2023 (6) TMI 113 - AT - Income Tax

Long-term capital gains - receipts by the assessee as per the consent decree passed by the Hon ble Bombay High Court in the suit for specific performance of the Agreement to Sell filed by the assessee t ransfer of any right, title, or interest in the property - main allegation of the Revenue that the amount paid to the assessee is not in lieu of right to sue , rather the same was paid to the assessee since it transferred/sold its rights/interest in the property, i.e. Villa Nirmala to R A Realty and therefore, capital gain arose to the assessee HELD THAT - As decided in Sterling Construction Investments 2015 (4) TMI 838 - BOMBAY HIGH COURT once the suit for specific performance has been refused then the receipt of monetary sum cannot be taxed as claimed by the Revenue as the same is in the nature of compensation in money for breach of the contract. Since in the present case also, pursuant to the consent decree in a suit for specific performance amount was paid, therefore, the said amount cannot be said to be liable to capital gains tax. As regards the reliance placed on Clause No.10 of the consent decree, we are of the considered view that the said clause is merely an arrangement amongst the parties, whereby the payment will be directly made to the partners as set out in the consent terms instead of the assessee and thus, cannot be said to be a relinquishment of any right in favour of the partners giving rise to any capital gains in the hands of the assessee. Thus the amount received by the assessee pursuant to the consent decrees dated 20/01/2011 and 15/07/2015 passed by the Hon ble Bombay High Court is not in respect of the transfer of any right, title, or interest in the property i.e. Villa Nirmala, and therefore, cannot be taxed under the head capital gains in the hands of the assessee. Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of the case under section 147/148 of the Income Tax Act, 1961.
2. Taxability of Rs. 135 crores received by the assessee as long-term capital gains.

Summary:

Issue 1: Reopening of the case under section 147/148 of the Income Tax Act, 1961
- Grounds no.1-3 raised by the assessee challenging the initiation of reassessment proceedings under section 147 of the Act were not pressed during the hearing. Accordingly, grounds no.1-3 are dismissed as not pressed.

Issue 2: Taxability of Rs. 135 crores received by the assessee as long-term capital gains
- Grounds no.4 and 5 pertain to the addition of Rs. 134,58,72,917 as long-term capital gains. The assessee argued that the sum received was a capital receipt for the "right to sue" and not chargeable to tax. The AO and CIT(A) held that the amount was for relinquishing rights in the property "Villa Nirmala" and thus taxable as long-term capital gains.

- The Tribunal found that the Agreement to Sell dated 20/12/1974 did not confer any right, title, or interest in the property but only a right to sue for specific performance. The vendor sold the property to tenants, who later transferred it to R A Realty Ventures. The Tribunal concluded that the payment of Rs. 135 crores was for settling the suit for specific performance and was compensation for breach of contract, not for transferring any right in the property.

- The Tribunal relied on the case of Sterling Construction & Investments v/s ACIT, where the Hon'ble jurisdictional High Court held that compensation for a breach of contract in lieu of specific performance is not taxable as capital gains. The Tribunal held that the amount received by the assessee was not in respect of the transfer of any right, title, or interest in the property and thus not taxable under "capital gains."

- Clause No.10 of the consent decree, which directed payment to the partners instead of the firm, was found to be merely an arrangement and not a relinquishment of rights giving rise to capital gains.

- Consequently, grounds no.4 and 5 raised in the assessee's appeal were allowed.

Other Assessees:
- For the other assessees (Shirin Mahendra Shah, Pratibha Mahindra Shah, and Emvee Shah Real Estate Pvt. Ltd.), the AO made an addition on a protective basis. The CIT(A) directed deletion of the protective addition but stated it would become substantive if the firm's substantive addition was reduced. Since the Tribunal concluded that the amount received was not taxable as capital gains, the addition in the hands of the partners also did not survive. Grounds no.4-6 on merits in these appeals were allowed, and grounds no.1-3 were dismissed as not pressed.

Conclusion:
- All the appeals were partly allowed. The order was pronounced in the open Court on 29/05/2023.