- 1 - IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL No. 503 OF 2006 Manoj B. Joshi, ) Ashirwad, Ramba ug Lane No. 4, ) Kalyan- 421 301. ) Appellant Vs. 1. The 8 th Income Tax Officer, ) Ward No.1, Kalyan ) 2. Commissioner of Income Tax ) ‘Vardh a n’ 8 th Floor, Wagle ) Industrial Estate, Thane. ) 3. Union of India, ) Law Ministry, Aayakar Bhavan) 2 nd floor, M.K. Marg, ] Mumbai- 400 020. ] Responde nt s Mr. Arun Sathe with Mandar Vaidya & Panjabrao Naik, for the Appellant. Mr. Vimal Gupta, for the responde nt s. - 2 - CORAM : BILAL NAZKI, & A. A. KUMBHKONI, JJ. DATE : JULY 29, 2008. ORAL JUDGMENT ( PER : A. A. KUMBHKONI, J.) 1. This tax appeal is filed by an asses se against the assess m e n t order pertaining to the assess me n t year 1998- 99. The appellant is aggrieved by the rejection of his contention (which is set out hereu n d er) by all the lower authorities, including the Income Tax Appellate Tribun al. Admittedly the appellant has received an additional amou n t of Rs.29,11,000 / - (Rs. Twenty nine lakhs, eleven thous a n d only) ( herein after referredto as ‘the amou nt in issue’ for brevity). According to the appellant firstly receipt of the amou n t 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. - 3 - 2. In view of the concurre nt findings recorded by all the lower authorities against the appellant and in absence of any question of law raised by the appellant, we are una ble to admit this appeal. Normally, we would have dismissed this appeal sum m a rily without giving elaborate reasons. However, we are venturing to give detailed reasons so as to make this order a speaking order (not becaus e any legal issue as such is raised by this appeal). 3. Few facts at the thres hold for better under st a n di ng of this order may be necessary and we are setting out the same hereu n d er- The appellant claims to be a builder. The appellant filed income tax retur n s on 13 th November, 1998 in regard to the asses s me n t year in issue i.e. 1998- 99, declaring total income of Rs.25,48,00 0 / - . Along with the retur n s , the appellant submitted two agreemen t s, termed as Memora nd u m of Understa n di ngs dated 10 th April 1995 and 1 st December 1989. The appellant also sub mitted copy of a Release- deed dated 11 th Ju ne, 1997. All these three docu men t s pertain to a particular trans action with which we will deal at some length hereu n der. - 4 - . The appellant claimed that the amou n t in issue of Rs.29,11,00 0 / - was an amou n t received by the appellant as compens a tion on account of the trans actions reflected by the aforesaid three docume nt s 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 trans action which resulted into the appellant receiving the amou n t in issue needs to be set out with few particular s and we do the same hereu n de r - . On 10 th April 1985 the appellant entered into an agreemen t termed as 'Memora nd u m of Understa n di ng' 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 constr uction of buildings, to be used mainly for the residential purpose. Mr. Dalvi wanted to sell the flats, which he proposed to constr uct, to third parties on owners hip basis. . Said Mr. Dalvi, the developer, was short of funds to - 5 - undert a ke this project. The appellant therefore, offered to promote a Cooperative Housing Society and thereby collect funds from the proposed members of the Society. Conseque ntly, the aforesaid MOU dated 10 th April 1985 was entered into by and between the appellant Mr. Dalvi whereby it was agreed that Mr. Dalvi will constr u c t 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 member s of the proposed society. Mr. Dalvi will give these flats to the appellant, who in turn will allot the flats to various member s of the proposed Society, which was to be named as Krush n a 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 member s of the proposed Society. The appellant says that he added an amou nt of Rs. 2,00,000 / - as his own contrib ution 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 rd April, 1985 to 31 st March, 1989. . It is also agreed as per the clauses of the MOU dated 10 th April, 1985 that if Mr. Dalvi fails to complete the development and carry out constr uction as agreed, the promoters or the Society - 6 - will be entitled to claim refund of the booking amou n t along with interest. It is further case of the appellant that on account of certain legal problems, Mr. Dalvi could not honour his commitme n t s of development and constr uction. Therefore, the parties entered into another agreement, also termed as Memoran d u m of Understa n di ng dated 1st December, 1989 whereby Mr. Dalvi agreed to refund the entire amou n t paid by appellant of Rs. 31,11,0 00 / - . In addition to refund of the said amou n t with interest by the said MOU dated 1st December, 1989 Mr. Dalvi also agreed to pay an additional amou nt of Rs.29,11,000 / - i.e. the amou n t in issue, to the appellant inter-alia as a compens a tion for cancellation of arrange me n t and so called under s ta n di ng entered into between the appellant and Mr. Dalvi, in terms of MOU dated 10 th April, 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 mean time the appellant and Mr. Dalvi entered into a third agreement, called 'Release Deed', dated 19 th Ju ne, 1997, declaring that Mr. Dalvi is released absolutely forever and from all obligations, arising - 7 - under MOU dated 10 th April, 1985. 6. As set out at the thres hold of this order in the retur n s filed by the appellant, appellant claimed that the amou nt in issue of Rs.29,11,00 0 / - to be the amou nt received by the appellant as 'income from long term capital gain'. Whereas, the departme n t has treated this amou n t, received by the appellant, as an “income from other sources”. 7. It is the first contention of the appellant that the amou n t 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 Tribun al by its impugned order dated 26 th July, 2006, for the reasons set out hereu n der. . Section 2(24) defines the term 'income' as and by way of an inclusive and not exhau s tive definition. Section 14 of the said Act lays down the categories in which income can be classified for the purpose of charging the income tax. The same reads thus- - 8 - ''14. Sa ve 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. - Sala r i e s . B.- [ ] C. - Income from house proper t y , D. - Profit s and gain s of busine s s or profes s io n . E. - Capit a l gain s. F. - Income from other source s. Thus, the income received by an assess is classified under the head s (A) to (F), except (B) (the same having been omitted by the Finance Act 1988, w.e.f. 1 st April, 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- ''S.5 6 . (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 - 9 - 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 ............................................. ......................................................................................... ......................................................................................... The appellant has admittedly received the amoun t in issue from Mr. Dalvi, in accorda nce with the MOU and / o r the Release- deed entered into by and between the appellant and Mr. Dalvi. In view of these admitted facts and circums t a n ce s of this case it cannot be said that the amou nt in issue so received by the appellant is not an income at all in terms of section 2(24) r /w 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 amou nt 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''. - 10 - The factual narration of the trans actions, which the appellant had with Mr. Dalvi demons tr a tes that the appellant did pay to Mr. Dalvi, total amount of Rs.31,11,000 / - in terms of the MOU dated 10 th April, 1985. However, as Mr. Dalvi was una ble to carry out the developme nt and constr uc tion, as agreed by the MOU dated 10 th April, 1985, the parties entered into another MOU dated 1 st December, 1989. In addition thereto, the appellant also entered into an agreement titled as ''Release Deed'' with Mr. Dalvi dated 11 th Ju ne, 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 trans action that the appellant had with Mr. Dalvi in respect of purcha se of flats which were to be constr ucte d by Mr. Dalvi. In addition thereto Mr. Dalvi has paid to the appellant separately the amou nt in issue. This amou n t in issue has been paid to the appellant by Mr. Dalvi, inter- alia in purs u a n c e of Clause no. (5) of the MOU dated 1st December, 1989, the relevant portion of which has been reproduced by the Commissioner in its appellate order dt. 8th October 2002 and reads thu s- ''The amount as agreed to be paid as compens ation hereinabove shall be due on execution of this Memorandu m - 11 - 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 amou n t in issue from Mr. Dalvi towards either acquiring or releasing or relinquis hing any right or title or interest whatsoever, in the immovable property. The appellant was paid separately for relinquis hing his interest in the immovable property, appropriate amou n t along with interest. Obviously therefore, the amou nt in issue cannot be said to be an amou n t received by the appellant as a compen s a tion for relinquis hing 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 accou nt'' used in the said provision. The learned counsel also further contended that the ''property'' does not mean merely - 12 - 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 judgmen ts in support of his contentions. i The Commissioner of Income Tax, Bombay City- I Vs. Tata Services Ltd. [1980 Income Tax Reports, Vol. 122, 694]; i Commissioner of Income Tax Vs. Daksh a Rama nlal [ 1992 Income Tax Reports, 123 ]; i Ahmed G.H. Ariff & Ors. Vs. Commissioner of Wealth Tax, Calcutta [ 1970 Income Tax Reports 471]; i Walchan d n a ga r Indus tries Ltd. Vs. Commissioner of Income Tax, Bombay City- I [1970 Income Tax Reports, Vol. 76, 476]; i Commissioner of Income Tax Vs. Vijay Flexible Container s [1980 Income Tax Reports 693]. 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 - 13 - facts and circu m st a n ce s of the present case, as discus se d hereina bove, the appellant has failed to correlate the payment of amou n t in issue of Rs.29,11,000 / - made to the appellant by Mr. Dalvi, towards any such right contemplated / c o n si dered by any of the aforesaid reported judgment s. As the appellant, in view of the facts of this case, has failed to show that the amou n t in issue was paid to the appellant towards relinquish m e n t of any such right / title / i n t e res t in respect of any immovable property or for that matter any ''property of any kind'' it cannot be said that the amou n t in issue had been received by the appellant as ''income from long term capital gain''. 14. The facts of this case clearly demonstr ate that the appellant was paid the amou n t 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 constr uc t flats for them as was initially agreed by Mr. Dalvi. In other words the appellant has received this amou nt in issue to indemnify Mr. Dalvi against any action (that too if any) that may be taken against Mr. Dalvi in future. This amou n t in issue was not paid to the appellant towards any right / title / i n t e re st that the appellant had in praesenti - 14 - in any immovable property. We are therefore, of the view that these judgme nt s relied on behalf of the appellant cannot further the case of the appellant and are of no assista nce 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 Tribu n al that the amoun t in issue was paid to the appellant only to safeguar d 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 constr uct the flats as agreed by him earlier. 16. Thus, considering over all facts and circum s t a nce s of the case and the factual findings recorded by all the three lower authorities, we are unable to accept the contention s of the appellant, firstly that the amou nt 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 - 15 - contemplated by Section 14 r/w Section 56 of the said Act. We hold that all the three lower authorities were fully justified in treating the receipt of amou nt 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 Sections 14 r/w 56 of the said Act and subject the same to taxation accordingly. 17. The appellant has thus, failed to raise any question of law by the present appeal. The appeal is therefore dismissed, accordingly. [ BILAL NAZKI, J. ] [ A. A. KUMBHKONI, J.]