Judgment:
A.A. Kumbhkoni, J.
1. This tax appeal is filed by an assessee against the assessment order pertaining to the assessment year 1998-99. The appellant is aggrieved by the rejection of his contention (which is set out hereunder) by all the lower authorities, including the Income-tax Appellate Tribunal.
2. Admittedly the appellant has received an additional amount of Rs. 29,11,000 (Rs. Twenty nine lakhs, eleven thousand only) (hereinafter referred to as 'the amount in issue' for brevity). According to the appellant firstly receipt of the amount in issue by him is not an income subject to payment of income-tax within the definition of Section 2(24) of the Income-tax Act (hereinafter referred to as 'the Act', for the sake of brevity) and secondly (rather alternatively) that the same is 'income from long-term capital gain' and not 'income from other sources' as held by all the lower authorities.
2. In view of the concurrent findings recorded by all the lower authorities against the appellant and in absence of any question of law raised by the appellant, we are unable to admit this appeal. Normally, we would have dismissed tins appeal summarily without giving elaborate reasons. However, we are venturing to give detailed reasons so as to make this order a speaking order (not because any legal issue as such is raised by this appeal).
3. Few facts at the threshold for better understanding of this order may be necessary and we are setting out the same hereunder:
The appellant claims to be a builder. The appellant filed income-tax returns on 13-11-1998 in regard to the assessment year in issue i.e., 1998-99, declaring total income of Rs. 25,48,000. Along with the returns, the appellant submitted two agreements, termed as Memorandum of Understandings dated 10-4-1995 and 1-12-1989. The appellant also submitted copy of a Release-deed dated 11-6-1997. All these three documents pertain to a particular transaction with which we will deal at some length hereunder.
4. The appellant claimed that the amount in issue of Rs. 29,11,000 was an amount received by the appellant as compensation on account of the transactions reflected by the aforesaid three documents and that it was a 'capital gain'. However, all the lower authorities have treated the amount in issue as income earned by the appellant as and by way of 'income from other sources', by rejecting the claim of the appellant. Hence, this appeal.
5. The nature of transaction which resulted into the appellant receiving the amount in issue needs to be set out with few particulars and we do the same hereunder:
On 10-4-1985 the appellant entered into an agreement termed as 'Memorandum of Understanding' with one Mr. Dalvi, who was to acquire certain piece of land bearing Survey No. 6 of village Barave, taluka Kalyan, for the purpose of construction of buildings, to be used mainly for the residential purpose. Mr. Dalvi wanted to sell the flats, which he proposed to construct, to third parties on ownership basis.
Said Mr. Dalvi, the developer, was short of funds to undertake this project. The appellant therefore, offered to promote a Co-operative Housing Society and thereby collect funds from the proposed members of the Society. Consequently, the aforesaid MOU dated 10-4-1985 was entered into by and between the appellant Mr. Dalvi whereby it was agreed that Mr. Dalvi will construct the flats with the help of monies that the appellant will handover to Mr. Dalvi after collecting the same from the prospective buyers thereof, the members of the proposed society, Mr. Dalvi will give these flats to the appellant, who in turn will allot the flats to various members of the proposed Society, which was to be named as Krushna Housing Society.
It is the case of the appellant that in his capacity as promoter, the appellant collected funds of Rs. 29,11,000 from prospective members of the proposed Society. The appellant says that he added an amount of Rs. 2,00,000 as his own contribution as a member of the proposed Society towards one flat and paid total Rs. 31,11,000 to Mr. Dalvi on various dates between 3-4-1985 to 31-3-1989.
It is also agreed as per the clauses of the MOU dated 10-4-1985 that if Mr. Dalvi fails to complete the development and carry out construction as agreed, the promoters or the Society will be entitled to claim refund of the booking amount along with interest.
It is further case of the appellant that on account of certain legal problems, Mr. Dalvi could not honour his commitments of development and construction. Therefore, the parties entered into another agreement, also termed as Memorandum of Understanding dated 1-12-1989 whereby Mr. Dalvi agreed to refund the entire amount paid by appellant of Rs. 31,11,000. In addition to refund of the said amount with interest by the said MOU dated 1-12-1989 Mr. Dalvi also agreed to pay an additional amount of Rs. 29,11,000 i.e., the amount in issue, to the appellant inter alia as a compensation for cancellation of arrangement and so called understanding entered into between the appellant and Mr. Dalvi, in terms of MOU dated 10-4-1985. Accordingly, the amount in issue was paid by Mr. Dalvi to the appellant, in the financial years 1996-97 and 1997-98.
It is further the case of the appellant that in the meantime the appellant and Mr. Dalvi entered into a third agreement, called 'Release Deed', dated 19-6-1997, declaring that Mr. Dalvi is released absolutely forever and from all obligations, arising under MOU dated 10-4-1985.
6. As set out at the threshold of this order in the returns filed by the appellant, appellant claimed that the amount in issue of Rs. 29,11,000 to be the amount received by the appellant as 'income from long-term capital gain'. Whereas, the department has treated this amount, received by the appellant, as an 'income from other sources'.
7. It is the first contention of the appellant that the amount in issue is not an income within the definition of the term 'income' set out in Section 2(24) of the said Act. We are unable to accept this contention of the appellant and we agree with the findings rendered in this regard by all the lower authorities, including the Income-tax Appellate Tribunal by its impugned order dated 26-7-2006, for the reasons set out hereunder.
8. Section 2(24) defines the term 'income' as and by way of an inclusive and not exhaustive definition. Section 14 of the said Act fays down the categories in which income can be classified for the purpose of charging the income-tax. The same reads thus:
14. Heads of income.- Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of Income:
A. Salaries;
B. ** ** ***C. Income from house property;
D. Profits and gains of business or profession;
E. Capital gains;
F. Income from other sources.
Thus, the income received by an assessee is classified under the heads (A) to (F), except (B) (the same having been omitted by the Finance Act, 1988, with effect from 11-4-1989). If the income cannot be classified under heads (A) to (E) the same falls under head (F), being 'Income from other sources'.
Section 56 of the said Act is relevant in this regard, which deals with 'income from other sources'. The relevant portion of Section 56 reads thus:
56. Income from other sources.-(1) Income of every kind which is not to be excluded from the total income under this 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 specified in Section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of Sub-section (1), the following incomes, shall be chargeable to income-tax under the head 'Income from other sources', namely:
9. The appellant has admittedly received the amount in issue from Mr. Dalvi, in accordance with the MOU and/or the Release deed entered into by and between the appellant and Mr. Dalvi. In view of these admitted facts and circumstances of this case it cannot be said that the amount in issue so received by the appellant is not an income at all in terms of Section 2(24) read with Section 14 and Section 56 of the said Act. We therefore, hereby reject the said contention of the appellant and confirm the findings of all the lower authorities, holding that the amount in issue received by the appellant is a income taxable under the said Act.
10. This takes us to the classification or categorization of the income so received by the appellant viz., whether the same is to be treated as 'income from long-term capital gain' or as 'income from other sources.'
The factual narration of the transactions, which the appellant had with Mr. Dalvi demonstrates that the appellant did pay to Mr. Dalvi, total amount of Rs. 31,11,000 in terms of the MOU dated 10-4-1985. However, as Mr. Dalvi was unable to carry out the development and construction, as agreed by the MOU dated 10-4-1985, the parties entered into another MOU dated 1-12-1989. In addition thereto, the appellant also entered into an agreement titled as 'Release Deed' with Mr. Dalvi dated 11-6-1995. Admittedly, the appellant has received refund of the entire money paid by the appellant to Mr. Dalvi, along with interest towards the cancellation of the transaction that the appellant had with Mr. Dalvi in respect of purchase of flats which were to be constructed by Mr. Dalvi. In addition thereto Mr. Dalvi has paid to the appellant separately the amount in issue. This amount in issue has been paid to the appellant by Mr. Dalvi, inter attain pursuance of clause No. (5) of the MOU dated 1-12-1989, the relevant portion of which has been reproduced by the Commissioner in its appellate order dated 8-10-2002 and reads thus:
The amount as agreed to be paid as compensation hereinabove shall be due on execution of this Memorandum but shall be paid only when the promoter obtains proof of refund of flat booking from persons as listed in Annexure A and also the no claim certificate from them against the Developer.
11. It is thus, clear that the appellant has not received the amount in issue from Mr. Dalvi towards either acquiring or releasing or relinquishing any right or title or interest whatsoever, in the immovable property. The appellant was paid separately for relinquishing his interest in the immovable property, appropriate amount along with interest. Obviously therefore, the amount in issue cannot be said to be an amount received by the appellant as a compensation for relinquishing his interest in the immovable property and therefore cannot be considered under the head 'Capital gain'.
12. The learned Counsel appearing on behalf of the appellant contended that even a right to obtain conveyances of immovable property also falls within the word 'property' as used in Section 2(14) of the said Act and that the term 'property' so contained is of wide amplitude, on account of the words 'on any account' used in the said provision. The learned Counsel also further contended that the 'property' does not mean merely physical property but also includes therein all the right, title or interest in such 'property'. He also contended that therefore even right to obtain conveyances of any property of any kind is 'a capital asset'. The learned Counsel relied on the following judgments in support of his contentions:
CIT v. Tata Services Ltd. : [1980]122ITR594(Bom) ;
CIT v. Daksha Ramanlal : [1992]197ITR123(Guj) .
Ahmed G.H. Ariff v. CWT : [1970]76ITR471(SC) .
Walchandnagar Industries Ltd. v. CIT : [1970]76ITR478(Bom) .
CIT v. Vijay Flexible Containers : [1990]186ITR693(Bom) .
13. It is true that the term 'property' used in Section 2(14) of the said Act is to be interpreted widely and that it will include any right, title or interest in the immovable property, as also right to obtain conveyance(s) of immovable property. However, in the facts and circumstances of the present case, as discussed hereinabove, the appellant has failed to correlate the payment of amount in issue of Rs. 29,11,000 made to the appellant by Mr. Dalvi, towards any such right contemplated/considered by any of the aforesaid reported judgments. As the appellant, in view of the facts of this case, has failed to show that the amount in issue was paid to the appellant towards relinquishment of any such right/title/interest in respect of any immovable property or for that matter any 'property of any kind' it cannot be said that the amount in issue had been received by the appellant as 'income from long-term capital gains'.
14. The facts of this case clearly demonstrate that the appellant was paid the amount in issue so that no action in future is initiated against the Developer, Mr. Dalvi, by the members of the proposed housing society for having failed to construct flats for them as was initially agreed by Mr. Dalvi. In other words the appellant has received this amount in issue to indemnify Mr. Dalvi against any action (that too if any) that may be taken against Mr. Dalvi in future. This amount in issue was not paid to the appellant towards any right/title/interest that the appellant had in praesen ti in any immovable property.
We are therefore, of the view that these judgments relied on behalf of the appellant cannot further the case of the appellant and are of no assistance to the learned Counsel appearing on behalf of the appellant in advancing his points.
15. We agree with the observation of the Income-tax Appellate Tribunal that the amount in issue was paid to the appellant only to safeguard Mr. Dalvi from any claim(s) likely to be made against him by the person who had booked the flats through the appellant, since Mr. Dalvi did not construct the flats as agreed by him earlier.
16. Thus, considering over all facts and circumstances of the case and the factual findings recorded by all the three lower authorities, we are unable to accept the contentions of the appellant, firstly that the amount in issue of Rs. 29,11,000 received by the appellant is not an income at all, as defined under Section 2(24) of the said Act and that alternatively this income of the appellant is required to be treated as 'income from long-term capital gain' and not as 'income from other sources' as contemplated by Section 14 read with Section 56 of the said Act. We hold that all the three lower authorities were fully justified in treating the receipt of amount in issue of Rs. 29,11,000 by the appellant, not only as an income but also as income received by the appellant from other source as contemplated by Section 14 read with Section 56 of the said Act and subject the same to taxation accordingly.
The appellant has thus, failed to raise any question of law by the present appeal. The appeal is therefore dismissed, accordingly.