IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `SMC-2', NEW DELHI
Before Sh. N. K. Saini, AM
ITA No. 676/Del/2015 : Asstt. Year : 2010-11
Jagan Nath Prasad & Sons, Vs Income Tax Officer,
HUF, 14, Naya Ganj, Ward-1(3), CGO Complex
Ghaziabad Ghaziabad
(APPELLANT) (RESPONDENT)
PAN No. AAAHJ8091C
Assessee by : Sh. Ashish Singhal & Smt. Ekita Gupta, CAs
Revenue by : Sh. J. P. Citandraker, Sr. DR
Date of Hearing : 20.07.2015 Date of Pronouncement : 05.08.2015
ORDER
Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated
27.11.2014 of ld. CIT(A), Ghaziabad.
2. The only effective ground raised in this appeal reads as
under:
" That the learned Assessing Authority was not justified
in taxing the compensation received amounting to Rs.
4,75,041/- as the receipt was Capital Receipt, hence
cannot be taxable. That the learned Commissioner of
Income Tax (Appeals) was not justified to taxing the
compensation received. "
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3. Facts of the case in brief are that the assessee filed the return of
income on 24.02.2011 declaring an income of Rs. 2,09,670/-. Later on,
the case was selected for scrutiny. During the course of assessment
proceedings, the AO noticed that the assessee received an amount of Rs.
4,75,041/- from Indian Oil Corporation Ltd. The AO asked the assessee
to explain the nature of receipts, documentary evidence and as to why
the said amount may not be added to its income. The assessee submitted
that M/s Indian Oil Corporation laid down underground pipeline and
paid the impugned amount for the damages done to the land, therefore, it
was capital in nature. The AO did not find merit in the submissions of
the assessee and made the addition of Rs. 4,75,041/- treating the said
amount as revenue receipt and also causal and non-recurring nature.
4. Being aggrieved the assessee carried the matter to the ld. CIT(A)
and reiterated the submissions made before the AO. The ld. CIT(A)
incorporated the submissions of the assessee in paras 4 & 5 of the
impugned order which read as under:
"That the assessee had an Agricultural land situated at
Village: Rasoolpur, Sikroad, Pargana: Dasna, Distt:
Ghaziabad.
During the A.Y. 2010-11, M/s Indian Oil Corporation Ltd. had
laid down the underground pipe-line. The land of assessee was
in the way of pipe-line path to be laid down.
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For digging of land and laying the pipe-line, the Indian Oil
Corporation Ltd. had paid Rs. 4,75,980/- to the assessee. This
amount is received for granting the right to use the land for
laying the pipeline and damages done to the land. The land is
still owned by the assessee and there is no transfer of any
asset. Therefore, compensation received by the assessee is not
eligible for capital gain tax.
As per the Assessment Order, the amount received is for the
loss of future profit but it is not loss of future profit as the
compensation received for damages done to the land and
granting the right to use the land for laying the pipeline below
the land of the assessee. Therefore, it is a capital receipt in
nature and not taxable.
Also, in the case of Shri Thakorbhai V. Naik V/s The Income
Tax Officer, Ward-3(4), Surat (ITA No. 781/AHD/2010), it
was held by the Hon'ble ITAT (Ahmadabad) that:-
"Thus, only question before me is whether the capital
receipt is chargeable to capital gain tax or not. As per
section 45 any profit or gains arising from the transfer of
capital asset is chargeable to tax. Thus, transfer of
capital assets is a necessary condition for chargeability
of capital gain tax. In the case before me, the assessee
continued to be the owner of the agricultural land. There
is no transfer of agricultural land, or any right in
agricultural land by the assessee to GGCL. When there
is no transfer of capital assets, in my opinion, the receipt
cannot be charged to capital gain tax. In view of the
above, the order of the CIT(A) is partly modified and it is
held that the compensation received by the assessee is
capital receipt not chargeable tax."
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Similar judgment was held in the case of Shri Ishwarbhai
Desai Vs The Income Tax Officer, Ward-3(1), Surat (ITA
No. 544/AHD/2010). Copy of order is enclosed herewith.
In both the case, the Hon'ble ITAT had held that amount
received by assessee was treated as capital receipt not
chargeable to tax.
Also, a letter received from M/s Indian Oil Corporation
Ltd. is enclosed herewith, which shows that the amount
of Rs. 4,70,800/- had been paid as compensation for the
land. The amount received as the compensation received
for damages done to the land and granting the right to
use the land for laying the pipeline below the land of the
assessee. Therefore, it is a capital receipt in nature and
not taxable.
It is submitted that appeal may please be decided in the
view of above facts and cases decided by Hon'ble ITAT
Ahmadabad."
"With reference to the above appeal, it is further submitted
that as per Section 10(1) of the Petroleum and Minerals
Pipelines Act, 1962:-
"Where in the exercise of the powers conferred by
section 4, section 7 or section 8 by any person, any
damage, loss or injury is sustained by any person
interested in the land under which the pipeline is
proposed to be, or is being, or has been laid, the Central
Government, the State Government or the Corporation,
as the case may be shall be liable to pay compensation to
such person for such damage, loss or injury, the amount
of which shall be determined by the competent authority
in the first instance."
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It means that compensation is paid only when there is
any damage done to the person interested in the land
under which the pipeline has been laid. The amount paid
is in the form of compensation for damages. In our case,
M/s Indian Oil Corporation ltd. had paid Rs. 4,70,800/-
as compensation for damages done to the land and Rs.
4,242/- as compensation for damages done to the
Corporation.
As these payments are in form of compensation for
damages, hence it should be treated as capital receipt
and not chargeable to tax."
5. The ld. CIT(A) after considering the submissions of the assessee
confirmed the addition made by the AO by observing in para 6.1 of the
impugned order as under:
"6.1 The appellant has relied on two decisions of Hon'ble
ITAT. However, the facts of the present case are different. In
these cases the assessing officer had assessed the said receipts
under the head other sources and the CIT(A) had held them to
be capital receipts. No appeal was filed before the ITAT by the
department against order of the CIT(A). Therefore, the issue
before ITAT was not whether these receipts were of capital
nature or revenue nature. The department having accepted the
receipt to be of capital nature (by not filing appeal against the
CIT(A)'s order), the ITAT modified the CIT(A)'s order that
these receipts were not subject to capital gain tax as no capital
asset had been transferred.
In the present case, the assessing officer has held them to be
revenue receipts of casual and non-recurring nature. I concur
with the view of the assessing officer and uphold the addition.
Ground of appeal no. 1 is therefore rejected."
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6. Now the assessee is in appeal. During the course of hearing the ld.
Counsel for the assessee reiterated the submissions made before the
authorities below and further submitted that this issue is squarely
covered by the decision of the Hon'ble Bombay High Court in Income
Tax Appeal No. 2923/2010 in the case of Dr. (Ms) Avimay S. Hakim Vs
ITO, 12(3)(2) order dated 10.08.2010. Reliance was also placed on the
following decisions of the ITAT Ahmadabad Bench:
Ø Shri Thakorbhai V. Naik Vs ITO in ITA No. 781/Ahd/2010,
order dated 30.07.2010
Ø Vijay Ishwarbhai Desai Vs ITO in ITA No. 544/Ahd/2010,
order dated 16.12.2010
7. In his rival submissions the ld. DR strongly supported the orders of
the authorities below.
8. I have considered the submissions of both the parties and carefully
gone through the material available on the record. In the present case, it
is an admitted fact that the assessee received a sum of Rs. 4,75,041/-
towards the damages to the land belonging to it and the AO taxed it
considering the same as revenue receipt, the ld. CIT(A) upheld the view
taken by the AO.
9. On a similar issue their lordships of the Hon'ble Bombay High
Court in the Case of Dr. (Ms) Avimay S. Hakim Vs ITO (supra)
observed in para 5 of the order dated 10.08.2011 as under:
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"The facts brought on record before the ITAT and before this
Court by filing an additional affidavit clearly show that the
property belonging to the assessee was damaged by Sahara
India and in fact after paying compensation, neither Sahara
India nor the Municipal Council have restored the land
belonging to the assessee to its original position. The fact that
Sahara India has removed the equipments from the plot
belonging to the assessee, it cannot be said that the damage
caused to the land has been set right by restoring the land to its
original position. In these circumstances, in our opinion, the
amount of Rs. 8,42,000/- received by the assessee towards the
damage to the land belonging to the assessee cannot be said to
be revenue receipt. The fact that the land has remained with the
assessee and that the assessee in future may earn profits from
the said land cannot be a ground to hold that the compensation
received by the assessee in lieu of damage caused to the land
was revenue receipt. Accordingly, we answer the question in
favour of the assessee and against the revenue."
10. So, respectfully following the ratio laid down in the aforesaid
referred to case, the impugned addition sustained by the ld. CIT(A) is
deleted because the amount received towards the damage to the land
belonging to the assessee cannot be said to be a revenue receipts.
11. In the result, the appeal of the assessee is allowed.
(Order Pronounced in the Court on 05/07/2015)
Sd/-
(N. K. Saini)
ACCOUNTANT MEMBER
Dated: 05/08/2015
*Subodh*
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