MRS SHIREEN J. DASTUR ,MUMBAI vs. ITO INT TAXATION WARD 2(1)(1), MUMBAI

7. On the facts and circumstances of the case and in law, the AO and DRP has erred in levying interest under section 234B of the Act.”

4. Facts in brief as culled out from records are that assessee is a non-resident individual, who filed her return of income on 07.08.2018 reporting total income at Rs.24,68,760/-. During the year, assessee received an amount of Rs.15 Crores from one Sanjay Infraspace Pvt. Ltd. who is the purchaser of an immovable property called as “The Mount”. The purchaser paid this amount to the assessee on account of withdrawal of her civil suit No.290 of 2016 filed before the Hon'ble High Court of Bombay, whereby assessee had claimed her share and right under the said immovable property. Disputes had arisen amongst the descendants of late Ms. Amba Wadia, as to who were the heirs of certain assets of the estate of Ms. Amba Wadia, assessee being her grand daughter. Several issues had arisen amonst the grand children on the interpretation of the will of Ms. Amba Wadia.

4.1. In one of the submissions made by the assessee in the course of impugned assessment proceedings before the ld. Assessing Officer vide letter dated 08.08.2018, assessee explained the facts relating to property purchased by Sanjay Infraspace Pvt. Ltd. against which assessee had lodged her claim in the said property and the circumstances under which the civil suit was settled and amount was received by the assessee. Relevant extracts from the said submission are reproduced below for ready reference: 2. I am one of the legal heirs to my grandmother Late Smt. Amba Wadia who expired on February 2, 1946. By her will, she appointed executors and trustees to administer her estate. One of the properties willed by her is a property known as "The Mount" located at Little Gibbs Road, Malabar Hill, Mumbai 400 006. The Trustees to the will were in the process of selling the said property. I, along with my other sisters, put up a claim to my right to inheritance in the said property.

3. One M/s Sanjay Infraspace Private Limited (hereinafter referred to as the purchaser) was in negotiations with the Trustees and Executors to the will of late Smt. Amba Wadia to axcquire the property as mentioned above.

4.2. From the above, it is noted that trustees who were appointed to administer the estate were in the process of selling the said property. Assessee being one of the grand children put up her claim for her right to inheritance to the said property. The sale transaction was undertaken by the trustees and executors to the will of late Ms. Amba Wadi with the purchaser namely Sanjay Infraspace Pvt. Ltd. Assessee is neither one of the sellers nor a conforming party to the said sale transaction. Claim of the assessee is that it was only in order to avoid any kind of possibility of assessee being a clog on the title of the immovable property and/or the power of the trustees of the trust to dispose off and/or deal with the said immovable property in such manner as the trustees may deem fit as also to avoid acrimony and conflict amongst the members of the family, that the assessee agreed to accept a sum of Rs.15 Crores from the purchaser as and by way of settlement for unconditionally withdrawing and not pursuing the civil suit filed by her relating in the estate of Ms. Amba Wadia. Assessee thus, claimed that there is no transfer of any capital asset against the receipt of said sum from the purchaser and hence not in the nature of income, so as to bring it to tax. According to her, there is no extinguishment of capital asset. What is extinguished is the right to claim a share in the estate of the deceased grandmother.

4.3. Contrary to the claims by the assessee, in the assessment proceedings in respect of chargeability of the amount received by her from the purchaser of the immovable property, ld. Assessing Officer referred to the definition of “transfer” given in section 2(47) of the Act whereby he noted that “extinguishment of any right in the asset” shall constitute capital gain for the purpose of computation of tax liability as a short term or long term capital gain as the case may be. According to him, assessee was one of right holders in the said immovable property. In exercise of such a right and in view of differences between the claimant/legal heirs, assessee preferred to file a civil suit as noted above. She pursued the legal proceedings to enforce her right in the property of the deceased grandmother. Since the said property went into sale by the trustees and executors of the will of the deceased with Sanjay Infraspace Pvt. Ltd., assessee was in receipt of the amount of Rs.15 Crores directly from the purchaser for concluding the legal proceedings in the civil suit by way of settlement for which the said amount was paid. According to the ld. Assessing Officer, the sum so received by the assessee is nothing but receipts as covered within the meaning of “transfer” in section 2(47) arising out of extinguishment of rights in the asset.

4.4. Ld. Assessing Officer further took a view that money received by the assessee from the purchaser is nothing but part of consideration paid for purchase of immovable property “The Mount”. He further noted that this amount is nothing but share of consideration received on sale of immovable property through the process of settlement of civil suit filed by the assessee for which the purchaser had issued a receipt and assessee had also issued a full discharge receipt to the heir having discharged to her right, claim for whatsoever manner in respect of the entire estate of her deceased grandmother in the immovable property being “The Mount”. Thus, ld. Assessing Officer concluded that the amount received by the assessee was exclusively on account of relinquishment of the rights in the immovable property “The Mount”. He thus, computed long term capital gain in respect of the said transaction and brought it to tax while completing the impugned assessment.

4.5. Ld. Assessing Officer had alternatively considered the said receipts as income from other sources within the meaning of section 56(1) in the draft order passed by him u/s.144C. He noted in para-8 of the draft order that in case, the impugned transfer is not treated as capital gains, it would automatically get covered under the head “income from other sources”. He referred to section 56(1) of the Act whereby income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head “income from other sources”, if it is not chargeable to income tax under any of the heads. According to him, since no submission has been made in respect of expenditure incurred for the said receipt of Rs.15 crores, the entire amount shall be taxable under the heard “income from other sources”. Assessee went before the ld. DRP and vide ground of objection no.5, raised her objection on the alternative treatment given by the ld. Assessing Officer in the draft order by submitting that the said receipt is an exempt receipt and therefore, not liable to tax even under the head “income from other sources”. According to her, onus is on the ld. Assessing Officer to show that said receipt represents income and therefore, it cannot be automatically brought to tax u/s.56(1) of the Act. By referring to clause(x) of sub-section (2) of section 56, assessee submitted before the ld. DRP that the sum so received by her is not without consideration. She submitted that the purchaser wanted to acquire property free of encumbrances and therefore, it was for the withdrawal of the civil suit No.290 of 2016 whereby assessee had put up her claim for her right in the said property that the payment was made to the assessee. According to her, the said payment was made for sound business consideration of the purchaser, i.e., Sanjay Infraspace Pvt. Ltd., who is not related to the assessee nor have any connection /relation whatsoever with her for making the said payment. Thus, there existed a valid and justifiable consideration for making the said payment by the purchaser of the immovable property and therefore, it is not liable to tax u/s.56(2)(x). But ld. DRP did not deal with this aspect while giving its direction to the ld. Assessing Officer for passing the final assessment and categorically held that the money received by the assessee is taxable under the head long term capital gain.

6.1. Assessee agreed to the offer made by the purchaser to not to pursue the civil suit for a sum of Rs.15 Crores and thus, executed various documents including minutes of order withdrawing the civil suit no. 219 of 2016 and declared that trustees have full power and responsibility to dispose the impugned immovable property. Mr. Jehangir Wadia also withdrew his civil suit no.1932 of 2008 for which minutes of order were signed off. It was also pointed out from the documentary evidences placed in the paper book to demonstrate that assessee is not a party to the sale transaction of the immovable property either as seller or in her capacity as confirming party. The deed of conveyance, dated 04.09.2017 for the sale of the impugned immovable property is executed between the trustees of the trust created by late Ms. Amba Wadia as party of the first part and the beneficial vendors being party of the second part and these together with the purchaser i.e., Sanjay Infraspace Pvt. Ltd. Thus, it was evidently demonstrated that the deed of conveyance does not have assessee as a party to the said transfer in view of her withdrawing the civil suit No.290 of 2016.

6.2. The minutes of the order for withdrawing the respective civil suits by the assessee and her brother are placed on record and perused. From these documents, it is noted that it was merely a right to claim which was asserted by the assessee by filing the civil suit before the Hon'ble High Court of Bombay. Thus, as a consequence of settlement between the assessee and the purchaser, what has been given up by the assessee is the claim that the immovable property was to devolve as if it was a case of intestate succession and an acceptance of the position that the property and settlement fund formed part of the residuary estate. Since chance of an heir succeeding to the estate or a mere right to sue cannot be transferred, the right to claim share in the estate of late Ms. Amba Wadia was given up, which is not a property for the purpose of section 2(14) of the Act. On that the assessee had filed a civil suit which can never be a property. It was at best only a right to claim share in the estate of late Ms. Amba Wadia which was given up in lieu of consideration of Rs.15 crores received by the assessee from the purchaser.

6.3. The settlement between the assessee and the purchaser also recognises that assessee did not have any interest in the immovable property. The suit filed by her and her brother in respect of their claim in the estate of late Ms. Amba Wadia was pending for consideration before the Hon'ble High Court of Bombay and the same was intensely contested by their relatives. It was only when the Hon'ble Court would actually adjudicate the said claims in the respective suits of the assessee and her brother that they would be entitled to claim ownership for their share in the immovable property. Before the Hon'ble Court could take a decision in the said civil suits, the issue was amicably resolved and full and final settlement was arrived at between the parties whereby assessee accepted the amount of Rs.15 Crores from the purchaser agreeing that she would not have any claim and interest of any nature whatsoever in the said immovable property. Thus, rights would accrue to her only when the Hon'ble Court would have adjudicated the same in her favour.

6.4. What emerges from the preceding discussion is that there is no transfer of capital asset between the assessee and the purchaser except for accepting the offer of the purchaser of withdrawing her civil suit so as to enable it to have the acquisition of the said property free of encumbrances and without assessee being a clog on the title of the said property. As per the definition of “transfer” u/s. 2(47)(ii) of the Act, the extinguishment of any rights in the capital asset will amount to transfer. Thus, at the first instance, there must be a legally enforceable right over the capital asset available to the transferor, which is capable of being extinguished either through consideration or otherwise. The assessee could have acquired a legally enforceable right over the capital asset had a court of law declared so in her favour.

7.1 Keeping in juxtaposition the findings of the Hon'ble Jurisdictional High Court of Bombay (supra) and the facts of the case narrated above, we find that the amount received by the assessee from the purchaser is against the withdrawal of her civil suit which was for claiming her right of inheritance in the impugned immovable property pending adjudication. It was only when Hon'ble Court would have adjudicated on her petition that the right in the said immovable property would have been accrued to her so as to make her a party to the deed of conveyance. Since the settlement occurred prior to the adjudication by the Hon'ble Court on her civil suit, whether she had the right in the said immovable property or not remained undecided. What the purchaser has paid to the assessee is to acquire a title free from encumbrances by getting an assurance from assessee and her brother as to not to pursue any suit relating to estate of late Ms. Amba Wadia including any right of inheritance. Thus, there is no transfer of capital assets within the meaning of section 2(14) r.w.s. 2(47) to bring to charge the amount of Rs. 15 Crores received by the assessee from the purchaser under the head “capital gains”, as categorically held by ld. DRP. Accordingly, grounds raised by the assessee in this respect are allowed.

7.2. We also take note of the alternative stance of ld. Assessing Officer of treating the said receipt as income from other sources u/s.56(1) which was put up in draft order and went before the ld. DRP before whom assessee made her detailed submission as to why it is not taxable even under the head “income from other sources” u/s.56(2)(x). Unfortunately, ld. DRP did not delve into this aspect of bringing it to charge this amount as income from other sources and categorically held it to be taxable under the head “capital gain”. Since Revenue omitted to deal with the issue of alternative stance taken by the ld. Assessing Officer of treating the receipt as income from other sources u/s.56(2)(x), the only issue for our consideration is in respect of taxability of the receipt under the head “capital gain”, to which we have already adverted upon, holding in favour of the assessee, though Revenue could have built up a good case to bring it to charge under the head “income from other sources” u/s. 56(2)(x). Since, we have a limited scope to deal with on the issue before us, we refrain ourselves from expressing our views on the alternative stance which was raised by the ld. Assessing Officer through the draft assessment order but was omitted by the ld. DRP while giving its direction for passing the final assessment order.

8.1. Similarly claim of assessee for deduction of expenditure of Rs.25,58,775/- incurred only and exclusively in connection with the transfer while computing income under the head “capital gains” is rendered academic, in view of our findings above. Ground raised in respect of levy of interest u/s.234B is consequential in nature and therefore not adjudicated upon separately.

Order is pronounced in the open court on 04 November, 2025