Case Law Details
Virendra Bhavanji Gala Vs PCIT (ITAT Mumbai)
ITAT Mumbai held that damage on account of right to sue is a capital receipt and accordingly not chargeable to tax.
Facts- The assessee is an individual who entered into an MOU with Aadi Properties LLP with the intention to book commercial space to be developed and constructed in a proposed project by M/s. Aadi Properties LLP on a plot of land for consideration of Rs. 10,75,00,000/-. Accordingly, payment of Rs. 25,00,000/- by cheque drawn on the Bank of India was paid by the assessee. The amount was nearly 2.33% of the total consideration payable by the assessee. Later on, the project did not materialise and was aborted, and accordingly, the builder cancelled the allotment, returning the advance that was not deposited in the bank by the assessee. The assessee then filed suit before the Bombay High Court, claiming damages.
Thereafter, a consent decree was passed by the Bombay High Court on the basis of consent terms filed by the parties. As per the consent decree, an amount was agreed to be paid by Aadi Properties LLP by way of damages for its inability to provide the commercial space and the assessee not waiving the ‘right to sue’.
The case of the assessee was selected for scrutiny under the E-assessment Scheme 2019 to verify the claim of exemption. In the course of assessment proceedings, the AO issued notices from time to time inquiring about whether the receipts towards compensation under the consent decree were taxable or not. AO completed the assessment u/s. 143(3), accepting the return of income, and confirmed that the capital receipt received of Rs. 7,65,26,000 was not taxable.
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