIONED THAT SALE WHICH WAS CONFIRMED IN FAVOUR OF WINSOME BY HON'BLE HIGH COURT IS SET ASIDE. HE CO NTENDED THAT SET ASIDE OF THE SALE WOULD MEAN THAT THE SAME BECOMES VOID AB-INITIO OR NON OPERATIONAL IN THE EYES OF LA W. HE 11 EXPLAINED THIS BY WAY OF AN EXAMPLE BY REFERRING TO THE PROVISIONS OF SECTION 263 OF IT ACT AND POINTED OUT THAT IF AN ASSESSMENT ORDER IS SET ASIDE BY PASSING A REVISION ARY ORDER U/S 263 BY THE COMMISSIONER THEN SUCH ASSESSMENT OR DER IS NO MORE VALID OR OPERATIVE IN THE EYES OF LAW. SIMILA RLY WHEN THE SALE IS SET ASIDE BY THE HON'BLE SUPREME COURT THE N THAT SALE WAS NOT VALID IN THE EYES OF LAW AND SUCH ASSET CAN NOT BE SAID TO HAVE BEEN TRANSFERRED LEADING TO THE CONSEQUENCE S OF CAPITAL GAIN. IN THIS REGARD HE REFERRED TO THE DE CISION OF HON'BLE KARNATAKA HIGH COURT IN CASE OF SMT. C. KAM ALA V CIT, 114 ITR 159 (KAR H.C) WHERE THE AUCTION SALE WAS SE T ASIDE BY THE COURT AND IT WAS HELD THAT SUCH ASSET CANNOT BE TRANSFERRED. HE ALSO SUBMITTED THAT DECISION IN CA SE OF CIT V PRAMIA ENGINEERING PVT LTD (SUPRA) RELIED ON BY THE LD. D.R FOR THE REVENUE IS DISTINGUISHABLE ON FACTS BECAUSE IN THAT CASE THE DEAL WAS NOT SET ASIDE BY ANY COURT OR LAW. SI MILARLY THE DECISION IN CASE OF SMT. ANAND BALA BHUSHAN V CIT ( SUPRA) IS ALSO DISTINGUISHABLE ON FACTS BECAUSE IN THAT CASE THE ASSESSEE HAS ACCEPTED THE OFFER FOR PURCHASE OF LA ND WHICH WAS EARLIER GIVEN BY THE GOVT TO THE ASSESSEE. 17 THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THA T THE ASSESSING OFFICER HAS ALTERNATIVELY ASSESSED THE CO MPENSATION BY OBSERVING THAT SAME WAS IN THE NATURE OF INTERES T AND THEREFORE CHARGEABLE AS REVENUE RECEIPT. HE CONTEN DED THAT IT IS TOTALLY WRONG CONCLUSION. HE SUBMITTED THAT THE ASSESSEE WANTED TO SET UP MANUFACTURING UNIT BY PURCHASING I NDUSTRIAL SHED AND ANY COMPENSATION RECEIVED AGAINST THE SURR ENDER OF CAPITAL ASSET CANNOT BE TREATED AS REVENUE RECEIPT AND IN THIS REGARD HE RELIED ON THE FOLLOWING DECISIONS: 12 CIT V SAURASHTRA CEMENT LTD., 325 ITR 422(S.C) KETTLEWELL BULLEN AND CO. LTD. V CIT, 53 ITR 261 ( S.C) OBEROI HOTEL PVT LTD V CIT, 236 ITR 903 (S.C) 18 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THE ASSESSEE HAS ORIGINALLY PURCHASED AN INDUSTRIAL PLO T BEARING NO. B-77, PH VII, IA, MOHALI THROUGH AUCTION. THE AUCTION WAS CONDUCTED BY SALE COMMITTEE APPOINTED BY COURT ON W INDING UPON OF PUNWIRE. THE SALE WAS CHALLENGED BEFORE TH E COMPANY JUDGE BY SUN GROUP. THE COMPANY JUDGE ALLOWED THE APPLICATION OF SUN GROUP AND DIRECTED THE ASSESSEE- COMPANY TO DELIVER BACK THE POSSESSION OF THIS INDUSTRIAL S HED. THE ASSESSEE CHALLENGED THIS ORDER BEFORE HON'BLE HIGH COURT AND THE HON'BLE HIGH COURT ALLOWED THE APPEAL OF THE A SSESSEE AND CONFIRMED THE SALE. AGGRIEVED BY THIS ORDER SU N GROUP AND THE EMPLOYEES UNION CHALLENGED BEFORE THE HON'B LE SUPREME COURT WHERE SUN GROUP OFFERED TO PAY MORE CONSIDERATION AND THE EMPLOYEES UNION ALSO SUBMITTE D THAT SALE OF THE PLOT TO SUN GROUP WOULD BE MORE BENEFIC IAL TO THE EMPLOYEES UNION. CONSIDERING THESE FACTS THE HON'B LE SUPREME COURT IN CIVIL APPEAL NO. 3490 OF 2006 VID E ORDER DATED 8.8.2006 SET ASIDE THIS SALE. THE HON'BLE SU PREME COURT HAS REFERRED TO THE OFFER MADE BY SUN GROUP AND THE DECISION VIDE PARA 12 TO 14 WHICH ARE AS UNDER: 12 AFTER THE MATTER WAS ARGUED FOR SOMETIME THE LD . COUNSEL FOR SUNGROUP SUBMITTED THAT HAVING PURCHASED THE AD JOINING PROPERTY, THEY WERE INTERESTED IN PURCHASING PLOT N O. B-77 ALSO AND SUNGROUP WAS WILLING TO OFFER THE SAME PRICE OF RS. 11.6 CRORES FOR THE PROPERTY(ITEM NO. 17. LD. COUNSEL FO R THE EMPLOYEES UNION SUBMITTED THAT IN THE INTEREST OF WORKERS, WI NSOME SHOULD TAKE A REASONABLE PROFIT AND GIVE UP THE PROPERTY I N FAVOUR OF SUNGROUP SO THAT THE WORKERS AND CREDITORS WILL BE BENEFITED. AT THIS STAGE, LD. COUNSEL FOR THE SUNGROUP STATED THA T BEING INTERESTED IN THE WELFARE OF THE WORKERS, IN ADDITI ON TO THE PRICE OF RS. 11.6 CRORES OFFERED BY THEM FOR ITEM NO. 17, IT WILL ALSO PAY EXGRATIA, A SUM OF RS. 50 LAKHS TO THE EMPLOYEES O F PUNWIRE AS THEY HAVE BEEN WITHOUT SALARY FOR QUITE SOMETIME. I N VIEW OF THESE SUBMISSIONS, WE QUERIED THE LD. COUNSEL FOR WINSOME AS TO WHETHER WINSOME WAS INTERESTED IN CONSIDERING THE O FFER OF SUNGROUP. 13 13 COUNSEL FOR WINSOME TOOK TIME AND AFTER OBTAININ G INSTRUCTIONS, SUBMITTED THOUGH WITH SOME RELUCTANCE , THAT WINSOME WAS AGREEABLE FOR THE PROPOSAL PROVIDED IT RECEIVED A SUM OF RS. 6.36 CRORES FOR ITEMS NO. 17, 19 & 20 (M AE UP OF RS. 3.36 CRORES TOWARDS THE REFUND OF PRICE AND RS. 3 C RORES TOWARDS, INTEREST, EXPENSES AND COMPENSATION FOR DEPRIVATION OF ITS PROPERTY. HE SUBMITTED THAT WINSOME HAD TAKEN AGREA T RISK BY BORROWING HUGE AMOUNTS FROM THE BANKS FOR PURCHASIN G THE PROPERTY AND THAT A SUM OF RS. 1.64 CRORES IS DUE T O CANARA BANK AND RS. 1.38 CRORES IS DUE TO THE STATE BANK OF PAT IALA (RESPONDENTS 4 & 6 HEREIN). HE ALSO SUBMITTED THAT SUBJECT TO PAYMENT OF RS. 6.36 CRORES WINSOME HAD NO OBJECTION EITHER FOR TRANSFER OF ITS RIGHTS TO SUNGROUP OR FOR THE SALE IN ITS FAVOUR BEING SET ASIDE AND A FRESH SALE BEING CONFIRMED IN FAVOUR OF SUNGROUP. 14 THERE WAS NO OBJECTION TO THE PROPOSAL BY THE OT HER PARTIES, OBVIOUSLY HAVING REGARD TO THE FACT THAT EVERYONE I S BENEFITED BY THE SAID ARRANGEMENT. IN VIEW OF THE ABOVE WE CONS IDER IT A FIT CASE TO EXERCISE OUR POWER UNDER ART 142 OF THE CON STITUTION AND ACCEPT THE SETTLEMENT AS REGARDED IN THE LAGER INTE REST OF PARTIES AND TO BENEFIT THE WORKMEN. WE TAKE T CLEAR THAT H E SLE WHICH HAS ALREADY BEEN CONFIRMED IN FAVOUR OF WINSOME IS SET ASIDE NOT ON MERITS, BUT IN PURSUANCE OF THE NEGOTIATED SETTLEME NT ARRIVED AT AMONG SUNGROUP THE EMPLOYEES UNION AND WINSOME. ACCORDINGLY WE ALLOW THESE APPEALS IN PART ACCEPTIN G THE SETTLEMENT ON THE FOLLOWING ITEMS: I) TO IV) . V) ON RECEIPT OF THE PAYMENTS AS AFORESAID BY WINS OME AND THE OFFICIAL LIQUIDATOR THE SALE IN FAVOUR OF W INSOME IN RESPECT OF ITEMS 17, 19, 20 SHALL STAND SET ASIDE A ND SALE OF SAID ITEM NO. 17 (PLOT NO. B-77 AND STRUCTURE THERE ON) SHALL STAND CONFIRMED IN FAVOUR OF SUNGROUP. THE OFFICIA L LIQUIDATOR OR SHALL ISSUE A FRESH NOC TO ENABLE SUN GROUP TO OBTAIN TRANSFER OF LEASE FROM PSIEC IN RESPECT O F PLOT NO. B-77. READING OF ABOVE PARA WOULD CLEARLY SHOW THAT SALE IN FAVOUR OF ASSESSEE I.E. WINSOME WAS CLEARLY SET ASIDE. THE E XPRESSION SET ASIDE HAS BEEN DEFINED IN THE BLACKS LAW DIC TIONARY, 6 TH EDITION AS UNDER: TO REVERSE, VACATE, CANCEL, ANNUL OR REVOKE A JUDG MENT, ORDER ETC. FROM ABOVE IT BECOMES CLEAR THAT SET ASIDE WOULD AL SO INCLUDE CANCEL, ANNUL AND THEREFORE IN THE PRESENT CASE WHAT HAS HAPPENED IS THAT BY SETTING ASIDE THE SAME THE HON' BLE SUPREME COURT HAS CANCELLED THE ORIGINAL SALE MADE TO THE ASSESSEE-COMPANY. THIS BECOMES FURTHER CLEAR FROM P ARA 14(V). THIS PARA CLEARLY STATES THAT SALE IN FAVOU R OF WINSOME IN RESPECT OF ITEM NO. 17, 19 & 20 SHALL STAND SET ASIDE AND 14 SALE OF SAID ITEMS NO. 17 (PLOT NO. B-77 AND STRUCT URE THEREON HAS BEEN CONFIRMED IN FAVOUR OF SUNGROUP). THEREAF TER THE HON'BLE SUPREME COURT HAS DIRECTED THE OFFICIAL LI QUIDATOR TO ISSUE FRESH NOC TO ENABLE THE SUNGROUP TO TRANSFER THE PROPERTY. THIS CLEARLY SHOW THAT HON'BLE HIGH COUR T CLEARLY CANCELLED THE EARLIER SALE OTHERWISE THE COURT COUL D HAVE ASKED THE ASSESSEE-COMPANY I.E. WINSOME TO TRANSFER THE P ROPERTY TO SUNGROUP. THE COURT HAS DIRECTED THE OFFICIAL LI QUIDATOR TO ISSUE FRESH NOC SO THAT SUNGROUP COULD OBTAIN LEASE IN THEIR FAVOUR FROM PSIEC. THIS ITSELF SHOWS THAT SALE IN FAVOUR OF WINSOME STANDS CANCELLED. 19 IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE HON'BLE KARNATAKA HIGH COURT IN CASE OF SMT. C. KAM ALA V CIT (SUPRA). IN THAT CASE THE ASSESSEE WAS DECLARED AS THE PURCHASER OF A CERTAIN IMMOVABLE PROPERTY FOR RS. 1 25 AT A COURT AUCTION HELD IN 1962. THE JUDGMENT DEBTORS F ILED AN APPLICATION UNDER RULE 90 OF ORDER 21 OF THE CODE O F CIVIL PROCEDURE, TO GET THE SALE SET ASIDE. THAT APPLICAT ION WAS DISMISSED BY THE EXECUTING COURT. AGAINST THE ORDE R OF THE EXECUTING COURT, THE JUDGMENT DEBTORS FILED AN APPE AL UNDER ORDER 43, RULE 1(J) OF THE CODE OF CIVIL PROCEDURE, IN R.A. NO. 47/1967 ON THE FILE OF THE IST ADDITIONAL CIVIL JUD GE, CIVIL STATION, BANGALORE. DURING THE PENDENCY OF THAT AP PEAL THE DISPUTE BETWEEN THE PARTIES WAS COMPROMISED. UNDER THE COMPROMISE THE ASSESSEE AGREED TO THE SALE BEING SE T ASIDE ON PAYMENT OF RS. 20,000 BY THE PERSON IN WHOSE FAVOUR THE JUDGMENT DEBTORS HAD AGREED TO EXECUTE A SALE DEED CONVEYING THE PROPERTY IN QUESTION. THE COMPROMISE WAS RECOR DED BY THE LD. CIVIL JUDGE AND SALE WAS SET ASIDE BY HIM. DUR ING THE 15 ASSESSMENT YEAR 1968-69 THE QUESTION OF TAXABILITY OF THE SUM OF RS. 20,000 RECEIVED BY THE ASSESSEE AROSE FOR CO NSIDERATION BEFORE THE ITO. THE ITO HELD THAT THE ENTIRE SUM OF RS. 20,000 REPRESENTED LONG TERM CAPITAL GAIN AND WAS LIABLE T O BE TAXED UNDER THE ACT. AGGRIEVED BY THE ORDER OF THE ITO, THE ASSESSEE FILED AN APPEAL BEFORE THE APPELLATE ASSISTANT COMM ISSIONER OF INCOME-TAX AND THAT APPEAL WAS DISMISSED. ON FURTH ER APPEAL TO THE INCOME TAX APPELLATE TRIBUNAL, IT WAS HELD T HAT THE SUM OF RS. 20,000 WAS AN ITEM OF CAPITAL GAIN WHICH ATT RACTED TAX. 20 WHEN THE MATTER TRAVELED TO THE HON'BLE KARNATAK A HIGH COURT IT WAS HELD AS UNDER: HELD, THAT SINCE THE COURT SALE ITSELF WAS SET ASI DE ULTIMATELY BY THE APPELLATE COURT, THE ASSESSEE NEVER ACQUIRED AN Y INTEREST IN THE PROPERTY AND THAT IT NEVER BECAME A CAPITAL ASS ET OF THE ASSESSEE. THE DEPARTMENT CANNOT TREAT THE TRANSACT ION AS A TRANSFER OF CAPITAL ASSET BY HE ASSESSEE WHEN THE A SSESSEE HAD NOT ACQUIRED ANY INTEREST IN THE PROPERTY AND HAD N OT DONE ANY ACT WHICH WOULD EITHER DIRECTLY OR INDIRECTLY AMOUNT TO A TRANSFER OF AN ASSET. THE TRIBUNAL WAS THEREFORE IN ERROR IN HOLD ING THAT THE SUM OF RS. 20,000 WHICH WAS RECEIVED BY THE ASSESSEE UN DER THE COMPROMISE REPRESENTED LONG TERM CAPITAL GAINS LIAB LE TO TAX. THUS FROM ABOVE IT BECOMES CLEAR THAT IF SALE ITSEL F IS SET ASIDE BY A COURT THEN IT CAN BE SAID THAT THE ASSESSEE NE VER ACQUIRED ANY INTEREST IN SUCH PROPERTY. IN THE CASE BEFORE US, SALE HAS BEEN SET ASIDE BY THE HON'BLE SUPREME COURT AND THE REFORE IT CANNOT BE SAID THAT THE ASSESSEE EVER ACQUIRED ANY INTEREST IN THE PROPERTY. NO DOUBT EXTINGUISHMENT ISALSO COVER ED IN THE DEFINITION OF TRANSFER U/S 2(47)(II). HOWEVER, EXT INGUISHMENT WOULD NORMALLY CONNOTE A SITUATION WHERE AN ASSET G OES OUT OF EXISTENCE. FOR EXAMPLE IN CASE OF AMALGAMATION THE SHARES OF AMALGAMATING COMPANY ARE EXTINGUISHED AND SHARES OF A AMALGAMATED COMPANY ARE ISSUED THEN ORIGINAL SHARES CAN BE SAID TO HAVE EXTINGUISHED (REFERENCE MAY BE MADE TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V . MRS. 16 GRACE COLLIS AND OTHERS, 248 ITR 323 (S.C). HOWEVER , WHEN THE ASSET NEVER COMES INTO EXISTENCE THEN SUCH ASSET CA NNOT BE EXTINGUISHED. THEREFORE IN OUR OPINION, THERE IS NO EXTINGUISHMENT IN THE PRESENT CASE BECAUSE THE SAID PROPERTY PURCHASED THROUGH AUCTION BY ASSESSEE-COMPANY NEVER CAME INTO EXISTENCE BECAUSE OF THE ORDER OF THE HON'BLE SUPREME COURT THROUGH WHICH SALE ITSELF WAS SET ASIDE. 21 THE LD. D.R FOR THE REVENUE HAS STRONGLY RELIED ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT V PRAMIA ENGINEERING PVT LTD (SUPRA). IN THAT CASE T HE ASSESSEE A RESIDENT COMPANY TOOK ON LEASE SEVERAL PLOTS OF L AND WITHIN THE PREMISES KNOWN AS TAGORE VILLA AT NOS 1 AND 1 A, KALI KISHEN TAGORE STREET, CALCUTTA, FOR PERIODS VARYING BETWEEN 30 AND 50 YEARS. THE ASSESSEE AGREED TO DEVELOP THE P LOTS AT ITS OWN COST TO LAY ROADS, DRAINAGE, ETC. AND MAKE OUT SMALL PLOTS FOR CONSTRUCTING BUILDINGS THEREON FOR SALE, THE PR OCEEDS OF WHICH WERE AGREED TO BE SHARED BETWEEN THE LESSOR A ND THE LESSEE AS PER THE AGREEMENT. AFTER SEVERAL YEARS, THE GOVT OF INDIA NEGOTIATED WITH THE LESSOR FOR PURCHASE OF A SUBSTANTIAL PORTION OF TAGORE VILLA INCLUDING THE PORTION OF LA ND LEASED OUT TO THE LESSEE FREE FROM ENCUMBRANCE. THEREUPON THE LESSOR AND THE LESSEE AGREED TO TERMINATE THE LEASE ON TER MS MUTUALLY AGREED UPON BY THEM. IN THE MEANTIME THE ASSESSEE HAD SPENT RS. 117563/- ON IMPROVEMENT OF THE LANDS, BUT NO BU ILDING WAS HOWEVER, CONSTRUCTED THEREON BY THE LESSEE. THE PR OPERTY WAS PURCHASED BY THE GOVERNMENT ON APRIL 18, 1974 AND T HE ASSESSEE RECEIVED RS. 271110/- ON APRIL 26, 1974 OU T OF THE SALE PROCEEDS AS CONSIDERATION FOR PREMATURE SURREN DER OF ITS LEASEHOLD INTEREST IN THE PROPERTY. THE ITO BROUGH T THE CASE OF 17 THE ASSESSEE WITHIN THE DEFINITION OF TRANSFER CO NTAINED IN SECTION 2(47) OF THE IT ACT, 1961. 22 WHEN THE MATTER TRAVELED TO THE HON'BLE CALCUTTA HIGH COURT IT WAS HELD AS UNDER: HELD THAT LEASEHOLD INTEREST IS AN INTEREST IN LAN D. THE ASSESSEE HAD ACQUIRED THE LEASEHOLD RIGHT FOR 99 YEARS. THI S VALUABLE RIGHT WAS ACQUIRED BY VIRTUE OF AN AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE LESSOR. THE INTEREST IN LAND CAN NOT BE EQUATED WITH SELF CREATED GOODWILL. THE LAND WAS ACQUIRED BY THE ASSESSEE BY AN AGREEMENT AND FOR POSSESSION OF THE LAND, MON EYS WERE REGULARLY PAID UNDER THE AGREEMENT. THIS VALUABLE RIGHT WAS SURRENDERED BY THE LESSEE AND COMPENSATION WAS RECE IVED FOR PREMATURE TERMINATION OF THE LEASE. TRANSFER OF A CAPITAL ASSET INCLUDES NOT ONLY RELINQUISHMENT OF THE ASST OR EXT INGUISHMENT OF ANY RIGHTS THEREIN BUT ALSO THE COMPULSORY ACQUISIT ION OF THE ASSET. THE GOVT HAD ACQUIRED THE LAND AND THE ASSE SSEE AS A LEASEHOLDER WAS GIVEN COMPENSATION. THE ASSESSEE PREMATURELY SURRENDERED THE LEASE. THIS WAS A CLEAR CASE OF CA PITAL GAINS AND THE TRANSACTION SQUARELY COMES WITHIN SECTION 45 (S EE PENALTY PROCEEDINGS 300G, H, 301A) FROM ABOVE IT BECOMES CLEAR THAT IN THIS CASE LEASE WAS NEVER SET ASIDE BY ANY AUTHORITY OR ANY COURT. IN FACT T HE GOVERNMENT REPURCHASED THE PROPERTY THROUGH AN AGRE EMENT AND THEREFORE THIS CASE IS DISTINGUISHABLE ON FACTS . 23 IN THE CASE OF SMT. ANAND BALA BHUSHAN V CIT (SU PRA) THE ASSESSEE HAD TAKEN PLOT NO. 16, YOUNG ROAD, DEHRADU N ON LEASE FROM THE DEFENCE DEPARTMENT OF THE GOVT OF IN DIA . THE ASSESSEE WAS PERMITTED TO PUT UP CONSTRUCTION THERE ON AND THE ASSESSEE DID RAISE SOME CONSTRUCTIONS ON THE SAID L AND SOMEWHERE IN OR ABOUT THE YEAR, 1950. IN FEB 1971 THE DEFENCE DEPARTMENT WANTED TO RESUME THE SAID LAND A ND SERVED A NOTICE DATED FEB 22,1971, RESUMING THE LAN D AND OFFERING A SUM OF RS. 87,887/- AS THE VALUE OF THE BUILDING BELONGING TO THE ASSESSEE AND EXISTING ON THE SAID LAND. THE ASSESSEE ACCEPTED THE OFFER AND RECEIVED FROM THE D EFENCE DEPARTMENT COMPENSATION FOR THE BUILDING AMOUNTING TO RS. 87,887/-. THE ITO TOOK THE VIEW THAT CAPITAL GAIN HAD ARISEN TO 18 THE ASSESSEE FROM THE TRANSFER OF THE BUILDING TO T HE DEFENCE DEPARTMENT. 24 HON'BLE HIGH COURT ON THE ABOVE FACTS HELD AS U NDER: HELD THAT BY VIRTUE OF THE ACCEPTANCE OF THE OFFER MADE BY THE GOVT OF INDIA (DEFENCE DEPARTMENT) AND THE ACCEPTAN CE OF COMPENSATION IN LIEU THEREOF THE ASSESSEES RIGHT I N THE SAID BUILDING STOOD RELINQUISHED IN FAVOUR OF GOVT OF IN DIA. THERE WAS THUS A TRANSFER OF THE SAID BUILDING WITHIN THE MEA NING OF SECTION 2(47) OF THE IT ACT, 1961 AND THE PROFIT ARISING TH EREFROM WAS A CAPITAL GAIN TAXABLE UNDER THE ACT. THUS IN THIS CASE THE FACTS ARE ALSO IDENTICAL TO T HE CASE OF CIT V PRAMIA ENGINEERING PVT LTD (SUPRA). IN THIS CASE ALSO THE SALE WAS NEVER SET ASIDE BY ANY AUTHORITY OR COURT OF LAW AND THEREFORE THIS CASE IS AGAIN DISTINGUISHABLE FROM T HE CASE BEFORE US. 25 IN VIEW OF ABOVE DISCUSSION WE ARE OF THE OPINIO N THAT SURPLUS ARISING ON ACCOUNT OF COMPENSATION RECEIVED BY THE ASSESSEE CANNOT BE ASSESSED UNDER THE HEAD CAPITAL GAIN BECAUSE NO ASSET CAME INTO EXISTENCE WITH THE ASSES SEE. 26 COMING TO THE SECOND ASPECT REGARDING TAXABILITY OF THE AMOUNT AS COMPENSATION. IN THIS REGARD CLEAR LEGAL POSITION WAS ENUNCIATED BY THE HON'BLE SUPREME COURT IN CASE OF KETTLEWELL BULLEN AND CO. LTD. V CIT (SUPRA). IN T HAT CASE THE ASSESSEE-COMPANY WAS CARRYING ON THE BUSINESS OF MA NAGING AGENCY AND WAS MANAGING AGENT OF SIX COMPANIES INCL UDING THE FORT WILLIAM JUTE CO. PURSUANT TO AN ARRANGEMENT W ITH MUGNEERAM BANGUR AND CO. WHEREBY THE LATTER AGREED( I) TO PURCHAE THE ENTIRE HOLDING OF SHARES OF THE APPELLA NT IN THE FORT WILLIAM JUTE CO., THE MANAGED COMPANY, (II) TO PROC URE REPAYMENT OF ALL LOANS MADE BY THE APPELLANT TO THA T MANAGED COMPANY AND (III) TO PROCURE THAT THE MANAGED COMPA NY WILL COMPENSATE THE APPELLANT FOR LOSS OF OFFICE BY THE PAYMENT OF 19 THE SUM OF RS. 350,000 AFTER THE APPELLANT RESIGNED ITS MANAGING AGENCY AND REIMBURSE THAT AMOUNT TO THE MA NAGED COMPANY, THE APPELLANT COMPANY TENDERED RESIGNATION OF THE MANAGING AGENCY, AND RECEIVED THE SUM OF RS. 350,00 0/- FROM THE MANAGED COMPANY. UNDER THE TERMS OF THE MANAGI NG AGENCY AGREEMENT, THE MANAGED COMPANY WAS NOT OBLIG ED TO PAY ANY COMPENSATION TO THE APPELLANT FOR VOLUNTARY RESIGNATION OF THE MANAGING AGENCY. 27 ON THESE FACTS THE QUESTION AROSE WHETHER THE AM OUNT RECEIVED BY THE ASSESSEE-COMPANY TO RELINQUISH THE MANAGING AGENCY WAS A REVENUE RECEIPT LIABLE TO TAX. IT WAS HELD AS UNDER: HELD ON THE FACTS THAT THE ARRANGEMENT WITH MUNGEE RAM BANGUR AND CO. WAS NOT IN THE NATURE OF A TRADING TRANSACT ION, BUT WAS ONE IN WHICH THE APPELLANT PARTED WITH AN ASSET OF AN E NDURING VALUE., WHAT THE ASSESSEE WAS PAID WAS TO COMPENSATE IT FOR LOSS OF A CAPITAL ASSET AND WAS NOT, THEREFORE IN THE NATURE OF A REVENUE RECEIPT. IT MATTERED LITTLE THAT THE APPELLANT DID CONTINUE TO CONDUCT THE REMAINING MANAGING AGENCIES AFTER THE D ETERMINATION OF ITS AGENCY WITH THE FORT WILLIAM JUTE CO. IT CANNOT BE SAID AS GENERAL RULE THAT WHAT IS DETE RMINATIVE OF THE NATURE OF A RECEIPT ON THE CANCELLATION OF A CONTRA CT OF AGENCY OR OFFICE IS EXTINCTION OR COMPULSORY CESSATION OF THE AGENCY OR OFFICE. WHERE PAYMENT IS MADE TO COMPENSATE A PERS ON FOR CANCELLATION OF A CONTRACT WHICH DOES NOT AFFECT TH E TRADING STRUCTURE OF HIS BUSINESS OR DEPRIVE HIM OF WHAT IN SUBSTANCE IS HIS SOURCE OF INCOME, TERMINATION OF THE CONTRACT BEING A NORMAL INCIDENT OF THE BUSINESS, AND SUCH CANCELLATION LEA VES HIM FREE TO CARRY ON HIS TRADE (FREED FROM THE CONTRACT TERMINA TED), THE RECEIPT IS REVENUE; WHERE BY THE CANCELLATION OF AN AGENCY THE TRADING STRUCTURE OF THE ASSESSEE IS IMPAIRED, OR SUCH CANC ELLATION RESULTS IN LOSS OF WHAT MAY BE REGARDED AS THE SOURCE OF TH E ASSESSEES INCOME, THE PAYMENT MADE TO COMPENSATE FOR CANCELLA TION OF THE AGENCY AGREEMENT IS NORMALLY A CAPITAL RECEIPT. FROM ABOVE IT BECOMES CLEAR THAT IF AMOUNT IS RECEI VED AS COMPENSATION IN RELATION TO SURRENDER OF PROFIT MAK ING STRUCTURE THEN SUCH COMPENSATION IS TO BE TREATED AS CAPITAL RECEIPT. 28 SIMILARLY IN CASE OF OBEROI HOTEL PVT LTD V. CIT (SUPRA) THE ASSESSEE-COMPANY WAS OPERATING, MANAGING AND ADMINISTERING MANY HOTELS BELONGING TO OTHERS FOR A FEE AT SEVERAL PLACES. AS PER THE MEMORANDUM OF ASSOCIATI ON OF THE 20 COMPANY, IT WAS AUTHORIZED TO RUN HOTELS ON ITS OWN ACCOUNT AND ALSO TO OPERATE, MANAGE AND ADMINISTER HOTELS B ELONGING TO OTHERS FOR A FEE. IN TERMS OF AN AGREEMENT DATED N OV 2, 1970 THE COMPANY AGREED TO OPERATE THE HOTEL KNOWN AS HO TEL OBEROI IMPERIAL FOR WHICH THE ASSESSEE-COMPANY WAS TO RECEIVE A CERTAIN FEE CALLED MANAGEMENT FEE WHICH WAS CALCU LATED ON THE BASIS OF GROSS OPERATING PROFITS AS PROVIDED IN THE AGREEMENT. THE AGREEMENT WAS TO RUN FOR AN INITIAL PERIOD OF TEN YEARS; THE ASSESSEE HAD THE OPTION TO ASK FOR R ENEWAL OF THE SAID AGREEMENT FOR TWO FURTHER PERIODS OF 10 YE ARS EACH BY MUTUAL AGREEMENT. ARTICLE XVIII OF THE SAID AGREEM ENT GAVE THE ASSESSEE A RIGHT TO EXERCISE THE OPTION OF PURC HASING THE HOTEL IN CASE ITS OWNERS DESIRED TO TRANSFER THE SA ME DURING THE CURRENCY OF THE AGREEMENT. THEREAFTER ON SEPT 14, 1975 A SUPPLEMENTARY AGREEMENT WAS EXECUTED BETWEEN THE AS SESSEE AND THE RECEIVER WHO HAD BEEN APPOINTED FOR THE PRO PERTY. THE RIGHT TO EXERCISE ITS OPTION WAS GIVEN UP BY THE AS SESSEE. IT WAS AGREED THAT THE RECEIVER WOULD BE AT LIBERTY TO SELL OR OTHERWISE DISPOSE OF THE SAID PROPERTY AT SUCH PRIC E AND ON SUCH TERMS AS HE MAY DEEM FIT AND WAS NOT UNDER ANY OBLIGATION REGARDING THE PURCHASER THEREOF TO ENTER INTO ANY AGREEMENT WITH THE OPERATOR (ASSESSEE) FOR THE PURP OSE OF OPERATING AND MANAGING THE HOTEL OR OTHERWISE AND I N ITS RETURN AGREED CONSIDERATION WAS TO BE PAID TO THE ASSESSEE . ON THE BASIS OF THE AGREEMENT THE ASSESSEE RECEIVED THE A MOUNT OF RS. 2947500/- AND CLAIMED THAT IT WAS A CAPITAL REC EIPT. 29 WHEN THE MATTER TRAVELED TO THE HON'BLE SUPREME COURT IT WAS HELD AS UNDER: 21 HELD, REVERSING THE DECISION OF THE HON'BLE HIGH C OURT THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS THE CONSIDERATI ON FOR GIVING UP ITS RIGHT TO PURCHASE AND/OR TO OPERATE THE PROP ERTY OR FOR GETTING IT ON LEASE BEFORE IT WAS TRANSFERRED OR LE T OUT TO OTHER PERSONS. IT WAS NOT FOR SETTLEMENT OF RIGHTS UNDER A TRADING CONTRACT, BUT THE INJURY WAS INFLICTED ON THE CAPIT AL ASSET OF THE ASSESSEE AND GIVING UP THE CONTRACTUAL RIGHT ON THE BASIS OF HE PRINCIPAL AGREEMENT HAD RESULTED IN LOSS OF SOURCE OF THE ASSESSEES INCOME. THE RECEIPT IN THE HANDS OF THE ASSESSEE WAS A CAPITAL RECEIPT. FROM ABOVE AGAIN SAME PRINCIPAL EMERGES I.E. IF THE COMPENSATION IS RECEIVED FOR SURRENDER OF PROFIT MA KING STRUCTURE OR CAPITAL ASSET THEN SUCH COMPENSATION I S TO BE TREATED AS CAPITAL RECEIPT. THIS PRINCIPAL HAS BEEN AGAINST REITERATED BY THE HON'BLE SUPREME COURT IN CASE OF CIT V. SAURASHTRA CEMENT LTD (SUPRA). 30 IN THE CASE BEFORE US THE ASSESSEE HAS ACQUIRED AN INDUSTRIAL SHED FOR RUNNING A MANUFACTURING BUSINES S AND SALE WAS SET ASIDE BY THE HON'BLE SUPREME COURT AND THE REFORE THE ASSESSEE IS CLEARLY DEPRIVED OF MAKING FUTURE PROFI TS BY SURRENDERING THIS PROFIT MAKING STRUCTURE OR CAPITA L ASSET AND THEREFORE COMPENSATION RECEIVED AGAINST SUCH SURREN DER IS TO BE TREATED AS CAPITAL RECEIPT. THEREFORE IN OUR OPI NION, THE COMPENSATION CANNOT BE BROUGHT TO TAX AS REVENUE RE CEIPT. 31 IN VIEW OF ABOVE DETAILED DISCUSSION, WE FIND NO THING WRONG IN THE ORDER OF CIT(A) AND UPHELD THE SAME. 32 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 28.8.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28.8.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 22