9911796707
Advanced Search 
TMI Blog2018 (9) TMI 1239X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by the appellant. II. Addition on account of exempt income claimed treating the same as business income- Rs. 2,47,03,600/- I. The Ld. CIT (A) has erred in law and on facts in confirming the addition of Rs. 2,47,03,500/- as made by the Ld. A.O while treating the exempt income as income from. business and profession. 2. The Ld. CIT (A) has erred in law and on facts in failing to properly consider appellant company's detailed written submission and various judicial pronouncements relied upon by the appellant company. 3. That the Ld. CIT (A) has failed to consider the fact that as per the decision of the Hon'ble Jurisdictional Gujarat High Court in the case of Baroda Cement & Chemicals Ltd vs CIT (1986) 53 CTR 260 (Guj) and other judicial pronouncements, "Right to sue" as per the provisions of section 6(e) of the Transfer of Property Act, is not a property and therefore it is not a "Capital Asset" and as a consequence, impugned receipt of Rs. 2,47,03,600/- received as compensation / damages for relinquishment of right to sue in the Courts of law would only be a capital receipt in the hands of the appellant company not subject to tax." 3. Ground No.1 relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he terms and conditions of the development agreement. Thus, quoted from the decision of Hon'ble Gujarat High Court in Baroda Cement & Chemicals Ltd. vs. CIT 158 ITR 636 (Guj) the only recourse available to the assessee company was to file a suit in the Courts of law for specific performance of preemptive right to purchase the land as per the development agreement. Such right to file a suit in the Courts of law for specific performance of preemptive right to purchase the land as per development agreement is nothing but a 'right to sue' and as per the provisions of Section 6(e) of the Transfer of the Property Act, 'right to sue' is not capable of being transferred. The learned AR pointed out that after the breach of development agreement, the only right survives for the assessee was right to sue the vendor. The learned AR canvassed that such 'right to sue' for damages is not an actionable claim and is not transferrable on account of embargo cast upon by Section 6(e) of the Transfer of Property Act. It was further contended that 'right to sue' also does not have any cost of acquisition. The learned AR professed that there is no property in such 'right to sue' as discussed in wide ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities specified therein. Elaborating further, the learned AR contended that the compensation amount received is in respect of relinquishment of assessee's 'right to sue' in a Court of law which right cannot be regarded as revenue receipt taxable as business income under s.28(va) of the Act. The provisions of Section 28(va) of the Act are very clear that the compensation received in lieu of 'right to sue' does not fall under these provisions. The learned AR accordingly submitted that the action of the AO and CIT(A) is opposed to be legal principles delineated in the judicial precedents and thus requires to be set aside and relief as requested in the grounds of appeal be allowed. 9. The learned DR on the other hand relied upon the orders of the AO & CIT(A). 10. We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material referred to in terms of Rule 18(6) of the ITAT Rules, 1963 and also the case laws cited. The substantive question that arises for consideration is whether damages received by the assessee for breach of development agreement are capital in nature or otherwise chargeable to tax. It is the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2014 relied upon on behalf of the assessee has made reference to host of judicial pronouncements including the decision of the Hon'ble Gujarat High Court in the case of Baroda Cement and Chemicals Ltd. (supra) and concluded the issue in faovur of assessee. The Co-ordinate bench highlighted the relevant part of the decision of the Hon'ble Gujarat High Court which is reproduced hereunder: "18. The assessee had undoubtedly a right to sue M/s K.C.P. Ltd. for damages for breach of contract. Instead of litigating in a Court of law, the parties arrived at a settlement whereunder compensation in the sum of Rs. 1,40,000 came to be paid in full and final satisfaction to the assessee. Counsel for the Revenue contends that the compromise/arrangement resulted in extinguishment of the assessee's right to sue for damages within the meaning of s. 2(47) of the Act. While accepting this contention the Tribunal has placed reliance on the decision of this Court in CIT vs. R.M. Amin (1971) 82 ITR 194 (Guj). In that case this Court observed that the use of the word 'include' in the definition of the word 'transfer' in s. 2(47) was intended to enlarge the meaning of 'transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Iron and Hardware (India) Co. vs. Shamlal & Bros. AIR 1954 Bom 423 as under (p. 645 of 158 ITR): "10. Chagla, C.J., had an occasion to consider this aspect of the law in Iron and Hardware (India) Co. vs. Shamlal & Bros. AIR 1954 Bom 423. The learned Chief Justice observed as under(p. 425) : 'It is well settled that when there is a breach of contract, the only right that accrues to the person who complains of the breach is the right to file a suit for recovering damages. The breach of contract does not give rise to any debt and, therefore, it has been held that a right to recover assignable because it is not a chose-in-action. An actionable claim can be assigned, but in order that there should be an actionable claim there must be a debt in the sense of an existing obligation. But inasmuch as a breach of contract does not result in any existing obligation on the part of the person who commits the breach, the right to recover damages is not an actionable claim and cannot be assigned.' Proceeding further, the learned Chief Justice stated (p. 425) : 'In my opinion, it would not be true to say that a person who commits a breach of the contract incurs any pecuniary li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for damages. That is not an actionable claim and this position is made amply clear by the amendment in s. 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred.' Quoting the statement of law enunciated by Chagla C.J., which is extracted earlier, the Supreme Court stated (p. 1273) : 'This statement in our view represents the correct legal position and has our full concurrence'. 12. It would seem well-settled from the above discussion that after there is a breach of contract for sale of goods, nothing is left in the injured party save the right to sue for damages or specific performance which cannot be transferred under s. 6(e) of the Transfer of Property Act since it is a mere right to sue and not an actionable claim." 10.4 In view of the above facts and in the light of plethora of case laws relied upon, we are disposed to hold that the receipt towards compensation in lieu of 'right to sue' is of capital nature which is not chargeable to tax under s.45 of the Act. 11. At this juncture, it may be pertinent to observe that the Revenue has inter alia questioned the basis giving rise to the cause of action for c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
