The ITO Ward- 2(3) Alwar v. M/s. Sun Gold Metal (P) Ltd
[Citation -2016-LL-0926-39]

Citation 2016-LL-0926-39
Appellant Name The ITO Ward- 2(3) Alwar
Respondent Name M/s. Sun Gold Metal (P) Ltd.
Court ITAT-Jaipur
Relevant Act Income-tax
Date of Order 26/09/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags additional compensation • acquired by government • contractual obligation • contractual liability • insurance company • land development • purchase of land • capital receipt • capital asset • earnest money • capital gain • legal heir • sale deed
Bot Summary: 1.2 With the above facts, the Assessing Officer came to the conclusion that the assessee contention about the assessee's contention that compensation received for breach of the contract for purchase of land is a capital receipt is not correct. The assessee claimed that the First Party took the unilateral decision and sent the notice for cancellation of the deed and the assessee filed a suit against the cancellation of deal in the Court of Additional Distt. While coming to these conclusion, the AO has relied on the decision of Bombay High Court in the case of CIT vs. Vijay Flexible Containers 186 ITR 693 and CIT vs. Tata Services Ltd. 122 ITR 594 Thus the total income of the assessee is computed by the AO as under:- Income as per computation of total income Rs. 45,774/- Add: Short term capital gain Rs. 60,00,000,- Interest income(income from other sources) Rs. 1,80,000/- Net taxable income Rs. 61,34,226/ 2.2 Aggrieved, the assessee carried the matter before the ld. The Assessing Officer has not brought any documentary evidence that the assessee company had abandoned its right to purchase the property, on the contrary, it has filed a case of specific performance on the Courts of law it cannot be aid that there is abandonment and if the position is so then the amount received by the assessee company cannot be taxed into its hands in the year of receipt. Now coming on the issue of taxability of the amount of compensation, I derive the conclusion from the decision of Bombay High Court as given in the case of CIT vs. Vijay Flexible Containers 186 ITR wherein it has been held that the taxabilityof the amount can be determined only after the passing of the decree and not otherwise, it is seen that the assessee company has filed a suit against the seller for specific performance in the competent Court of law and the necessary papers / plaint and the copies of the order sheet were also filed it is directed that the amount of Rs. 60.00 lacs and the interest of Rs. 1.80 lacs will be taxable in the year of settlement of dispute. In the case of CIT v. Ashokbhai Chimanbhai 56 ITR 42(SC), their Lordships of the Supreme Court held that the income is said to be received by the assessee when it reaches him; when the right to receive the income becomes vested in the assessee, it is said to accrue or arise. In view thereof, I am of the considered opinion that the Assessing Officer is not justified in taxing a sum of Rs. 60.00 lacs and Rs. 1.80 lacs as income of the assessee for the assessment year 2007-08 and the same is deleted.


IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES , JAIPUR Jh BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM ITA No. 294/JP/2012 Assessment Year : 2007-08 ITO cuke M/s. Sun Gold Metal (P) Ltd. Ward- 2(3) Vs. E-127, Industrial Area Alwar Bhiwadi, Alwar PAN/GIR No.: AAJCS 6087 K Appellant Respondent Revenue by:Shri Raghivr Singh Dagur, Addl CIT-. DR Assessee by: Shri P.C. Parwal , CA Date of Hearing : 01/09/2016 Date of Pronouncement : 26/09/2016 ORDER PER BHAGCHAND, AM Revenue has filed appeal against order of ld. CIT(A), Alwar dated 02-12-2011 for assessment year 2007-08 raising therein following grounds of appeal. 1 That ld. CIT(A) has erred in law as well as on facts and circumstances of case in deleting addition of Rs. 60.00 lacs on account of Short term capital gain. 2 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . 2. That ld. CIT(A) has erred in law as well as on facts and circumstances of case in deleting addition of Rs. 1.80 lacs on account of interest income. 2.1 Brief facts of case are that assessee filed return of income on 31-10-2007 declaring Nil income. Subsequently assessee filed revised return on 24-10-2008 at Nil income. In revised return, assessee company claimed expenses of Rs. 60.00 lacs on account of payment of brokerage. However, this amount was added back to total income being no tax was deduced at source at time of making payment of brokerage. case of assessee was selected for scrutiny through CASS and notice u/s 143(2) was issued on 26-08-2008 by fixing date of hearing for 21-09-2008. In compliance thereof, ld. AR of attended assessment proceedings and books of accounts were produced for examination by AO. At page 2 of ld. CIT(A), concise observation of AO in his assessment order is mentioned which is reproduced as under:- 1. assessee company entered into agreement on 20-04-2006 to purchase land and building situated at SP -3, 11B(1)(&(2), Industrial Area, Khuskhera, measuring 80886 Sq. Mtr for sum of Rs. 6.00 crores with M/s. Arjun Industries Ltd. having its registered office at B-1/14, Safrdarjung Enclave, New Delhi. tentative dates for payment were fixed as per clause2 of agreement which were linked with completion of certain 3 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . formalities. It was also agreed between parties to agreement that in event of inability of parties to execute sale deed within six month from date hereof, i.e. on or before 20-10-2006 for any extraneous reason beyond control of First Party. First Party shall refund entire amount received till then alongwith liquidated damages equivalent to earnest money i.e. Rs. 60 lacs only from second party in times hereof alongwith interest @ 18% per annum and agreement shall come to end. First Party without bringing reason in notice of Second Party and without waiting for period of six months as agreed, took unilateral decision adsent notice for cancellation of deed just within one and half month of date of agreement. When company came to know that First Party has misrepresented fats and took false excuse in notice and in fact at higher price, it immediately filed suit in Court of Additional District & Session Judge, Kishangarh against party and requested Court to pass order in favour of assessee and forbid First Party from entering into agreement to sell with other person or to execute deed or give possession to any other person. 1.2 With above facts, Assessing Officer came to conclusion that assessee contention about assessee's contention that compensation received for breach of contract for purchase of land is capital receipt is not correct. In fact, it is case of relinquishment of assets and is transfer in relation to capital assets in view of provision of Section 2(47) of I.T. Act. It is also stated by AO that assessee company has accepted amount of liquidated damages of Rs. 60 lacs from seller party in violation of clause 10 of agreement to sell. assessee claimed that First Party (seller) took unilateral decision and sent notice for cancellation of deed and assessee filed suit against cancellation of deal in Court of Additional Distt. & Session Judge, Kishangarh and decision whereof is pending is not relevant and does not serve any purpose. From these facts, Assessing Officer came to conclusion that by accepting amount of interest money and liquidated damages and interest assessee company relinquished its rights in land 4 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . and therefore, it is certainly transfer in relation to capital asset in terms of Section 2(47) of I.T. Act and therefore, liquidated damages of Rs. 60 lacs received by assessee company is taxed as Short term capital gain. Interest of Rs. 1.80 lacs is taxed as income from other source. While coming to these conclusion, AO has relied on decision of Bombay High Court in case of CIT vs. Vijay Flexible Containers (1990) 186 ITR 693 (Bom.) and CIT vs. Tata Services Ltd. 122 ITR 594 (Bom.) Thus total income of assessee is computed by AO as under:- Income as per computation of total income Rs. 45,774/- Add: Short term capital gain Rs. 60,00,000,- Interest income(income from other sources) Rs. 1,80,000/- Net taxable income Rs. 61,34,226/ 2.2 Aggrieved, assessee carried matter before ld. CIT(A) who had deleted both additions made by AO by observing as under:- 5.0 After having heard counsel in details and perusing case laws as relied upon by him, I am convinced that Assessing Officer is not justified in giving finding that there is extinguishment of right of assessee company vis-a-vis land for which agreement was executed going by decision relied upon by counsel. Assessing Officer has not brought any documentary evidence that assessee company had abandoned its right to purchase property, on contrary, it has filed case of specific performance on Courts of law, therefore, it cannot be aid that there is abandonment and if position is so then amount received by assessee company cannot be taxed into its hands in year of receipt. Similarly accepting amount of earnest money together with compensation does not give rise to taxability of amount. acceptance of amount may 5 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . assume number of colors. assessee company has credited amount of compensation as liability in its books of account. Therefore, considering all these factual position, receipt of compensation of Rs. 60,00,000/- alongwith interest of Rs. 1,80,000/- cannot be taxed as Short term capital gain in hands of assessee company in year of receipt. Now coming on issue of taxability of amount of compensation, I derive conclusion from decision of Bombay High Court as given in case of CIT vs. Vijay Flexible Containers 186 ITR (Bom.) wherein it has been held that taxabilityof amount can be determined only after passing of decree and not otherwise, it is seen that assessee company has filed suit against seller for specific performance in competent Court of law and necessary papers / plaint and copies of order sheet were also filed, therefore, it is directed that amount of Rs. 60.00 lacs and interest of Rs. 1.80 lacs will be taxable in year of settlement of dispute. While coming to conclusion, I quote from decision of Nylo Plast Industries (P) Ltd. vs. ACIT ,82 ITD 315 (Mum.) as under:- In case of contractual liability deduction is permissible in year of settlement of dispute. This view is supported by decisions of Supreme Court in case of Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC) and in case of Indian Molasses Co. (P.) Ltd. v. CIT (1959) 37 ITR 66 (SC) and also decision of Bombay High Court in case of CIT v. Phalton Sugar Works Ltd. (1986) 162 ITR 622(Bom.). In case of CIT v. Ashokbhai Chimanbhai (1965) 56 ITR 42(SC), their Lordships of Supreme Court held that income is said to be received by assessee when it reaches him; when right to receive income becomes vested in assessee, it is said to accrue or arise. In view of aforementioned decisions, we are of considered view that in case where assessee';s right to receive income under contract is disputed income will be assessable in year of settlement of dispute. Since there was dispute between parties relating to contractual obligation income accrued to assessee only in year of settlement of dispute. 6 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . In view thereof, I am of considered opinion that Assessing Officer is not justified in taxing sum of Rs. 60.00 lacs and Rs. 1.80 lacs as income of assessee for assessment year 2007-08 and same is deleted. Thus ground of appeal number 1 to 4 allowed and assessee company will get necessary relief. 2.3 During course of hearing, ld. DR relied on order of AO. 2.4 During course of hearing ld. AR of assessee supported order of ld. CIT(A). 2.5 We have heard rival contentions and perused materials available on record. It emerges from record that AO made addition of Rs. 61.80 lacs i.e. Rs. 60 lacs on account of Short term capital gain and Rs. 1.80 lacs on account of assessee company interest income. ld. CIT(A) has deleted both additions citing decisions of ITAT Mumbai Benches in case of Nylo Plast Industries (P) Ltd. vs. ACIT 82 ITD 315 and other decisions at para 5.0 of his order. It is further noted that similar view had been adopted on such type of issues by ITAT, Jaipur Bench and Hon'ble Supreme Court who have delivered their decisions as under:- 7 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . Sharda Pareekh vs. ACIT 145 TTJ 041 (UO)- (ITAT Jaipur Bench) Head Note : Income compensation taxability assessee received interim relief from High Court in terms of Interest on amount of compensation from Insurance Company on account of death of her husband in appeal filed by Insurance Company AO & CIT(A) held that income received or accruing during relevant previous yearis subject to t Annexure Assessee filed appeal on ground that since amount has not reached finality, it cannot be taxed Held, order of MACT is not final and same has been challenged by Insurance Company before High Court This is case of death by accident and if legal heir directed to refund compensation alongwith interest then there is no remedy to these legal heirs especially when assessee will be in adverse position interest awarded by MACT may be Revenue or compensation but it cannot be taxed in year under consideration as same has not been reached its finality CIT vs. Hindustan Housing & Land Development Trust Ltd. 161 ITD 524 (SC) Head Note: Income-Accrual-Enhanced compensation for acquisition of land- Assessee's land acquired by Government Initial compensation fixed enhanced by arbitrator Appeal against enhancement by State Govt. before High Court This is distinguishable from case where right to receive payment is admitted and only quantification of liability is to be settled Additional compensation not taxable as assessee has not got absolute right to receive additional compensation. 2.5.1 Considering entirety of facts, circumstances, orders of lower authorities and respectfully following decisions of ITAT, Jaipur Bench and Hon'ble Supreme Courts (supra), we find no infirmity 8 ITA No. 294/JP/2012 ITO , Ward- 2(3) Alwar vs. M/s. Sun Gold Metal (P) Ltd. , Alwar . in order of ld. CIT(A) on both issue. Thus Ground No. 1 and 2 of Revenue are dismissed 3.0 In result, appeal of Revenue is dismissed. Sd/- Sd/- (KUL BHARAT) (Bhagchand) Judicial Member Accountant Member Jaipur Dated:- 26/09/ 2016 Mishra Copy of order forwarded to: s 1. Appellant- ITO, Ward- 2(3), Alwar 2. Respondent- M/s. Sun Gold Metal (P) Ltd., Alwar 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No.294/JP/2012) By order, Assistant. Registrar ITO Ward- 2(3) Alwar v. M/s. Sun Gold Metal (P) Ltd
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