The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the amount received not in respect of the transfer of title, rights, or interests in property cannot be taxable under the head of “capital gains”.
Mahendra Corporation, the appellant assessee was a firm, which did not conduct any business during the year under consideration and had originally filed its return of income on declaring a total income of Rs. Nil. The assessing officer after the assessment proceedings added income to the long-term capital gain and the Commissioner of Income Tax(Appeals) confirmed the order passed by the assessing officer.
Thus the assessee appealed against the order passed by the Commissioner for confirming the addition made by the assessing officer.
P.J. Pardiwala, Niraj Sheth, and Jay Bhansali, the counsels for the assessee contended that the property was sold and conveyed to the two tenants and therefore the assessee had no right in the property but only the right to sue to get compensation or damages.
It was further submitted that since the tenants had a full title to the property, the same was sold to the developer and the sum of Rs.135 crore was agreed among the parties to the suit to settle the suit filed by the assessee and the consideration received by the assessee was merely against the right to sue and not any right in the property, as the assessee did not have the same.
It was also submitted that the „right to sue‟ does not constitute a capital asset as defined in section 2(14) of the Income Tax Act and therefore the gain or receipt instead of the “right to sue” cannot be made liable to tax as a capital gain.
Biswanath Das, the counsel for the revenue contended that capital gain arose to the assessee on account of the transfer of its interest in the immovable property, which it acquired by way of a purchase agreement.
It was also submitted that the assessee should have offered the capital gains for tax on relinquishment of its rights in favor of its partners in the previous year relevant to the assessment year under consideration, which the assessee firm had not offered, and the capital gains on the transfer of its right in the property nor at the time of relinquishment of its rights in favor of its partners.
The two-member bench comprising G.S. Pannu(President) and Sandeep Singh Karhail(Judicial) held that the amount received by the assessee was not in respect of the transfer of any right, title, or interest in the property and cannot be taxed under the head “capital gains” in the hands of the assessee while allowing the appeal filed by the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
