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2016 (5) TMI 119 - HC - Income TaxAmount received covered under Section 10(3) - whether receipts which are of a casual and non-recurring nature? - Held that - The sum of ₹ 20 lakhs received by the Assessees was in the context of the cancellation of the sale certificate and the sale deed executed in their favour in relation to an immovable property and neither Assessee was dealing in immovable property as part of his business. While it could if at all be said to be in the nature of a capital receipt, what is relevant for the present case is that the Revenue has been unable to make out a case for treating the said receipt as of a casual and non-recurring nature that could be brought to tax under Section 10(3) read with Section 56 of the Act. AO was in error in proceeding on the basis that a sum of ₹ 20,00,000 received by the Assessee was in the nature of a casual and non-recurring receipt which can be brought to tax under Section 10(3) of the Act. Having held that it could not be in the nature of capital gain it was not open to the Revenue to seek to bring it to a tax under the revenue receipt. Following the decision in Cadell Weaving Mill (2001 (2) TMI 105 - BOMBAY High Court ), there can be no manner of doubt that what is in the nature of capital receipt, cannot be sought to be brought to tax by resorting to Section 10(3) read with Section 56 of the Act. - Decided against the Revenue
Issues Involved:
1. Nature of the receipt of ?10,00,000 each in the hands of the two Assessees. 2. Whether the receipt is taxable under Section 10(3) of the Income Tax Act, 1961 as a casual and non-recurring receipt. 3. Whether the receipt could be considered a capital gain or a revenue receipt. Issue-wise Detailed Analysis: 1. Nature of the Receipt: The Assessees received ?10,00,000 each as part of a settlement recorded by the Supreme Court. Initially, the Assessees disclosed this amount as capital gains but later revised their returns, stating that the amount was wrongly treated as capital gain income. The Assessing Officer (AO) concluded that the amount could not be considered as sale consideration since the auction sale was set aside, and therefore, capital gains were not attracted. The AO treated the amount as a casual and non-recurring receipt under Section 10(3) of the Act. 2. Taxability under Section 10(3): The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the amount received by the Assessees was casual and non-recurring income under Section 10(3) of the Act. The Income Tax Appellate Tribunal (ITAT) also upheld this view, relying on the decision of the Allahabad High Court in Gulab Chand, which held that even if a receipt did not fall within the ambit of any of the clauses under Section 2(24) of the Act, it could still be 'income' within the natural meaning of the word and taxable under Section 10(3). 3. Capital Gain or Revenue Receipt: The Assessees argued that the receipt was a capital receipt not taxable under Section 45 of the Act, citing the Supreme Court's decisions in CIT v. Saurashtra Cement Ltd. and Travancore Rubber & Tea Co. Ltd. v. CIT. The Revenue contended that the receipt was either a capital receipt or a casual and non-recurring receipt. The High Court noted that the consistent case of the Revenue was that the receipt was taxable under Section 10(3) and not as a revenue receipt. Court's Analysis and Conclusion: The Court held that the receipt of ?20,00,000 by the Assessees was consequent upon the Supreme Court's order and did not constitute interest on the auction sale consideration. The Court reiterated that all receipts do not constitute income, and the burden lies on the Revenue to prove that a receipt is within the taxing provision. The Court referred to various precedents, including C. Kamala v. CIT, where it was held that there cannot be any transfer of interest in a capital asset by the auction purchaser when the sale itself is set aside in appeal. The Court also referred to the Supreme Court's decision in D.P. Sandu Bros., which upheld that a capital receipt not taxable under Section 45 cannot be taxed under any other provision, including Section 10(3). The Court concluded that the receipt in question was not taxable as a casual and non-recurring receipt under Section 10(3) read with Section 56 of the Act. Conclusion: The High Court set aside the orders of the AO, CIT(A), and ITAT, holding that the sum of ?20,00,000 received by the Assessees was not taxable as a casual and non-recurring receipt under Section 10(3) of the Act. The appeals were allowed in favor of the Assessees, with no order as to costs.
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