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2022 (12) TMI 885 - HC - Income TaxRevision u/s 263 by CIT - compensation received for cancellation of the plot to be in the nature of a capital receipt and not a revenue receipt - HED THAT - A reading of the aforesaid Sections of the Act of 2012, evidences that the payment calculated @ 10% per annum over and above the premium by Government of Goa was not by way of interest but was statutorily in the nature of compensation and therefore, the said receipt cannot be treated as Assessee s Income from other sources . We also agree that the finding of the ITAT that in the present case, since the plot allotted to the Assessee was to be used by the Assessee for carrying on its business and was an income producing asset for this company, since the Assessee who is a real estate developer, intended to construct a building and further sub-lease or transfer such a building to third parties to earn income, it would constitute a capital asset as held by in the case of C.I.T., Bombay City v. Bombay Burmah Trading Corpn., Bombay, 1986 (7) TMI 8 - SUPREME COURT The reference to a Power of an Attorney transaction in the grounds of appeal is incorrect since there was no Power of Attorney executed in favour of the Assessee as noted in the order of the PCIT. The leasehold rights held by the Assessee in the plot was a Capital Asset and that the compensation received by the Assessee from the Government of Goa on the cancellation of the plot was a capital receipt and not a revenue receipt. It is trite law that if an agreement for transfer of rights in an immovable property is not performed by the transferor, the transferee is entitled for compensation as he/she is deprived of the price of escalation. Therefore, the character of payment received as compensation by the transferee bears the character of capital receipt. The payment of interest in the facts of the present case is compensatory in nature and therefore, does not bear the character of revenue receipt. We hold that the AO s order was correct and it did not suffer from any error, justifying the invocation of the PCIT s powers under Section 263 of the Act.
Issues Involved:
1. Exemption Application 2. Condonation of Delay 3. Nature of Compensation Received 4. Treatment of Leasehold Rights 5. Applicability of Section 263 of the Income Tax Act Issue-wise Analysis: 1. Exemption Application: The court allowed the exemption application (CM APPL. 49348/2022) subject to all just exceptions, and the application was disposed of accordingly. 2. Condonation of Delay: The court did not provide a separate detailed analysis for the condonation of delay application (CM APPL. 49349/2022) but proceeded to discuss the main appeal (ITA 462/2022). 3. Nature of Compensation Received: The main issue was whether the compensation received by the Assessee for the cancellation of a plot of land should be treated as a capital receipt or a revenue receipt. The ITAT had ruled that the compensation was a capital receipt. The Revenue argued that the compensation should be treated as 'Income from other sources' because the Assessee was not the owner of the land but merely had user rights under a lease. The court disagreed with the Revenue, stating that the compensation received was not interest income but was statutorily in the nature of compensation as per the Goa (Rajiv Gandhi IT Habitat - Cancellation/Abolition and Regulation of Allotment of Plots) Act, 2012. The court emphasized that the payment was compensatory and not revenue in nature. 4. Treatment of Leasehold Rights: The Revenue contended that the leasehold interest of the Assessee was not a capital asset because the Assessee only had user rights for 30 years and was not the owner. The court, however, found that the leasehold rights granted to the Assessee did constitute a capital asset. The Assessee had the right to construct on the plot and to sub-lease or transfer the constructed building, which created an interest in the land. The court referred to the Supreme Court's judgment in R.K. Palshikhar (HUF) v. Commissioner of Income Tax, which held that a long-term lease creates an interest in the land and amounts to a transfer of a capital asset. 5. Applicability of Section 263 of the Income Tax Act: The Principal Commissioner of Income Tax (PCIT) had invoked Section 263 of the Income Tax Act, arguing that the Assessing Officer's (AO) order was erroneous and prejudicial to the interests of the Revenue. The PCIT directed the AO to re-assess the case, treating the compensation as revenue receipt. The court found that the AO's original assessment was correct and did not suffer from any error. The compensation received by the Assessee was correctly treated as a capital receipt, and the leasehold rights were rightly considered a capital asset. Consequently, the invocation of Section 263 by the PCIT was not justified. Conclusion: The court concluded that the leasehold rights held by the Assessee were a capital asset, and the compensation received from the Government of Goa was a capital receipt. The AO's order dated 15th February 2016 was upheld, and the appeal by the Revenue was dismissed. No substantial question of law arose for consideration.
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