Payment for Withdrawing Suit Claiming Property Rights is Not Capital Gains | ITAT

Case Details: Shireen J. Dastur vs. Income-tax Officer [2025] 180 taxmann.com 478 (Mumbai-Trib.)

Judiciary and Counsel Details

• Saktijit Dey, Vice President & Girish Agrawal, Accountant Member
• P.J. Pardiwala, Sr. Adv. & Ms Gunjan Kakkad, Adv. for the Appellant.
• Krishna Kumar, Sr. DR for the Respondent.

Facts of the Case

The assessee was a non-resident individual who filed her return of income for the relevant assessment year. During the year, she received an amount of Rs. 15 crore from a purchaser of an immovable property called “The Mount”.

The amount was paid on account of withdrawing her civil suit filed before the Hon’ble High Court of Bombay. The assessee had claimed her share and right under the said immovable property. The matter was referred to the Dispute Resolution Panel (DRP) for passing the final assessment order.

The DRP held that the money received by the assessee was taxable under the head ‘Capital Gains’. Aggrieved by the order, the assessee filed an appeal to the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee and her brother filed civil suits claiming their right and entitlement to a share in the impugned immovable property. The assessee withdrew the suit for a sum of Rs. 15 Crores and executed various documents, including minutes of order withdrawing the civil suit no. 219 of 2016. She declared that trustees have full power and responsibility to dispose of the impugned immovable property.

It was also pointed out from the documentary evidence placed in the paper book to demonstrate that the assessee was not a party to the sale transaction of the immovable property either as seller or in her capacity as a confirming party.

The right to claim a share in the estate of late Ms Amba Wadia was given up, which is not a property for the purpose of section 2(14) of the Act. It was at best only a right to claim a share in the estate of late Ms Amba Wadia, which was given up in lieu of consideration of Rs. 15 crores received by the assessee from the purchaser.

There is no transfer of capital asset between the assessee and the purchaser except for accepting the offer of the purchaser of withdrawing her civil suit so as to enable it to have the acquisition of the said property free of encumbrances and without the assessee being a clog on the title of the said property.

Thus, there is no transfer of capital assets within the meaning of section 2(14) r.w.s. 2(47) to bring to charge the amount of Rs. 15 Crores received by the assessee from the purchaser under the head “capital gains”.

List of Cases Reviewed

• CIT v. Abbasbhoy A. Dehgamwalla [1991] 59 Taxman 498 (Bombay)/[1992] 195 ITR 28 (Bombay) (para 7.1) followed

List of Cases Referred to

• CIT v. Abbasbhoy A. Dehgamwalla [1991] 59 Taxman 498 (Bombay)/[1992] 195 ITR 28 (Bombay) (para 7)
• CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1 (SC)/[1981] 128 ITR 294 (SC) (para 8).