Bombay High Court
The Pr. Commissioner Of Income Tax-4 ... vs Rajendra Sitaram Goel on 31 July, 2024
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
Digitally
signed by
PRASHANT
PRASHANT VILAS RANE 12-ITXA-1585-18.DOC
2024:BHC-OS:11770-DB
VILAS
RANE Date:
2024.08.06
13:12:16
+0530
PVR
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1585 OF 2018
The Pr. Commissioner of Income Tax-4, Pune ...Appellant
Vs.
Rajendra Sitaram Goel ...Respondent
_______
Mr. Suresh Kumar, for Appellant.
Mr. Saket Mone with Ms. Sruti Thorat i/b. Vidhi Partners, for the Respondent.
_______
CORAM: G. S. KULKARNI &
SOMASEKHAR SUNDARESAN, JJ.
DATED: 31 July, 2024
P.C.
1. This appeal by the Revenue under Section 260-A of the Income Tax Act,1961 (for short 'the Act') is filed against the order dated 9 January 2017 passed by the Income Tax Appellate Tribunal (for short 'the Tribunal'). The impugned order was passed by the Tribunal on a batch of appeals filed by the other assessees, namely, Deepak Laxman Kudale, Neeraj Horticulturists Pvt. Ltd. and Nupoora Developers Pvt. Ltd. In the appeals filed by such assessees before the Tribunal, the issue for consideration was, whether the "part consideration"
which the assessee did not receive under the transaction to sell/transfer plot of land could be taxed or in other words the entire amount of the agreement consideration although as not actually received should be taxed. The tribunal opined in favour of the assessees and against the Revenue. Hence, the Revenue is in appeal on the following questions of law:
"A. Whether on the facts and circumstances of the case and in law Page 1 of 6 31 July, 2024 ::: Uploaded on - 06/08/2024 ::: Downloaded on - 10/08/2024 04:17:42 ::: 12-ITXA-1585-18.DOC the Hon'ble ITAT justified in deleting the addition of Long term Capital gain of Rs. 12,15,54,375/- in respect of transfer of plot of land situated at Gat No. 1277 & 1278, Village Wagholi, Pune?
B. Whether on the facts and circumstances of the case and in law the Hon'ble ITAT justified in not appreciating the fact that entire property admeasuring 70 acres situated at Wagholi had sold to Wagholi Proprieties Pvt. Ltd. by a registered sale deed dated
02.05.2008 for a consideration of Rs. 1,75,80,04,250/- and the total share of the assessee is Rs.24,31,08,750/- out of which the assessee had offered 50% of the actual consideration received for the purpose of Capital gain instead of full consideration as per the sale deed? C Whether on the facts and circumstances of the case and in law the Hon'ble ITAT erred in not appreciating the clause (v) and (vi) of Section 2(47) of the Act r.w.s. 53A of the Transfer Property Act 1882. Thus, the entire Capital Gain correctly taxed in A.Y. 2009-10 by the AO?"
2. Learned Counsel for the parties brought to our notice that the Revenue had preferred appeals against the very order, subject matter of the present appeal in the case of the other assessees [Neeraj Horticulturists Pvt. Ltd. and Nupoora Developers Pvt. Ltd. in Income Tax Appeal No.1582 of 2017 (The Pr.
Commissioner of Income Tax-2 Pune Vs. Neeraj Horticulturists Pvt. Ltd.) with Income Tax Appeal No.475 of 2018 (The Pr. Commissioner of Income Tax-2 Pune Vs. Nupoora Developers Pvt.Ltd.)]. These appeals came to be disposed of by an order dated 28 March 2022 passed by the coordinate Bench of this Court.
The said order is required to be noted which reads thus:-
"1. Mr. Padvekar tenders a copy of an order dated 18th September, 2018 giving effect to the order of the Income Tax Appellate Tribunal (ITAT). Paragraph no.6 of the order reads as under :
"6. The assessee has requested vide the above mentioned submissions that the amount of Rs.9,90,20,875/- may now be included in his taxable income for the A.Y. 2014-15. In view of these facts and as per the directions of the ITAT discussed above, the amount of Rs.9,90,20,875/- being balance consideration on account of sale of land at Wagholi is being taxed in the hands of the assessee in the A.Y. 2014-15 as Long Term Capital Gains."Page 2 of 6
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2. In view of paragraph no.6 above, appeals do not survive.
3. Appeals disposed."
3. The present appeal is not different from what was considered by the Division Bench. In fact in the present appeal the assessee is an individual, hence, the asseessee was maintaining his accounts on accrual/cash basis, is also an additional factor. In any event, the amounts of balance consideration as received by the assessee and as actually accrued, was offered to tax in the subsequent year.
4. Learned Counsel for the assessee has drawn our attention to the observations of the tribunal, which are relevant also in the assessee's case which reads thus:
"47. In the instant case admittedly the assessee along with other co-owners was having land admeasuring 70 acres situated at Wagholi and was not having 108 acres of continuous land that had been agreed upon to be sold at the relevant time. Further the sale deed contained certain obligations on the part of the assessee and the co-owners to be fulfilled and the assessee has received only 50% of the compensation during the impugned assessment year. We find from the letter addressed by Mr. Atul Chordia, Director of Wagholi Properties Pvt. Ltd., copy of which is placed at pages 41 to 44 of paper book No.III, that in response to notice u/s. 226(3) for recovery of dues in case of the assessee, he has categorically stated that the balance amount of Rs.17.01 crores is payable only after fulfillment of certain conditions mentioned in the agreeemnt. In our opinion, the contents of the agreement has to be read as a whole and the revenue cannot re-write the agreement. The various decisions relied on by CIT(A) in our opinion are distinguishable and not applicable to the facts of the present case. In all those cases, the right to receive the consideration has been postponed. However, in the instant case the right to receive the consideration is on fulfillment of certain obligations. Further, the assessee has offered the balance amount to tax in A.Y. 2014- 15 as business income. In view of the above discussion and respectfully following the decisions cited above, we are of the considered opinion that assessee is liable to capital gain tax only on 50% of the consideration that has been received during the year. We, therefore, set aside the order of the CIT(A) and allow the grounds raised by the assessee."Page 3 of 6
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5. Learned Counsel for the assessee would be correct in placing reliance on the decicison of this Court in Commissioner of Income Tax Vs. Hemal Raju Shete1 in supporting the observations of the tribunal, wherein the Court in similar circumstances has made the following observations:-
"8. In the present case, from the reading of the above clauses of the agreement the deferred consideration is payable over a period of four years i.e. 2006-2007, 2007-2008, 2008-2009 and 2009-2010. Further the formula prescribed in the agreement itself makes it clear that the deferred consideration to be received by the respondent-assessee in the four years would be dependent upon the profits made by M/s. Unisol in each of the years. Thus in case M/s. Unisol does not make net profit in terms of the formula for the year under consideration for payment of deferred consideration then no amount would be payable to the respondent-assessee as deferred consideration. The consideration of Rs. 20 crores is not an assured consideration to be received by the Shete family. It is only the maximum that could be received. Therefore it is not a case where any consideration out of Rs. 20 crores or part thereof (after reducing Rs. 2.70 crores) has been received or has accrued to the respondent-assessee. As observed by the Apex Court in Morvi Industries Ltd. v. CIT,(1971) 82 ITR 835. "The income can be said to accrue when it becomes due.... The moment the income accrues, the assessee gets vested right to claim that amount, even though not immediately ." In fact the application of formula in the agreement dated 25th January, 2006 itself makes the amount which is receivable as deferred consideration contingent upon the profits of M/s. Unisol and not an ascertained amount. Thus in the subject assessment year no right to claim any particular amount gets vested in the hands of the respondent-assessee. Therefore, entire amount of Rs. 20 crores which is sought to be taxed by the Assessing Officer is not the amount which has accrued to the respondent-assessee. The test of accrual is whether there is a right to receive the amount though later and such right is legally enforceable. In fact as observed by the Supreme Court in E.D. Sassoon & Co. Ltd. v. CIT, (1954) 26 ITR 27 "It is clear therefore that income may accrue to an assesee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he 1 2016 SCC OnLine Bom 16142 Page 4 of 6 31 July, 2024 ::: Uploaded on - 06/08/2024 ::: Downloaded on - 10/08/2024 04:17:42 ::: 12-ITXA-1585-18.DOC must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro .... .... ....". In this case all the co-owners of the shares of M/s. Unisol have no right in the subject assessment year to receive Rs. 20 crores but that is the maximum which could be received by them. This amount which could be received as deferred consideration is dependent/contingent upon certain uncertain events, therefore, it cannot be said to have accrued to the respondent-assessee. The Tribunal in the impugned order has correctly held that what has to be taxed is the amount received or accrued and not any notional or hypothetical income. As observed by the Apex Court in Commissioner of Income-Tax v. Shoorji Vallabdas and Co., (1962) 46 ITR 144 "Income-Tax is a levy on income. No doubt, the Income-Tax Act takes into account two points of time at which liability to tax is attracted, viz., the accrual of its income or its receipt; but the substance of the matter is income, if income does not result, there cannot be a tax, even though in book-keeping an entry is made about a hypothetical income, which does not materialize. " In this case Rs. 20 crores cap in the agreement is not income in the subject assessment year. It has been observed by the Apex Court in the case of K.P. Varghese v. Income-Tax Officer, Ernakulam, 181 ITR 597 that one has to read capital gain provision along with computation provision and the starting point of the computation is "the full value of the consideration received or accruing". In this case the amount of Rs. 20 crores is neither received nor it has accrued to the respondent-assessee during the subject assessment year. We are informed that for the subsequent assessment year (save Assessment Year 2007-2008 for which there is no deferred consideration on application of formula), the Assessee has offered to tax the amounts which have been received on the application of formula provided in the agreement dated 25th January, 2006 pertaining to the transfer of shares.
9. The contention of the Revenue that the impugned order is seeking to tax the amount on receipt basis by not having brought it to tax in the subject assessment year, is not correct. This for the reason, that the amounts to be received as deferred consideration under the agreement could not be subjected to tax in the assessment year 2006-2007 as the same has not accrued during the year. As pointed out above, accrual would be a right to receive the amount and the respondent-assessee alongwith its co-owners have not under the agreement dated 25th January, 2006 obtained a right to receive Rs. 20 crores or any specified part thereof in the subject assessment year."
6. Learned Counsel for the assessee has also relied on the decision of this Page 5 of 6 31 July, 2024 ::: Uploaded on - 06/08/2024 ::: Downloaded on - 10/08/2024 04:17:42 ::: 12-ITXA-1585-18.DOC Court in Commissioner of Income Tax Delhi Ajmer, Rajasthan and Madhya Bharat vs. Nagri Mills Co. Ltd.2.
7. We find ourselves in complete agreement with the observations of the coordinate Bench of this Court in the order dated 28 March 2022. Considering the said orders passed by the coordinate Bench of this Court, the present appeal does not survive. It is accordingly disposed of. No costs. (SOMASEKHAR SUNDARESAN, J.) (G. S. KULKARNI , J.) 2 33 ITR 683 Page 6 of 6 31 July, 2024 ::: Uploaded on - 06/08/2024 ::: Downloaded on - 10/08/2024 04:17:42 :::