2019 (6) TMI 1100 - HC - Income Tax

Assessment of trust - assessee had shown receipt received pursuant to the settlement and for withdrawing the suit filed by the assessee against the original defendant in respect of an immovable property - revenue or capital receipt - Tribunal justification in not deciding the appellant's claim of certain receipts being capital receipts despite reproducing appellant's entire submission in the Tribunal order - HELD THAT - From the reproduced portion of the Tribunal's judgment, it can be gathered that in view of the fact that the Tribunal had decided the question of accumulation of the Trust's fund in favour of the assessee, the Tribunal refrained from deciding the assessee's contention that the receipt was not taxable at all. In view of the fact that the Tribunal has rested its judgment only on the assessee's alternative contention and as pointed out by the learned counsel for the assessee that it may happen that this ground may fail on account of future developments, it is necessary that the assessee must get an answer to its primary contention of the receipt not being taxable at all. Under these circumstances, we request the Tribunal to decide this issue on merits. For this limited purpose, we place the proceedings back before the Tribunal for deciding this question in accordance with law. We have not expressed any opinion. All contentions of both the parties on ground ground are kept open. The appeal is disposed of.

Summary

Issues:
Challenge to Tribunal's judgment on taxability of certain receipts as capital receipts and benefit of accumulation of funds under Section 11(2) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed to challenge the Tribunal's judgment regarding the taxability of certain receipts as capital receipts. The assessee had received a sum of ?2 Crores pursuant to a settlement for withdrawing a suit against the original defendant. The assessee claimed that the receipt was a capital receipt and therefore not taxable. Additionally, the assessee, being a Trust, contended that the accumulated income was exempt from tax under Section 11(2) of the Income Tax Act, 1961. The Assessing Officer taxed the income, leading to an appeal by the assessee. The Commissioner ruled against the assessee on both issues, prompting the appeal to the Tribunal.

2. The Tribunal's judgment favored the assessee's alternative contention regarding the benefit of accumulation of funds under Section 11(2) of the Act. Consequently, the Tribunal did not address the primary issue of whether the receipt was taxable as a capital receipt. The Tribunal refrained from deciding the taxability of the income due to its decision on the accumulation of funds in favor of the assessee.

3. The assessee's counsel highlighted the potential risk of losing the exemption benefit if the funds remained unused for five years. Considering this risk, the assessee emphasized the importance of asserting the main ground that the receipt was not taxable at all. As the Tribunal based its decision solely on the alternative contention, the assessee requested a resolution on the primary contention of the non-taxability of the receipt.

4. The High Court recognized the need for a determination on the primary contention of the receipt's taxability. Therefore, the Court remanded the proceedings back to the Tribunal for a decision on this issue in accordance with the law. The Court clarified that it had not expressed any opinion on the matter, keeping all contentions of both parties open for further consideration. Consequently, the appeal was disposed of without a definitive ruling on the taxability of the receipts.