M/S Ansal Properties & Industries Ltd. presently known as (M/S. Ansal Properties & Infrastructure Ltd. ) Vs. Commissioner of Income Tax (CENTRAL-I), ITA No. 183/2008, Date of decision : November 19, 2010  High Court of Delhi at New Delhi.

HON’BLE DELHI HIGH COURT DECIDED THAT AMOUNT RECEIVED BY THE ASSESSEE UNDER FINAL SETTLEMENT TO NOT TO ABIDE BY AGREEMENT FURTHER IS NOT A CAPITAL RECEIPT.

BRIEF FACTS OF THE CASE:

M/s. DCM and Kailash Nath & Associates (briefly KNA) entered into a Collaboration Agreement dated 17th July, 1986 inter alia with respect to the development of 66.53 acres of land owned by DCM situated at Bara Hindu Rao, New Rohtak Road, Delhi. Under this Agreement, the KNA was to develop and construct multistoried residential flats, flatted factories, shopping complex, schools etc. on the aforesaid land belonging to the DCM. Owing to the magnitude of the project, however, with the mutual consent of DCM and KNA, the appellant-company, M/s. Ansals Properties and Industries Ltd., was inducted for implementation of the project by an Agreement into between the DCM, KNA and ANSALS.

 Subsequently, agreements in modification or supplemental thereto were also entered into between all the three parties. By virtue of the aforesaid Agreement, KNA and ANSALS were to develop and construct for DCM, flats/buildings on the said land and to make provisional bookings and enter into agreements with prospective buyers for sale of the proposed built-up and saleable areas falling to their respective shares under the agreements. Both the KNA and the ANSALS were to develop and construct for the DCM, the project equal to the extent of 50% each and meet all costs and expenses in equal shares. In consideration thereof, both KNA and ANSALS were entitled to a specified percentage of the residential complex and other saleable areas. By a notice dated 24th June, 1998, DCM unilaterally terminated the agreement dated 24th November, 1988 with KNA and the appellant. This led to disputes between the parties.

A settlement agreement was entered into amongst the parties. On settlement DCM has further agreed to pay compensation for annulment of the very rights of KNA and ANSALS to carry on business of completing the project under the Principal Agreement and for being deprived of the potential income which could have arisen from carrying on such business, a sum of Rs. 6.75 crores to KNA, which is inclusive of refund of Security Deposit of Rs. 3.90 crores, and a sum of Rs. 8.25 crores to ANSALS, which is inclusive of refund of Security Deposit of Rs. 4 crores respectively . the return declaring income of Rs. 9,40,86,340/- was filed by the appellant on 31st October, 2001. In computing the taxable income, the amount of Rs. 4.25 crores received from DCM under the Agreement dated 30th October, 2000 was, however, not claimed as a „capital receipt‟. The said amount was credited to the profit and loss account under the head “other income”. During the course of assessment proceedings, later on during assessment proceedings appellant claimed that the said sum of Rs. 4.25 crores was a „capital receipt. The Assessing Officer in computing the assessment at Rs. 25,87,98,377/- did not consider the above claim of the appellant. 

DECISION OF THE COURT 

The restriction placed was far from absolute in that it was to remain operative for a limited duration of time and pertained to a limited geographical area within the contours of Delhi. This apart, it was left open to the appellant to approach DCM for its written approval to the appellant carrying on a similar project in the vicinity (assuming such a project was available in the vicinity). Since all disputes were being set at rest, this undertaking appears to have been incorporated in an incidental manner so as to avoid any conflict of interest amongst the erstwhile partners in the project. Viewed from any angle, we see it as a safety valve for the DCM rather than an absolute restriction on the appellant from carrying on its business. Even otherwise, it could hardly be said that given the nature of the restrictive covenant in the Agreement, the appellant was hampered from operating its profit making apparatus in other spheres and even in the very same sphere. we are of the considered view that the amount of Rs. 4.25 crores was in the nature of trading receipt and the revenue authorities have rightly held it to be so. 

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