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2005 (2) TMI 105

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..... have no hesitation in holding that the giving up of the right to claim specific performance by an assessee to get conveyance of immovable property in lieu of receiving consideration resulted in extinguishment of rights in property thereby attracting the rigour of section 2(14) read with section 2(47) ibid. We answer the question referred to us in favour of the CIT (Revenue) and against the assessee. In other words, we answer the question by holding that the Tribunal was not justified in holding the amount as capital receipt not exigible to capital gains tax as no transfer of any property was involved within the meaning of section 2(47) of the Income-tax Act. Instead, we hold by answering the question that the amount is a capital receipt exigible to capital gains tax as it involved transfer of property within the meaning of section 2(47) of the Income-tax Act. No costs. - HON'BLE ABHAY MANOHAR SAPRE AND ASHOK KUMAR TIWARI, JJ. For the Appellant : R.L. Jain and Ku. V. Mandlik, Advs. For the Respondent : S.C. Bagadia and D.K. Chhabra, Advs. ORDER Abhay Manohar Sapre, J. 1. This is an income-tax reference made under section 256(1) of the Income-tax Act, 1961, at the instance of .....

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..... e Act in the hands of the assessee. In other words, in the opinion of the Tribunal the transaction in question which resulted in payment of Rs. 14,85,001 did not attract capital gains. In this view, the Tribunal deleted the addition of the sum which the Assessing Officer had brought to tax as capital gains to the assessee in the year in question. It is against this view of the Tribunal, the Commissioner of Income-tax prayed for a reference to be made to this court. However, the Tribunal having declined to make the reference in the first instance, the Revenue came to this court under section 256(2) of the Act. This court allowed the application made by the Commissioner of Income-tax under section 256(2) of the Act and directed the Tribunal to refer the question mentioned supra. This is how this reference is made to this court by the Tribunal. 5. Heard Shri R.L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the Revenue and Shri S.C. Bagadia, learned senior counsel with Shri D.K. Chhabra, learned counsel for the assessee. 6. Placing reliance on the decision rendered by the Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693, lea .....

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..... t's judgment reported in Venkateswara Aiyar v. Kallor Illath Raman Namubdhri, AIR 1917 Mad 358. It concluded that a right to obtain conveyance of immovable property was property as contemplated by section 2(14) of the Income-tax Act. It held that the amount of Rs. 5,00,000 had been received by an assessee as consideration for assigning its rights under the agreement which fell within the wide definition of capital asset in the Income-tax Act. It also held that the earnest money paid by the assessee to A was the consideration for which the property under the agreement had been acquired. 9. The decision in the case of Tata Services Ltd. [1980] 122 ITR 594 was followed by the Bombay High Court in CIT v. Sterling Investment Corporation Ltd. [1980] 123 ITR 441. This was a case where the assessee had entered into an agreement to purchase immovable property and had paid earnest money. Matters dragged on. Ultimately, an agreement was reached and only the sum of Rs. 10,000 was returned to the assessee. The assessee claimed before the tax authorities that it has lost the balance of the earnest money that it had paid and that this was a capital loss. The court was called upon on a referen .....

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..... held that the amount was not assessable as capital gains. 11. On a reference to the High Court, the question was answered in favour of the Revenue and against the assessee. S.P. Bharucha J. (as His Lordship then was a judge of the Bombay High Court and later CJI) speaking for the Bench affirmed the view taken by the Bombay Bench in the aforementioned two cases, i.e., Tata Services Ltd. [1980] 122 ITR 594 and Sterling Investment Corporation Ltd. [1980] 123 ITR 441 (Bom). The learned judge after examining the question in the context of the definition contained in section 2(14) and section 2(47) of the Income-tax Act coupled with the provisions of the Transfer of Property Act contained in section 6 and section 54 ibid and the cases relied upon held as under: Having regard to the statutory provisions and the authorities which we have cited above, we cannot, with respect, agree that the right acquired under. an agreement to purchase immovable property is a mere right to sue. The assessee acquired under the said agreement for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against .....

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..... ns property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him. Explanation.- For the purpose of this sub-clause, 'jewellery' includes (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) o .....

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..... consideration resulted in extinguishment of rights in property thereby attracting the rigour of section 2(14) read with section 2(47) ibid. In other words, the action on the part of the assessee in giving up her right to claim the property and instead accepting the money compensation was a clear case of relinquishment of a right in the property resulting in transfer as defined in section 2(47) ibid. When the Legislature in its wisdom defines a particular type of transaction to be in the nature of transfer for taxing purposes, then effect has to be given to such transaction to be in the nature of transfer as defined. A reading of the definition of transfer under section 2(47) ibid, clearly indicates that the intention of Legislature is to include several kinds of transaction to be falling in the category of transfer for the purpose of bringing them into the income-tax net under the Income-tax Act. Indeed, while interpreting the word transfer as defined in section 2(47), their Lordships of the Supreme Court in the case of Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 have held: ...a term of the widest import and, subject to any limitation which the context may require, it signifies every .....

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..... lso assignable, and he referred to section 15 of the Specific Relief Act, 1963. Therefore, according to Shri Wadhera a right to obtain conveyance of immovable property is clearly a 'property' as contemplated by section 2(14) of the Act. This argument overlooks the fact that the right to specific performance had been specifically given up by the assessee, J. Dalmia, and what was left was a mere right to sue for damages. In the Bombay case, there was an agreement to purchase a residential plot and the purchaser had paid Rs. 90,000 as earnest money. The vend6r was, however, in breach of the agreement, as he wanted to sell this property to a third party at a higher price. Finally, there was a tripartite agreement between the purchaser (the assessee), the vendor and the third party, and the purchaser was returned the earnest money as well as paid a sum of Rs. 5,00,000 being the amount of consideration for the transfer and assignment of his right, title and interest under the contract for sale. It was held that the amount of Rs. 5 lakhs was received by the assessee as consideration for assigning his rights under the agreement and these rights, which had been assigned, clearly fel .....

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