ACIT 11(2), MUMBAI v. AJIT T. MIRCHANDANI, MUMBAI

ITA 1775/MUM/2009 | 2005-2006
Pronouncement Date: 23-07-2010 | Result: Dismissed

Appeal Details

RSA Number 177519914 RSA 2009
Assessee PAN SINCE1995I
Bench Mumbai
Appeal Number ITA 1775/MUM/2009
Duration Of Justice 1 year(s) 4 month(s) 5 day(s)
Appellant ACIT 11(2), MUMBAI
Respondent AJIT T. MIRCHANDANI, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 23-07-2010
Assessment Year 2005-2006
Appeal Filed On 18-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI. BEFORE SHRI R.V.EASWAR PRESIDENT AND SHRI B.RAMAKO TAIAH AM I.T.A.NO.2307/MUM/2009 (ASSESSMENT YEAR: 2005-06) MR. AJIT TOLARAM MIRCHANDANI ADOR HOUSE K.DUBHASH MARG FORT MUMBAI-400 023. PAN:AABPM8820B VS. THE ADDITIONAL CIT RANGE-11(2) MUMBAI. (APPELLANT) (RESPONDENT) & I.T.A.NO.1775/MUM/2009 (ASSESSMENT YEAR: 2005-06) THE ASSISTANT COMMISSIONER OF INCOME TAX-11(2) R.NO.479 4 TH FLOOR AAYAKAR BHAVAN M.K.ROAD MUMBAI-400 020. VS. MR. AJIT TOLARAM MIRCHANDANI ADOR HOUSE K.DUBHASH MARG FORT MUMBAI-400 023. PAN:AABPM8820B (APPELLANT) (RESPONDENT) ASSESSEE BY : MR.SUBHASH S.SHETTY DEPARTMENT BY : MR.SANJEEV JAIN DR O R D E R PER R.V.EASWAR PRESIDENT: THESE ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2005-06. 2. THE BRIEF FACTS GIVING RISE TO THE APPEALS MAY BE NOTICED. ONE TOLARAM KHANCHAND MIRCHANDANI WHO WAS AN ICS O FFICER PURCHASED A PLOT IN SURVEY NUMBER 132B ICS COLONY PUNE UNDER DEED DATED 24.03.1955 AND CONSTRUCTED A BUNGA LOW THEREON KNOWN AS NANDANVAN. HE DIED IN THE YEAR 1 962 LEAVING BEHIND HIS WIFE MRS. SATRUPI MIRCHANDANI THREE SO NS BY NAME INDERSEN AJIT & VIJAY AND ONE DAUGHTER BY NAME PR AVINA MATHUR. ON THE DEATH OF TOLARAM K.MIRCHANDANI HIS WIFE ITA NO.2307 & 1775/M/09 2 BECAME ENTITLED TO THE PLOT OF LAND AND THE BUNGALO W STANDING THEREIN. BY WILL DATED 28.03.1984 MRS. SATRUPI MIRC HANDANI BEQUEATHED THE LAND AND BUNGALOW IN EQUAL SHARES TO THE ASSESSEE HEREIN HER DAUGHTER MRS. PRAVINA MATHUR A ND MS. NATASHA DAUGHTER OF VIJAY WHO HAD PREDECEASED HE R. ON THE DEATH OF MRS. SATRUPI ON 13.12.1993 THE WILL TOOK E FFECT. THE OTHER SON INDERSEN WHO HAD ALSO PREDECEASED MRS. SATRUPI IN 1982 APPEARS TO HAVE BEEN ESTRANGED FROM THE FAMIL Y AND HE WAS EXCLUDED FROM THE WILL. IN 1995 SHIV INDERSEN MIRCHANDANI AND MRS. CHANDRA INDERSEN MIRCHANDANI THE SON AND WIFE RESPECTIVELY OF INDERSEN FILED CIVIL SUIT NO.2043 OF 1995 IN THE COURT OF CIVIL JUDGE SENIOR DIVISION PUNE CLAIMING AN EQUAL SHARE IN THE PROPERTY. IN THE SAID SUIT THE CONTENTIONS RAISED WERE THAT THE PLOT OF LAND WAS PURCHASED BY LATE TOLARAM K. MIRCHANDANI FROM HIS JOINT FAMILY FUNDS AND THER EFORE SHIV INDERSEN MIRCHANDANI HAD A SHARE THEREIN AS COPARCE NER AND THAT THE WILL EXECUTED BY MRS. SATRUPI EXCLUDING SH IV INDERSEN MIRCHANDANI WAS VOID AND ILLEGAL. DURING THE PENDE NCY OF THE SUIT THE COSMOS CO-OPERATIVE BANK LTD. ENTERED INT O NEGOTIATIONS WITH THE ASSESSEE MRS. PRAVINA MATHUR AND MS.NATASHA FOR THE PURCHASE OF THE PROPERTY AND OFF ERED A PRICE OF RS.10 50 00 000/- FOR THE SAME. A SALE DEED WAS EXECUTED ON 3.8.2004. THE BANK WAS AWARE OF THE SUIT FILED BY SHIV INDERSEN AND MRS. CHANDRA INDERSEN. ACCORDINGLY IT THOUGHT THAT IN CASE THE SUIT WAS DECIDED IN FAVOUR OF THE PLAINTIFFS T HE BANK MIGHT ITA NO.2307 & 1775/M/09 3 BECOME LIABLE TO PAY THEM SOME MONIES. THE BANK THE REFORE KEPT BACK A SUM OF RS.2 62 50 000/- OUT OF THE SALE CONSIDERATION IN ESCROW ACCOUNT AND AS PER THE ESCR OW AGREEMENT ENTERED INTO WITH THE VENDORS ON 27.7.200 4 IT WAS STIPULATED THAT THE SAID AMOUNT WOULD BE WITHDRAWN AS PER THE TERMS AND CONDITIONS STIPULATED THEREIN. ON 15.11 .2007 CONSENT TERMS WERE ENTERED INTO BY THE PARTIES TO T HE CIVIL SUIT UNDER WHICH A SUM OF RS.1.5 CRORES WAS PAID BY COSM OS BANK TO SHIV INDERSEN WHO IN TURN ACCEPTED THE AMOUNT I N LIEU OF GIVING UP HIS CLAIM TO A SHARE IN THE PROPERTY. ON 12.11.2007 APPARENTLY IN CONTINUATION OF THE CONSENT TERMS AN D WITHDRAWAL OF THE SUIT A MEMORANDUM OF UNDERSTANDI NG WAS ENTERED INTO BETWEEN THE VENDORS AND THE BANK AND O UT OF THE ESCROW AMOUNT OF RS.2 62 50 000/- A SUM OF RS.2 CR ORES WAS PAID TO THE VENDORS IN FULL AND FINAL SETTLEMENT. 3. ON THE ABOVE FACTS THE ASSESSEE WHO HAD 1/3 RD SHARE IN THE PROPERTY COMPUTED CAPITAL GAINS OF RS.1 92 89 493/- IN THE RETURN OF INCOME. THE COMPUTATION OF THE CAPITAL GA INS IS AS UNDER:- 1/3 RD SHARE IN PROPERTY AT SHIVAJI NAGAR PUNE TOTAL SALE CONSIDERATION AS PER AGREEMENT DT.3.8.20 04 10 50 00 000 LESS: AMOUNT DEPOSITED IN ESCROW A/C.NO.2/2004 KEPT UNDER LIEN BY THE PURCHASER TILL THE DECISION OF CI VIL SUIT NO.2045/95 AS PER AGREEMENT DT.27.7.2004 (COPY ENCLOSED). THE VENDORS WILL BE ENTITLED TO TH E SAID AMOUNT ONLY ON THE CONTINGENCY OF SUCCEEDING IN THE ABOVE SUIT AND ITS SUBSEQUENT APPEAL APPLIC ATION OR ANY SUCH PROCEEDINGS. IF THE VENDORS DO NOT SUCC EED IN THE SAID SUIT THEN THE PURCHASERS HAVE THE RIGHT TO DENY THE PAYMENT TO THE VENDOR. 2 62 50 000 ITA NO.2307 & 1775/M/09 4 7 87 50 000 LESS: EXPENSES ON BROKERAGE LEGAL FEES AND VALUATION CHARGES 26 51 120 7 60 98 880 LESS: COST OF PROPERTY AS ON 1.4.1981 AS PER VALUATION REPORT 37 98 000 INDEXED COST = 37 98 000 X 480 /100 1 82 30 400 5 78 68 480 ASSESSEE HAS 1/3 RD SHARE IN CAPITAL GAIN: 1 92 89 493 THE ASSESSEE INVESTED RS.1 75 00 000/- IN NHB CAPIT AL GAIN BONDS UNDER SECTION 54EC AND THE BALANCE OF RS.17 8 9 493/- WAS INCLUDED IN THE RETURN. 4. IT MAY BE SEEN FROM THE AFORESAID COMPUTATION TH AT THE AMOUNT OF RS.2 62 50 000/- WITHHELD BY THE COSMOS B ANK THE PURCHASER OF THE PROPERTY AND KEPT UNDER ESCROW ACC OUNT TILL DECISION IN THE CIVIL SUIT HAS BEEN EXCLUDED BY TH E ASSESSEE ON THE GROUND THAT THE VENDORS WILL BE ENTITLED TO THE AFORESAID AMOUNT ONLY IN THE CONTINGENCY OF THE SUIT BEING DE CIDED IN THEIR FAVOUR AND IF THAT DID NOT TAKE PLACE THE CO SMOS BANK HAD THE RIGHT TO DENY PAYMENT OF THE AFORESAID SUM TO T HE VENDORS. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE AS SESSEES CONTENTIONS. HE OBSERVED THAT UNDER SECTION 48 OF T HE INCOME TAX ACT THE FULL VALUE OF THE CONSIDERATION ACCRUI NG AS A RESULT OF THE TRANSFER OF THE ASSET IS TO BE ASSESSED TO T AX. HE NOTED THAT ACCORDING TO THE SALE DEED DATED 3 RD AUGUST 2004 THE VENDORS JOINTLY AND INDIVIDUALLY HAD DECLARED AND C ONFIRMED THAT COSMOS BANK HAS PAID THE FULL CONSIDERATION AC CRUED TO AND HAD ADMITTED THE RECEIPT THEREOF AND HAVE ALSO RELEASED AND DISCHARGED THE BANK. ACCORDING TO THE ASSESSING OFF ICER THE ITA NO.2307 & 1775/M/09 5 ASSESSEE CANNOT GO BACK ON THE ABOVE AVERMENT TO CO NTEND THAT THE SALE CONSIDERATION TO THE EXTENT OF RS.2 62 50 000/- DID NOT REACH THE VENDORS. HE ALSO OBSERVED THAT IN ANY CAS E A SUM OF RS.2 CRORES HAS BEEN PAID TO THE VENDORS UNDER THE SETTLEMENT DATED 12.11.2007. HE ACCORDINGLY HELD THAT THE CAPI TAL GAINS HAVE TO BE COMPUTED ON THE BASIS THAT THE ENTIRE SA LE CONSIDERATION OF RS.10 50 00 000/- HAD ACCRUED TO T HE VENDORS. 5. AS REGARDS THE COST OF ACQUISITION AS ON 1.4.198 1 THE ASSESSING OFFICER TOOK THE VIEW THAT ON THAT DATE T HE WILL HAD NOT COME INTO FORCE AND THE SHARE OF THE ASSESSEE W AS 1/4 TH SINCE LATE MRS. SATRUPI HAD THREE SONS AND ONE DAU GHTER AND THEREFORE IT WAS APPROPRIATE TO TAKE THE FAIR MARKE T VALUE AS ON 1.4.1981 ONLY WITH REFERENCE TO THE ASSESSEES 1/4 TH SHARE. THE ASSESSEES OBJECTIONS TO THE AFORESAID PROPOSAL OF THE ASSESSING OFFICER WERE OVERRULED AND HE RECOMPUTED THE COST OF THE PROPERTY AS ON 1.4.1981 AT 3/4 TH OF THE COST OF RS.37 98 000/- CLAIMED BY THE ASSESSEE WHICH CAME TO RS.28 48 500 /- AND WHEN INDEXED UNDER SECTION 48 IT CAME TO RS.1 36 72 800/- AS AGAINST RS.1 82 30 400/- CLAIMED IN THE ASSESSEES WORKING. THE RESULT WAS THAT THE ASSESSEES 1/3 RD SHARE IN THE CAPITAL GAINS WAS COMPUTED BY THE ASSESSING OFFICER AT RS.2 95 85 733/- (BEFORE DEDUCTION UNDER SECTION 54 EC) AS AGAINST RS.1 92 89 493/- DECLARED BY THE ASSESSEE. 6. THE ASSESSEE APPEALED TO THE CIT(A) AND CLAIMED THAT (A) THE AMOUNT OF RS.2 62 50 000/- WAS RIGHTLY EXCLUDED IN ITA NO.2307 & 1775/M/09 6 COMPUTING THE CAPITAL GAINS AND (B) THE ASSESSING O FFICER ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEES SHA RE OF COST OF ACQUISITION AS ON 1.4.1981 CANNOT EXCEED 1/4 TH OF THE COST. THE CIT(A) HELD THAT THE FULL VALUE OF THE CONSIDERATIO N CANNOT BE ANYTHING LESS THAN RS.10 50 00 000/- SINCE THAT WA S THE AMOUNT WHICH ACCRUED TO THE VENDORS AND THUS AGREED WITH THE ASSESSING OFFICER ON THIS POINT. HOWEVER AS REGARD S THE COST OF ACQUISITION HE HELD THAT THE ASSESSING OFFICER CAN NOT REDUCE THE ASSESSEES SHARE FROM 1/3 RD TO 1/4 TH AS ON 1.4.1981 MERELY BECAUSE OF A DISPUTE RAISED BY SHIR INDERSEN THE G RANDSON OF MRS. SATRUPI AND TOLARAM MIRCHANDANI. HE ACCORDINGL Y HELD THAT THE ASSESSEES SHARE IN THE COST OF ACQUISITIO N AS ON 1.4.1981 WAS RIGHTLY TAKEN AT 1/3 RD OF THE PROPERTY. 7. WHEREAS THE ASSESSEE HAS COME IN APPEAL IN ITA NO.2307/MUM/2009 CONTENDING THAT THE ESCROW AMOUNT OF RS.2 62 50 000/- SHOULD BE EXCLUDED FROM THE SALE CONSIDERATION THE REVENUE HAS COME IN APPEAL IN IT A NO.1775/MUM/2009 AGAINST THE DECISION OF THE CIT(A) ACCEPTING THE ASSESSEES CLAIM THAT THE COST OF ACQ UISITION AS ON 1.4.1981 SHOULD BE COMPUTED WITH REFERENCE TO THE A SSESSEES 1/3 RD SHARE IN THE PROPERTY AS AGAINST 1/4 TH ADOPTED BY THE ASSESSING OFFICER. 8. WE HAVE CAREFULLY CONSIDERED THE FACTS. IN SUPPO RT OF THE APPEAL FILED BY THE ASSESSEE THE LEARNED COUNSEL F OR THE ITA NO.2307 & 1775/M/09 7 ASSESSEE CONTENDED THAT IN VIEW OF THE PENDENCY OF THE SUIT FILED BY SHIV INDERSEN THE AMOUNT OF RS.2 62 50 000/- D EPOSITED BY THE COSMOS BANK IN THE ESCROW ACCOUNT UNDER THE ESC ROW AGREEMENT DATED 27.7.2004 DID NOT ACCRUE TO THE ASS ESSEE . IT WAS SUBMITTED THAT THE AMOUNT OF RS.2 CRORES WAS RE CEIVED FROM THE ESCROW ACCOUNT ONLY ON 12.11.2007 AND THAT THE SAID AMOUNT CAN BE TAXED IF AT ALL ONLY IN THE ASSESSM ENT YEAR 2008-09 ON RECEIPT BASIS. IN THE ALTERNATIVE HE CO NTENDED THAT WHAT WAS RECEIVED BY THE VENDORS ON 12.11.2007 WAS ONLY RS.2 CRORES AND NOT THE ENTIRE AMOUNT OF RS.2 62 50 000/ - AND THEREFORE IN ANY CASE THE AMOUNT OF RS.62 50 000/- CANNOT BE INCLUDED IN THE SALE CONSIDERATION. IN SUPPORT OF T HE CONTENTION THAT THE AMOUNT KEPT BACK BY THE COSMOS BANK IN THE ESCROW ACCOUNT DID NOT ACCRUE TO THE VENDORS HE CITED THE FOLLOWING DECISIONS:- (I) CIT VS. SMT. KHORSHED M.MISTRY & ANOTHER (1978) 113 ITR 850(BOM) (II) MR. N.VAJRAPANI NAIDU VS. ITO. (1989) 28 ITD 459 (MADRAS BENCH) (III) KANTI SWAROOP SHARMA VS. ITO (1992) 41 ITD 246(ALLAHABAD BENCH) 9. ACCORDING TO THE LEARNED SENIOR D.R. THE ENTIRE SALE PRICE OF RS.10 50 00 000/- ACCRUED TO THE VENDORS OF THE PROPERTY AND IT HAS BEEN SO MENTIONED IN CLAUSE 2 OF THE SAL E DEED. HE CONTENDED THAT THE MERE PENDENCY OF THE SUIT DID NO T AFFECT THE ACCRUAL OF THE ESCROW AMOUNT OF RS.2 62 50 000/- AN D THAT IT ITA NO.2307 & 1775/M/09 8 WAS RIGHTLY INCLUDED IN THE SALE CONSIDERATION FOR COMPUTING THE CAPITAL GAINS. 10. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THE QUESTION BEFORE US IS WHETHER THE PENDENCY OF THE SUIT FILED BY SHIV INDERSEN MIRCHANDANI BEFORE THE CIVIL JUDGE SENIOR DIVISION PUNE AFFECTED THE ACCRUAL O F THE AMOUNT OF RS.2 62 50 000/- AS SALE CONSIDERATION TO THE VE NDORS. ACCORDING TO THE ESCROW AGREEMENT MADE BETWEEN THE PARTIES ON 27 TH JULY 2004 A COPY OF WHICH HAS BEEN FILED BEFORE US THE VENDORS ACCEPTED EXCLUSIVE RESPONSIBILITY TO GET TH E SUIT FINALLY DECIDED AND THAT THEY HAD FULL CONFIDENCE THAT THEY WILL SUCCEED IN THE SUIT. THE AGREEMENT FURTHER NARRATES THAT T HE VENDORS THEREFORE REPRESENT TO THE BANK THAT THEY POSSESS C LEAN CLEAR AND MARKETABLE TITLE TO THE PROPERTY AND IT WAS ON THIS BASIS THAT THE SALE DEED WOULD BE EXECUTED BY ACCEPTING T HE CONSIDERATION OF RS.10 50 00 000/- FROM THE BANK IN THE MANNER STATED IN THE SALE DEED. THE PREAMBLE FURTH ER STATES THAT THE BANK HAS PAID THE CONSIDERATION WITH THE C ONDITION THAT THOUGH IT HAS PAID THE ENTIRE CONSIDERATION FOR THE PROPERTY EVEN THEN THE VENDORS SHALL OPEN THE ESCROW ACCOUNT S WITH THE COSMOS BANK AND DEPOSIT THE MONIES IN THOSE ACCOUNT S. ACCORDING TO CLAUSE(E) OF THE ESCROW AGREEMENT THE VENDORS SHALL CONTINUE THE ESCROW ACCOUNT UNTIL FINAL DECIS ION OF THE SPECIAL CIVIL SUIT NO.2045 OF 1995 OR ANY APPEAL OR APPLICATION OR ANY SUCH PROCEEDINGS ARISING THEREFROM AND THEY MAY CLAIM ITA NO.2307 & 1775/M/09 9 AND WITHDRAW THE SAID AMOUNT FROM THE SAID ESCROW A CCOUNT ONLY AFTER THE VENDORS SUCCEED IN THE ABOVE SAID SU IT PROCEEDINGS FINALLY UNTIL THEN THE BANK SHALL HAVE FIRST LIEN ON THE SAID AMOUNT AND BANK SHALL POSSESS RIGHT AND A UTHORITY TO DENY THE PAYMENT OF THE SAME TO THE VENDORS HEREIN . ACCORDING TO CLAUSE (F) THE VENDORS HAVE CONSENTED THAT IN TH E EVENT THE SUIT GOES AGAINST THEM AT ANY STAGE OR BEFORE ANY C OURT OR THE VENDORS FAILED TO ACHIEVE SUCCESS FINALLY IN THE DI SPUTE THE BANK SHALL HAVE THE RIGHT TO PAY THE ESCROW AMOUNT TO A PERSON WHO SHALL SUCCEED IN THE SUIT OR THE BANK MAY GIVE UP I TS CLAIM IN CONNECTION WITH THE 1/4 TH SHARE IN THE PROPERTY AND MAY GET THE AMOUNT OF CONSIDERATION PAID FOR THE SAME BY THE BA NK AND RECOVER IT OUT OF AN AMOUNT DEPOSITED IN THE ESCROW ACCOUNT AND APPROPRIATE THE SAID MONEY TOGETHER WITH INTEREST. THESE AVERMENTS IN THE ESCROW AGREEMENT IN OUR HUMBLE OP INION DO HAVE THE EFFECT OF DEFERRING THE ACCRUAL OF THE ESC ROW AMOUNT OF RS.2 62 50 000/- TILL THE VENDORS SUCCEED IN THE SU IT. THE ACCRUAL OF THE AMOUNT DEPENDS ON THE CONTINGENCY NA MELY WHETHER THE VENDORS WILL SUCCEED IN THE SUIT FINALL Y IN WHICH CASE ALONE THE AMOUNT CAN ACCRUE TO THEM. IF THE SU IT IS DECIDED AGAINST THEM THE AMOUNT CAN NEVER BE RECEIVED BY T HEM. WHETHER THE SUIT WILL BE DECIDED ONE WAY OR THE OTH ER WAS NOT KNOWN AT THE TIME WHEN THE ESCROW AGREEMENT WAS ENT ERED INTO. ON THAT DATE THEREFORE THE VENDORS DID NOT HAVE AN Y UNDEFEATABLE RIGHT TO RECEIVE THE ESCROW AMOUNT. TH E RIGHT TO ITA NO.2307 & 1775/M/09 10 RECEIVE THE AMOUNT WAS ITSELF DEPENDENT ON THE OUTC OME OF THE SUIT. IT WAS ONLY WHEN THE SUIT WAS COMPROMISED AND A CONSENT DECREE WAS PASSED ON 15.11.2007 (PAGES 6 & 7 OF THE PAPER BOOK) THAT THE VENDORS OBTAINED THE RIGHT TO RECEI VE AN AMOUNT OF RS.2 CRORES IN FULL AND FINAL SETTLEMENT OF THE SALE CONSIDERATION. IT IS NOT MERE A QUESTION OF QUANTI FICATION OF THE SALE CONSIDERATION IT IS A QUESTION AS TO WHETHER THE VENDORS OBTAINED THE RIGHT TO RECEIVE ESCROW AMOUNT OF RS.2 62 50 000/- ON THE DATE OF THE SALE. 11. IN THE JUDGEMENT OF THE BOMBAY HIGH COURT CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE (SUPRA) IN ORDER T O ASSESSES CAPITAL GAINS IT IS VERY IMPORTANT TO FIND OUT WHET HER THE ASSESSEE HAD THE RIGHT TO RECEIVE THE AMOUNT UNCOND ITIONALLY. IN THAT CASE THE ASSESSEE AGREED WITH THE OTHER PARTNE RS OF THE FIRM THAT HE WAS ENTITLED TO THE GOODWILL OF THE FIRM UP TO 31 ST MARCH 1967 AND THE SAME WAS VALUED AT RS.1 50 000/-. FROM 1 ST APRIL 1967 THE REMAINING PARTIES WERE ENTITLED TO THE GOO DWILL. IT WAS FURTHER PROVIDED THAT THE ASSESSEE WAS ENTITLED TO RECEIVE THE AFORESAID AMOUNT EITHER ON RETIREMENT OR ON DEATH. THE REVENUE CONTENDED THAT SINCE THE ASSESSEE WAS ENTITLED TO T HE ABOVE AMOUNT CAPITAL GAIN TAX WAS ATTRACTED. THE BOMBAY HIGH COURT HELD THAT HAVING REGARD TO THE PROVISIONS OF THE IN DENTURE DURING THE ACCOUNTING PERIOD THE ASSESSEE HAD NO RI GHT TO RECEIVE THE VALUE OF THE GOODWILL. HIS RIGHT TO REC EIVE THE AMOUNT OF RS.1 50 000/- WAS ONLY GOING TO ARISE EIT HER ON ITA NO.2307 & 1775/M/09 11 RETIREMENT OR ON DEATH IN THE MANNER PROVIDED IN TH E INDENTURE. THEREFORE IT WAS HELD THAT THERE WAS NO LIABILITY T O CAPITAL GAIN TAX. APPLYING THIS JUDGEMENT TO THE FACTS OF THE PR ESENT CASE WE FIND THAT AS ON THE DATE OF SALE (3 RD AUGUST 2004) THE VENDORS OF THE PROPERTY DID NOT HAVE THE RIGHT TO RECEIVE THE ESCROW AMOUNT OF RS.2 62 50 000/-. THE ESCROW AGREEMENT PR ECEDED THE SALE AGREEMENT AND WAS ENTERED INTO ON 27 TH JULY 2004. THE TERMS OF THE AGREEMENT HAVE ALREADY BEEN NOTICED P ARTICULARLY CLAUSES (E) AND (F) THEREOF. THESE CLAUSES INDIC ATE THAT THE VENDORS OF WHICH THE ASSESSEE WAS ONE GOT THE RIG HT TO CLAIM AND WITHDRAW THE ESCROW AMOUNT ONLY IF THEY SUCCEE D IN THE SUIT. THE ESCROW AMOUNT THEREFORE CANNOT BE SAID TO HAVE ACCRUED TO THEM BEFORE THAT EVENT. 12. WE MAY ALSO REFER TO THE JUDGEMENT OF THE SUPRE ME COURT IN THE CASE OF (1986) 161 ITR . THAT WAS A CASE OF ACQUISITION OF THE ASSESSEES LAND. AN AWAR D WAS MADE BY THE LAND ACQUISITION OFFICER. THE ASSESSEE APPEA LED AGAINST THE SAME AND THE ARBITRATOR AWARDED A HIGHER AMOUNT AS COMPENSATION. THE STATE GOVERNMENT PREFERRED AN APP EAL TO THE HIGH COURT AGAINST THE AWARD OF THE ARBITRATOR AND PENDING THE OUTCOME OF THE APPEAL IT DEPOSITED THE ADDITIONAL AMOUNT PAYABLE TO THE ASSESSEE BY REASON OF THE ARBITRATOR S AWARD. THE COURT PASSED ORDERS PERMITTING THE ASSESSEE TO WITH DRAW THE AMOUNT ON FURNISHING A SECURITY BOND FOR REFUNDING THE SAME IN THE EVENT OF THE APPEAL OF THE STATE GOVERNMENT BEING ITA NO.2307 & 1775/M/09 12 ALLOWED. THE ASSESSEE RECEIVED THE AMOUNT AND CRED ITED THE SAME IN ITS SUSPENSE ACCOUNT. THE QUESTION WAS WHET HER THE AMOUNT COULD BE ASSESSED AS INCOME OF THE ASSESSEE ON SALE OF LAND WHICH WAS ITS BUSINESS. THE SUPREME COURT HEL D AFFIRMING BOTH THE TRIBUNALS DECISION AND THE JUDG EMENT OF THE HIGH COURT THAT ALTHOUGH THE ARBITRATOR ENHANCED T HE COMPENSATION PAYABLE TO THE ASSESSEE THE ENTIRE AM OUNT WAS IN DISPUTE IN THE APPEAL FILED BY THE STATE GOVERNMENT . THE COURT CONSIDERED THE DISPUTE TO BE SUBSTANTIAL AND REAL A ND THE ASSESSEE WAS PERMITTED TO WITHDRAW THE AMOUNT ONLY AFTER FURNISHING SECURITY FOR REFUNDING THE SAME IN THE E VENT THE STATE GOVERNMENT SUCCEEDED IN THE APPEAL. IT WAS HELD THA T IN THESE CIRCUMSTANCES THE ASSESSEE DID NOT HAVE ANY ABSOLUT E RIGHT TO RECEIVE THE AMOUNT AS ITS INCOME AT THAT STAGE. IT WAS NOTED THAT IF THE APPEAL OF THE GOVERNMENT WAS ALLOWED FULLY THE RIGHT TO PAYMENT OF THE ENHANCED COMPENSATION WOULD HAVE FAL LEN ALTOGETHER. IT WAS ACCORDINGLY HELD THAT THE ENHANC ED COMPENSATION AMOUNT DID NOT ACCRUE TO THE ASSESSEE AS ITS INCOME EVEN THOUGH IT WAS RECEIVED IN THE YEAR OF A CCOUNT. IN OUR HUMBLE OPINION THE RATIO OF THIS RULING APPLIE S TO THE PRESENT CASE NOTWITHSTANDING THAT WE ARE CONCERNED WITH THE ASSESSMENT OF CAPITAL GAINS AND NOT BUSINESS INCOME . SECTION 48 PROVIDES THAT CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING THE COST OF ACQUISITION AND THE EXPENDITURE INCURRE D IN CONNECTION WITH THE TRANSFER FROM THE FULL VALUE OF CONSIDERATION ITA NO.2307 & 1775/M/09 13 RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE ASSET. THERE IS NO DISPUTE THAT THE ESCROW AMOUNT WAS NOT RECEIVED BY THE ASSESSEE IN THE YEAR OF ACCOUNT. THE ARGUMENT O F THE INCOME-TAX AUTHORITIES AND THE LEARNED SENIOR D.R. BEFORE US IS THAT THE ESCROW AMOUNT ACCRUED TO THE ASSESSEE. IF THE RATIO OF THE RULING OF THE SUPREME COURT (SUPRA) IS APPLIED TO THE FACTS OF THE PRESENT CASE IT MAY BE SEEN THAT IT IS DIFF ICULT TO ACCEPT THEIR ARGUMENT. IN THE PRESENT CASE ALSO THERE IS A REAL AND SUBSTANTIAL DISPUTE WHICH IS PENDING BEFORE THE PUN E COURT SINCE 1995 IN SPECIAL CIVIL SUIT NO.2045/1995 . THE EXISTENCE OF THE SUIT HAS NOT BEEN DISPUTED BY ANY ONE. THE ASS ESSEE HAS MENTIONED IN THE STATEMENT OF FACTS FILED BEFORE TH E CIT(A) THAT IN THE SAID SUIT SHIV INDERSEN THROUGH HIS CONSTI TUTED ATTORNEY MRS. CHANDRA INDERSEN HAS CLAIMED THAT THE WILL EX ECUTED BY HIS GRANDMOTHER MRS. SATRUPI WAS VOID AND ILLEGAL THAT THE PLOT AND BUNGALOW CONSTRUCTED THEREON BELONGED TO HIS GR ANDFATHER TOLARAM K.MIRCHANDANI AND NOT TO MRS. SATRUPI THAT THE PLOT WAS PURCHASED AND THE BUNGALOW CONSTRUCTED THEREON BY HIS GRANDFATHER OUT OF JOINT FAMILY FUNDS AND THEREFORE HE HAD 1/4 TH SHARE IN THE PROPERTY AS COPARCENER OF THE JOINT FA MILY. THAT THE COSMOS BANK WAS APPREHENSIVE OF THE OUTCOME OF THE SUIT AND THAT THEY THOUGHT THAT THE DISPUTE WAS SUBSTANTIAL AND REAL CANNOT BE DOUBTED SINCE THEY KEPT BACK A SUM OF RS.2 62 50 000/- IN ESCROW ACCOUNT TILL THE DISPOSA L OF THE SUIT. IT IS ALSO NOTEWORTHY THAT THE ESCROW AMOUNT OF ITA NO.2307 & 1775/M/09 14 RS.2 62 50 000/- REPRESENTS EXACTLY THE 1/4 TH SHARE OF THE TOTAL SALE CONSIDERATION OF RS.10 50 00 000/-. IN THESE C IRCUMSTANCES IT IS DIFFICULT TO ACCEPT THE ARGUMENT OF THE REVEN UE THAT THE AMOUNT OF RS.2 62 50 000/- UNCONDITIONALLY ACCRUED TO THE VENDORS AS SALE PRICE. WE ARE AWARE THAT SECTION 15 5 OF THE INCOME TAX ACT WHICH PERMITS THE ASSESSING OFFICER TO AMEND A COMPLETED ASSESSMENT UNDER CERTAIN CIRCUMSTANCES DO ES NOT MAKE PROVISION FOR INCLUDING THE AMOUNT OF RS.2 CRO RES RECEIVED BY THE VENDORS IN THE YEAR 2007. BUT THAT ALONE CAN BE NO REASON TO HOLD THAT THE ESCROW AMOUNT ACCRUED TO TH E ASSESSEE IN THE YEAR UNDER APPEAL. THAT QUESTION HAS TO BE D ECIDED ON A CONSIDERATION OF THE FACTS OF THE CASE AND THE RELE VANT PRINCIPLES OF LAW AND THE AUTHORITIES TO BE APPLIED THEREON. T HIS IS WHAT WE HAVE ATTEMPTED TO DO. 13. FOR THE ABOVE REASONS WE ACCEPT THE ASSESSEES CONTENTION IN ITS APPEAL THAT THE ESCROW AMOUNT OF RS.2 62 50 000/- HAS TO BE EXCLUDED FROM THE SALE CONSIDERATION WHILE COMPU TING THE CAPITAL GAINS. THE APPEAL OF THE ASSESSEE IS ALLOW ED. 14. COMING TO THE DEPARTMENTS APPEAL IN ITA NO.1775/MUM/2009 WE HAVE NO HESITATION IN ENDORSIN G THE DECISION OF THE CIT(A) THAT THE COST OF ACQUISITION AS ON 1.4.1981 CANNOT BE REDUCED ON THE GROUND THAT THE ASSESSEE H AD ONLY 1/4 TH SHARE IN THE PROPERTY. UNDER THE WILL OF MRS. SATR UPI THE ASSESSEE HAD 1/3 RD SHARE IN THE PROPERTY ALONG WITH HIS SISTER MRS. PRAVINA MATHUR AND MS. NATASHA THE DAUGHTER O F HIS ITA NO.2307 & 1775/M/09 15 DECEASED BROTHER VIJAY. WHEN THE CAPITAL GAINS ASS ESSED ARE IN RESPECT OF 1/3 RD SHARE OF THE ASSESSEE DEDUCTION FOR COST OF ACQUISITION HAS ALSO TO BE GIVEN ON THE SAME BASIS THAT IS 1/3 RD . WE AGREE WITH THE VIEW TAKEN BY THE CIT(A) AND D ISMISS THE APPEAL FILED BY THE REVENUE. 15. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED AND THE DEPARTMENT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JULY 2010. SD/- ( B.RAMAKOTAIAH ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 23 RD JULY 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-XI MUMBAI. 4. THE CIT(A)-XI MUMBAI 5. THE DR A BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR I.T.A.T MUMBAI