Mahesh Bhupathi, Bangalore V. DDIT, Bangalore

ITA 497/BANG/2011

• Counselvise Citation: 49721114 RSA 2011
• Duration Of Justice: 1 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA
• Assessee Lawyers: C RAMESH
• Keywords: Capital asset; Business income; Cost of acquisition; Corroborative evidences; Capital receipt; Capital expenditure
• Section: 143(3); 54F; 234B; 54; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 497 /BANG/2011 (ASSESSMENT YEAR : 2007-08) SHRI MAHESH BHUPATHI , NO.B/2, EAGLE ROCK, 7 & 7/2, EAGLE STREET, HOSUR ROAD CROSS, BANGALORE-560 025. PAN AENPB 5750P VS. DY. DIRECTOR OF INCOME TAX (INTL. TAXATION),CIRCLE 1(1), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI C. RAMESH. RESPONDENT BY : SHRI ETWA MUNDA. DATE OF HEARING : 3.9.2012. DATE OF PRONOUNCEMENT : 31.10.2012. O R D E R PER SHRI JASON P. BOAZ : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, BANGALORE DT.31.01..2011 F OR ASSESSMENT YEAR 2007-08. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE, A PROFESSIONAL TENNIS PLAYER WHO IS A NON-RESIDENT INDIAN (NRI), FILED HIS RETURN OF INCOME FOR ASSESSMENT YEAR 2007 -08 ON 31.10.2007 DECLARING AN INCOME OF RS.64,82,313 DERIVED FROM VARIOUS SOURCES VIZ., SALARY OF RS.35,73,000, HOUSE PROPERTY OF RS.10,08,000, PROFESSION OF RS.27,66,121, LONG T ERM CAPITAL GAINS (HEREINAFTER REFERRED TO AS LTCG) OF RS.29,09,313 AND INCOME FRO M OTHER SOURCES OF RS.1,24,679. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE IN COME TAX ACT, 1961 (HEREIN AFTER 2 ITA NO.497/BANG/2011 REFERRED TO AS 'THE ACT') AND THE CASE WAS SUBSEQUE NTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) OF THE ACT ON 31.12.2009 DETERMINING THE INCOME OF THE ASSESSEE AT RS.6,36,9 0,422. IN DOING SO THE ASSESSING OFFICER REWORKED THE LTCG CONSIDERING A SUM OF RS.6 ,70,00,000 RECEIVABLE BY THE ASSESSEE AS PART OF SALE CONSIDERATION OF RS.8.5 CR ORES IN CONNECTION WITH SALE OF PROPERTY AT BLOCK NO.30, 31 AND 40 IN SY. NO. 1B, JAKKUR PLA NTATION, YELAHANKA HOBLI, BANGALORE NORTH TALUK, BANGALORE CONSISTING OF 3 ACRES, AS AG AINST THE ASSESSEE'S CLAIM THAT THIS INCOME OF RS.6.7 CRORES WAS TO BE TAXABLE IN THE YE AR OF RECEIPT AND WAS THEREFORE NOT EXIGIBLE TO TAX ENTIRELY IN THIS YEAR. IN ADDITION THERETO THE ASSESSING OFFICER MADE DISALLOWANCES FROM OUT OF MOBILE EXPENSES AND TRAVE LLING EXPENSES AS BEING PERSONAL IN NATURE. THE DISALLOWANCE ON ACCOUNT OF MOBILE EXPE NSES WAS DELETED BY THE ASSESSING OFFICER IN AN ORDER UNDER SECTION 154 OF THE ACT DT .31.3.2010. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESS MENT YEAR 2007-08 DT.31.12.2009, THE ASSESSEE WENT IN APPEAL BEFORE T HE LEARNED CIT(APPEALS). THEREIN, THE CIT(APPEALS) HELD THAT THE AMOUNT OF RS.6.7 CRORES RECEIVED BY THE ASSESSEE WAS A NON- COMPETE FEE EXIGIBLE TO TAX AS BUSINESS INCOME UNDE R SECTION 28(VA)(A) OF THE ACT. CORRESPONDINGLY, HE REWORKED THE ASSESSEE'S ELIGIBL E EXEMPTION UNDER SECTION 54F OF THE ACT AT RS.85,98,246 AS AGAINST RS.2,21,42,849 ALLOW ED IN THE ORDER OF ASSESSMENT. 3.0 AGGRIEVED WITH THE ORDER OF THE CIT(APPEALS) DT .31.1.2011 FOR ASSESSMENT YEAR 2007-08, THE ASSESSEE IS NOW IN APPEAL BEFORE US. INITIALLY THE ASSESSEE FILED 11 GROUNDS OF APPEAL WHICH WERE NARRATIVE AND ARGUMENTATIVE BU T SUBSEQUENTLY FILED CONCISE GROUNDS OF APPEAL WHICH ARE EXTRACTED HEREUNDER : 3 ITA NO.497/BANG/2011 1. THE ASSESSING OFFICER WAS NOT CORRECT IN DISAL LOWING 20% OF THE TRAVELLING EXPENDITURE (RS.13,74,102) AS PERSONAL IN NATURE. 2. THE ASSESSING OFFICER WAS NOT CORRECT IN TREATI NG ENTIRE CONSIDERATION OF RS. 8,50,00,000 TO BE TAXED ON ACCRUAL BASIS, IN TH E YEAR OF REGISTERING THE SALE DEED, INSTEAD OF TAXING THE CONSIDERATION ON RECEIP T BASIS IN THE EACH YEAR OF RECEIPT, AS WAS DONE BY THE APPELLANT. CONSEQUENTLY , ASSESSING OFFICER WAS NOT CORRECT IN CHARGING INTEREST UNDER SECTIONS 234B & 234C AS THE APPELLANT IS A NON-RESIDENT AND PROVISIONS SECTIONS 201 ARE NOT AP PLICABLE. 3. THE CIT (APPEALS)-IV WAS NOT CORRECT IN NOT CO NSIDERING THE APPELLANT CONTENTION OF TAXING RS.6,70,00,000 AS CAPITAL RECE IPT IN VIEW OF THE VARIOUS JURISDICTIONAL AND OTHER PRONOUNCEMENTS. 4. THE CIT (APPEALS)-IV WAS NOR CORRECT IN TAKING DIFFERENT VIEW AS AGAINST ASSESSING OFFICER BY TAXING RS.6,70,00,000 AS TAXAB LE UNDER BUSINESS INCOME UNDER SECTION 28(VA)(A) (NON-COMPETE FEES) AND WITH OUT MAKING A SPECIFIC OBSERVATION ABOUT THE YEAR OF TAXABILITY OF THE COM PENSATION AMOUNT RECEIVABLE. 5. THE DECISION QUOTED BY CIT (APPEALS)-IV BEIN G ANSAL PROPERTIES AND INDUSTRIES LTD VS. DCIT REPORTED IN 301 ITR 285 IS NOT APPLICABLE TO APPELLANT CASE, AS THE APPELLANT IS NOT IN THE BUSINESS OF DE VELOPMENT OF REAL ESTATE. 6. THE CIT (APPEALS)-IV WAS NOT CORRECT IN RESTR ICTING THE ALLOWABILITY OF DEDUCTION UNDER SECTION 54F TO RS.85,98,246 INSTEAD OF RS.2,21,42,849 AS CLAIMED BY APPELLANT AND ALLOWED BY ASSESSING OFFIC ER CONSEQUENT TO TREATMENT AS IN (4) ABOVE. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND AND / OR DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPELLANT. 4.1 IN THE GROUNDS RAISED AT S.NO.1 , THE ASSESSEE CHALLENGES THE ASSESSING OFFICERS ACTION IN DISALLOWING 20% OF THE TRAVEL EXPENDITURE CLAIMED FOR BEING PERSONAL IN NATURE AND THE LEARNED CIT(APPEALS)S ACTION IN CONFIRMING THE SAID DISALLOWANCE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED OUT OF TRAVELLIN G EXPENDITURE OF RS.13,74,102 INCURRED ABROAD IN THE RELEVANT PERIOD, THE ASSESSING OFFICE R HAD DISALLOWED 20% THEREOF AMOUNTING TO RS.2,74,820 AS BEING FOR PERSONAL USE INSPITE OF SUPPORTING VOUCHERS, CREDIT CARD STATEMENTS AND LEDGER EXTRACTS FROM THE BOOKS OF ACCOUNTS BEING PRODUCED BEFORE THE ASSESSING AUTHORITY. IN THIS VIEW OF THE MATTE R, THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED FOR ALLOWING TRAVELLING EXPENDITURE AS CLAIM ED BY THE ASSESSEE. 4 ITA NO.497/BANG/2011 4.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW IN MAKING AND SUSTAINING THE DISA LLOWANCE OF 20% OUT OF TRAVELLING EXPENDITURE FOR PERSONAL USE. 4.3 WE HAVE HEARD BOTH PARTIES, CAREFULLY PERUSED A ND CONSIDERED THE DETAILS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW IN RESPECT OF TRAVELLING EXPENSES INCURRED. FROM THE DETAILS ON RECORD, WE FIND THAT BEFORE THE ASSE SSING OFFICER THE ASSESSEE HAS MERELY FILED AN EXPLANATION IN RESPECT OF THESE EXPENSES B Y LETTER DT.10.12.2009 (AT PAGE 73 OF ASSESSEE'S PAPER BOOK FILED ON 4.6.2012). IT IS AL SO SEEN THAT NO SUPPORTING EVIDENCE HAS BEEN BROUGHT ON RECORD TO ESTABLISH THAT THEY HAVE BEEN IN FACT INCURRED WHOLLY AND EXCLUSIVELY FOR THE ASSESSEE'S ACTIVITIES AS A PROF ESSIONAL TENNIS PLAYER FOR EARNING OF PROFESSIONAL INCOME OR FROM ENDORSEMENTS AS CLAIMED . IN THIS REGARD, WE AGREE WITH THE SIMILAR VIEW TAKEN BY THE LEARNED CIT(APPEALS) IN T HE MATTER THAT BEING UNABLE TO CORRELATE THE INCURRING OF THESE TRAVELLING EXPENSE S WITH THE EARNING OF PRIZE MONEY OR ENDORSEMENTS, THE DISALLOWANCE MADE WAS REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, MORE SO WHEN THESE EXPENSES HAVE ALMOST DOUBLED FROM RS.6,85,200 IN THE IMMEDIATELY PRECEDING YEAR TO RS.13,74,102 IN THIS PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08. IN THIS VIEW OF THE MATTER, FINDING NO RE ASON TO INTERFERE WITH THE FINDING OF THE LEARNED CIT(APPEALS).. WE CONFIRM THE DISALLOW ANCE SUSTAINED BY THE LEARNED CIT(APPEALS) AT 20% OF RS.13,74,602 AND ACCORDINGLY DISMISS THIS GROUND RAISED BY THE ASSESSEE. 5.1 LONG TERM CAPITAL GAINS (GROUNDS OF APPEAL AT S.NOS.2 TO 6) . THE MAIN ISSUE OF DISPUTE IN THIS APPEAL IN GROUNDS OF APPEAL AT S.NO S.2 TO 6 ARE IN RESPECT OF THE 5 ITA NO.497/BANG/2011 COMPUTATION OF THE LTCG ON SALE OF PROPERTY BY THE ASSESSEE. IN THE RELEVANT PERIOD, THE ASSESSEE SOLD PROPERTY AT YELAHANKA HOBLI, BANGALOR E MEASURING 3 ACRES BY THREE REGISTERED SALE DEEDS DT.20.4.2006 FOR TOTAL STATED CONSIDERATION OF RS.1,80,00,000. ACCORDING TO THE ASSESSEE, BY VIRTUE OF AGREEMENT DT.14.7.2005 (AT PAGES 36 TO 39 OF ASSESSEE'S PAPER BOOK FILED ON 4.6.2012), HE WAS TO RECEIVE A FURTHER SUM OF RS.6,70,00,000 TOWARDS COMPENSATION FOR CANCELLATIO N DUE TO NON-EXECUTION OF A JOINT DEVELOPMENT AGREEMENT (JDA) DT.25.9.2004 FROM M/S. NITESH ESTATES PVT. LTD. WITH WHOM HE HAS ENTERED INTO THE SAID JDA. AS PER THE COMPENSATION AGREEMENT, THE CONSIDERATION WAS FIXED FOR RS.8,50,00,000 AND IN C ONSONANCE THEREOF THE ASSESSEE WAS TO EXECUTE THE SALE DEEDS IN FAVOUR OF PARTIES IDENTIF IED BY THE DEVELOPERS. IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08, THE ASSESSEE B Y LETTER DT.9.12.2009 ADDRESSED TO THE ASSESSING OFFICER OFFERED THE SALE CONSIDERATIO N OF RS.1,80,00,000 PLUS A SUM OF RS.1.5 CRORES RECEIVED OUT OF COMPENSATION OF RS.6. 7 CRORES FOR LTCG ON RECEIPT BASIS. BEFORE THE ASSESSING OFFICER, THE ASSESSEE ALSO TOO K THE STAND THAT THE COMPENSATION OF RS.6.7 CRORES WAS A CAPITAL RECEIPT AND WAS THEREFO RE NOT EXIGIBLE TO TAX RELYING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF C IT VS. B.C. SRINIVASA SHETTY REPORTED IN 128 ITR 294 (SC). THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT THE COMPENSATION ON ACCOUNT OF RS.6.7 CRORES WAS A CAPITAL RECEIPT IN VIEW OF THE FACT THAT THE ASSESSEE HIMSELF ACCEPTED THAT LTCG AROSE ON T HIS TRANSACTION AS DECLARED IN HIS RETURNS OF INCOME. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE LTCG WAS NOT TO BE TAXED ON RECEIPT BASIS AT RS.3.3 CRORES AS CLAI MED BY THE ASSESSEE BUT THAT THE LTCG WAS EXIGIBLE ON THE AMOUNT OF RS.8.5 CRORES AS THE RIGHT TO RECEIVE RS.8.5 CRORES AROSE 6 ITA NO.497/BANG/2011 AND ACCRUED TO THE ASSESSEE AT THE POINT OF SALE OF THE PROPERTY BY SALE DEEDS DT.20.4.2006 AND WAS LIABLE TO BE ASSESSED ON THE E NTIRE AMOUNT IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08 HE THEREFORE HELD THAT LTC G WAS TO BE COMPUTED ON THE ENTIRE AMOUNT OF RS.8.5 CRORES (WHICH INCLUDED BOTH THE CONSIDERATION OF RS.1.8 CRORES AS PER SALE DEEDS AND COMPENSATION OF RS.6.7 CRORES) W HICH WAS NOTHING BUT SALE CONSIDERATION AND BROUGHT THE SAME TO TAX IN ASSES SMENT YEAR 2007-08 AS LTCG ON ACCRUAL BASIS IN THE YEAR OF REGISTRATION OF SALE D EEDS. 5.2 IN APPEAL, THE LEARNED CIT(APPEALS) TOOK TH E VIEW THAT THE COMPENSATION RECEIVABLE TO THE EXTENT OF RS.6.7 CRORES IS TO BE TAXED AS BU SINESS INCOME AS PER THE PROVISIONS OF SECTION 28(VA)(A) OF THE ACT BY TREATING THIS AMOUN T AS NON-COMPETE FEE AND THAT ONLY SALE CONSIDERATION OF RS.1.8 CRORES IS TO BE TAXED FOR L TCG. A NOTICE UNDER SECTION 251(2) OF THE ACT WAS ISSUED TO THE ASSESSEE PROPOSING TO TAX RS.1.8 CRORES ON LTCG, RS.6.7 CRORES AS BUSINESS INCOME UNDER SECTION 28(VA)(A) OF THE A CT AND THE CLAIM OF THE ASSESSEE UNDER SECTION 54F OF THE ACT WAS PROPOSED TO BE RESTRICTE D. THIS VIEW OF THE LEARNED CIT(APPEALS) WAS OPPOSED BY THE ASSESSEE IN REPLY T O NOTICE UNDER SECTION 251(2) OF THE ACT. IT WAS SUBMITTED THAT ONLY RS.1.8 CRORES BE TAKEN AS THE SALE CONSIDERATION AND RS.6.7 CRORES SHOULD NOT BE TAKEN AS NON-COMPETE FE ES AS THE ASSESSEE IS ONLY A; PROFESSIONAL TENNIS PLAYER, IS NOT INVOLVED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT NOR DID HE HAVE ANY BUSINESS INCOME FROM REAL ESTATE AN D THAT THEREFORE THE PROVISIONS OF SECTION 28(VA)(A) OF THE ACT WERE NOT APPLICABLE OR ATTRACTED IN HIS CASE. THE LEARNED CIT(APPEALS) AFTER CONSIDERATION OF THE ASSESSEE'S ARGUMENTS AND THE JUDICIAL DECISIONS RELIED ON, NOTED THAT THE ASSESSEE HAD COMPUTED LTC G IN ASSESSMENT YEAR 2007-08 BY 7 ITA NO.497/BANG/2011 TAKING THE SALE CONSIDERATION AT RS.3,35,00,000 AND WORKING OUT EXEMPTION UNDER SECTION 54F AT RS.2,16,12,657. HE ALSO NOTED THAT IN SUBSE QUENT YEARS, THE ASSESSEE HAD OFFERED LTCG ON RECEIPT BASIS OUT OF THE TOTAL CONSIDERATIO N OF RS.8.5 CRORES VIZ. RS.1.40 CRORES FOR ASSESSMENT YEAR 2008-09 AND RS.1 CRORE IN ASSES SMENT YEAR 2009-10. THE LEARNED CIT(APPEALS) REJECTED THE ASSESSEE'S ARGUMENTS AND DID NOT AGREE WITH THE ASSESSING OFFICERS VIEW. HE PROCEEDED TO TAX RS.1.8 CRORES BEING THE SALE CONSIDERATION AS PER SALE AGREEMENT DT.20.4.2006, FOR LTCG, CONSEQUENTLY RED UCING THE ASSESSEE'S CLAIM FOR EXEMPTION UNDER SECTION 54F TORS.85,98,246 AS AGAIN ST RS.2,21,42,849 ALLOWED IN THE ASSESSMENT ORDER. HE ALSO TAXED THE COMPENSATION O F RS.6.7 CRORES AS NON-COMPETE FEE FORMING PART OF BUSINESS INCOME UNDER SECTION 28(VA )(A) OF THE ACT INSTEAD OF INCLUDING IT AS SALE CONSIDERATION FOR COMPUTING LTCG. 5.3 BEFORE US IN THIS APPEAL THE ASSESSEE BY WRITT EN SUBMISSIONS FILED ON 4.6.2012 HAS CONTENDED AS UNDER : 2. THE COMPENSATION AMOUNT RECEIVABLE AS CAPITAL IN NATURE AND NOT TAXABLE UNDER THE PROVISION OF THE ACT. RS.6,70,00,000/- THE APPELLANT HAD ENTERED INTO A JOINT DEVELOPMENT AGREEMENT WITH M/S NITESH ESTATES PRIVATE LIMITED IN 2004 AND HE HAD TO GET 2 8% AS OWNER SHARE IN CONSTRUCTED AREA AFTER THE DEVELOPMENT .THE PROJECT CONSTRUCTION WAS TO BE UNDERTAKEN ON APPELLANTS LAND SITUATED AT JAKKUR P LANTATION (CONSISTING OF 3 ACRES IN 3 S.Y.NOS30, 31 AND 40) THE APPELLANT FURTHER SUBMITS THAT THE JOINT DEVELO PMENT AGREEMENT COULD NOT BE ENFORCED AND GIVEN EFFECT TO, DUE TO UNFORES EEN AND UNAVOIDABLE CIRCUMSTANCES. IN PURSUANCE OF THE JOINT DEVELOPMENT AGREEMENT FAI LING, THE DEVELOPER M/S. NITESH ESTATES PRIVATE LIMITED HAS AGREED TO TAKE O VER THE PROPERTY (3 ACRES OF LAND CONSISTING OF 3 SY.NOS) AND ALSO AGREED TO PAY THE COMPENSATION AMOUNT FOR CANCELING THE JOINT DEVELOPMENT AGREEMENT. AS P ER THE COMPENSATION AGREEMENT (DT.14.07.2005) THE TOTAL AMOUNT AGREED T O BE PAYABLE BY NITESH ESTATES PRIVATE LIMITED WAS FIXED AT RS.8,50,00,000 /-. 8 ITA NO.497/BANG/2011 APPELLANT AGREED TO EXECUTE THE SALE DEED IN FAVOR OF THE PARTIES IDENTIFIED BY THE DEVELOPER. SUCH SALE DEEDS WERE REGISTERED ON 2 0.04.2006 AND THE ENTIRE SALE CONSIDERATION AS PER THE SALE DEEDS, TO THE EXTENT OF RS. 1,80,00,000/- WAS RECEIVED FOR SALE OF 3 ACRES OF LAND. APART FRO M THE ABOVE SALE CONSIDERATION, THE APPELLANT WAS TO RECEIVE BALANCE AMOUNT OF RS.6,70,00,000/- AS COMPENSATION TOWARDS CANCELLATION OF JOINT DEVEL OPMENT AGREEMENT. THERE WAS A PAYMENT SCHEDULE MENTIONED IN THE COMPENSATIO N AGREEMENT, AS TO WHEN THE ENTIRE CONSIDERATION WILL BE PAID. HOWEVER, THE APPELLANT RECEIVED A SUM OF RS. 1, 50, 00,000/- DURING THE YEAR TOWARDS THIS CO MPENSATION AMOUNT, APART FROM RS.1,80,00,000/- AS MENTIONED ABOVE . THE APPELLANT SUBMITS AND CONTENDS THAT THE COMPENS ATION AMOUNT RECEIVABLE IS IN THE NATURE OF DAMAGES AND THIS BEING A CAPITA L RECEIPT; THE SAME IS NOT TAXABLE UNDER THE I.T. ACT. FURTHER THE COMPENSATIO N AMOUNT AND THE DAMAGES EVEN IF TREATED AS SURRENDER OF RIGHTS HAS NO COST AND HENCE CANNOT BE TAXED UNDER I.T. ACT AS PER THE SUPREME COURT DECISION IN THE MATTER OF CIT V. B.C. SRINIVASA SHETTY 1981, 128 ITR 294 (SC). IT IS FU RTHER HELD IN THE MATTER OF CIT V/S. BARIUM CHEMICALS 1997 -168 ITR 164(AP) THA T AN AMOUNT RECEIVED AS DAMAGES FOR NON FULFILLMENT OF CONTRACT IS NOT ASSE SSABLE AS CAPITAL GAINS. THE APPELLANT FURTHER SUBMITS THAT THE COMPENSATION RECEIVED FROM THE OTHER PARTY ON TERMINATION OF AGREEMENT FOR TRANSFER OF P ROPERTY, IS TO BE TREATED AS CAPITAL RECEIPT, AND NOT AS REVENUE RECEIPT, AS DEC IDED IN THE MATTER OF S.ZORASTER & CO. V. CIT (2009) 31 DTR (RAJ.)107. THE APPELLANT IN HIS RETURN OF INCOME, HAS CONSIDER ED THE ENTIRE CONSIDERATION OF RS.3,30,00,000/- AS INCOME FROM CAPITAL GAIN, AN D OFFERED FOR TAX ON RECEIPT BASIS. THE APPELLANT UNDER A MISTAKEN IMPRESSION TH AT THE COMPENSATION RECEIVABLE IS ALSO TAXABLE, HAD INCLUDED THE AMOUNT OF RS.1,50,00,000/- RECEIVED AS COMPENSATION ALONG WITH THE PROCEEDS OF RS.1,80,00,000/-. IN THE SUBSEQUENT AYS ALSO, AS AND WHEN HE HAS RECEIVED, T HE COMPENSATION THE SAME IS OFFERED TO TAX, AS INCOME FROM CAPITAL GAINS AGA IN UNDER A MISTAKEN IMPRESSION THAT THE COMPENSATION RECEIVABLE IS ALSO TAXABLE. BUT, DURING THE COURSE OF SCRUTINY THE A.O. HAS TA KEN A VIEW THAT AS PER THE COMPENSATION AGREEMENT, THE TOTAL AMOUNT RECEIVABLE BY THE APPELLANT IS RS.8,50,00,000/-, AND PROPOSED TO TAX THE SAME ON A CCRUAL BASIS. THE APPELLANT SUBMITTED THAT ONLY THE PROCEEDS OF RS.1,80,00,000/ - IS TAXABLE FOR THE PURPOSE OF CAPITAL GAINS AND THE BALANCE OF CONSIDE RATION OF RS.6,70,00,000/- IS NOT TAXABLE AT ALL AND THE SAME IS IN THE NATURE OF CAPITAL RECEIPT, IN VIEW OF THE VARIOUS DECISIONS. HENCE THE ADDITION MADE BY THE A.O. IS UNTENABLE AN D THE COMPENSATION RECEIVABLE IS CAPITAL IN NATURE AND NOT TAXABLE IN THE HANDS OF THE APPELLANT ALTERNATIVELY: THE APPELLANT SUBMIT THAT THE LONG TERM CAPITAL GAI N IS TAXABLE ON RECEIPT BASIS AND NOT ACCRUAL BASIS: THE APPELLANT SUBMITS THAT THERE WERE TWO COMPONENT S IN THE COMPENSATION AGREEMENT THOUGH THE SAME WAS NOT SPECIFIED IN THE AGREEMENT. THE TOTAL 9 ITA NO.497/BANG/2011 COMPENSATION PAYABLE AS PER THE AGREEMENT ENTERED W ITH NITESH ESTATES PRIVATE LIMITED WAS RS.8.5 CRORES AS PER THE AGREEM ENT; THE APPELLANT HAD TO REGISTER THE PROPERTY IN THE NAMES OF ULTIMATE BUYE RS IDENTIFIED BY NITESH ESTATES PRIVATE LIMITED. THIS PROPERTY WAS ULTIMATELY SOLD FOR A TOTAL CONSI DERATION OF RS.1.80 CRORES HENCE THE BALANCE AMOUNT BEING RS.6.70 CRORES WAS T O BE PAID BY NITESH ESTATES PVT LTD. THE APPELLANT SUBMITS THAT THERE WAS NO CLARITY AND DEFINITE PERIOD BY WHICH THIS AMOUNT WAS TO BE PAID BY NITESH ESTATES PVT LT D. HENCE THE APPELLANT HAS ACCOUNTED THE AMOUNT RECEIVED TOWARDS THIS COMPENSA TION ON RECEIPT BASIS AND OFFERED FOR TAX IN THE YEAR OF RECEIPT AS SALE CONS IDERATION. THE APPELLANT FURTHER SUBMITS THAT IT IS WRONG ON T HE PART OF A.O. TO SAY THAT THE ORIGINAL JOINT DEVELOPMENT AGREEMENT DID NOT MA KE ANY MENTION OF THE COMPENSATION TO BE PAID IN CASE THE DEAL FALLS THRO UGH. IN FACT THE JOINT DEVELOPMENT AGREEMENT AT PAGE NO.11 UNDER PARA 10.2 CLEARLY STIPULATED THE DAMAGES TO BE PAID AND THE METHOD OF CALCULATION OF THE DAMAGES. HOWEVER IN THE PRESENT CASE THE ENTIRE AGREEMENT ITSELF COULD NOT BE ENFORCED OR GIVEN EFFECT TO DUE TO CERTAIN FACTORS WHICH WERE BEYOND THE CONTROL OF BOTH THE PARTIES. IT IS PERTINENT TO NOTE THAT THE COMPENSAT ION AGREEMENT IS DATED 14.07.2005. IF THE TAXABILITY DEPENDS ON ENTERING T HE COMPENSATION AGREEMENT AND IT IS TO BE TAXED ON ACCRUAL BASIS, THEN THERE CANNOT BE TAX LIABILITY IN THE YEAR UNDER APPEAL, AS THE AGREEMENT IS ENTERED IN 2 005-06 AND RELEVANT AY FOR THE SAME IS 2006-07. THE APPELLANT SUBMITS THAT THE SALE CONSIDERATION S HOULD BE TAXED ON RECEIPT BASIS ONLY IN VIEW OF THE ABOVE. FURTHER THE APPELL ANT BEING NON RESIDENT AND THE PROVISIONS OF SECTION 195 BEING APPLICABLE THE TAXABILITY OF ANY AMOUNT RECEIVABLE COULD BE TAXED IN THE YEAR OF RECEIPT O NLY. 3. NOT TO TREAT THE COMPENSATION AMOUNT RECEIVABLE AS NON COMPETE, AS IS DONE BY CIT (A) THE HONBLE CIT(A) HAS HELD THAT THE COMPENSATION O F RS.6,70,00,000/- RECEIVABLE IS A REVENUE RECEIPT BEING IN THE NATURE OF AN NON COMPETE FEE. THE APPELLANT FURTHER CATEGORICALLY STATES THAT HE IS BASICALLY A PROFESSIONAL TENNIS PLAYER AND HAS NOT BEEN IN REAL ESTATE DEVEL OPMENT ACTIVITIES AT THE TIME OF ENTERING IN JOINT DEVELOPMENT AGREEMENT OR AT TH E TIME OF CANCELING OF AGREEMENT. FURTHER EVEN AS ON THIS DATE OF APPEAL THE APPELLAN T HAS NOT UNDERTAKEN REAL ESTATE ACTIVITY BY WHICH HE CAN BE CALLED AS A DEVE LOPER. HENCE THE USE OF WORDS/PHRASES NOT TO COMPETE, IN THE AGREEMENT HA S NO MEANING OR RELEVANCE FOR THE NATURE OF ACTIVITY BEING UNDERTAKEN BY THE APPELLANT. THE APPELLANT IS NOT IN THE BUSINESS OF DEALING IN LANDS AND BY NO STRETCH OF IMAGINATION, IT CAN BE DEDUCED THAT HE IS INTO A BU SINESS OF ANY KIND. FURTHER THE APPELLANT CATEGORICALLY STATES THAT THI S IS THE ONLY PIECE OF LAND HE HAS GOT EITHER IN THE SAME VICINITY OR ANYWHERE IN BANGALORE OR INDIA. AS ON TODAY ALSO HE DOES NOT OWN ANY OTHER LAND. 10 ITA NO.497/BANG/2011 HENCE THE APPELLANT CONTESTS THAT THE PROVISIONS OF SECTION 28(VA) OF THE ACT ARE NOT APPLICABLE FOR THE TRANSACTION ENTERED BY H IM FOR WHICH COMPENSATION IS RECEIVABLE. UNDER THE CIRCUMSTANCES, THE AMOUNT OF RS.6,70,00,0 00/- RECEIVABLE IS NOT IN THE NATURE OF AN NON COMPETE FEE AND THEREFORE NOT ASSESSABLE AS INCOME UNDER THE HEAD BUSINESS UNDER THE PROVISIONS OF SECTION 2 8(VA) OF THE ACT. ON THE CONTRARY THE APPELLANT SUBMITS THAT THE COMP ENSATION AMOUNT RECEIVABLE AS PER THE AGREEMENT TO THE EXTENT OF RS .6.70 CRORES WHICH IS IN NATURE OF LIQUIDATORY DAMAGES, ARE NOT TO BE TAXED AT ALL UNDER THE PROVISION OF THE ACT AS STATED IN DETAILS, IN THE APPEAL FILED A ND IN THE EARLIER PARAGRAPHS OF THE WRITTEN SUBMISSION, AND SUBMIT BEFORE APPELLATE AUTHORITY TO LOOK INTO THE MATTER DISPASSIONATELY AND PASS NECESSARY ORDER IN ACCORDANCE WITH THE LAW. NOT TO RESTRICT THE ALLOWABILITY OF DEDUCTION U/S.5 4F TO RS.85,98,246/-INSTEAD OF RS.2,21,42,849/-. THE CIT (APPEALS) IV WAS NOT CORRECT IN RESTRICT ING THE ALLOWABILITY OF DEDUCTION U/S.54F TO RS.85,98,246/- INSTEAD OF RS.2 ,21,42,849/- AS CLAIMED BY THE APPELLANT AND ALLOWED BY A.O. CONSEQUENT TO TRE ATMENT AS STATED IN GROUND NO.3. THE RECEIPT OF RS.6,70,00,000/- IS NOT TAXABLE UNDE R THE PROVISIONS OF THE ACT, SINCE THE SAME IS CAPITAL IN NATURE. THE SAME CANNO T BE ASSESSED EITHER UNDER THE HEAD BUSINESS OR UNDER THE HEAD CAPITAL GAINS. WITHOUT PREJUDICE TO THIS FACT, IF THE SAME IS BROUGHT TO TAX UNDER THE HEAD CAPITAL GAINS, THE DEDUCTION OF RS.2,21,42,849/- CLAIMED U/S.54F OF THE ACT IS R EQUIRED TO BE ALLOWED. 5.4 THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS HEARD. IN WRITTEN SUBMISSIONS FILED ON 27.8.2012, HE SUBMITTED THAT - 1. IN THIS CONTEXT, I WOULD LIKE TO SUBMIT THAT JOINT DEVELOPMENT AGREEMENT DATED 24-09-2004 DID NOT MATERIALISED, CONSEQUENTLY THE M/S NITESH ESTATE PRIVATE LIMITED HAS AGREED TO TAKE OVER THE PROPERT IES AND ALSO AGREED TO PAY THE CONSIDERATION AS COMPENSATION FOR CANCELLING TH E JOINT DEVELOPMENT AGREEMENT REASON FOR CANCELLATION IS ENUMERATED IN COMPENSATION AGREEMENT AS UNDER:- 2. WHILE FILING OF RETURN OF INCOME FOR A.Y. 2007-08 T HE ASSESSEE HAS OFFERED A SUM OF RS. 3,30,00,000 FOR TAXATION UNDER THE HEAD LONG TERM CAPITAL GAINS ON THE GROUND THAT SAID SUM WAS ACTUALLY RECEIVED DURI NG THE YEAR. THE ASSESSEE HAS RECEIVED SALE CONSIDERATION IN SUB SEQUENT YEARS AS UNDER:- 11 ITA NO.497/BANG/2011 IN THE COMPUTATION OF INCOME THE ASSESSEE HIMSELF CONSIDERED AS LONG TERM CAPITAL GAINS ON SALE OF LAND, HOWEVER TAXABLE LONG TERM CAPITAL GAINS WOULD BE NIL SINCE THE ENTIRE SALE CONSIDERATION/COMPENSATIO N IS ALREADY BROUGHT TO TAX BY A.O. IN THE A.Y. 2007-08 AS ACCRUAL BASIS. THUS ASSESSEE ITSELF CONSIDERED AMOUNT TAXABLE AS LONG TERM CAPITAL GAINS. (KINDLY REFER PAGE 17 TO 20 ENCLOSED THIS SUBMISSION). 3. IN THE COURSE OF ASSESSMENT AS WELL AS APPELLATE PR OCEEDINGS, THE CONTENTION OF THE ASSESSEE IS THAT AS PER THE COMPENSATION AGREEM ENT THE TOTAL AMOUNT RECEIVABLE BY THE ASSESSEE FOR RS.8,50,00,000, ONLY THE PROCEEDS OF RS. 1,80,00,000 IS TAXABLE AS LONG TERM CAPITAL GAINS A ND BALANCE CONSIDERATION OF RS. 6,70,00,000/- IS NOT TAXABLE AND THE SAME IN TH E NATURE OF CAPITAL RECEIPT, IN VIEW OF THE VARIOUS DECISIONS. IN THE RETURN OF INCOME FILED FOR A.Y. 2007-08 AND SUBSEQUENT YEARS NOWHERE MOTIONED THAT AMOUNT RECEIVED AS COMPENSATION AND H E HIMSELF CONSIDERED THE AMOUNT RECEIVED ON ACCOUNT OF SALE OF LAND AND TAXA BLE AS LONG TERM CAPITAL GAINS. EVEN IN THE COMPENSATION AGREEMENT NO BIFUR CATION OF AMOUNT APPEARS AS SALE CONSIDERATION AND COMPENSATION. THUS, THE ASS ESSEE CHANGED HIS STAND AT THE TIME OF ASSESSMENT AND APPELLATE PROCEEDINGS TH AT PROPERTY WAS SOLD ONLY RS. 1,80,00,000 AND TAXABLE AS INCOME FROM LONG TER M CAPITAL GAINS IT. 4. IN FACT M/S ITC LIMITED HAS BEEN ADMITTED AS THIRD PARTY WHO INVOLVED THE DEVELOPMENT OF LAND AND CONSTRUCTION OF A RESIDENTI AL COMPLEX FOR THEIR USE. THEREFORE, THE SAID COMPANY INTENDED TO CONSTRUCT R ESIDENTIAL COMPLEX ON THE SAID PLOT SINCE IDENTIFIED CERTAIN OTHER IMMOVABLE PROPERTY ADJACENT TO THE SCHEDULE PROPERTY FOR DEVELOPING/CONSTRUCTING MULTI STORIED RESIDENTIAL COMPLEX. IN THE MATTER OF FACT LAND GUESTION HAS B EEN SOLD TO M/S NITESH ESTATE PVT. LIMITED FOR WHICH A SUM OF RS. 8,50,00, 000 WAS PAID TO THE ASSESSEE AS SALE CONSIDERATION. 5. THE ASSESSEE PLACED RELIANCE ON CERTAIN CASE LAWS A ND IT IS APPROPRIATE TO DISCUSS THE SAME. F.Y. A.Y. AMOUNT (IN RS.) 2007 - 08 2008 - 09 1,40,00,000 2008 - 09 2009 - 10 1,00,00,000 2009 - 10 2010 - 11 1,30,00,000 2010 - 11 2011 - 12 1,50,00,000 12 ITA NO.497/BANG/2011 A. IN THE CASE OF CIT VS. B. C. SRINIVASA SHETTY (1981 ) 128 ITR 294 (SC) THE HON'BLE SUPREME COURT HELD THAT- RELEVANT PORTION I S REPRODUCED. 'WHAT IS CONTEMPLATED IS AN ASSET IN THE ACQUISITI ON OF WHICH IT IS POSSIBLE TO ENVISAGE A COST. THE INTENT GOES TO THE NATURE AND CHARACTER OF THE ASSET, THAT IT IS AN ASSET WHICH POSSESSES THE INHERENT QU ALITY OF BEING AVAILABLE ON THE EXPENDITURE OF MONEY TO A PERSON SEEKING TO ACQUIRE IT. IT IS IMMATERIAL THAT ALTHOUGH THE ASSET BELONGS TO SUCH A CLASS, IT MAY, ON THE FACTS OF A CERTAIN CASE, BE S. 49 AND ITS COST, FOR THE PURPOSE OF S. 48, IS DETERMINED IN ACCORDANCE WITH THOSE PROVISIONS. THERE ARE OTHER PROVISIONS WHICH INDICATE THAT S. 48 IS CONCERNED WITH AN ASSET CAPABLE OF AC QUISITION AT A COST. SECTION 50 IS ONE SUCH PROVISION. SO ALSO IS SUB-S. (2) OF S. 55. NONE OF THE PROVISIONS PERTAINING TO THE HEAD 'CAPITAL GAINS' SUGGESTS THA T THEY INCLUDE AN ASSET IN THE ACQUISITION OF WHICH NO COST AT ALL CAN BE CONCEIVE D. YET THERE ARE ASSETS WHICH ARE ACQUIRED BY WAY OF PRODUCTION IN WHICH NO COST ELEMENT CAN BE INDENTIFIED OR ENVISAGED. FROM WHAT HAS GONE BEFORE, IT IS APP ARENT THAT THE GOODWILL GENERATED IN A NEW BUSINESS HAS BEEN SO REGARDED. THE ELEMENTS WHICH CREATE IT HAVE ALREADY BEEN DETAILED. IN SUCH A CASE, WHE N THE ASSET IS SOLD AND THE CONSIDERATION IS BROUGHT TO TAX, WHAT IS CHARGED IS THE CAPITAL VALUE OF THE ASSET AND NOT ANY PROFIT OR GAIN. IN THE CASE OF GOOD WILL GENERATED IN A NEW BUSINE SS THERE IS THE FURTHER CIRCUMSTANCE THAT IT IS NOT POSSIBLE TO DETERMINE T HE DATE WHEN IT COMES INTO EXISTENCE. THE DATE OF ACQUISITION OF THE ASSET IS A MATERIAL FACTOR IN APPLYING THE COMPUTATION PROVISIONS PERTAINING TO CAPITAL GA INS. IT IS POSSIBLE TO SAY THAT THE 'COST OF ACQUISITION' MENTIONED IN S. 48 IMPLIE S A DATE OF ACQUISITION, AND THAT INFERENCE IS STRENGTHENED BY THE PROVISIONS OF SS. 49 AND 50 AS WELL AS SUB-S (2) OF S. 55. IT MAY ALSO BE NOTED THAT IF THE GOODWILL GENERATE D IN A NEW BUSINESS IS REGARDED AS ACQUIRED AT A COST AND SUBSEQUENTLY PAS SES TO AN ASSESSEE IN ANY OF THE MODES SPECIFIED IN SUB-S. (1) OF S. 49, IT WILL BECOME NECESSARY TO DETERMINE THE COST OF ACQUISITION TO THE PREVIOUS OWNER. HAV ING REGARD TO THE NATURE OF THE ASSET, IT WILL BE IMPOSSIBLE TO DETERMINE SUCH COST OF ACQUISITION. NOR CAN SUB-S. (3) OF S. 55 BE INVOKED, BECAUSE THE DATE OF ACQUISITION BY THE PREVIOUS OWNER WILL REMAIN UNKNOWN. WE ARE OF OPINION THAT THE GOODWILL GENERATED IN A NEWLY COMMENCED BUSINESS CANNOT BE DESCRIBED AS AN 'ASSET' WITHIN T HE TERMS OF S. 45 AND, THEREFORE, ITS TRANSFER IS NOT SUBJECT TO INCOME-TA X UNDER THE HEAD ' CAPITAL GAINS'. 13 ITA NO.497/BANG/2011 FACTS OF THE ASSESSEE'S CASE IS DISTINGUISHABLE TO THE FACTS OF THE CASE STATED ABOVE RECEIVED NOT APPLICABLE. B. IN THE CASE OF CIT VS. BARIUM CHEMICALS LTD. (1987) 164 (AP) THE HON'BLE HIGH COURT OF ANDHRA PRADESH HELD THAT (HEAD NOTE):- I. THAT NEITHER ON THE FINDINGS OF THE TRIBUNAL, NOR O N AN EXAMINATION OF THE TERMS OF THE SETTLEMENT DATED FEBRUARY 22, 1967, C OULD IT BE SAID THAT THE AMOUNT IN QUESTION REPRESENTED LOSS OF PROFITS. TH E BUSINESS THE ASSESSEE CARRIED ON WAS IN BARIUM CHEMICALS. THE SETTLEMENT DATED FEBRUARY 22, 1967, CONCLUDED BETWEEN THE ASSESSEE COURSE OF THE BUSINE SS CARRIED ON BY THE ASSESSEE. INSTALLATION OF THE ENGLISH COMPANY. THE RE HAD BEEN A STERILISATION OF CAPITAL ASSETS OF THE ASSESSEE IN THAT THE ENGLI SH COMPANY FAILED TO ERECT THE MACHINERY AND PLANT ACCORDING TO THE ORIGINAL S TIPULATIONS. IT HAD ABANDONED THE WORK IN THE MIDDLE. THE OPTIMUM CAPA CITY OF THE MACHINERY INSTALLED WAS NOT EVEN 340 PER CENT OF THE INSTALLE D CAPACITY. THE AMOUNT PAID WAS TOWARDS DAMAGES IN ORDER TO COMPENSATE THE ASSE SSEE FOR NOT FULFILLING THE TERMS OF THE CONTRACT. HENCE, THE SUM OF RS. 47,20 ,939 RECEIVED BY THE ASSESSEE DURING THE ASSESSMENT YEAR 1968-69 CONSTIT UTED IN ITS ENTIRETY A CAPITAL RECEIPT AND WAS NOT ASSESSABLE; II. THAT NONE OF THE INGREDIENTS MENTIONED IN SECTION 2 (47) OF THE INCOME-TAX ACT, 1961, WAS PRESENT IN THE TRANSACTION IN QUESTI ON. THERE WAS NEITHER SALE NOR EXCHANGE NOR RELINQUISHMENT OF ANY RIGHTS IN RE SPECT OF THE AMOUNT OF RS. 47,20,939 RECEIVED BY THE ASSESSEE FROM THE ENGLISH COMPANY. THAT AMOUNT WAS PAID BY THE ENGLISH COMPANY AS DAMAGES FOR THEI R FAILURE TO FULFIL THEIR OBLIGATIONS UNDER THE AGREEMENTS CONCLUDED WITH THE ASSESSEE. THE AMOUNT COULD NOT, THEREFORE, BE BROUGHT TO TAX AS CAPITAL GAINS UNDER SECTION 45; AND III. THAT WHEN THE DAMAGES RECEIVED BY THE ASSESSEE WERE HELD TO BE CAPITAL RECEIPTS, IT NECESSARILY FOLLOWED THAT THE AMOUNTS OF RS. 50,000 AND RS. 42,212 PAID FOR THE PURPOSE OF INVESTIGATION INTO THE DEFE CTS AND FOR ADVICE TO RECTIFY THE DEFECTS WERE ALSO CAPITAL EXPENDITURE. THE AMO UNTS WERE NOT DEDUCTIBLE. IN THIS CASE ALSO THE FACTS OF CASE IS DIFFERENT FR OM THE FACTS OF THE ASSESSEE'S CASE, HENCE NO HELP FROM THIS DECISION. C. S. ZORSTAR & CO. VS. CIT (2009) 31 DTR (RAJ) 107. 1. GROUND NO:- 3) THE CIT (APPEALS)-IV WAS NOT CORRECT IN NOT CONS IDERING THE APPELLANT CONTENTION OF TAXING RS. 6,70,00,000/- AS CAPITAL R ECEIPT IN VIEW OF THE VARIOUS JURISDICTIONAL AND OTHER PRONOUNCEMENT. 14 ITA NO.497/BANG/2011 4) THE CIT (APPEALS)-IV WAS NOT CORRECT IN TAKING D IFFERENT VIEW AS AGAINST A.O. BY TAXING RS. 6,70,00,000/- AS TAXABLE UNDER BUSINESS INCOME U/S 28(VA)(A)(NON COMPETE FEES) AND WITHOUT MAKING A SPECIFIC OBSERVATION ABOUT THE YEAR OF TAXABILITY OF THE COM PENSATION AMOUNT RECEIVABLE. 5) THE DECISION QUOTED BY CIT (APPEALS)-IV BEING AN SAL PROPERTIES AND INDUSTRIES LTD VS. DCIT REPORTED IN 301 ITR 285 IS NOT APPLICABLE TO APPELLANT CASE, AS THE APPELLANT IS NOT IN THE BUSI NESS OF DEVELOPMENT OF REAL ESTATE. 2. GROUND NO. :- A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE ASSESSEE ENTERED INTO A JOINT DEVELOPMENT WITH M/S NITESH ESTATE LIMITED, S UBSEQUENTLY BOTH PARTIES ENTERED INTO A COMPENSATION AGREEMENT, WHERE IN DIT WAS DECIDED THAT M/S NITESH ESTATE LIMITED WOULD HAVE TO PAY A TOTAL SUM OF RS. 8,50,000 TO THE ASSESSEE. ACCORDING TO THE AO ALLEGED COMPENSATIONS AMOUNT WAS FIXED ON THE BASIS OF COMMERCIAL VALUE OF THE PROPERTY IN THE AR EA DURING RELEVANT PERIOD. THE FAIR MARKET PRICE OF THIS PROPERTY AT THAT TIME WAS AROUND RS. 250 LAKHS TO RS. 275 LAKHS PER ACRE AND ACCORDINGLY THE TOTAL CO NSIDERATIONS WAS FIXED AT RS. 850 LAKHS IN THE ASSESSEES SUBMISSION DATED 09-12- 2009. THE ASSESSEE AGREED THAT THE COMPENSATION AMOUNT AGREED UPON WAS NOTHIN G BUT SALE CONSIDERATIONS RECEIVABLE AND THE SAME IS BEING OFFERED AS INCOME ON RECEIPT BASIS UNDER THE HEAD LONG TERM CAPITAL GAINS. HOWEVER, AT THE TI ME OF ASSESSMENT PROCEEDING, THE CLAIM OF THE ASSESSEE SALE CONSIDER ATION OF THE PROPERTY WAS ONLY RS. 1,80,00,000 AND THE REMAINING AMOUNT OF RS . 6,70,00,000 IS THE COMPENSATION AMOUNT FOR NOT EXECUTING THE JOINT DEV ELOPMENT AGREEMENT. HOLDING THUS ENTIRE AMOUNT OF RS. 8,50,00,000 IS TR EATED AS SALE CONSIDERATION OF THE PROPERTY AND BROUGHT TO TAX AS LONG TERM CAP ITAL GAINS IN APPEAL THE CIT (A) APPEAL HELD THAT GIVEN THE SA LE DEED MENTIONED A SUM OF RS. 1,80,00,000 AS SALE CONSIDERATION, EXTENT OF TH AT SUM COMPUTED AS LONG TERM CAPITAL GAINS AND BALANCE AMOUNT OF RS. 6,70,0 0,000 CONSIDERED AS BUSINESS INCOME AS PER PROVISIONS OF SECTION 28 (VA ) (A) OF THE IT ACT, FOLLOWING THE DECISION OF THE HON'BLE ITAT IN THE CASE OF ANS AL PROPERTIES AND INDUSTRIES LTD VS. DCIT (2005) 301 ITR (AT) 285 WHE RE IN IT WAS HELD THAT TERMINATION OF CONTRACT AND AGREEMENT NOT TO ENGAGE IN SIMILAR ACTIVITY IN THE VICINITY AND COMPENSATION RECEIVED IN THE ORDINARY COURSE OF BUSINESS IS A REVENUE RECEIPT. THIS VIEW ALSO BEEN AFFIRMED BY T HE |HON'BLE DELHI HIGH COURT. 15 ITA NO.497/BANG/2011 IN THIS CONTEXT, I WOULD LIKE TO MENTION THAT FAC TS OF THE ASSESSEE'S CASE ARE DIFFERENT THAN THAT OF THE CASE RELIED UPO N, THEREFORE, I RELY THE ORDER OF THE AO. 5.5.1. WE HAVE HEARD BOTH PARTIES, PERUSED AND CARE FULLY CONSIDERED THE MATERIAL ON RECORD, THE ALTERNATE CLAIM OF THE ASSESSEE, THE D IFFERENT VIEWS OF THE AUTHORITIES BELOW AND THE JUDICIAL DECISIONS CITED. THE INFORMATION AS PER RECORD REVEALS THAT THE ASSESSEE ENTERED INTO AN AGREEMENT ON 25.9.2004 WITH M/S. NI TESH ESTATE PRIVATE LTD FOR JOINTLY DEVELOPING 3 ACRES OF PROPERTY OWNED BY THE ASSESSE E AT BLOCK NOS.30, 31 AND 40 SY. NO.1B SITUATED AT JAKKUR PLANTATIONS, YELAHANKA HOB LI, AND BANGALORE NORTH TALUK, WHEREBY THE ASSESSEE WAS TO TRANSFER 72% OF UNDIVID ED RIGHT AND INTEREST IN THE LAND TO THE DEVELOPER AND RETAIN 28% OF THE UNDIVIDED RIGHT , INTEREST AND TITLE IN THE PROPERTY. AS THE JDA DID NOT MATERIALIZE, A COMPENSATION AGREEME NT WAS ENTERED INTO ON 14.7.2005 WHEREBY THE ASSESSEE WAS TO RECEIVE RS.8.5 CRORES A ND IN RETURN FOR WHICH HE WAS TO EXECUTE SALE DEEDS IN FAVOUR OF PARTIES IDENTIFIED BY THE DEVELOPER. THIS ACT WAS CARRIED OUT BY THE ASSESSEE BY ENTERING INTO SALE WITH THRE E PARTIES IDENTIFIED BY THE DEVELOPER BY SALE DEEDS DT.20.4.2006. AS PER THE RETURN OF INCO ME FOR ASSESSMENT YEAR 2007-08, WE FIND THAT THE ASSESSEE HAD OFFERED FOR TAX UNDER LT CG AN AMOUNT OF RS.3.3 CRORES ( VIZ., RS.1.8 CRORES BEING THE CONSIDERATION AS PER THREE SALE DEEDS ENTERED INTO BY THE ASSESSEE ON 20.4.2006 AND A FURTHER SUM OF RS.1.5 CRORES REC EIVED BY THE ASSESSEE OUT OF THE COMPENSATION OF RS.6.7 CRORES) ON RECEIPT BASIS. T HE ASSESSING OFFICER, IN OUR VIEW CORRECTLY, HELD THAT THE AMOUNT OF RS.8.5 CRORES (R S.1.8 CRORES PLUS RS.6.7 CRORES) WAS NOTHING BUT SALE CONSIDERATION FOR SALE OF THE SAID PROPERTY FOR WHICH THE RIGHT TO RECEIVE THE AMOUNT ACCRUED AND AROSE TO THE ASSESSEE PURSUA NT TO THE SALE OF PROPERTY BY SALE 16 ITA NO.497/BANG/2011 DEEDS DT.20.4.2006 AND CONSEQUENTLY BROUGHT THE SAM E TO TAX FOR LTCG IN THE RELEVANT PERIOD. 5.5.2 IN THE MEANWHILE, THE ASSESSEE IN ASSESSMENT PROCEEDINGS, IN APPELLATE; PROCEEDINGS BEFORE THE LEARNED CIT(APPEALS) AND ALSO BEFORE THI S TRIBUNAL HAS TAKEN AN ALTERNATE STAND. IT IS CONTENDED BY THE ASSESSEE THAT ONLY T HE SUM OFRS.1.8 CRORES, THE SALE CONSIDERATION IN THE THREE SALE DEEDS DT.20.4.2006, OUGHT TO BE CONSIDERED LIABLE TO LTCG AND THE BALANCE OF RS.6.7 CRORES IS NOT TAXABLE AT ALL AS IT IS IN THE NATURE OF A CAPITAL RECEIPT AND IS THEREFORE NOT EXIGIBLE TO TAX. IN SU PPORT OF THIS PROPOSITION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING JUDICIAL DECISION WHICH WE CONSIDER HEREUNDER : I) CIT VS. B.C. SRINIVASA SHETTY (1981) 128 ITR 2 94 (SC) IN THE CITED CASE, THE HON'BLE APEX COURT WAS DEALING WITH THE QUESTION OF WHETHER GOODWILL GENERATED IN A NEWLY COMMENCED BUSINESS IS AN ASSET WITHIN THE TERMS O F SECTION 45 AND WHETHER ITS TRANSFER WOULD MAKE IT EXIGIBLE TO TAX UNDER THE HEAD CAPIT AL GAINS ? WITH DUE RESPECT, WE FIND THAT THE FACTS OF THE ASSESSEE'S CASE ARE DIFFERENT AND DISTINGUISHABLE FROM THE FACTS OF THE CITED CASE AND HENCE THE CITED CASE WOULD NOT B E APPLICABLE. II) CIT VS. BARIM CHEMICALS LTD. (1987) 168 ITR 16 4 (AP) ON PERUSAL OF THE CITED CASE, WE FIND THAT THE HON'BLE COURT WAS DEALING WITH THE IS SUE OF WHETHER DAMAGES RECEIVED BY THE ASSESSEE ON SETTLEMENT OF DISPUTE TOWARDS NON- FULFILLMENT OF A CONTRACT WERE EXIGIBLE TO TAX UNDER SECTION 45 OF THE ACT OR WERE CAPITAL RECEIPTS. WITH DUE RESPECT, WE FIND THAT THE FACTS OF THE ASSESSEE'S CASE ARE DIFFERENT AND DISTINGUISHABLE FROM THOSE OF THE CITED CASE AND HENCE WOULD NOT BE APPLICABLE. 17 ITA NO.497/BANG/2011 5.5.3 WE AGREE WITH THE FINDING OF THE ASSESSING O FFICER THAT THE COMPENSATION AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S. NI TESH ESTATES PVT LTD DECIDED THAT THE DEVELOPER WAS TO PAY AND THE ASSESSEE WAS TO RE CEIVE TOTAL CONSIDERATION OF RS.8.5 CRORES ON CONDITION THAT THE SAID LAND OF THE ASSES SEE BE TRANSFERRED TO PARTIES IDENTIFIED BY THE DEVELOPER. IN PURSUANCE THEREOF, THE ASSESS EE BY THREE SALE DEEDS DT.20.4.2006 SOLD THE SAID PROPERTY TO THE PARTIES IDENTIFIED BY THE DEVELOPER AND RECEIVED SUMS TOTALING RS.1.8 CRORES AS CONSIDERATION THEREOF. T HIS TRANSFER OF PROPERTY BY SALE DEEDS DT.20.4.2006, BY THE ASSESSEES OWN ADMISSION ENTIT LED HIM TO RECEIVE THE BALANCE OF RS.6.7 CRORES (VIZ. RS.8.5 CRORES LESS RS.1.8 CRORE S) AS THE REMAINING CONSIDERATION. IT IS ALSO A MATTER OF RECORD THAT OUT OF RS.6.7 CRORES T HE ASSESSEE HAS RECEIVED RS.1.5 CRORES IN THIS YEAR ITSELF AND FURTHER SUMS IN THE SUBSEQU ENT YEARS, ALL OF WHICH HAVE BEEN OFFERED TO LTCG BY THE ASSESSEE HIMSELF IN THE RESP ECTIVE YEARS ON RECEIPT BASIS. THESE FACTS ITSELF ARE ADMISSION ENOUGH BY THE ASSESSEE T HAT THIS AMOUNT OF RS.6.7 CRORES IS IN THE NATURE OF REVENUE RECEIPT AND IS EXIGIBLE TO TA X FOR LTCG AND HAS ACCORDINGLY HIMSELF OFFERED THEM TO TAX. THIS NEGATES HIS ALTERNATE CL AIM THAT RS.6.7 CRORES IS CAPITAL IN NATURE AND THEREFORE NOT EXIGIBLE TO TAX. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, WE ARE OF THE CONSIDERED V IEW THAT THE AMOUNT OF RS.6.7 CRORES IS A REVENUE RECEIPT EXIGIBLE TO TAX FOR LTCG AND IS N OT A CAPITAL RECEIPT. THIS POSITION OF OURS IS ALSO CONFIRMED BY THE ACTION OF THE ASSESSE E IN OFFERING THE AMOUNTS RECEIVED THEREON FOR TAX UNDER LTCG IN HIS RETURNS OF INCOME . WE FIND THAT THE ALTERNATE GROUND OF THE ASSESSEE IS DEVOID OF MERIT AND IS ACCORDING LY DISMISSED. 18 ITA NO.497/BANG/2011 5.6.1 THE OTHER DISPUTE THAT NOW REMAINS TO BE ADJUDICATED IS THE CLAIM OF THE ASSESSEE THAT THE AMOUNTS RECEIVED BY IT OUT OF RS.6.7 CRORE S ARE TAXABLE FOR LTCG ON RECEIPT BASIS AS AGAINST THE VIEW OF THE ASSESSING OFFICER THAT THE ENTIRE AMOUNT OF RS.8.5 CRORES WAS ELIGIBLE TO TAX IN THE ASSESSMENT YEAR 2007-08 IN WHICH THE ASSESSEE'S PROPERTY WAS SOLD BY DEEDS DT.20.4.2006. AS PER THE FACTS ON RE CORD, IT IS SEEN THAT ON NON- MATERIALISATION OF THE JDA DT.24.9.2004 BETWEEN THE ASSESSEE AND M/S. NITESH ESTATES P LTD,, A COMPENSATION AGREEMENT DT.14.7.2005 WAS ENT ERED INTO WHEREBY THE ASSESSEE WAS TO RECEIVE RS.8.5 CRORES ON CONDITION THAT THE SAID LAND OF THE ASSESSEE WAS SOLD BY HIM TO PARTIES IDENTIFIED BY THE DEVELOPER. TILL THIS STA GE THERE WAS NO TRANSFER OF ANY RIGHTS IN THE PROPERTY TO ANY PARTY BY THE ASSESSEE. PURSUANT TO THIS, THE ASSESSEE BY THREE SALE DEEDS DT.20.4.2006 SOLD THE SAID PROPERTIES TO PART IES IDENTIFIED BY THE DEVELOPER FOR A CONSIDERATION OF RS.1,80,00,000 AND WAS TO RECEIVE THE BALANCE OF RS.6.7 CRORES FROM THE DEVELOPER. THIS FACTUAL MATRIX ESTABLISHES THAT O N THE SALE OF THE SAID PROPERTY ON 20.4.2006 AND RECEIPT OF THE CONSIDERATION OF RS.1. 8 CRORES THE ASSESSEE'S RIGHT TO RECEIVE THE AMOUNT OF RS.6.7 CRORES AROSE AND ACCRU ED TO HIM IMMEDIATELY THEREAFTER AND ACCORDINGLY THE ENTIRE CONSIDERATION OF RS.8.5 CROR ES WAS LIABLE FOR TAX UNDER LTCG IN THE RELEVANT PERIOD I.E. ASSESSMENT YEAR 2007-08. THIS VIEW OF OURS IS SUPPORTED BY A CETENA OF JUDICIAL DECISIONS, A FEW OF WHICH ARE CITED AS UNDER : I) CHATTURBHUJ DWARKADASS KAPADIA OF THE HON'BLE MUMB AI HIGH COURT REPORTED IN 260 ITR 491/431. II) CIT VS. DR. T.K. DAYALU OF THE HON'BLE KARNATAK A HIGH COURT IN ITA NO.3209 OF 2009 DT.20.6.2011. 19 ITA NO.497/BANG/2011 RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF DR. T.K. DAYALU (SUPRA) AND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CHATTURBHUJ DWARAKADAS KAPADIA (SUPRA), WE HOLD THAT PURSUANT T O THE SALE DEEDS DT.20.4.2006 AND IN ACCORDANCE WITH THE TERMS LAID OUT IN THE AGREEMENT DT.14.7.2005, THE ENTIRE CONSIDERATION OF RS.8.5 CRORES (VIZ. RS. 1.8 CRORES + RS.6.7 CRORES) IS EXIGIBLE TO LTCG IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08. IT IS ORDERED ACCORDINGLY. 5.6.2 THE LEARNED CIT(APPEALS) IN HIS ORDER WAS OF THE VIEW THAT ONLY AN AMOUNT OF RS.1.8 CRORES, AS MENTIONED IN THE SALE DEEDS ABOVE WAS EX IGIBLE TO LTCG IN THIS YEAR. IN VIEW OF OUR FINDINGS IN PARA 5.5.4 OF THIS ORDER THAT WE A GREE WITH THE VIEW OF THE ASSESSING OFFICER THAT THE ENTIRE CONSIDERATION OF RS.8.5 CRO RES WAS EXIGIBLE TO TAX FOR LTCG IN THE YEAR OF TRANSFER OF THE ASSESSEE'S PROPERTY I.E. AS SESSMENT YEAR 2007-08, WE REVERSE THE FINDING OF THE LEARNED CIT(APPEALS) IN HIS ORDER WI TH RESPECT TO THE COMPUTATION OF LTCG. 5.6.3 THE LEARNED CIT(APPEALS) AFTER HOLDING THAT O NLY RS.1.8 CRORES WAS EXIGIBLE TO LTCG ALSO HELD THAT THE AMOUNT OF RS.6.7 CRORES DUE TO THE ASSESSEE FROM THE DEVELOPER WAS TO BE TAXED AS NON-COMPETE FEE UNDER SECTION 28 (VA)(A) OF THE ACT. THIS PROPOSITION OF THE LEARNED CIT(APPEALS) HAS BEEN CONTESTED BY THE ASSESSEE BOTH BEFORE HIM AND ALSO IN SUBMISSIONS BEFORE US. IN THE INSTANT CASE, T HE FACTS ON RECORD ESTABLISH THAT THE ASSESSEE IS A PROFESSIONAL TENNIS PLAYER. IT IS NO T THE CASE OF THE LEARNED CIT(APPEALS) THAT THE ASSESSEE HAS BEEN IN REAL ESTATE DEVELOPME NT BUSINESS AT THE TIME OF ENTERING INTO THE JDA OR CANCELLING THE SAME. THE LEARNED C IT(APPEALS) HAS NOT BEEN ABLE TO ESTABLISH THAT THE ASSESSEE HAS UNDERTAKEN ANY REAL ESTATE ACTIVITY BY WHICH HE CAN BE CALLED A REAL ESTATE DEALER OR DEVELOPER. THIS VI EW OF THE LEARNED CIT(APPEALS), IN OUR 20 ITA NO.497/BANG/2011 CONSIDERED OPINION, CANNOT BE CONSTRUED TO ESTABLIS H THAT THE ASSESSEE WAS INTO REAL ESTATE DEVELOPMENT BUSINESS OF ANY KIND. IT HAS AL SO BEEN SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS IS THE ONLY PIEC E OF LAND HE HELD IN INDIA AND THAT THE PROVISIONS OF SECTION 28(VA)(A) OF THE ACT ARE NOT APPLICABLE IN HIS CASE. IN COMING TO THIS FINDING THAT THIS AMOUNT OF RS.6.7 CRORES WAS TO BE CONSIDERED AS BUSINESS INCOME AND EXIGIBLE TO TAX AS NON-COMPETE FEES UNDER SECTION 28(VA)(A), THE LEARNED CIT(APPEALS) HAD FOLLOWED THE DECISION OF THE HON'BLE ITAT, DELHI IN THE CASE OF ANSAL PROPERTIES & INDUSTRIES LTD. VS. DCIT (2005) 301 ITR 285 WHICH W AS AFFIRMED BY THE HON'BLE DELHI HIGH COURT. WE HAVE PERUSED THE SAID DECISION AND FIND THAT IN THAT CASE THE COMPENSATION RECEIVED BY THE ASSESSEE, A BUILDER AN D REAL ESTATE DEVELOPER, IN THE ORDINARY COURSE OF BUSINESS WAS HELD TO BE A BUSINE SS RECEIPT. THE FACTS OF THE PRESENT CASE OF THE ASSESSEE ARE DIFFERENT FROM THE CITED C ASE, IN AS MUCH AS THE ASSESSEE IS A PROFESSIONAL TENNIS PLAYER AND NOT IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND THEREFORE THE FINDINGS THEREIN WOULD NOT BE APPLICA BLE TO THE INSTANT CASE OF THE ASSESSEE. INTERESTINGLY, THE LEARNED DEPARTMENTAL REPRESENTAT IVES SUBMISSIONS ON THIS ISSUE (SUPRA) ARE ALSO THAT HE RELIES ON THE ORDER OF THE ASSESSI NG OFFICER AND HIS SUBMISSIONS DO NOT DEFEND THE POSITION TAKEN BY THE LEARNED CIT(APPEAL S). IN THE FACTUAL MATRIX OF THE CASE ON THE ISSUE OF TREATING OF RS.6.7 CRORES AS NON-CO MPETE FEE, AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS NOT E STABLISHED ANY CASE TO SHOW THAT THE ASSESSEE WAS IN FACT IN THE BUSINESS OF REAL ESTATE DEALINGS OR DEVELOPMENT AND CONSEQUENTLY HAS NOT ESTABLISHED THAT THE AMOUNT OF RS.6.7 CRORES, IS NON-COMPETE FEE AS 21 ITA NO.497/BANG/2011 HELD BY HIM, OR THAT IT WAS EXIGIBLE TO TAX UNDER S ECTION 28(VA)(A) OF THE ACT. THE ASSESSEES GROUND RAISED ON THIS ISSUE IS ACCORDING LY ALLOWED. 5.7.1 IN RESPECT OF THE EXEMPTION CLAIMED BY THE AS SESSEE UNDER SECTION 54F OF THE ACT, WE FIND THAT THE LEARNED CIT(APPEALS) RESTRICTED TH E CLAIM TO RS.85,98,246 AS AGAINST RS.2,21,42,849 ALLOWED BY THE ASSESSING OFFICER AND CLAIMED BY THE ASSESSEE. IN THIS APPEAL BEFORE US, AT GROUND RAISED AT S.NO.6, THE A SSESSEE HAS DISPUTED THE LEARNED CIT(APPEALS)S FINDING IN ALLOWING EXEMPTION OF RS. 85,98,246 INSTEAD OF RS.2,21,42,849 CLAIMED BY THE ASSESSEE AND ALLOWED BY THE ASSESSIN G OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE WAS HEARD IN THE MATTER AND THE WRITTE N SUBMISSIONS MADE HAVE BEEN PERUSED. 5.7.2 IN THIS REGARD, THE LEARNED DEPARTMENTAL REP RESENTATIVE IN WRITTEN SUBMISSION HAS CONTENDED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DED UCTION UNDER SECTION 54F OF THE ACT AS UNDER : I WISH TO SUBMIT THAT DURING THE PREVIOUS YEAR RE LEVANT TO ASSESSMENT YEAR 2007-08 THE ASSESSEE OWNED FOLLOWING HOUSE PROPERTY : 1. RESIDENTIAL BUILDING AT VILL-6, PRESTIGE CENDERS-7, CONVENT ROAD, BANGALORE-560 025 (SELF OCCUPIED) 2. 3 RD FLOOR, NITESH SQUARE, NO.25, M.G.ROAD, BANGALORE ( LET OUT PROPERTY). 3. 2/B EAGLE ROCK, HOUSE ROAD CROSS EAGLE STREET, BANG ALORE-560 025 4. FLAT NO.11, 11 TH FLOOR, 30, RACE COURSE ROAD, BANGALORE. 5. PROPERTY AT HOLLYWOOD TOWN. 6. DUBAI FLAT PURCHASED DURING THE F.Y. RELEVANT TO A. Y. 2007-08. UNDER THE PROVISION OF SECTION 54F OF THE IT ACT TH E ASSESSEE BEING IN INDIVIDUAL OR A HUF THE CAPITAL GAINS ARISE FROM TH E TRANSFER OF ANY LONG TERM CAPITAL ASSET (NOT BEING A RESIDENTIAL HOUSE) AND T HE ASSESSEE HAS WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DA TE ON WHICH THE TRANSFER TOOK PLACE PURCHASED OR HAS CONSTRUCTED WITHIN THRE E YEARS A RESIDENTIAL HOUSE, ELIGIBLE EXEMPTION TO THE EXTENT OF INVESTMENT MADE IN THE NEW ASSET/RESIDENTIAL HOUSE, HOWEVER AS PER PROVISO TO SAID SECTION EXEMPTION IS NOT AVAILABLE IF :- 22 ITA NO.497/BANG/2011 (A) THE ASSESSEE, - (1) OWNS MORE THAN ONE RESIDENTIAL HOUSE, OTHER THA N THE NEW ASSET, ON THE DATE OF TRANSFER OF THE ORIGINAL ASSET; OR (2) PURCHASES ANY RESIDENTIAL HOUSE, OTHER THAN THE NEW ASSET, WITHIN A PERIOD OF ONE YEAR AFTER THE DATE OF TRANSFER OF THE ORIGI NAL ASSET; OR (3) CONSTRUCTS ANY RESIDENTIAL HOUSE, OTHER THAN TH E NEW ASSET, WITHIN A PERIOD OF THREE YEARS AFTER THE DATE OF TRANSFER OF THE OR IGINAL ASSET; AND (B) THE INCOME FROM SUCH RESIDENTIAL HOUSE, OTHER T HAN THE ONE RESIDENTIAL HOUSE OWNED ON THE DATE OF TRANSFER OF THE ORIGINAL ASSET, IS CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AS DETAILED ABOVE, THE ASSESSEE OWNS MORE THAN ONE RESIDENTIAL HOUSE HENCE ATTRACT THE PROVISO TO SECTION 54F OF THE IT ACT, C ONSEQUENTLY THE ASSESSEE IS NOT ENTITLED DEDUCTION / EXEMPTION UNDER SECTION 54 F OF THE ACT. SECONDLY, IT IS OBSERVED THAT THE ASSESSEE ;ENTERED INTO AGREEMENT WITH M/S. NITESH ESTATE PRIVATE LIMITED ON 12.11.2004 FOR PUR CHASE OF SITES AND CONSTRUCTION OF BUILDING THERE ON I.E. FLAT NO.11, 11 TH FLOOR, AT NITESH WIMBLEDON PARK, 30, RACE COURSE ROAD, BANGALORE AND PAYMENT / CONSIDERATION MADE AS UNDER : RS.1,26,00,000 FOR LAND RS.74,00,000 FOR CONSTRUCTION TOTAL RS.2,00,00,000 FURTHER, IT ALSO REVEALED THAT DURING THE PREV IOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, THE ASSESSEE SOLD A PROPER TY AT 2 ND PHASE BINNAMARGHA, INDIRA NAGAR, BANGALORE, ADMEASURING 3 66.93 AT A TOTAL CONSIDERATION OF RS.59,25,000 VIDE AGREEMENT DATED 31.8.2004. AFTER CLAIMING INDEXED COST OF ACQUISITION, LONG TERM CAPITAL GAIN S WORKED OUT OF RS.49,47,632 AND THE SAME IS CLAIMED EXEMPTION UNDER SECTION 54F BEING INVESTMENT MADE IN THE AFORESAID PROPERTY. DURING THE YEAR THE ASSESSEE SOLD PROPERTY AT J AKKUR PLANTATION, BANGALORE AND LONG TERM CAPITAL GAINS AROSE, THEREON, CLAIMED EXEMPTION UNDER SECTION 54F BEING INVESTMENT MADE IN THE PROPERTY AT 30, RA CE COURSE ROAD, BANGALORE. SINCE THE INVESTMENT MADE IN THE SAID PROPERTY HAS ALREADY BEEN CLAIMED EXEMPTION UNDER SECTION 54F AGAINST LONG TERM CAPIT AL GAINS IN THE ASSESSMENT YEAR 2006-07 ARISING ON SALE OF INDIRA NAGAR PROPER TY, AGAIN NO EXEMPTION IS AVAILABLE ON THE SAME ASSET AS INVESTMENT WAS ON EX ISTING ASSET AND NO NEW ASSETS BEING ACQUIRED. 23 ITA NO.497/BANG/2011 IN THIS CONTEXT, I WOULD LIKE TO MENTION THAT THE ASSESSING OFFICER AND THE CIT (APPEALS) HAS NOT EXAMINED THESE ASPECTS AND DI RECTED TO ALLOW EXEMPTION TO THE EXTENT OFRS.85,98,246. SINCE, ISSUE INVOLVE D QUESTIONS OF LAW AND HUMBLY REQUESTED THAT MATTER MAY BE REMANDED BACK TO THE ASSESSING OFFICER TO CONSIDER AFRESH. 5.7.3 WE HAVE HEARD BOTH PARTIES AND CAREFULLY CONS IDERED THE SUBMISSIONS MADE AND THE FACTS ON RECORD. IT IS SEEN THAT THE SUBMISSIONS M ADE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ARE THAT SINCE IN THE PERIOD RELEVAN T TO ASSESSMENT YEAR 2007-08, THE ASSESSEE OWNED 6 RESIDENTIAL PROPERTIES AS LISTED O UT IN HIS SUBMISSION (SUPRA), HE WOULD NOT BE ENTITLED TO EXEMPTION UNDER SECTION 54F OF T HE ACT AS HE WOULD BE HIT BY THE CONDITIONS LAID OUT IN THE PROVISIO TO SECTION 54F. WE ALSO FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THA T IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07, THE ASSESSEE HAD ALREADY C LAIMED EXEMPTION UNDER SECTION 54F IN RESPECT OF SALE OF PROPERTY AT 2 ND PHASE, BINNAMARGHA, INDIRA NAGAR, BANGALORE FOR TO TAL CONSIDERATION OFRS.59.25 LAKHS VIDE AGREEMENT DT.31 .8.2004 AND WHICH PROCEEDS WERE INVESTED IN FLAT NO.11, 11 TH FLOOR, NITESH WIMBLEDON PARK, 30, RACE COURSE ROAD , BANGALORE. ON PERUSAL OF THE RECORDS, WE AGREE WITH THE LEARN ED DEPARTMENTAL REPRESENTATIVE THAT THESE ASPECTS HAVE NOT BEEN EXAMINED BOTH BY THE AS SESSING OFFICER OR THE LEARNED CIT(APPEALS) WHILE ADJUDICATING THE ISSUE OF EXEMPT ION UNDER SECTION 54F OF THE ACT. WE ARE OF THE CONSIDERED VIEW THAT ALL THESE FACTS AS LAID OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN THE CONTEXT OF THE ASSESSEE'S CL AIM FOR EXEMPTION UNDER SECTION 54F NEED TO BE EXAMINED AFRESH AND THEREFORE REMAND THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION. 24 ITA NO.497/BANG/2011 5.8.1 CHARGE OF INTEREST UNDER SECTIONS 234B & 234C OF THE ACT . IN THE GROUNDS RAISED, THE ASSESSEE HAS CHALLENGED THE CHARGING OF INTERES T UNDER SECTION 234B AND 234C OF THE ACT ON THE GROUNDS THAT FOR AN NON-RESIDENT INDIAN (NRI) ALL THE AMOUNTS PAYABLE TO HIM ARE SUBJECTED TO DEDUCTION OF TAX AT SOURCE UNDER S ECTION 195 OF THE ACT. IT IS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN WRITTEN SUBMISSION THAT - THE LIABILITY TO PAY ADVANCE TAX IS AS PER THE P ROVISIONS OF SECTION 208 AND 209 OF THE ACT. THE PROVISIONS OF SECTION 209 OF T HE ACT SPECIFY THE MODE OF COMPUTATION OF TAX FOR PAYMENT AS ADVANCE TAX. THE PROVISIONS OF SECTION 209(1) CLAUSE (D) READS AS UNDER: - THE INCOME TAX CALCULATED UNDER CLAUSE (A) OR CLAU SE B) OR CLAUSE (C) SHALL, IN EACH CASE, BE REDUCED BY THE AMOUNT OF INCOME TAX W HICH WOULD BE DEDUCTIBLE AT SOURCE DURING THE SAID FINANCIAL YEAR. IN VIEW OF THE ABOVE WORDINGS AFTER CALCULATING THE TAX PAYABLE ON THE ESTIMATED INCOME OF THE APPELLANT, THE INCOME TAX D EDUCTIBLE HAS TO BE REDUCED AND IF THE BALANCE EXCEEDS RS.5, 000/- THE APPELLANT IS LIABLE TO PAY ADVANCE TAX. SINCE, ALL THE AMOUNTS RECEIVABLE BY THE NON RESIDENT ARE SUBJECT TO DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 195 OF THE ACT, ON THE INCOME RECEIVABLE BY THE APPELLANT DURING THE P REVIOUS YEAR TAX WAS DEDUCTIBLE AT SOURCE. SINCE THE WHOLE OF THE TAX W AS DEDUCTIBLE AT SOURCE, THE APPELLANT WAS NOT LIABLE TO PAY ADVANCE TAX AND THE PROVISIONS OF SECTION 208 AND 209 WOULD NOT APPLY TO HIM. AS PER THE PROVISIONS OF SECTION 234B OF THE ACT, T HE SAME APPLIES TO CASES WHERE AN APPELLANT WHO IS LIABLE TO PAY ADVAN CE TAX U/S.208 OF THE ACT, DOES NOT PAY THE SAME. SINCE, IN THE CASE OF THE APPELLANT NO ADVANCE TAX IS PAYABLE THE PROVISIONS OF SECTION 23 4B DO NOT APPLY. THE APPELLANT IN THE APPEAL FILED BEFORE THE HONBLE BE NCH, HAS ALREADY QUOTED MANY DECISIONS WHICH ARE IN HIS FAVOR, FOR N ON LEVY OF INTEREST 25 ITA NO.497/BANG/2011 U/S 234B AND 234C. HENCE, THE APPELLANT RELIES ON T HESE DECISIONS IN SUPPORT OF HIS CONTENTION FOR NON LEVY OF INTEREST. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE FOLLOWING JUDICIAL DECISIONS IN SUPPORT OF THIS PROPOSITION THAT THE ASSESSEE IS NO T LIABLE TO BE CHARGED INTEREST UNDER SECTION 234B AND 234C OF THE ACT. A) TEXAS INTERNATIONAL INCORPORATED VS. DDIT (1.12.201 0 TAX CORP. (INTL) 3341 (ITAT-BANGALORE). B) CABLE NEWS NET WORK (LP) CCCPV ASST. DIRECTOR (20 10) 129 TTJ (DEL) C) JT DIT (IT) VS. KRUPP UDHE GAMBH (2009) 28 SOT 254 (MUM.) D) DIT VS. JACABS CIVIL INCORPORATED/MITSUBISHI CORPOR ATION (2010) 330 ITR 578 (DELHI) E) CIT VS. TIDE WATER MARINE INTL. INC. (2009) 309 ITR 85 (UTTARAKHAND) F) DIT (INTL. TAXATION) VS. NGF NETWORK ARIA GGC (2009 ) 313 ITR 187 (MUMBAI HC) G) CIT VS. HALLIBURTON OFFSHORE SERVICES INC. (2004) 2 71 ITR 395 (UTTARAKHAND HC) 5.8.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE FINDING OF THE AUTHORITIES BELOW. 5.8.3 WE HAVE HEARD BOTH PARTIES, PERUSED AND CARE FULLY CONSIDERED THE MATERIAL ON RECORD AND THE JUDICIAL DECISIONS CITED. IT IS NOT DISPUTE THAT IN THE RELEVANT PERIOD THE ASSESSEE, A PROFESSIONAL TENNIS PLAYER, IS AN NRI. IN THESE CIRCUMSTANCES, THE PROPOSITION OF THE ASSESSEE WAS THAT HIS INCOME / RECEIPTS BEIN G SUBJECT TO DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT, THERE WOULD NOT BE AN Y LIABILITY ON HIM TO PAY ADVANCE TAX AS LAID OUT IN SECTION 209 OF THE ACT AND THUS THE CHA RGING OF INTEREST UNDER SECTION 234B OF THE ACT IS NOT WARRANTED ON AN NRI. WE FIND THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF TEXAS INTERNATIONAL INCORPORATED VS. DDIT (INTL. TAXATION ) REPORTED IN (2011) 47 SOT 482 (BANG) IN WHICH THE TRIBUNAL HELD THAT WHERE THE RE CEIPTS BY AN ASSESSEE NRI WERE SUBJECT TO DEDUCTION OF TAX AT SOURCE, THERE WAS NO LIABILITY TO PAY ADVANCE TAX AND 26 ITA NO.497/BANG/2011 THEREFORE INTEREST UNDER SECTION 234B OF THE ACT CO ULD NOT BE CHARGED FROM THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF T HE CO-ORDINATE BENCH IN THE CASE OF TEXAS INSTRUMENTS INCORPORATED (SUPRA) THE OTHER DE CISION CITED BY THE ASSESSEE (SUPRA) WHICH HAVE BEEN REFERRED TO BY THE TRIBUNAL IN ITS ORDER, WE HOLD THAT THE ASSESSEE-NRI WHOSE INCOME / RECEIPTS ARE SUBJECT TO TAX DEDUCTI ON AT SOURCE UNDER SECTION 195 OF THE ACT IS NOT LIABLE TO PAY ADVANCE TAX AND THEREFORE NO INTEREST UNDER SECTION 234B OF THE ACT CAN BE CHARGED ON THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 6. THE GROUNDS RAISED AT S.NO.7 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 7. IN THE RESULT, THE ASSESSEE'S APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE .