TMI Blog2001 (8) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... rformance of the contract by the seller, the latter was avoiding the same. Later the seller sought cancellation of the agreement and agreed to pay compensation of Rs. 6,00,000 to the assessee. Accordingly a deed of cancellation was entered into between the parties on 21-3-1990. In terms of the deed of cancellation the assessee received from Sri Krishnamurthy a total sum of Rs. 6,40,000 which included the advance of Rs. 40,000 given earlier. The assessee filed the return of income for the assessment year 1990-91 admitting a total income of Rs. 2,70,150 including Rs. 2,59,000 as capital gains. The assessee had returned the capital gains, on the sum of Rs. 6,00,000 received from Sri Krishnamurthy. In the assessment the Assessing Officer computed the capital gains at Rs. 2,90,000 after allowing deduction for Rs. 5,000 as amount spent on 31-3-1989 towards enforcing the deal of purchase. The assessee then took up the matter in appeal with the plea that the amount received as 'compensation for breach of contract' was not liable to assessment as capital gains. There was also the contention that in any case there could be no assessment as capital gains as there was no cost of acquisition in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was not a case of transfer of that right, Sri Gopal submitted. There was another contention raised by the Id. counsel relying on the decision of the Supreme Court in the case of CIT v. B.C Srinivasa Setty [1981] 128 ITR 294, that there could be no assessment to capital gains where there was no cost of acquisition incurred by the assessee for acquiring the right in the property. Arguing on the above lines, the Id. counsel urged us to reverse the finding of the revenue authorities and to cancel the assessment on capital gains. 4. Shri V. Suryanarayanan, the Id. DR. on the other hand, supported the order of the Commissioner (Appeals) and submitted that in terms of the agreement dated 3-4-1986, the assessee had acquired a right in the property. Sri Suryanarayanan stated that the word 'property' used in section 2(14) of the Income-tax Act is a word of widest amplitude and that any right that could be called property would be included in the definition of 'capital asset'. As per the agreement, the assessee acquired a light to obtain a conveyance of an immovable property. According to the ld. D.R. that was a property as contemplated by section 2(14). For that view he relied on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The consideration for sale shall be Rs. 2,00,000 (Rs. Two lakhs only) which shall be paid as under - (a) Rs. 40,000 (Rupees Forty Thousand only) has been paid as and by way of advance; (b) Rs. 1,60,000 (Rupees one lakh sixty thousand only) shall be paid at the time of execution and registration of sale deed.' Clause 6 of the agreement provides that 'both the vendor and the purchaser shall have right to specific performance of this agreement.' It can be seen that in terms of the agreement the assessee acquired a right to obtain the conveyance of an immovable property. The right to obtain a conveyance of immovable property falls within the meaning of the expression 'property of any kind' appearing in section 2(14) of the Income-tax Act. In the case of Tata Services Ltd. the Bombay High Court observed - 'Under section 2(14) of the Income-tax Act, 1961, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The word 'property' used in section 2(14) of the Act is a word of the widest amplitude and the definition has re-emphasised this by the use of the words 'of any kind'. Any right which can be called property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the assessee claimed specific performance of the agreement for sale of conveyance to him of the immovable property. A settlement as arrived at when the suit reached hearing, at which point the assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him of immovable property was held to be a relinquishment of the capital asset. There was, therefore, a transfer of a capital asset within the meaning of the Income-tax Act. It was held that the capital asset had been acquired for the cost of Rs. 17,500 paid as and by way of earnest money. The High Court upheld the assessment of capital gains on the above basis. The facts in the present case being identical, we have to uphold the assessment of capital gains. 7. The Id. counsel for the assessee argued vehemently that in the present case, there was only a deed of cancellation executed on 21-3-1990 and by that deed the earlier agreement was cancelled, and that it was for cancelling that agreement that the assessee was paid Rs. 6 lakhs as compensation. But then, by cancelling the earlier agreement the assessee was giving up his right of spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relinquished that right and allowed 'the vendor to sell the said property to any person and at any price'. Still the finding of the Court that the right, title and interest acquired under the agreement of sale clearly fell within the definition of capital asset in section 2(14) equally applies to the rights acquired by the assessee. Instead of assigning the rights to a third party the assessee relinquished those rights. We have already seen that the definition of 'transfer' in section 2(47) is wide enough to include relinquishment of an asset. 9. There was yet another contention raised by the Id. counsel for the assessee relying on the decision of the Supreme Court in the case of B.C Sreenivasa Setty that what is contemplated by section 48(ii) is an asset in the acquisition of which it is possible to envisage a cost and that none of the provisions pertaining to the head 'capital gains' suggests that they include an asset in the acquisition of which no cost at all can be conceived. It was the contention of Sri Gopal that, there was no cost of acquisition incurred by the assessee for obtaining the rights under the agreement of sale dated 3-4-1986 and so there could no capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no assessment of capital gains on the transfer of the capital asset, is to be rejected. 12. Sri Gopal has raised another contention that for the purpose of assessment of capital gains, whatever be the mode by which the transfer was brought about, the existence of the asset during the process of transfer was a precondition. He has referred to the decision of the Supreme Court in the case of Vania Silk Mills (P.) Ltd. and submitted that unless the asset existed in fact, there could not be a transfer of it. In the case considered by the Supreme Court, a fire broke out in the assessee's business premises causing extensive damages to the machinery. On settlement of the insurance claim the assessee received a certain amount on account of the destruction of the machinery. The ITO brought to tax the difference between the insurance amount and the original cost of the machinery as capital gains. In deciding the issue against the revenue, the Supreme Court held that in the case of damage, or destruction or loss of the property there was no transfer of it in favour of a third party. The money received under the insurance policy in such cases was by way of indemnity or compensation for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
