2003 (11) TMI 37 - HC - Income Tax

Compromise decree - 1. Whether the compromise decree is a lawful decree? - The matter was compromised in the High Court and on the basis of the terms of compromise, the compromise decree was passed. Under the circumstance, the compromise decree in first appeal, which was pending before the High Court, is a legal decree for all purposes. - Accordingly, we answer question No. 1 in the affirmative - 2. Whether the appellant has a legal right to receive the sale proceeds of 17 plots and whether the amount of sale proceeds was of revenue nature? - In the instant case, the right to receive payment was in dispute and in view of the compromise decree in first appeal, which was pending before the High Court at Bombay, the appellant was required to return the whole of the sale proceeds of Rs. 1,25,418 to the land owner - We, therefore answer question No.2 in favour of the appellant and against the Revenue.

Summary

Issues involved:
1. Validity of compromise decree as lawful decree
2. Legal right of appellant to receive sale proceeds of 17 plots

Analysis:

Issue 1: Validity of compromise decree as lawful decree
The High Court analyzed the Tribunal's decision challenging the compromise decree's legality. The Tribunal did not consider the compromise decree as lawful, stating that the rights and liabilities were not determined through proper evaluation. However, the High Court emphasized that a decree based on a settlement reached before the court holds the same binding force as any other decree. Referring to legal precedent, the High Court affirmed that a compromise decree passed in court is legally valid. Therefore, the Tribunal's conclusions regarding the compromise decree's nature were deemed incorrect and set aside.

Issue 2: Legal right of appellant to receive sale proceeds of 17 plots
The High Court examined the appellant's legal right to receive the sale proceeds of 17 plots. As the landowner did not execute a sale deed in favor of the appellant, the latter did not become the lawful owner of the property. Without a sale deed, the appellant lacked the legal right to sell the plots. The compromise decree mandated the appellant to return the sale proceeds to the landowner and receive back the earnest money. Citing legal precedent, the High Court distinguished between disputed and admitted rights to receive payment. In this case, the right to receive payment was in dispute, and the compromise decree required the appellant to return the entire sale proceeds to the landowner. Consequently, the High Court ruled in favor of the appellant, stating that the amount returned to the landowner should not have been added to the appellant's disclosed income.

In conclusion, the High Court allowed the tax appeal filed by the assessee, quashed the Tribunal's order, and set aside the addition made to the appellant's income. The judgment favored the appellant, emphasizing the legality of the compromise decree and the absence of the appellant's legal right to retain the sale proceeds of the plots.