MAHESH GORDHANDAS GARODIA, MUMBAI V. DCIT 22(1), MUMBAI

ITA 5098/MUM/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6015 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 20-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Capital asset; Cost of acquisition; Fair market value
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 5098 / MUM/20 15 ( ASSESSMENT YEAR : 2010 - 11 ) SHRI MAHESHKUMAR GORDHANDAS GARODIA, 149/156, GARODIA SHOPPING CENTRE, GARODIA NAGAR, GH ATKOPAR (E) MUMBAI 400 077 VS. DY. COMMISSIONER OF INCOME TAX 22(1) MUMBAI PAN/GIR NO. AACPG2906R APPELLANT ) .. RESPONDENT ) ITA NO. 5146/MUM/2015 ( ASSESSMENT YEAR : 2010 - 11 ) THE ASST. COMMISSIONER OF INCOME TAX 27(2) MUMBAI VS. S HRI MAHESH S GARODIA, 149/156, GARODIA SHOPPING CENTRE, GARODIA NAGAR, GHATKOPAR (E) MUMBAI 400 077 PAN/GIR NO.AACPG2906R APPELLANT ) .. RESPONDENT ) ASSESSEE BY DR. K. SHIVARAM & SHRI RAHUL HAKANI REVENUE BY SHRI PURUSHOTT AM TRIPURI DATE OF HEARING 10 / 07 /201 8 DATE OF PRONOUNCEMENT 12 / 07 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) - 25, MUMBAI DATED 03/08/2015 FOR A.Y.2010 - 11 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 2 2. THE FOLLOWING GROUNDS HAVE B EEN TAKEN BY THE ASSESSEE IN ITA NO.5098/MUM/2015: - 1) THE LEARNED CIT(A) ERRED IN CONFIRMING ORDER OF THE ASSESSING OFFICER TAXING RS.50 CRORES BEING PART SALE CONSIDERATION WHICH WOULD BE RECEIVED BY THE ASSESSEE ONLY IF THE AREA PERTAINING TO THE SA ID CONSIDERATION IS RELEASED FROM THE CRZ ZONE WITHOUT APPRECIATING THAT THE SAID RS. 50 CRORES IS NEITHER DUE / ACCRUED DURING THE YEAR NOR THE SAME IS RECEIVED DURING THE YEAR AND HENCE THE ADDITION OF RS. 50 CRORES MAY BE DELETED. 1.1) WITHOUT PREJUDI CE TO ABOVE, IF THE PART SALE CONSIDERATION OF RS. 50 CRORES IS TAXED IN THIS YEAR THEN BROKERAGE CHARGES OF RS. 1 CRORES MAY BE ALLOWED AS A DEDUCTION. 2) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN ITA NO.5146/MUM/2015: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO ADOPT THE VALUE OF RS. 29.77 CRORES AS THE COST OF ACQUISITION OF PROPERTY WHICH WAS DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. 2) ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE LD.CIT(A) ERRED IN STATING THAT THE REFERENCE TO DVO CANNOT BE MADE AFTER 01.0 7.2012 FOR AN EARLIER ASSESSMENT YEAR, IF VALUE CLAIMED BY THE ASSESSEE IS MORE THAN THE FAIR MARKET VALUE WHICH IS THE DATE OF AMENDMENT TO SECTION 55A(A). 3) ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE LD.CIT(A) ERRED IN BY IGNORING THE FACT TH AT AMENDMENT TO SECTION 55A(A) IS NOT SUBSTANTIVE BUT ONLY PROCEDURAL AND HENCE THE AMENDMENT EFFECTIVE FROM THE DATE OF AMENDMENT THAT IS 01.07.2012 AND NOT FROM ANY ASSESSMENT YEAR. THEREFORE THE DECISION OF THE HON'BLE BOMBAY HIGH COURT RELIED BY THE L D. CIT(A) IN THE .CASE, OF CIT VS PUJA PRINTS DOES NOT APPLY AFTER AMENDMENT. 4) THE APPELLANT PRAY THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 3 5) THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 5. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS A JOINT LESSEE WITH HIS LATE FATHER SHRI GORDHANDAS SHIVCHANDRAI GARODIA HAVING E QUAL SHARE ON 500 ACRES OF LAND COMPRISING OF ARTHUR SALT WORKS AND JENKINS SALT WORKS. IT IS STATED THAT THE LESSEES ACQUIRED ABOUT 75% OF THEIR RIGHTS FROM THEIR RELATIVES BY 31 / 12 / 1979. THE REMAINING AREA WAS ACQUIRED FROM HIS UNCLE AND FAMILY THROUGH T HE ORDER OF THE HON'BLE BOMBAY HIGH COURT WHICH WAS RECEIVED SOMETIME IN 1986. THE A SSESSEE ALONG WITH HIS FATHER SOLD DEVELOPMENT RIGHTS WHICH BELONGED TO THEM ON 500 ACRES OF SALT PAN LANDS AT VILLAGE KANJUR AND BHANDUP BELONGING TO ARTHUR SALT WORKS AND JENKINS SALT WORKS. THE PROSPECTIVE DEVELOPMENT RIGHTS HAVE BEEN SOLD TO M/S. SHAPOORJI PALLONJI & CO. PVT. FOR RS.521 CRORES VIDE AGREEMENT OF TRANSFER DATED 13 / 08 / 2009. THE ASSESSEE DEDUCTED AN AMOUNT OF RS.50 CRORES RETAINED BY THE BUYERS FROM THE SAI D SALE CONSIDERATION OF RS.521 CRORES AND HAS OFFERED THE NET CONSIDERATION OF RS.471 CRORES TO TAX. THE REASON FOR NOT OFFERING THE AMOUNT OF RS.50 CRORES WAS ON ACCOUNT OF THE FACT THAT A PART OF THE AREA WAS IN COASTAL REGULATION ZONE AND THE DEVELOPMEN T OF THAT AREA COULD BE UNDERTAKEN ONLY WITH THE APPROVAL OF THE CENTRAL GOVERNMENT. THEREFORE, THE AMOUNT OF RS. 50 CRORES WAS NOT DUE/RECEIVABLE, TILL SUCH TIME THE PERMISSION WAS OBTAINED. THE SAID LAND BEING GOVERNED BY CRZ REGULATION CANNOT BE UTILIZE D FOR DEVELOPMENT ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 4 PURPOSES AND FURTHER IN VIEW OF THE AGREEMENT WITH THE BUYER, THE SELLERS WERE NOT ENTITLED TO RECEIVE AN AMOUNT OF RS.50 CRORES. THE SAID AMOUNT OF RS.50 CRORES WOULD BE PAID ONLY ON THE HAPPENING OF AN EVENT IN FUTURE. AO DID NOT AGREE WITH THE ASSESSEES CONTENTION AND ADDED RS.50 CRORES WHICH WAS NOT REALIZED. THE AO ALSO DISALLOWED BROKERAGE OF RS.1 CRORE. 6. BY THE IMPUGNED ORDER CIT(A) UPHELD THE ADDITION OF RS.50 CRORES, BUT HELD THAT REFERENCE TO DVO WAS NOT JUSTIFIED, AGAINST WHI CH BOTH ASSESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 7. AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN THE CASE OF THE CO - OWNER, WHEREIN SIMILAR ADDITION MA DE BY THE TRIBUNAL WAS DELETED AND REFERENCE TO DVO WAS HELD TO BE NOT JUSTIFIED FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF POOJA PRINTS(SUPRA) . WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL IN ITA NO.5097/MUM/2015 FOR THE A.Y.2010 - 11 ORDER DATED 01/11/2017, WHEREIN SIMILAR ADDITION MADE BY THE AO IN THE HANDS OF OTHER CO - OWNER GOVERDHANDAS GARODIA DELETED BY THE TRIBUNAL AFTER HAVING THE FOLLOWING OBSERVATION: - 24. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS MANIFEST FROM THE ASSESSMENT ORDER THAT THE ASSE SSING OFFICER BEING OF THE VIEW THAT COST OF ACQUISITION SHOWN BY THE ASSESSEE ON THE BASIS OF REGISTERED VALUERS REPORT IS MORE THAN FMV HAD MADE A REFERENCE TO THE DVO FOR DETERMINING THE FMV OF THE CAPITAL ASSET TRANSFERRED BY THE ASSESSEE. AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN POOJA PRINTS (SUPRA), AS PER THE EXISTING PROVISIONS OF SECTION 55A(A), WHICH WAS APPLICABLE TO THE RELEVANT ASSESSMENT YEAR, A REFERENCE CAN BE MADE TO THE DVO ONLY IF THE VALUE DECLARED BY THE ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 5 ASSESSEE IN THE OPIN ION OF THE ASSESSING OFFICER IS LESS THAN ITS FAIR MARKET VALUE. IN THE FACTS OF THE PRESENT CASE, THE SITUATION IS REVERSE. THE ASSESSING OFFICER MADE A REFERENCE TO THE DVO UNDER SECTION 55A(A) HAVING ENTERTAINED AN OPINION THAT THE VALUE ADOPTED BY THE ASSESSEE IS MORE THAN THE FMV. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT (SUPRA), WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. GROUNDS RAISED ARE DISMISSED. 8. ADDITION OF RS.50 CRORES SO DELETED BY CIT(A) WAS UPHELD BY THE TRIBUNAL AFTER HAVING THE FOLLOWING OBSERVATION: 14. WE HAVE PATIENTLY AND CAREFULLY CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON BEFORE US . IT IS EVIDENT FROM THE DISCUSSIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) IN THEIR RESPECTIVE ORDERS THAT THEY HAVE NOT DISPUTED THE FACT THAT ASSESSEE HAS NOT RECEIVED THE AMOUNT OF RS.50 CRORE ON SALE OF DEVELOPMENT RIGHTS OF T HE LAND. HOWEVER, RELYING UPON A SPECIFIC CLAUSE OF THE SALE AGREEMENT BETWEEN THE ASSESSEE AND THE DEVELOPER WHICH SPEAKS OF TOTAL SALE CONSIDERATION PAYABLE TO THE ASSESSEE, THE DEPARTMENTAL AUTHORITIES HAVE CONCLUDED THAT LONG TERM CAPITAL GAIN HAS TO B E COMPUTED ON THE TOTAL SALE CONSIDERATION OF RS.521 CRORE IRRESPECTIVE OF THE FACT WHETHER THE ASSESSEE HAS RECEIVED THE AMOUNT OF RS.50 CRORE OUT OF SUCH SALE CONSIDERATION. IN THIS CONTEXT, IT IS NECESSARY TO EXAMINE THE SALE AGREEMENT DATED 13TH AUGUST 2009, BETWEEN THE ASSESSEE AND M/S. SHAPOORJI PALLONJI AND COMPANY LTD., THE DEVELOPER. AS PER THE SALE DEED, THE ASSESSEE AGREED TO SELL DEVELOPMENT RIGHT OF ABOUT 500 ACRES OF SALT PAN LAND TO THE DEVELOPER. AS PER CLAUSE K OF THE AGREEMENT, CERTAIN ARE AS OUT OF THE PROPERTY SOLD ARE GOVERNED BY THE CRZ REGULATION. AS PER CLAUSE 2.1 OF THE SALE AGREEMENT, THE DEVELOPER SHALL PAY TO THE LESSEES (ASSESSEE) TOTAL SUM OF RS. 521 CRORE FOR THE ENTIRE LAND ADMEASURING 500 ACRES INCLUDING THE FSI AVAILABLE TO T HE SAID PROPERTY. AS PER CLAUSE 2.3 OF THE AGREEMENT, THE SALE CONSIDERATION SHALL BE PAYABLE BY THE DEVELOPER TO THE ASSESSEE AS UNDER: I) RS.175 CRORE PAID BEFORE EXECUTION OF SALE DEED; II) RS.200 CRORE PAID IN FAVOUR OF THE LESSEE IN PROPORTION TO AND AS PER THE LESSEES DIRECTION; III) RS. 96 CRORE TO BE PAID TO THE LESSEES WITHIN 90 DAYS OF EXECUTION OF THE SALE DEED; AND ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 6 IV) FINALLY AS PER CLAUSE 2.3.4 OF THE SALE DEED, THE BALANCE SUM OF RS. 50 CRORE IS PAYABLE TO LESSEES TOWARDS THE AREAS WHICH ARE COVERED BY THE CRZ NOTIFICATION, RULES AND REGULATIONS OF GOVERNMENT OF INDIA AND SHALL BE PAYABLE UPON THE SAID AREA BEING PERMITTED TO BE DEVELOPED AND/OR UTILISED FOR THE DEVELOPMENT PURPOSE. 15. IT FURTHER PROVIDED THAT THE SAID CONSID ERATI ON OF RS. 50 CRORE SHALL BE PAID PRO RATA TO THE AREAS RELEASED FOR DEVELOPMENT FROM CRZ REGULATION. CLAUSE 2.3.5 FURTHER REITERATE THAT THE BALANCE AMOUNT OF RS.50 CRORE SHALL BE PAYABLE ONLY IF THE AREA COVERED BY THE CRZ NOTIFICATION IS PERMITTED FOR DEV ELOPMENT. FURTHER, CLAUSE 2.5 OF THE AGREEMENT PROVIDES THAT IN CASE AREA OF THE PROPERTY IS LESS THAN 500 ACRES, THE LESSEES SHALL BE LIABLE TO RETURN THE CONSIDERATION PAID UNDER THE AGREEMENT ON A PRO RATA BASIS. THUS, A READING OF CLAUSE 2.3.4 AND 2.3. 5 OF THE AGREEMENT MAKES IT CLEAR THAT THE PAYMENT OF FINAL TRANCH OF RS. 50 CRORE IS CONTINGENT UPON RELEASE OF PART OF LAND COVERED UNDER CRZ REGULATION FOR DEVELOPMENT WORK. THERE IS NO DISPUTE TO THE FACT THAT TILL DATE A PORTION OF THE LAND IS STILL C OVERED UNDER THE CRZ REGULATION AND NO PERMISSION HAS BEEN GRANTED FOR DEVELOPMENT WORK RELATING TO THE SAID PART OF THE LAND. THEREFORE, AS PER THE TERMS AND CONDITIONS OF THE SALE DEED, THE ASSES SEE HAS NOT RECEIVED AMOUNT OF RS. 50 CRORE. IN VIEW OF THE SPECIFIC RESTRICTION IMPOSED UNDER CLAUSE 2.3.4 OF THE SALE AGREEMENT, THE DEPARTMENTAL AUTHORITIES CANNOT READ THE CLAUSE SPECIFYING THE TOTAL SALE CONSIDERATION PAYABLE TO THE ASSESSEE UNDER CLAUSE 2.1 IN ISOLATION. IN OUR CONSIDERED VIEW,, THE SALE AGR EEMENT HAS TO BE READ AS A WHOLE TO FIND OUT THE REAL INTENTION OF THE PARTIES WITH REGARD TO SALE OF LAND AS WELL AS CONSIDERATION PAYABLE FOR SUCH SALE. WHEN THERE IS A SPECIFIC CLAUSE IN THE AGREEMENT IMPOSING CONDITION FOR PAYMENT OF RS. 50 CRORE, ON H APPENING OF CERTAIN EVENTS, UNLESS SUCH CONDITION IS FULFILLED AND RESTRICTION HAS BEEN REMOVED, IT CANNOT BE SAID THAT THE ASSESSEE IS LIABLE TO BE ASSESSED FOR THE ENTIRE SALE CONSIDERATION MENTIONED IN CLAUSE 2.1 OF THE AGREEMENT IRRESPECTIVE OF THE FAC T WHETHER THE ASSESSEE HAS ACTUALLY RECEIVED RS. 50 CRORE OR NOT. IT IS WELL SETTLED PRINCIPLE OF LAW THAT ASSESSMENT HAS TO BE MADE ON THE BASIS OF REAL INCOME RECEIVED BY THE ASSESSEE. IN THE FACTS OF THE PRESENT CASE, IT IS AN ADMITTED FACTUAL POSITION THAT THE ASSESSEE HAS NOT RECEIVED THE AMOUNT OF RS.50 CRORE. THERE IS ALSO NO CERTAINTY THAT THE ASSESSEE WOULD AT ALL MAY RECEIVE THE AMOUNT OF RS. 50 CRORE EVEN IN FUTURE. THEREFORE, THE ASSESSEE CANNOT BE SUBJECTED TO CAPITAL GAIN ON THE AMOUNT OF RS. 50 CRORE, THOUGH, IT MAY BE A PART OF THE TOTAL SALE CONSIDERATION MENTIONED IN THE AGREEMENT, CONSIDERING THE FACT THAT THE ASSESSEE WAS SUPPOSED TO RECEIVE THE SAID AMOUNT ON FULFILLMENT OF CERTAIN CONDITIONS AND AS PER THE FACTS ON RECORD, THE ASSESSEE HAS NOT RECEIVED THE SAID AMOUNT, SINCE, THE CONDITIONS HAVE NOT BEEN FULFILLED. ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 7 16. THE OBSERVATIONS OF THE DEPARTMENTAL AUTHORITIES THAT CAPITAL GAIN HAS TO BE COMPUTED ON THE TOTAL SALE CONSIDERATION, WHETHER OR NOT THE ASSESSEE HAS RECEIVED THE AMOUN T OF RS. 50 CRORE, IN OUR VIEW, IS LEGALLY UNTENABLE. IN THIS CONTEXT, WE MAY REFER TO THE RELEVANT STATUTORY PROVISIONS GOVERNING THE ISSUE. AT FIRST, WE SHALL REFER TO SECTION 45 OF THE ACT WHICH READS AS UNDER: CAPITAL GAINS. 45. [(1)] ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTIONS [***] [54, 54B, [***] [54D, [54E, [54EA, 54EB,] 54F [54G AND 54H]]]]], BE CHARGEABLE TO INCOME - TAX UNDER THE HEAD 'CAPITAL GAINS' , AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. 17. A PLAIN READING OF SECTION 45 OF THE ACT WOULD SUGGEST THAT ANY PROFIT OR GAIN ARISING FROM TRANSFER OF A CAPITAL ASSET SHALL BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR, WHEREIN, SUCH TRANSFER TAKES PLACE. THUS, AS PER THIS PROVISION, TAXABILITY OF CAPITAL GAIN WOULD DEPEND UPON ARISING OF PROFIT FROM TRANSFER OF A CAPITAL ASSET. SECTION 48 OF THE ACT WHICH PROVIDES THE MODE OF C OMPUTATION OF CAPITAL GAIN SAYS THAT INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN SHALL BE COMPUTED BY REDUCING CERTAIN AMOUNTS FROM FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. THE EXPRESSION FULL VA LUE OF CONSIDERATION RECEIVED OR ACCRUING WOULD MEAN THE AMOUNT ACTUALLY RECEIVED BY THE ASSESSEE OR CONSIDERATION WHICH HAS ACCRUED TO THE ASSESSEE. THE EXPRESSION ACCRUE MEANS A RIGHT ACQUIRED BY THE ASSESSEE TO RECEIVE INCOME. UNLESS, A DEBT DUE BY S OMEBODY HAS BEEN CREATED IN FAVOUR OF ASSESSEE, IT CANNOT BE SAID THAT HE HAS ACQUIRED A RIGHT TO RECEIVE THE INCOME OR THAT INCOME HAS ACCRUED TO HIM. AN AMOUNT CAN ACCRUE TO ASSESSEE IF HE ACQUIRES A LEGALLY ENFORCEABLE RIGHT TO RECEIVE IT FROM THE DEBTO R. KEEPING IN PERSPECTIVE THE AFORESAID STATUTORY PROVISIONS, IF WE EXAMINE THE FACTS OF THE PRESENT CASE, IT CANNOT BE SAID THAT ASSESSEE HAS EITHER DERIVED THE PROFIT OR GAIN AMOUNTING TO RS. 50 CRORE DURING THE RELEVANT PREVIOUS YEAR IN TERMS OF SECTION 45(1) OF THE ACT, NOR IT CAN BE SAID THAT THE AMOUNT OF RS. 50 CRORE WOULD FORM PART OF FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE CAPITAL ASSET. AT THE COST OF REPETITION, WE MUST OBSERVE THAT THE AMOUNT OF RS. 50 CRORE WAS PAYABLE TO THE ASSESSEE SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS AS ENUMERATED IN THE SALE DEED. IT IS PATENT AND OBVIOUS, THE CONDITIONS AS MENTIONED IN CLAUSE 3.4 OF THE SALE DEED HAVE NOT BEEN FULFILLED. THEREFORE, THE ASSESSEE DOES NOT H AVE ANY LEGALLY ENFORCEABLE RIGHT UNDER THE AGREEMENT TO RECEIVE THE AMOUNT OF RS. 50 CRORE. IN THESE CIRCUMSTANCES, COMPUTATION OF CAPITAL GAIN ON THE AMOUNT OF RS. 50 CRORE, IN OUR VIEW, IS NOT ONLY IMPROPER BUT AGAINST THE SCHEME OF THE ACT. THE ENTIRE PURPOSE OF THE INCOME TAX ACT, 1961 IS TO ASSESS THE REAL INCOME OF THE ASSESSEE. THEREFORE, THE DEPARTMENTAL AUTHORITIES CANNOT ASSESS ANY HYPOTHETICAL OR NOTIONAL INCOME TO TAX. HAVING HELD SO, WE FEEL IT APPROPRIATE TO REFER TO THE ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 8 DECISION OF THE HON'B LE JURISDICTIONAL HIGH COURT IN MRS. HEMAL RAJU SHETTE (SUPRA). THE FACTS OF THE CASE ARE, BY VIRTUE OF AN AGREEMENT THE ASSESSEE TRANSFERRED ITS SHARE HOLDING IN A PARTICULAR COMPANY. AS PER THE TERMS OF AGREEMENT, INITIAL CONSIDERATION OF RS. 2.70 CRORE WAS TO BE RECEIVED IMMEDIATELY AND DEFERRED CONSIDERATION OF RS. 20 CRORE WAS TO BE RECEIVED OVER A PERIOD OF FOUR YEARS BASED ON A FORMULA. AS PER THE WORKING OF THE FORMULA A SITUATION MAY ARISE WHERE NO AMOUNT ON ACCOUNT OF DEFERRED CONSIDERATION COULD BE RECEIVABLE BY THE ASSESSEE. IT SO HAPPENED, THE ASSESSEE COULD NOT RECEIVE PART OF THE DEFERRED CONSIDERATION IN ASSESSMENT YEAR 2006 07. HOWEVER, THE ASSESSING OFFICER HELD THAT, SINCE, AS PER THE TERMS OF THE AGREEMENT, ASSESSEE WAS TO RECEIVE THE DEF ERRED CONSIDERATION IN FOUR ASSESSMENT YEARS, IT IS LIABLE TO PAY CAPITAL GAIN TAX. WHEN THE ISSUE ULTIMATELY CAME UP FOR CONSIDERATION OF THE HON'BLE JURISDICTIONAL HIGH COURT, THE HON'BLE COURT AFTER RELYING UPON A NUMBER OF DECISION OF THE HON'BLE SUPRE ME COURT HELD AS UNDER: 8. IN THE PRESENT CASE, FROM THE READING OF THE ABOVE CLAUSES OF THE AGREEMENT THE DEFERRED CONSIDERATION IS PAYABLE OVER A PERIOD OF FOUR YEARS I.E. 2006 - 07, 2007 - 08, 2008 - 09 AND 2009 - 10. FURTHER THE FORMULA PRESCRIBED IN THE AGR EEMENT ITSELF MAKES IT CLEAR THAT THE DEFERRED CONSIDERATION TO BE RECEIVED BY THE RESPONDENT - ASSESSEE IN THE FOUR YEARS WOULD BE DEPENDENT UPON THE PROFITS MADE BY M/S. UNISOL IN EACH OF THE YEARS. THUS IN CASE M/S. UNISOL DOES NOT MAKE NET PROFIT IN TERM S OF THE FORMULA FOR THE YEAR UNDER CONSIDERATION FOR PAYMENT OF DEFERRED CONSIDERATION THEN NO AMOUNT WOULD BE PAYABLE TO THE RESPONDENT - ASSESSEE AS DEFERRED CONSIDERATION. THE CONSIDERATION OF RS.20 CRORES IS NOT AN ASSURED CONSIDERATION TO BE RECEIVED B Y THE SHETE FAMILY. IT IS ONLY THE MAXIMUM THAT COULD BE RECEIVED. THEREFORE IT IS NOT A CASE WHERE ANY CONSIDERATION OUT OF RS.20 CRORES OR PART THEREOF (AFTER REDUCING RS.2.70 CRORES) HAS BEEN RECEIVED OR HAS ACCRUED TO THE RESPONDENT - ASSESSEE. AS OBSER VED BY THE APEX COURT IN MORVI INDUSTRIES LTD. V. CIT [1971] 82 ITR 835. 'THE INCOME CAN BE SAID TO ACCRUE WHEN IT BECOMES DUE.... THE MOMENT THE INCOME ACCRUES, THE ASSESSEE GETS VESTED RIGHT TO CLAIM THAT AMOUNT, EVEN THOUGH NOT IMMEDIATELY.' IN FACT THE APPLICATION OF FORMULA IN THE AGREEMENT DATED 25TH JANUARY, 2006 ITSELF MAKES THE AMOUNT WHICH IS RECEIVABLE AS DEFERRED CONSIDERATION CONTINGENT UPON THE PROFITS OF M/S.UNISOL AND NOT AN ASCERTAINED AMOUNT. THUS IN THE SUBJECT ASSESSMENT YEAR NO RIGHT TO CLAIM ANY PARTICULAR AMOUNT GETS VESTED IN THE HANDS OF THE RESPONDENT - ASSESSEE. THEREFORE, ENTIRE AMOUNT OF RS.20 CRORES WHICH IS SOUGHT TO BE TAXED BY THE ASSESSING OFFICER IS NOT THE AMOUNT WHICH HAS ACCRUED TO THE RESPONDENT - ASSESSEE. THE TEST OF ACCR UAL IS WHETHER THERE IS A RIGHT TO RECEIVE THE AMOUNT THOUGH LATER AND SUCH RIGHT IS LEGALLY ENFORCEABLE. IN FACT AS OBSERVED BY THE SUPREME COURT IN E.D. SASSOON & CO. LTD. V. CIT [1954] 26 ITR 27 'IT IS CLEAR THEREFORE THAT INCOME MAY ACCRUE TO AN ASSESE E WITHOUT THE ACTUAL RECEIPT OF THE SAME. IF THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME, THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUGH IT MAY ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 9 BE RECEIVED LATER ON ITS BEING ASCERTAINED. THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRED A R IGHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT OWED TO HIM BY SOMEBODY. THERE MUST BE AS IS OTHERWISE EXPRESSED DEBITUM IN PRESENTI, SOLVENDUM IN FUTURO . . .'. IN THIS CASE ALL THE CO - OWNERS OF THE SHARES OF M/S. UNISOL HAVE NO RIGHT IN THE SUBJECT A SSESSMENT YEAR TO RECEIVE RS.20 CRORES BUT THAT IS THE MAXIMUM WHICH COULD BE RECEIVED BY THEM. THIS AMOUNT WHICH COULD BE RECEIVED AS DEFERRED CONSIDERATION IS DEPENDENT/CONTINGENT UPON CERTAIN UNCERTAIN EVENTS, THEREFORE, IT CANNOT BE SAID TO HAVE ACCRUE D TO THE RESPONDENT - ASSESSEE. THE TRIBUNAL IN THE IMPUGNED ORDER HAS CORRECTLY HELD THAT WHAT HAS TO BE TAXED IS THE AMOUNT RECEIVED OR ACCRUED AND NOT ANY NOTIONAL OR HYPOTHETICAL INCOME. AS OBSERVED BY THE APEX COURT IN CIT V. SHOORJI VALLABHDAS & CO. [1 962] 46 ITR 144 'INCOME - TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME - TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF ITS INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS INCOME, IF INCOME DOES NOT RESULT, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK - KEEPING AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE.' IN THIS CASE RS.20 CRORES CAP IN THE AGREEMENT IS NOT INCOME IN THE SUBJECT ASSESSMENT YEAR. IT HAS BEEN OBSERVE D BY THE APEX COURT IN THE CASE OF K.P. VARGHESE V. ITO [1981] 131 ITR 597/7 TAXMAN 13 THAT ONE HAS TO READ CAPITAL GAIN PROVISION ALONG WITH COMPUTATION PROVISION AND THE STARTING POINT OF THE COMPUTATION IS 'THE FULL VALUE OF THE CONSIDERATION RECEIVED O R ACCRUING'. IN THIS CASE THE AMOUNT OF RS.20 CRORES IS NEITHER RECEIVED NOR IT HAS ACCRUED TO THE RESPONDENT - ASSESSEE DURING THE SUBJECT ASSESSMENT YEAR. WE ARE INFORMED THAT FOR THE SUBSEQUENT ASSESSMENT YEAR (SAVE ASSESSMENT YEAR 2007 - 08 FOR WHICH THERE IS NO DEFERRED CONSIDERATION ON APPLICATION OF FORMULA), THE ASSESSEE HAS OFFERED TO TAX THE AMOUNTS WHICH HAVE BEEN RECEIVED ON THE APPLICATION OF FORMULA PROVIDED IN THE AGREEMENT DATED 25TH JANUARY, 2006 PERTAINING TO THE TRANSFER OF SHARES. 18. THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT, AS AFORESAID, SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. IN VIEW OF THE AFORESAID, WE HOLD THAT THE AMOUNT OF RS. 50 CRORE HAVING NEITHER BEEN RECEIVED BY THE ASSESSEE NOR ACCRUED IN THE FI NANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE, IT CANNOT BE CONSIDERED AS A PART OF SALE CONSIDERATION FOR COMPUTING CAPITAL GAIN IN THE IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER IS FREE TO PROCEED IN ACCORDANCE WITH LAW IF AND WHEN SUCH INCOME ARISES. WITH THE AFORESAID OBSERVATION, GROUND NO.3, IS ALLOWED. 9. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF ITA NO. 5098/MUM/2015 & 5146/MUM/2015 SHRI MAHESH KUMAR GORDHANDAS 10 CO - OWNER AS STATED ABOVE, WE CONFIRM T HE ACTION OF CIT(A) FOR DELETING THE ADDITION OF RS.50 CRORES. WITH REGARD TO MAKING REFERENCE TO THE DVO, THE TRIBUNAL HAVE ALSO DECIDED THAT IN TERMS OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF POOJA PRINTS, WHEREIN IT WAS HEL D THAT AS PER THE EXISTING PROVISIONS U/S . 55A(A) AO WOULD MAKE A REFERENCE TO THE DVO FOR DETERMINING THE FAIR MARKET VALUE WHERE HE IS OF THE OPINION THAT VALUE SHOWN BY THE ASSESSEE IS LESS THAN THE FAIR MARKET VALUE. 10. IN THE RESULT, APPEAL OF THE AS SESSEE IS ALLOWED WHEREAS APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 12 / 07 /201 8 SD / - ( AMARJIT SINGH ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 12 / 07 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//