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2023 (6) TMI 334 - AT - Income TaxNature of receipts due to settlement in the court - Right of Preemptive/right of first priority of purchase of the premises - capital gain - transfer u/s 2(47) - assessee has claimed it as non-taxable and has credited directly to the capital accounts of the partners of the firm in their respective profit sharing ratio - whether falls under the definition of "Capital Asset" u/s 2(14)? - AO considered the date of lease deed 19.04.2004 to be the date of acquisition of capital asset, as there was no cost of acquisition of the right of pre-emption the cost of acquisition of the capital asset was taken as Nil. HELD THAT:- As right of assessee to have the offer for purchase cannot be considered to be a Capital asset for the purpose of Section 2(14) - This right arising out of covenant in the lease deed has no semblance of a ‘property’ as its alienation, transfer or relinquishment was not possible independently at the will of assessee. It was incidental to prospective sale by the lessor. It was merely contingent right. AO has fallen in error in concluding that when assessee entered into the settlement with the purchaser there was a relinquishment of the asset. Relinquishment under law does not merely mean “withdraw from, desert, abandon, to cease to hold, adhere to”, as assumed by Ld. AO. The judgment he has relied to understand the term relinquishment in CIT vs. Rasiklal Maniklal (HUF) [1989 (3) TMI 3 - SUPREME COURT] was in regard to the question where the assessee in the case had received certain shares of the company upon amalgamation. While we are dealing with rights in regard to the transactions concerning immovable properties. Relinquishment in case of immovable property is a way of enlargement of the share or shares of the co-owners of the same rights. Despite the definition of expression ‘capital asset’ in the widest possible terms in section 2(14), right to a capital asset must fall within the expression “property of any kind” in the context of transferability. Relinquishment of the asset or the extinguishment of any rights therein of a right in regard immovable property, to fall under definition of Transfer u/s clauses (i) or (ii) of Section 2(47) of the Act, should be of a right or an interest which is alienable and otherwise which can be monetized. In any case such a right for specific performance of the covenant to have priority of purchase is a mere right to sue. It is not a property and it cannot be transferred. Section 6(e) of the Transfer of Property Act specifically makes it a exception to types of transfer. As a matter fact what is reflected in the preface to the settlement arrived in mediation is that the amount received by the assessee under the settlement was to make the premises free of litigation and avoid costs of protracted civil litigation. Once the assessee had already parted with the possession of premises in favour of purchaser, in furtherance of the orders of Hon’ble High Court, in the suit filed by the purchaser then any cloud over the title and rights of purchaser due to pending two suits made the property loose its prospective value. Aforesaid consideration in the mind of purchaser to buy peace and make the property clean on cost to pay Rs. 20,40,00,000/- may have any other incidence of taxability, but certainly not a Capital Gains. AO himself has considered the cost of acquisition of the so called right of pre-emption to be Nil. Thus, the computation provisions fail, therefore, capital gains could not have been calculated. This too establish that a mere right to sue in regard to immovable property cannot be subject to Income Tax under the head ‘Capital Gains’ as restricted by Section 6(e) of the Transfer of Property Act 1882, laying that a mere right to sue cannot be transferred. Decided in favour of assessee.
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