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2020 (1) TMI 252 - AT - Income TaxTaxing gain on relinquishment of rights under an agreement to purchase undivided share of land and construction agreement -“Income from business” OR “capital gain” - HELD THAT:- Test laid down by the Hon’ble Supreme Court in the decision of G. Venkataswami Naidu [1958 (11) TMI 5 - SUPREME COURT] is to see as to, what is the nature of the commodity purchased and resold and in what quantity was it purchased and resold? If the commodity purchased is generally the subject-matter of trade, and if it is purchased in very large quantities, it would tend to eliminate the possibility of investment for personal use, possession or enjoyment. Did the purchaser by any act subsequent to the purchase improve the quality of the commodity purchased and thereby made it more readily resaleable ? Applying the aforesaid test, we are of the view that relinquishment of rights under an Agreement to acquire property is not a commonly subject matter of trade. We are of the view that no other facts or circumstances are brought on record to show that the Assessee indulged in an Adventure in the nature of trade when he relinquished his rights under an agreement. Therefore the right acquired under the Agreement by the Assessee has to be regarded as “Capital Asset”. Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of the capital asset. Therefore, in lieu of giving up the said right, any amount received, constitutes capital gain and it is exigible to tax. However, as is clear from s. 48, before the income chargeable under the head capital gains is computed, the deductions set out in s. 48 has to be given to the assessee. It is only the amount thus arrived at, after such deductions under s. 48, would be the income chargeable under the heading capital gains. We are of the view that income from relinquishing rights under an agreement should be assessed under the head income from capital gains. We hold accordingly. We however find that the AO/CIT(A) have not examined the claim of the Assessee under the head “Capital Gain” in accordance with the provisions of Sec.48 of the Act. We therefore remand the question of computation of Capital Gain to the AO after due opportunity of being heard afforded to the Assessee. The Appeal of the Assessee is accordingly treated as allowed for statistical purposes.
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