By TIOL News Service:

NEW DELHI, MAY 05, 2016: THE Issue is - Whether the amount refunded to an auction purchaser along with interest, pursuant to cancellation of the auction sale by the Apex Court, can be treated as 'revenue receipts' in the hands of the said auction purchasers. NO is the verdict.

Facts of the case:

The assessee are individuals. During the concerned year, the Punjab National Bank filed a suit for recovery of the loan advanced to M/s The Table Ware Craft Cottage, Mr. R.K. Goel, Mr. Virender Kumar Goel and Mr. Jitender Kumar Goel against the security of a property situated at Friends Colony, New Delhi, which was mortgaged to PNB. In the execution proceedings filed by PNB as Decree Holder, an order was passed for the auction sale of the aforementioned property. The assessees i.e., Girish Bansal and Gyanendra Bansal participated in the public auction and their bid for a sum of Rs.10,05,000/- was accepted and the sale in their favour was confirmed by the Civil Court. The Judgment Debtors, however, challenged the order of the Civil Court and the matter ultimately reached the Supreme Court, wherein, a compromise was reached between the parties. In the terms of the compromise, the audtion sale along with the sale certificate, was set aside and the assessees had undertaken to hand over the vacant position before withdrawing the money from court. Further, the High Court was directed to refund the money with accrued interest to the assessees after satisfying the decree of PNB. Consequent upon the above settlement, each of the assessees received Rs.10,00,000/-. Initially in the returns filed for AY 1996-97 each Assessee disclosed Rs.10,00,000/- as sale price of the plot and declared capital gains of Rs.2,30,613/-. In the subsequent revised return, the Assessees deleted the amount shown as capital gains, by stating that the amount received by virtue of decree passed by Supreme Court, was wrongly treated as Capital Gain Income. The revised returns were picked up for scrutiny, wherein, the AO came to the conclusion that a sum of Rs.10,00,000/- could not be considered as sale consideration since the auction sale had been set aside along with sale certificate and the same was treated as null and void. However, the AO concluded that the sum of Rs.10,00,000/- paid was not covered under any exemption clause of the Act and further that the Assessees had failed to quote any provision of the Act under which they were claiming exemption. Thus, the AO was of the view that a sum of Rs.10,00,000/- in the hands of each of the Assessees was “of a casual and non-recurring nature” and was therefore chargeable to tax u/s 10(3).

On appeal, the CIT(A) upheld the order of the AO. On further appeal, the ITAT concluded that the submission of the Revenue that the Assessees had acquired a right in the capital asset which the Assessees on their own volition had given up against the payment, and therefore the amount received was a capital receipt and the alternative plea that if it was not a capital receipt, then it was a casual and non-recurring receipt, was liable to be rejected. Once the sale was set aside pursuant to the compromise recorded by the Supreme Court, the Assessees could never be said to have acquired any right in the property, and therefore, they could not have transferred any right therein as well. Accordingly, the first question was answered in favour of the Assessees. The however confirmed the view of the AO to bring such amount to tax u/s 10(3) by holding that the sum received by the Assessees was neither a business income nor a salary, nor an income attracting capital gains.

After hearing the parties, the High Court had held that,

++ it is seen that the receipt of Rs.20,00,000/- by the Assessees was consequent upon the order recorded by the Supreme Court. There is no indication in the said order that the said amount constitutes the interest on the sum of Rs.10,05,000 as is sought to be urged by Revenue's counsel. On the other hand, in Clause (vi) of the compromise, there is a specific direction to the High Court to release “the balance of Rs.10,05,000 with the accrued interest to the assessees after satisfying the decree of the PNB”. Where the sum had to be paid together with interest, which was to be deposited in the Registry of the Supreme Court, it is not possible to the Court to presume that the said sum constituted the interest on the auction sale consideration that had been paid by the Assessees. Consequently, the Court is not prepared to accept the plea of the Revenue that the above sum of Rs. 20 lakhs constituted revenue receipt in the hands of the Assessees. The settled legal position is that all receipts do not constitute income. For a receipt sought to be taxed as income, the burden lies upon the Revenue to prove that it is within the taxing provision. The Supreme Court in Parimisetti Seetharamamma case noted that it was not the case of the Assessee therein that the receipts were income that was exempted from taxation. Her case was that the receipt does not fall within the taxing provisions at all. It was explained by the Supreme Court therein, that "whether a receipt is liable to be treated as income depends very largely upon the facts and circumstances of each case; it is open to the income-tax authorities to raise an inference that a receipt by an assembly is assessable income where he fails to disclose satisfactorily the source and the nature of the receipt. But here the source of income was disclosed by the assessee and there was no dispute about the truth of the disclosure." After analysing the evidence, the Apex court concluded that what the Assessee had received was not accessible to tax;

++ further, in case of C. Kamala, where the facts were more or less similar to the facts on hand, the Apex Court negatived the plea of the Revenue holding that "there cannot be any transfer of interest in a capital asset by the auction purchaser when the sale itself is set aside in appeal". It was reiterated “The department cannot be permitted to treat the transaction in question as a transfer of capital asset by the assessee even though she had not acquired any interest in the property and had not done any act which would either directly or indirectly amount to a transfer.” Consequently, the Court concluded that the sum received by the Assessee could not be treated as long term capital gains. Examined in light of the legal position explained in the above decision, this Court is of the view that as far as the present case is concerned, the sum of Rs.20 lakhs received by the Assessees was in the context of the cancellation of the sale certificate and the sale deed executed in their favour in relation to an immovable property and neither Assessee was dealing in immovable property as part of his business. While it could if at all be said to be in the nature of a capital receipt, what is relevant for the present case is that the Revenue has been unable to make out a case for treating the said receipt as of a casual and non-recurring nature that could be brought to tax u/s 10(3) r/w/s 56. Having held that it could not be in the nature of capital gain, it was not open to the Revenue to seek to bring it to a tax under the revenue receipt. Consequently, the impugned orders of the AO, CIT as well as the ITAT are hereby set aside.

(See 2016-TIOL-880-HC-DEL-IT)