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TMI Blog2005 (10) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessment year 1995-96 on the ground that the letter for cancellation of the MOU for sale of office premises and payment of compensation is dated 30-3-1995, then a specific direction be given to the Assessing Officer to allow deduction for such compensation in the assessment year 1995-96. That accordingly, applying the same logic, the profit on sale of the two flats viz. A1 and B2 should also be excluded from the income of assessment year 1996-97 and considered in assessment year 1995-96 instead, since the agreements for sale of these two flats is also dated 30-3-1995 i.e., the date on which the compensation was agreed upon and a suitable direction be given to the Assessing Officer." 3. These additional grounds were admitted by the Tribunal by passing an interim order on 6-6-2005, copy of which is placed on record. 4. The assessment in this case was completed under section 143(3)/147. The original assessment was completed and thereafter the Assessing Officer noticed that the assessee has claimed a loss in shares of Rs. 10,61,038 which is not allowable. Therefore, notice under section 148 of the Act was issued on the assessee and notice under section 143(1)/143(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under : "With reference to your query, why the compensation of Rs. 1.10 crores should not be accounted during the previous year relevant to assessment year 1995-96, we submit that we agreed to settle the dispute, regarding the sale of office premises at 1st for on 30th March, 1995. But the said settlement was subject to the sale and transfer of two flats in the Great Eastern Royale Building, Tardeo. On 30th March, 1995, it was agreed between two parties to settle the dispute and the same subject to the fulfilment many other conditions like : MOU was also signed. ( i )Obtaining 371 Clearance in respect of said flats, which we obtained only on 29th May, 1995. ( ii )Balance payment of Rs. 68.00 lakhs which was paid in the month of May, 1995. ( iii )Handing over of the possession of flats on financial year 1995-96 and execution of transfer papers. Without prejudice to the above contention, if the compensation was to be accounted during the previous year relevant to assessment year 1995-96 as per your Honour s argument, the income in respect of sale of said flats also should be accounted in the said assessment year, i.e. assessment year 1995-96 as the MOU between two par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome declared by the assessee at Rs. 13,55,590. The assessee preferred appeal before the CIT(A). Detailed submissions were filed before the CIT(A). After considering the submissions and perusing of other relevant materials on record, the CIT(A) was in agreement with the findings of the Assessing Officer in regard to both the issues. Therefore, he confirmed the action of the Assessing Officer on both the issues. 7. Now, the assessee is in appeal before the Tribunal against the order of the CIT(A). The ld. counsel for the assessee filed copy of detailed submissions and a copy of the same has been given to the ld. DR. Further, reliance was placed on the decisions mentioned in the written submissions and also on the decision in the case of Mafatlal Holdings Ltd. v. Addl. CIT [2004] 85 TTJ (Mum.) 821. The ld. counsel for the assessee invited our attention on various paragraphs of the written submissions and various ratios of the decisions recorded in the written submissions and it was pleaded that both the authorities were not justified in negating the claim of the assessee. It was further stated that from the very beginning the assessee is showing the purchase of shares under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of those flats were agreed at Rs. 1.43 lakhs each and Rs. 42 lakhs were to be adjusted against the sale consideration of these two flats and the remaining amount of Rs. 68 lakhs was paid by the assessee vide cheque dated 15-5-1995. In this way a sum of Rs. 3,54,00,000 was paid by the assessee to Sh. Lalwani. Therefore, there was a loss of Rs. 1,10,87,000 on this deal which has been claimed by the assessee. It was further explained that any loss on account of sale of business assets suffered by the assessee is allowable as business loss. In this regard, reliance was placed on various decisions in Dalmia Jain Co. Ltd. v. CIT [1971] 81 ITR 754 (SC), Indian Copper Corpn. Ltd. v. CIT [1977] 110 ITR 434 (Pat.), CIT v. Bhawani Prasad Girdharilal [1981] 127 ITR 800 (All.), CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC) and J.K. Commercial Corpn. Ltd. v. CIT [1969] 72 ITR 296 (All.). Regarding objection of the Assessing Officer that Sri Lalwani had denied any agreement with the assessee, it was submitted that it is totally wrong on the part of the Assessing Officer because the assessee was never confronted with letter received from Sh. T.K. Lalwani an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame is allowable in the assessment year 1996-97. The Assessing Officer has taxed the capital gain at Rs. 1,13,06,285 in the year in which the same is disclosed i.e., assessment year 1996-97. However, the Assessing Officer rejected the claim of compensation paid by the assessee which was inextricably linked with the profits earned on account of sale of two flats. Accordingly, it was submitted that the action of the Assessing Officer was not justified. It was however, submitted that if the Assessing Officer wants to reject the claim on account of compensation on the reasoning that the same pertained to assessment year 1995-96 then on the same reasoning the profit against the sale of 2 flats has to be reduced from the profit of the year under consideration. It was also clarified that as per the MOU the sale of flats was taken as completed on the day on which the clearance has obtained from the appropriate authorities under section 269UL of the Act. The clearance was obtained in the month of May 1995. Therefore, the sale was shown in the assessment year 1996-97 and, accordingly, the compensation paid by the assessee to Sh. Lalwani was also taken into consideration for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reconstructing the building flats thereon acquiring bungalows, buildings, residential or otherwise factories, sheds on such lands, tenements in such bungalows, buildings, residential or otherwise factories, sheds, offices, schools, colleges, hotels, shops, cinema studios, cinema houses, cinema laboratories and to carry on the business of buying, selling, leasing or otherwise dealing in industrial estates, residential buildings anywhere in India and abroad. ( ii )To carry on business as an investment company and to invest money of the Company on the security of or in the purchase and acquisition of any stock, shares, units, bonds, debentures, debenture-stock, obligation, mortgages or securities of any Government State or Municipality or of any Company or Corporation and generally to subsidize for secure and hold, sell, exchange and deal in stock, obligations, mortgages or securities of any Government or Public Authority or company." 10. As per the above clauses of Memorandum of Association, it is clear that the company is doing the business of investment in shares. The investment in shares is one of the main businesses being carried out by the assessee-company is further cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under has no application on the facts of the present case : "Whereas any part of the business of a company other than a company whose gross total income consist mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources or a company the principal business of which is the business of banking or granting of loans and advances consists in the purchase and sale of shares of other companies, such companies shall, for the purpose of this section, be deemed to be carrying on a speculation business to the extent to which the business consist of the purchase and sale of such shares." 11. On careful perusal of the Explanation , it is clear that the said Explanation is only applicable to a company which is inter alia engaged in the business of purchase or sale of shares i.e., trading in shares. In the instant case, the company is not engaged in the business of the share trading as all the purchases of shares have been shown under the head investment . Investment has been made by the assessee to earn income in the form of dividends and not to earn profit by trading in them. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, First Floor, 31st Road, Bandra, Mumbai. The MOU stipulated the sale price at Rs. 2 crores. It provided that the assessee-company would vacate the office premises by first week of April, 1995 after which Sh. Lalwani could operate from the said premises. Copy of the MOU is placed on record at pages 16 to 18 of the paper book. The assessee received the entire sum of Rs. 2 crores in two instalments from Sh. Lalwani by cheque dated 4-5-1994 of Rs. 1,30,00,000 and cheque of dated 10-4-1995 of Rs. 70,00,000. For various reasons the assessee was unable to honour the MOU. In such a situation, Sh. Lalwani could have enforced a specific performance of the contract. As such with a view to protect and preserve its business assets i.e., office premises and prevent Sh. Lalwani from enforcing a specific performance of the impugned contract, the assessee-company agreed to pay compensation of Rs. 1,10,00,000 in lieu of MOU as per mutual agreement between the parties. Copy of the letter dated 30-3-1995 for cancellation of MOU and agreed upon the compensation of Rs. 1,10,00,000 is placed on record at pages 19 to 21 of the paper book. The assessee-company did not have ready availability of funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to capital asset is not applicable to assessee s case. The transfer of rights, title and interest in the 2 flats to the Lalwani were purely in the nature of business and resultant income was business income. The contention of the ld. Assessing Officer that the assessee has paid compensation on account of capital assets and, therefore, the same is not allowable and has to be set off against business income, in our considered view, are not correct. The office premises of the assessee was shown as business assets and the assessee has claimed depreciation on the same. Therefore, any profit earned out of business assets has to be given the same treatment as given on the other business assets. The flats earned by the assessee were shown stock-in-trade and whatever the profits earned by the assessee out of the sale of the two flats were offered for taxation. Therefore, any compensation paid in lieu of cancellation of sale of office premises has to be allowed as deduction. Therefore, this contention of the Assessing Officer is not tenable and hence, rejected. 13. Regarding the contention that the compensation relates to assessment year 1995-96, we find that the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was transferred on account of cancellation of MOU in regard to sale of office premises. There is also no dispute that the assessee had made payment of Rs. 68 lakhs over and above the amount of consideration agreed upon on account of sale of the 2 flats which were at Rs. 1.43 lakhs each. In this way the assessee has made payment of Rs. 2.86 lakhs and Rs. 68 lakhs to Sh. Lalwani. The payment of Rs. 43,13,000 was due to be paid to M/s. Great Eastern Shipping Co. Ltd. which was paid by Sh. Lalwani as per agreement between the assessee and Sh. Lalwani. This amount of Rs. 43,13,000 was adjusted against the payment of Rs. 68 lakhs made by the assessee through cheque. Therefore, it cannot be said or held that there was no agreement between the assessee and Sh. Lalwani. It is also a fact that the denial letter received from Sh. Lalwani was not provided to the assessee and, therefore, no proper opportunity was allowed to the assessee for cross-examination. The ratio of the decision of the Hon ble Apex Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713 is clearly applicable in this regard. Therefore, in view of these facts and circumstances of the case, we hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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