KISHORE D PATEL,MUMBAI vs. ACIT 22(1), NAVI MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI N.K. PRADHAN, AM (A.Y:2008-09) Shri Kishre D. P Income Tax Officer, Flat No. 501, Ashar Villa, Plot Ward No. 21(2)(3) Mumbai Vs. No. 242, Near TAiml Sangham Hall Sion (E), Mumbai-400022 PAN No.ASLPS3244H Appellant .. Respondent Assessee by .. Shri. RS Bindra, AR Revenue by .. Shri. B.S. Bist, DR Date of hearing .. 12-01-2017 Date of pronouncement .. 17-02-2017 O R D E R PER MAHAVIR SINGH, JM:

This appeal by the assessee is arising out of the order of CIT (A)-10, Mumbai in appeal No. CIT (A)-10/ACIT-22(1)/IT-112/12-13 dated 11-12-2013. The Assessment was framed by ACIT Circle-22(1), Mumbai for the A.Y. 2008-09 vide order dated 28-12-2010 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“The Honorable CIT (A) - 10, erred in upholding that the receipt of Rs. 2,41,333/- being compensation received from Developers to compensate for nuisance/ inconvenience caused due to extension work undertaken of the Building "Kailas Jyot No. 2", as casual income u/s 56 of the Income Tax Act, 1961, as against charging it as Long Term Capital Gain by holding the cost as Nil by the AO 22 (1), without appreciating the fact that the compensation was received for nuisance/ inconvenience caused to the resident for construction of additional floors which was treated as Capital receipt being nontaxable contrary to the fact that there is no transfer of right or interest in the property and therefore the receipt of Rs. 2,41,333/- be treated as capital receipt as claimed.: -

“ In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes "any capital gains chargeable under section 45", and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon'ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed that "..,, we hold that the amounts received by the assessee during the financial years in question have to be Page 2 of 4 regarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act...." This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific provision in the Act. No matter how wide be the scope of income u/s.2(24) it cannot obliterate the distinction between capital receipt and revenue receipt. It is not even the case of the Assessing Officer that the compensation received by the assessee is in the revenue field, and rightly so because the residential flat owned by the assessee in society building is certainly a capital asset in the hands of the assessee and compensation is referable to the same. As held by Hon'ble Supreme Court, in the case of Dr. George Thomas K vs CIT(156 ITR 412), "the burden is on the revenue to establish that the receipt is of revenue nature" though "once the receipt is found to be of revenue character, whether it comes under exemption or not, it is for the assessee to establish". The only defence put up by learned Departmental Representative is that cash compensation received by the assessee is nothing but his share in profits earned by the developer which are essentially revenue items in nature. This argument however proceeds on the fallacy that the nature of payment in the hands of payer also ends up determining it's nature in the hands of the Assessment year: 2007-08 recipient. As observed by Hon'ble Supreme Court in the case of CIT vs. Kamal Behari Lal Singha (82 ITR 460), "it is now well settled that, in order to find out whether it is a capital receipt or revenue receipt, one has to see what it is in the hands of the receiver and not what it is in the hands of the payer". The consideration for which the amount has been paid by the developer are, therefore, not really relevant in determining the nature of receipt in the hands of the assessee. In view of these discussion, in our considered view, the receipt of Rs.11,75,000 by the assessee cannot be said to be of revenue nature, and, accordingly, the same is outside the ambit of income under section 2(24) of the Act. However, in our considered opinion Page 3 of 4 and as learned counsel for the assessee fairly agrees, the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. Subject to these observations, grievance of the assessee is upheld.”

When a query was put to the learned Sr. DR he fairly conceded the position.