TMI Blog2014 (3) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... [2008 (4) TMI 6 - Supreme Court] followed - It is well-settled that when two interpretations are possible, then invariably, the court would adopt the interpretation which is in favour of the taxpayer and against the Revenue - the order of the CIT(A) upheld – Decided against Revenue. - I.T.A. No.1997/Ahd/2010 - - - Dated:- 19-3-2014 - Shri N. S. Saini And Shri Kul Bharat,JJ. For the Appellant : Shri Vimalendu Verma CIT-DR For the Respondent : Shri Dhiren Shah, AR ORDER Per Shri Kul Bharat, Judicial Member : This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-XV, Ahmedabad ('CIT(A)' for short) dated 13/04/2010 pertaining to Assessment Year (AY) 2007-08. The Revenue has raised the following grounds of appeal:- 1. The Ld. Commissioner of Income-tax(A)-XV, Ahmedabad has erred in law and on facts in holding that the rights held by the assessee were not 'property' u/s.6(e) of the Transfer of Properties Act and not a 'capital asset' as defined under the Income tax Act 1961. 2. The Ld.Commissioner of Income-tax(A)-XV, Ahmedabad has erred in law and on facts in directing to deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Delhi High Court rendered in the case of CIT vs. J.Dalmia (149 ITR 215). He submitted that before the AO, it was submitted that the assessee and five companies; namely, Vibhor Reality (P) Ltd., Mandal (Thaltej) Complex (P) Ltd., Gasvendu Land Developers (P) Ltd.,, Sanat Complex (P) Ltd. and Shushna Complex (P) Ltd. are separate legal entities. He submitted that prior to conversion into Private Limited Company, these five entities were Co-operative Societies with whom the assessee had entered into an agreement for sale. He submitted that the agreement for sale was executed way back in the year 2001. He submitted that the companies failed to perform their part of contract, therefore, a notice dated 10/09/2002 was issued to the said companies for completing the sale of the lands in question. He submitted that when the said companies did not execute the sale deed the assessee approached to the arbitrator and the arbitration proceedings were initiated under the Arbitration and Conciliation Act, 1996. He submitted that the AO erroneously observed that the assessee had no right to go to the Court, therefore, he had no right to sue. He submitted that this is completely a misinterpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d earned Rs. 10,44,15,000/- out of aforesaid transaction. Yet the assessee claimed that it would not be a gain taxable in his hands. It was claimed that it did not constitute a capital asset which could be transferred under the Transfer of Property Act as well as did not fall within the provisions of section 2(14) r.w.s. 45 of the IT.Act. The assessee's claim and stand were rejected in assessment and the amounts received by him from the transactions made, was taxed as capital gain u/s 45 of the IT. Act. The facts of the case have been discussed elaborately in the assessment order and for the sake of convenience the same is not repeated here. The Ld.CIT(A) has deleted the addition relying on the decision in the case of Baroda Cement Chemicals Ltd. Vs. CIT - 158 ITR 636 (Guj.) and held that compensation received cannot be treated as consideration because 'right to sue' is not a property under section 6(e) of the Property Act and thus did not become a capital asset under section 2(14) of the I.T.Act. The CIT(A) has directed to delete the addition. The legal position of the case with reference to definition of 'capital asset u/s 2(14) and 'transfer' u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty is a mere right to sue. The assessee acquired under the said agreement for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign that right. What he acquired under the said agreement for sale was, therefore, property within the meaning of the Income-tax Act and, consequently, a capital asset. When he filed the suit in this court against the vendors, he claimed specific performance of the said agreement for sale by conveyance to him of the immovable property and, only in the alternative, damages for breach of the agreement. A settlement was arrived at when the suit reached hearing at which point of time 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 the immovable property was a relinquishment of a capital asset. There was, therefore, La transfer of a capital asset within the meaning of the Income-tax Act. We may; at this stage, also deal with the further argument that there was no consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 193). However, the ld.CIT(A) following the decision of Hon'ble Jurisdictional High Court rendered in the case of Baroda Cement and Chemicals Ltd. vs. CIT(supra) allowed the appeal of the assessee. In the case of Baroda Cement and Chemicals Ltd. vs. CIT(supra), the assessee had entered into an agreement with one M/s K.C.P. Ltd., Madras, contracted to sell a second hand GHH Mill Subsequently, the vendor committed a breach of the contract by defaulting to sell the machinery to the assessee-company. The assessee and the vendor arrived at the settlement and the assessee in that case received compensation. The compensation so received was taxed by the A.O. The following question had been referred to the Hon'ble High Court for its opinion:- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount received by the assessee-company by way of damages for breach of contract of sale of movable property was chargeable to tax under the head 'Capital gains'? 4.2. The Hon'ble Gujarat High Court after examining various judicial pronouncements at length observed that payment by way of compensation or damages is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld as under:- Under s. 5 of the Transfer of Property Act, 'transfer of property' means an act by which a person conveys property to another and 'to transfer property' is to perform such act. A mere right to sue may or may not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a 'transfer' within the meaning of s. 45 r/w s. 2(47) of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of Rs.1,02,500/- received by the assessee as damages was not assessable as capital gains. 4.5. We find that the Hon'ble Calcutta High Court in the case of CIT vs. Ashoka Marketing Ltd. (164 ITR 664) had formulated following two questions:- 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 1 lakh received by the assessee as damages from New Central Jute Mills Ltd. for non- performance of the agreement is neither a revenue recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs. 1,00,000 can be treated as a capital gain in the hands of the assessee. We find that the ITO had deducted from out of the total sum of Rs. 1,17,500 received by the assessee under the consent terms the amount of Rs. 17,500 as being the cost of acquisition of the asset and the sum of Rs. 17,904 on account of expenses and legal charges. The assessment was made by him, rightly, on the basis that the capital gain was of Rs. 82,086. Accordingly, we answer the question thus : the amount of Rs. 82,086 shall be treated as a capital gain in the hands of the assessee. 5. From the above case-laws cited by the respective parties, we find that there is a divergent view of Hon'ble High Courts on this issue. The Hon'ble Bombay High Court and Hon'ble Madras High Court are against the assessee; whereas the Hon'ble Jurisdictional High Court, Hon'ble Delhi High Court and Hon'ble Calcutta High Court are in favour of assessee. The law is well settled if there is two views are possible, the view which is in favour of assessee is to be adopted. The Hon'ble Apex Court in the case of Pradip J. Mehta v. CIT (2008) 300 ITR 231 (SC) has held It is well-settled th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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