2024 (8) TMI 467 - HC - Income Tax

LTCG - accrual of income - Taxability of part consideration which the assessee did not receive under the transaction to sell/transfer plot of land - tribunal opined in favour of the assessees and against the Revenue - HELD THAT - In the present appeal the assessee is an individual, hence, the asseessee was maintaining his accounts on accrual/cash basis, is also an additional factor. In any event, the amounts of balance consideration as received by the assessee and as actually accrued, was offered to tax in the subsequent year. As decided in MRS. HEMAL RAJU SHETE 2016 (4) TMI 1082 - BOMBAY HIGH COURT contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-2007 as the same has not accrued during the year. As pointed out above, accrual would be a right to receive the amount and the respondent-assessee alongwith its co-owners have not under the agreement obtained a right to receive Rs. 20 crores or any specified part thereof in the subject assessment year. - Decided against revenue.

Summary

Issues:
- Appeal by Revenue under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
- Whether the "part consideration" not received under a land transaction should be taxed.
- Interpretation of Section 2(47) of the Act and Transfer of Property Act 1882.
- Comparison with similar cases and legal principles regarding deferred consideration and accrual of income.

Analysis:
1. The appeal by the Revenue was filed against the Tribunal's order regarding the taxation of "part consideration" not received under a land transaction. The issue revolved around whether the entire amount of the agreement consideration, despite not being actually received, should be taxed. The Tribunal ruled in favor of the assessees, leading to the Revenue's appeal on specific questions of law related to the Long Term Capital Gain from the land transfer in Pune.

2. The Court noted that similar appeals by the Revenue against other assessees had been disposed of by a coordinate Bench, where the balance consideration for the sale of land was taxed as Long Term Capital Gains in a subsequent assessment year. This disposal set a precedent relevant to the present appeal, which involved an individual assessee maintaining accounts on an accrual/cash basis.

3. The Tribunal's observations emphasized the conditions of the agreement for land sale, highlighting that the right to receive consideration was contingent upon fulfilling certain obligations. The Court referred to relevant legal precedents and upheld the Tribunal's decision that the assessee was liable for capital gains tax only on the received consideration during the year, not on hypothetical or deferred amounts.

4. Legal principles regarding deferred consideration and accrual of income were further supported by citing a case involving a similar scenario. The Court reiterated that income accrual is based on the right to receive the amount, and contingent consideration dependent on uncertain events does not constitute accrued income for taxation purposes.

5. The Court also referenced another case to strengthen the argument regarding the taxation of actual received or accrued income, rather than notional or hypothetical amounts. The decision highlighted the importance of distinguishing between income that has accrued or been received and income that is contingent on future events.

6. Ultimately, the Court agreed with the observations and decisions of the coordinate Bench, leading to the disposal of the present appeal without costs. The judgment reinforced the principles of taxation based on actual receipt or accrual of income, especially in cases involving deferred consideration and contingent payments related to property transactions.