Income Tax Appellate Tribunal - Chennai
T.Kannan, Madurai vs Department Of Income Tax on 3 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
Bench 'C' Chennai
Before Shri Hari Om Maratha, J.M. and
Shri N.S. Saini, AM
.....
I.T.A. No. 1496/Mds/2010
Assessment Year 2007-08
The Dy. C.I.T Vs. Shri T. kannan
Circle 1 Thiagarajar Premises
Madurai Kappalur
Madurai
(PAN No. AAQPK 8713 Q)
(Appellant) (Respondent)
Assessee by : Shri R. Srinivas
Department by : Shri B. Srinivas
ORDER
Per Hari Om Maratha, JM
This appeal of the department for Assessment Year 2007-08 is directed against the order of the ld. CIT(A)-I, Madurai dated 03.03.2009.
Page 2 of 9
I.T.A. No. 1496/Mds/2010
2. Facts leading to this appeal are that for Assessment Year 2007-08, assessee filed return of income [ROI] on 27.10.2007 using e-filing mode admitting an income of Rs. 3,13,65,020/-. During the year ended March 2004, the assessee had purchased land measuring 2 acres 51 cents situated at Survey No. 143/1A of Pattanturu Agrahara Village, Krishnarajapuram, Hubli Bangalore East Taluk from one Mr. P.C.D Nambiar, Chennai at a cost of Rs. 2,24,54,580/-. It was noticed that on the eastern side of the property, one M/s Paranjape Scheme Constructions Ltd, a public company of developers had trespassed assessee's property by using a private road to reach their land located behind assessee's property. To get the encroached portion retrieved, the assessee filed civil suit which was numbered OS No. 1340/2005 for restraining that company's entry on assessee's land. After two years of pursuing of this civil suit, the defendants M/s Paranjape Scheme Constructions Ltd., came for a out-of-court settlement pleading for giving 'right of easement' to reach their property. As per this agreement, the assessee permitted the use of the private road enabling them to reach their property and in turn, the said party paid a sum of Rs. 25 Page 3 of 9 I.T.A. No. 1496/Mds/2010 lakhs to the assessee. After deducting expenses, the net amount of Rs. 24,82,500/- was credited to the land account. The assessee treated the said sum as capital receipt and mentioned this fact in the return as under:
"Note No. 5 : During the year, the assessee received a sum of Rs. 24,82,500/- [net of expenses] from M/s Paranjape Scheme Constructions Ltd., for providing easement right in private road situated on the eastern side of the land at S. No. 143/1A of Pattanduru Agrahara Village , Krishnarajapuram Hubli, Bangalore East Taluk, Bangalore Distrit and the same is credited to the land account as the receipt is in the nature of capital receipt."
3. The Assessing Officer issued notice to the assessee u/s 143(2) of the Income-tax Act, 1961 [in short, the Act] proposing to treat the impugned receipt of Rs. 25 lakhs as capital gains and invited objections of the assessee, if any. The assessee filed his reply stating that there was no transfer of property, and even for the sake of argument, if it was treated as transfer in view of the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. V.B. Srinivasa Shetty 128 ITR 294, the computation provisions as Page 4 of 9 I.T.A. No. 1496/Mds/2010 prescribed u/s 48 could not be applied since there was no cost of acquisition in respect of the transfer of the rights, if any. So, according to the assessee, amount received was only capital receipt and could not be treated a capital gain or any other income for that matter. Sensing that he could not tax this receipt under the head 'capital gains', Assessing Officer tried to tax this receipt as rent for the use of private road and accordingly, he treated the net amount of Rs. 24,82,500/- as rent received for using land under the head 'income from other sources'. Being aggrieved, the assessee filed first appeal and the Commissioner of Income-tax [Appeals] has finally epilogued that this receipt cannot be taxed under the head 'income from other sources' and that this receipt is only capital receipt and under the provisions of the Act, the same cannot be taxed.
4. We have heard the rival submissions and have carefully considered the entire material on record. It was argued by the ld. D.R. that this is a compensation amount received from the company towards using assessee's portion of land and ought to have been confirmed by the Commissioner of Income-tax [Appeals] as income Page 5 of 9 I.T.A. No. 1496/Mds/2010 under the head 'income from other sources' being rent received from this land. In fact, a piquant situation has arisen in this case. M/s Paranjape Scheme Constructions Ltd. did not have egress or ingress to its property and that is why it encroached upon the property of the assessee. For that matter, the assessee was compelled to file civil suit to stop this company from trespassing upon his land. As per the court decree, resulted into by way of compromise between the parties, 'a right to easement' was granted to the company for which the assessee received Rs. 25 lakhs. As per this agreement, which we have gone through, the ownership of that property would always remain with the assessee. In any case, if the assessee ever sells this property to any third party, the right of easement will still continue with the company and he will have to sell the same alongwith that encumbrance resulting as per the court decree, meaning thereby, assessee has not sold any part of his property, yet he is precluded to unilaterally deal with the same in any manner he liked to. Legally, he continues to be its owner but practically he cannot stop use of this portion of the land by the company. It is a fact that he has received Rs. 25 lakhs and has also shown this amount in the 'note' appended to his return of income, Page 6 of 9 I.T.A. No. 1496/Mds/2010 as capital receipt in the 'land account'. Initially, the Assessing Officer proposed to tax this receipt under the head 'capital gains', but when the assessee explained that although this is capital receipt, but this cannot be taxed under any provision of law because the 'right of easement' being an 'intangible asset' having no cost thereof cannot be taxed, as such in view of the decision of the Hon'ble Jurisdictional High Court rendered in the case of V.B. Srinivasa Shetty [supra]. Being convinced about sensing this legal position, the Assessing Officer has taxed this receipt under the head 'income from other sources'. In the opinion of the Assessing Officer, this is a 'rent receipt' given by the company for the use of assessee's land for reaching to land locked property. The Commissioner of Income-tax has repelled this reason of the Assessing Officer and after discussing all aspects, he has finally gone with the claim of the assessee. We are also of the same view. This receipt cannot be treated as rent by any stretch of imagination, because for receiving a rent, there has to be a relationship of 'landlord' and 'tenant', between the parties. In this case, nobody is land lord and tenant. Assessee is not a landlord, rather, he is the owner of the property. Company is not tenant but is granted only a Page 7 of 9 I.T.A. No. 1496/Mds/2010 easement right and can use this piece of land for good without hindrance from assessee's side. There is no transfer of property, neither the company is a tenant, receipt has been gained by assessee by virtue of use of this property as per court decree by way of easement right. This receipt being capital receipt in relation to capital asset can only be taxed under the head 'capital gain', if it all it can be taxed. Since, in this case, it being intangible asset having no cost, cannot be taxed in view of the dictum of the Hon'ble Jurisdictional High Court in the case of V.B. Srinivasa Shetty [supra]. Now the question arises as to whether any income can go untaxed when there is a residue clause provided in section 56(1) of the Act. We are afraid that this is a case where this income cannot be taxed and if it cannot be taxed under the Act, no tax can be levied under one pretext or the other. Our above view is supported by the decision of the Hon'ble Supreme Court taken in the case of Sandhu Brothers reported in 273 ITR 1 wherein it has been held that 'it would be illogical and against logic of section 56 of the Act to hold that that which is not chargeable to capital gain could be taxed as income u/s 56 of the Act'. Decision of the Hon'ble Allahabad High Court relied on by the ld. D.R. in 123 ITR 24 in the Page 8 of 9 I.T.A. No. 1496/Mds/2010 case of Raja Bulund Sugar Company Ltd. Vs. CIT is entirely on different issue and different facts, and is, therefore, not at all applicable even remotely to the facts of this case. The ratio of the decision of the Hon'ble Supreme Court in the case of State of Punjab Vs. British India Corporation [1964] 2 SCR 114:AIR 1963 SC 1459 also supports, to some extent, the case of the assessee. Consequently we do not find any infirmity in the appellate order and decline to interfere with the same.
5. In the result, the appeal filed by the department stands dismissed.
Order pronounced in the court 20th May, 2011
Sd/- Sd/-
(N.S. SAINI) ((HARI OM MARATHA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Chennai,
Dated the 20th May, 2011.
VL
Page 9 of 9
I.T.A. No. 1496/Mds/2010
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file