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TMI Blog2018 (4) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... bserve that 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 - ITA No. 212/Ahd/2014 - - - Dated:- 29-8-2017 - Shri S. S. Godara, Judicial Member And Shri Manish Borad, Accountant Member By Assessee : Shri Dhiren Shah, A.R. By Revenue : Shri K. Madhusudan, Sr. D.R. ORDER Per S. S. Godara, Judicial Member This assessee s appeal for assessment year 2009-10 arises against the CIT(A)-XI, Ahmedabad s order dated 19.11.2013, in case no. CIT(A)- XI/347/Wd-5(2)/11-12, upholding Assessing Officer s action making business income addition of ₹ 3,87,27,804/- on account of relinquishment of right before development, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short the Act . 2. We come to relevant facts. This assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration money of ₹ 2,28,12,111/- ₹ 1,37,94,000/-; respectively. Paper book page 49 in assessee s P L account reveals that the assessee treated the above sum totaling to ₹ 3,87,27,804/- as income in the nature of compensation/damages received. 4. We advert to assessment order dated 15.12.2011 now. Assessing Officer took up scrutiny. He perceived the above sequence of development and cancellation transactions as assessee s modus operandi inter alia indicating it to enter into development agreement with owners first, the latter would sell the very land to third parties with former s consent who would invoke its preemptive purchase right to get the same annulled in lieu of compensation money. This compensation money would be treated as a capital receipt exempted from being taxed. The Assessing Officer accordingly issued a show cause notice seeking to treat the above compensation as business income. 5. The assessee appears to have filed its multiple replies dated 22.11.2011, 25.11.2011 13.12.2011 inter alia reiterating the above entire backdrop of facts to plead that the compensation amount was in fact a capital receipt not assessable as income u/s. 2(24) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant had derived profits from compensation amounting to ₹ 5.4 crores on surrender of right to sue and claimed the same as capital receipt. During the year the appellant had entered into as many as three such agreements and all of them ended with the appellant benefitting on account of surrender of right to sue. A coincidence happening too many times can not be accepted as a real life event and appears to be beyond the normal scope of human probability. Hon ble Supreme Court of India while deciding the case of Sumati Dayal v/s CIT reported in [1995] 214 ITR 801(SC) has held after referring to the decision of Supreme Court in the ease of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC): This raises the question whether the apparent can be considered as the real. As laid down by this court the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real arid that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. E. It is seen that no evidence has been produced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sold Paid appellant to H. From the reading of the development agreements in the first case in the above table, following salient features emerge: a. In respect of land at Survey no. 232, Village Moje, the agreement was executed on a stamp paper of ₹ 100/-. This stamp paper was purchased on 11/03/2008 bearing no. G116669. The agreement was executed on 18/03/2008. The termination agreement was executed on 27/09/2008 on a stamp paper which was purchased on S/09/2008, It may be highlighted here that the sale to the third party took place on 15.09.2008 i.e. after the date of stamp paper purchase for the termination agreement which was executed within 12 days from such sale. b. Under Clause 2.4 of the agreement the appellant (developer) have promised to pay a sum of Rsx 95 lacs to the land Owners. The developer was supposed to carry out the development activities, incur the expenses and enjoy the consideration and the resultant profits. No amount was paid by the appellant to the owners of the land. c. As per clause 5.2 of the above agreement the develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said land as aforesaid from the owner it will be on the part of the other part to decide further whether to develop the said land or not. 6.14 It has been further agreed by and between the parties to this agreement that in ease of termination of this agreement by the owners for any reason whatsoever, as mentioned in para 6.11 hereinabove, then the position of the said land shall remain with the developers until they decide not to exercise the right of pre-emptive purchase of the said land as given in the Para 6.12 herein above. f. In clause 13.1 it has been provided that in case of dispute between the parties, Shri IH Syed, Advocate would act as mediator and his decision shall be final and binding on both the parties. g. From overall reading of the agreements it is seen that the owners Mere to Benefit to this extent of ₹ 95 lacs if the development agreement went through. However, on cancellation they have gained only to the tune of ₹ 22.94 lacs whereas the appellant have benefited by a whopping sum of ₹ 1.15 crores and that too without investing a single rupee. I. Identical development agreement has been executed by the appellant in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al period of time after execution. P. The sale-agreement indicates that they have handed over the possession of vacant land to the ultimate purchasers of land. This clearly means that the possession which was with the appellant earlier was given by the appellant to the owners back. Hence the appellant was fully aware of the transaction, No legal notice was ever given by the appellant to the owners for contravention of the development agreement. Q. From perusal of the copy of termination agreement with the society it is seen that there is no subsequent sale by the Society to any third party. The society could not obtain necessary permissions and therefore the compensation is stated to have been paid. Clause no. 16 and 25 of the agreement with the society specifically deal with the compensation to be paid to the appellant in case of the agreement not being followed. R. In case of development agreements, the compensation payment on termination of the agreement has been provided in the development agreement in clause 6.11. Hence the compensation has been received by the appellant as part of the agreement for termination. The claim of surrender of the right to sue is mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the nature of GPA sales or SAN GPAVWILL transfers do not convey title and do no amount to transfer, nor can they be recognized as valid mode of transfer of immoveable property and that the Courts will not treat such transactions as completed or concluded transfers or as conveyances as they nether convey title nor create any interest in an immovable property. U. If legally the facts are examined then appellant had no case before the court of law to sue for specific performance. The development agreement was not registered. The appellant had hot paid a single penny to the owners in two cases and in the third case of society only an amount of ₹ 1454000/- was paid, which was miniscule when compared to the ultimate sale price of the land; In absence of any step taken by the appellant and in view of the fact that the agreements were not registered, appellant had no enforceable claim in the eyes of law; Hence what was received was only possible by way of mutual consultation within the terms of agreement and that too only because the owners wanted to respect the agreement. The compensation clause was very much a part of the development agreement and therefore the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items of income. As per AS-5 Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly, It is further provided that the nature and the amount of each extraordinary item should be separately disclosed in the statement of profit arid loss in a manner that its impact on current profit or loss can be perceived. However, in the annual report of the appellant company, it has been clearly mentioned with regard to the financial performance that During the year under report, the company has achieved a gross income of ₹ 3 87.28 lakhs as compared to ₹ 5 40.02 lakhs during the previous year and the operations for the year under review have resulted into net profit of rupees to 91.79 lakhs. Your company could achieve sustained growth in business due to continued pursuit of our strategy to work with innovation ideas and developing new areas of Its activities or stop directors are hoping even better performance during the current year. This clearly indicates that the amount of compensation has been received in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement and/or the release deed entered into by and between the assessee and D . In view of the admitted facts and circumstances of the case, it could not be said that the amount in issue so received by the assessee was not an income at all in terms of section 2(24), read with section 14 and section 56. Therefore, the finding of all the lower authorities, that the amount in issue received by the appellant was an income taxable under the Act, was to be confirmed. [Para 9] On facts, it was clear that the assessee had not received the amount in issue from D towards either acquiring or releasing or relinquishing any right or title or interest whatsoever in the immovable property. He was paid separately, for relinquishing his interest in the immovable property, an appropriate amount along with interest. Obviously, therefore, the amount in issue could not be said to be an amount received by the assessee as compensation for relinquishing his interest in the immovable property and, therefore, could not be considered under the head Capital gains . [Para 11] It is true that the term property used in section 2(14) is to be interpreted widely, and that it will include any ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as revenue receipt in view of the decision of Hon'ble Bombay HC in the case of Manoj Joshi (supra). At the most' the head of income can be Income from Other Sources. However, in the case before the Bombay HC the assessee had not received such amount in the course of business whereas in the present case the appellant was in the business of realty and therefore in my opinion the AO has correctly taxed it as income under the Head Business and Profession. 2.4 In View of the above discussions, I hold that the income from the business operation earned by the appellant being a part and parcel of the conditions of the development agreement has to be considered as taxable business income. The action of the A.O. in treating the compensation shown by the appellant as revenue receipt is accordingly confirmed. The first ground of appeal including sub grounds 1 to 7 is accordingly dismissed. 7. Mr. Dhiren Shah appears for the assessee as its authorized representative. He first of all reiterates the above narrated facts once again regarding assessee s three development agreements followed by termination thereof and execution of sale deeds by vendors in favour of thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in (2016) 73 taxmann.com 288 (Ahmedabad-Trib.) Smt. Sapnaben Dipakbhai Patel vs. ITO distinguishing hon ble apex court s abovestated judicial precedent as under: 24. On due consideration of the above reasoning, we are of the view that as far as the judgment of the Hon ble Supreme Court in the case of Suraj Lamp Industries (supra) is concerned, it is altogether in different context. There is no dispute with regard to the proposition that transfer of an immovable property having value of more than ₹ 100/- can only be completed by way of registered sale deed, as contemplated in section 17 of the Registration Act. This judgment deals with the concept of power of attorney, lease, licence etc. Definition of expression transfer provided in section 2(47) is more wider than in the general law. As observed earlier, while dealing with the issue no.(ii), the expression transfer employed in section 2(47) includes (a) any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in section 53A of the TPA, and (b) any transaction entered into in any manner which has the effect of transferring, or enabling the enjoyment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be treated as valid agreement. A controversy in this aspect had arisen whether such non-registered agreement can be entertained in evidence or not in a suit for specific performance. A reference was made before the Division Bench of Punjab Haryana High Court in regular Second appeal No.4946 of 2011 in the case of Ram Kishan Vs. Bijeder Mann. The Hon ble High Court has resolved the controversy and held that such unregistered agreement can be produced as evidence in suit for specific performance. It can be made basis of suit for specific performance. The finding recorded by the Hon ble Punjab Haryana High Court in this case reported in (2013) 1 PLR 195 as under: 11. A conjoint appraisal of sections 53A of the Transfer of Property Act, 1882, sections 17(1A) and 49 of the Indian Registration Act, 1908, particularly the proviso to section 49 of the Indian Registration Act, in our considered opinion, leaves no ambiguity that, though, a contract accompanied by delivery of possession or executed in favour of a person in possession, is compulsorily registrable under section 17(1A) of the Registration Act, 1908, but the failure to register such a contract would only deprive the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, they are non-genuine. 27. Let us examine the issue with different angles. For example, the assessee refuses to honour her agreement dated 4.4.2008 and SDS/Capital Consultancy files a suit for specific performance. A decree for performance of the contract is being granted in favour of the SDS. In that situation, the assessee has to register sale deed in favour of SDS. On such registration she would get the amounts only agreed upon by way of agreement dated 4.4.2008. She could be charged for capital gain on this amount only. Even for argument s sake, the reasons of the Revenue authorities are being accepted that the agreements dated 4.4.2008 and 2.3.2009 are unregistered, therefore, they shall not goad the adjudicator to construe part performance of the contract u/s.53A of T.P. Act and no transfer of the land could be construed within the meaning of section2(47)(v) of the Act. In that situation, only the year of taxability could be shifted i.e. effective date for transfer of capital asset could be taken to 27.1.2010. How the AO can bring the amount for taxation in the hands of the assessee ? Under issue No.(i), we have discussed the nature of right acquired by SDS by virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned addition. He pleads that the assessee has entered into a complex web of above transactions by employing colorable device in order to evade payment of taxes. He seeks to highlight the fact that the above cancellation agreements stamp papers had been purchased well in advance. We are reminded of our jurisdiction in the Act as the final fact finding authority to take note of all the abovestated suspicious circumstances leading to the impugned addition as discussed in lower appellate findings. 12. Learned Departmental Representative thereafter reiterates CIT(A) s discussion to contend that the assessee itself had influenced the vendors concerned to terminate the development agreements. It terms all these transactions set up to be a case of re-routing of unaccounted income being brought to the system through farmers/agriculturists. Learned Departmental Representative reiterates that no vendor in facts of the instant case would agree to such paltry gains as against the assessee deriving huge amounts of exempt income. The same is stated to be a case of human improbability. 13. Mr. Madhusudan continues his vehement support to CIT(A) s specific illustration in clauses A to Z. Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port learned CIT(A) s action affirming impugned addition. 16. We have given our thoughtful consideration to rival submissions. We have also perused the relevant case record with able to assistance of both the learned counsel. The dispute between the parties is qua treatment of compensation receipt in question amounting to ₹ 3.87crores. The assessee s case is that it is a capital receipt not taxable as business income or capital gains. The Revenue on the other hand draws support from both the lower authorities action assessing the same as business income. The assessee admittedly is in real estate development business. It entered into the above identical verdict three development agreements with as many vendor parties followed by the latter paying it variable amounts in question totaling to ₹ 3.87 crores in lieu of getting former s right to preemptive purchase or right to sue for specific performance surrendered in their favour. There is no evidence in the case file indicating the assessee to have undertaken even a single activity of development is all three parcels of land. We notice in this factual backdrop that hon ble jurisdictional high court s decision in Baroda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt. 17. We now advert to Revenue s strong effort that the assessee s modus operandi is that of entering into such development agreements in order to evade payment of taxes (supra). We find instant plea as well to be devoid of merit since the department has itself accepted vendors so called paltry capital gains in their assessments wherein they have claimed the impugned payments made to the assessee as expenses in computation of their respective income without questioning any genuineness element therein. So is the outcome of Revenue s next plea that the assessee had surrendered its right to sue without taking any legal recourse. We observe in this context with the assessee could very well be treated as an aggrieved party against its vendors action executing sale deed in favour of third party vendees. The Revenue s argument that the cancellation document had been purchased well in advance is also not relevant since it is not mandatory that the same ought to have been purchased on the date of cancellation only. What is material in these facts is that there should be a valid document. There is no bar in stamp law that any party cannot purchase such documents in advance. The Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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