1989 (9) TMI 61 - HC - Income Tax

Summary

Issues:
Whether the compensation amount of Rs. 4,23,044.67 was liable to tax as a capital gain in the hands of the assessee for the assessment year 1971-72.

Analysis:
The case involved a cooperative housing society that applied for a lease of a plot in Bombay in 1944. The society failed to make the required payments and did not receive possession of the plot. In 1954, the plot was proposed to be acquired for public purposes, and compensation was awarded to the society after a dispute. The Income-tax Officer treated the compensation amount as income, but the Appellate Assistant Commissioner held it to be a capital receipt not subject to tax. The Income-tax Appellate Tribunal found that the society had no proprietary interest in the plot but only a right to sue for a lease, and thus, no capital asset was transferred or relinquished. The Tribunal also noted that any interest the society had in the plot had been taken away before 1956 when there was no tax on capital gains.

The Revenue contended that the society's right to a lease of the plot was a capital asset, which got transferred only when the consent terms were concluded in 1970. However, the court held that the society's right or interest in the plot ceased when it was acquired, long before the assessment year in question. The society then obtained the right to compensation, which was determined when the consent decree was entered into. Even if there was a transfer of a capital asset, it occurred before the relevant assessment year. Therefore, the court agreed with the Tribunal that the compensation amount was not liable to capital gains tax for the assessment year 1971-72.

The court reframed the question and answered it in the negative, in favor of the assessee. No costs were awarded in the case.