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2018 (9) TMI 1239 - AT - Income TaxAddition denying the indexation on cost of acquisition while computing the long term capital gains - Held that:- A simple perusal of the orders of the authorities below suggest that the cost of acquisition of ₹ 4,19,533/- has been admitted and the long term capital gain have also been accepted. Therefore, the benefit of statutory indexation cost to offset the effect of inflation cannot be denied. Once, the cost of acquisition is determined and the land under sale was found to be a long term capital asset, indexation of cost of acquisition becomes automatic as per the statutory provisions of the Act. No rationale for denial of indexation benefits. Therefore, the aforesaid addition of ₹ 1,51,988/- arising on account of such denial requires to be reversed. The AO is directed to delete the addition on this score. Receipt towards compensation in lieu of ‘right to sue’ - Treatment as capital receipt OR revenue income - Claim of the Revenue that amount received towards relinquishment of such right is purely a revenue receipt - Held that:- We are disposed to hold that the receipt towards compensation in lieu of ‘right to sue’ is of capital nature which is not chargeable to tax under s.45 of the Act. This right/advantage accrued to the assessee was sought to be taken away from the assessee by way of sale of land. The prospective purchaser as well as the defaulting party (owner) perceived threat of filing suit by developer and consequently paid damages/compensation to shun the possible legal battle. The intrinsic point with respect to accrual of ‘right to sue’ has to be seen in the light of overriding circumstances as to how the parties have perceived the presence of looming legal battle from their point of view. It is an admitted position that the defaulting party has made the assessee a confirming party in the sale by virtue of such development agreement and a compensation was paid to avoid litigation. This amply shows the existence of ‘right to sue’ in the perception of the defaulting party. As find from the facts of the case that assessee has not received this amount under an agreement for not carrying out activity in relation to any business or not to share in knowhow, patent, copyright, trademark, license etc. as specified under s.28(va) of the Act enacted for its taxability under the head of business income. Consequently, we are of the considered view that compensation received in lieu of ‘right to sue’ could not be regarded as revenue receipt. Therefore, we find merit in the appeal of the assessee.
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