TMI Blog2005 (2) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... The firm had entered into a contract to purchase certain immovable property from Smt. Ratan Bai Tongia for Rs. 1,05,000. An agreement to that effect was entered into between the parties on September 25, 1970. The agreement was not carried out by the seller and hence, the assessee firm was compelled to file a suit for specific performance of the contract against the owner of the property in the civil court. This civil suit was dismissed by the civil court (7th ADJ, Indore) on November 27, 1976. An appeal was filed in the High Court. It is in this appeal, the parties to the appeal, i.e., the parties to the agreement entered into a compromise on May 12, 1986. In terms of the compromise, the owner/vendor agreed to pay to the assessee (purchaser) a sum of Rs. 14,85,001 as what is called consideration or damages. Accordingly, the appeal was disposed of in terms of the compromise. For the assessment year 1987-88, the Assessing Officer treated the receipt of Rs. 14,85,001 to be in the nature of capital gains in the hands of the assessee and accordingly taxed it. In appeal filed by the assessee, the Commissioner of Income-tax (Appeals) upheld the view of the Assessing Officer and accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Supreme Court in the case of Swami Motor Transports (P.) Ltd. v. Sri Sankaraswamigal Mutt, AIR 1963 SC 864 and Ram Baran Prasad v. Ram Mohit Hazra, AIR 1967 SC 744 and contended that the view taken by the Tribunal is in conformity with the law laid down in these cases calling for no upturning by this court. Having heard learned counsel for the parties and having perused the record of the case, we are inclined to answer the question in favour of the Revenue and against the assessee. The question referred to this court came up as the judicial debate shows for the first time directly before the Bombay High Court in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594. In this case, the assessee had entered into an agreement with "A" to purchase land and had paid earnest money. "A" was reluctant to complete the conveyance; ultimately a tripartite agreement was entered into between the assessees, "A" and "X" whereunder the assessee transferred and assigned in favour of "X" its right, title and interest under the agreement and received the sum of Rs. 5,00,000 as consideration and a further sum of Rs. 90,000 being the refund of earnest money. The question before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in which the interest was relinquished continued to exist; it continued to be owned by some person or persons even after the transaction of relinquishment and the interest of the person relinquishing his interest in the property was given up or abandoned or surrendered. The court held that the loss to the assessee which had arisen out of the forfeiture of the earnest money that had been paid by it was not allowable as a capital loss. The aforementioned two decisions then came up for examination again for a third time before the Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693. In this case, the assessee firm entered into an agreement with D for purchase of an immovable property. The assessee paid Rs. 17,500 as earnest money. Subsequently, the assessee had to file a suit for specific performance of the agreement for sale or in the alternative, for damages for its breach. Consent terms were arrived at in the suit and a decree was passed in favour of the assessee for the sum of Rs. 1,75,000 and interest. The said sum was received by the assessee during the course of the previous year relevant to the assessment year 1972-73. The Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was, therefore, a 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 consideration for the acquisition of the capital asset. In our view, this court was right in the view that it took that the payment of earnest money under the agreement for sale was the cost of acquisition of the capital asset." We respectfully concur with the aforesaid principle of law laid down by the Bombay High Court in Vijay Flexible Containers [1990] 186 ITR 693 while answering the question referred to this court in favour of the Commissioner of Income-tax and against the assessee. Indeed, facts of the case involved in the present case and the one which were subject-matter of Vijay Flexible Containers [1990] 186 ITR 693 (Bom) are so identical that there is no room for finding out any distinguishing feature so as to take contrary view. Apart from this, learned counsel for the assessee could not point out any subtle distinction on legal issues to persuade us from differing with the view taken in Vijay Flexible Containers' case [1990] 186 ITR 693 (Bom) except to place reliance on the decision rendered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment; (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government; Section 2(47). 'transfer', in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property: Explanation.- For the purposes of sub-clauses (v) and (vi), immovable property shall have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view in preference to the Bombay view rendered in Vijay Flexible Containers' case [1990] 186 ITR 693. With respect we cannot accept this submission. Careful perusal of the decision rendered by the Delhi High Court in the case of J. Dalmia [1984] 149 ITR 215 would indicate that it is distinguishable on facts. Indeed, it has been said so by their Lordships of the Delhi High Court when their Lordships examined the facts of the case before them and the facts of the first Bombay case, i.e., Tata Services Ltd. [1980] 122 ITR 594 later upheld in Vijay Flexible Containers's case [1990] 186 ITR 693. While repelling the submission of learned counsel for the Revenue who had placed reliance on Tata Services Ltd. [1980] 122 ITR 594, Their lordships observed and in our opinion rightly as follows: "We are, therefore, left with the question as to whether the right to claim damages in the instant case is a 'property of any kind' and thus a 'capital asset' under section 2(14) of the Act. The further question as to whether there was a transfer of such a 'capital asset' would arise only if the right to claim damages is held to be a 'capital asset'. But, again, it will have to be examined if such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay High Court while answering the question in favour of the Revenue. It is for this reason, we do not wish to deal with the citation of learned counsel in detail. As taken note of supra, the Tribunal while answering the question in favour of the assessee had placed reliance on the view taken by the Supreme Court in the case of Vania Silk Mills P. Ltd. [1991] 191 ITR 647 for holding that right to claim specific performance of contract does not create any right in the property and as a consequence does not result in transfer of interest in the property within the meaning of section 2(14) read with section 2(47) ibid. The view so taken by the Supreme Court in the case of Vania Silk Mills P. Ltd. [1991] 191 ITR 647 is no longer held to be a good law and stands disapproved by the Supreme Court in a later decision rendered in the case of CIT v. Grace Collis (Mrs.) [2001] 248 ITR 323 (SC) in the following words: "We have given careful thought to the definition of 'transfer' in section 2(47) and to the decision of this court in Vania Silk Mills P. Ltd. [1991] 191 ITR 647. In our view, the definition clearly contemplates the extinguishment of rights in a capital asset distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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