2018 (4) TMI 700 - AT - Income Tax

Receipt for relinquishment of right to sue the party - to be treated and taxed as business income OR capital receipts - Held that - We are inclined to follow the findings of the Co-ordinate Bench in assessee s own case for A.Y. 2009-10 2018 (4) TMI 621 - ITAT AHMEDABAD as held find no merit in the instant plea as the assessee has neither paid any consideration money nor carried out any development activity. It had merely obtained a licensee right to enter into possession into three parcels of land not creating any easement or interest therein as per Section 52 of the easement law. We further observe that the assessee developer could not have entered into full fledged possession in performance of the agreement in view of statutory bar u/s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948 (applicable in Gujarat state). There is no material indicating the above lands being converted to non agricultural. The same sufficiently indicates that assessee s license right existed on paper only. Hon ble Bombay high court s decision in Manoj B. Joshi s case (2008 (7) TMI 1007 - BOMBAY HIGH COURT) holds that such an amount is not to be taxed as income u/s.2(24) of the Act. Assessee s above development license acquired in its all three agreements does not amount to part performance requiring compulsory registration u/s.17 of the Registration Act. We therefore conclude in this view of all this evidence as well as legal position that the impugned compensation amount is not liable to be treated as income u/s.2(24) of the Act nor the same is taxable as capital gain for business income being in the nature of a capital receipt. - Decided against revenue

Summary

Issues:
Appeal against the order of Ld. CIT(A)-9, Ahmedabad for A.Y. 2008-09 regarding deletion of addition made on account of receipt for relinquishment of right to sue treated as business income, failure to follow precedent from A.Y. 2009-10, and comparison of facts with a previous Tribunal order.

Analysis:
The Revenue appealed against the Ld. CIT(A)'s order deleting the addition of ?5,40,00,000, treating it as business income instead of capital receipts. The Revenue contended that the Ld. CIT(A) erred by not following the precedent set in the assessee's case for A.Y. 2009-10. However, the Tribunal referred to a previous order in ITA NO. 212/Ahd/2014 where the findings of the Ld. CIT(A) were set aside, and the A.O. was directed to delete the addition. The Tribunal found no distinguishing fact and noted that the facts were identical to A.Y. 2009-10. The Tribunal decided to follow the findings of the Co-ordinate Bench in the assessee's own case for A.Y. 2009-10, emphasizing that the compensation amount was not taxable as business income or capital gains but was a capital receipt.

The Tribunal's analysis highlighted that the compensation received by the assessee was not taxable as business income since the assessee did not undertake any development activities on the land. The Tribunal referenced legal precedents to support its decision, stating that the amount received was not income under Section 2(24) of the Act or taxable as capital gains. The Tribunal also noted that the assessee's license right to enter the land did not constitute full-fledged possession due to statutory restrictions. Additionally, the Tribunal cited decisions from the Bombay High Court and a Co-ordinate Bench to support the conclusion that the compensation amount was not a business income. The Tribunal dismissed the Revenue's appeal based on the findings of the Co-ordinate Bench and concluded that the compensation amount was a capital receipt, not taxable income.

In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the order of the Ld. CIT(A) in deleting the addition of the compensation amount as business income. The cross objection of the assessee supporting the Ld. CIT(A)'s order did not require separate adjudication. The Tribunal's decision was based on the analysis of legal precedents, the nature of the compensation received, and the absence of development activities by the assessee, leading to the determination that the amount was a capital receipt and not taxable income.