TMI Blog1991 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be taxed for the assessment year 1970-71 ? " It is pertinent to mention that the issue involved herein had come up for consideration in the context of wealth-tax before us in the assessee's own case for the assessment years 1963-64 to 1969-70 (both inclusive) in Wealth-tax Reference No. 12 of 1977 with Wealth-tax Reference No. 5 of 1977 (Akber A. Dehgamwalla v. CWT [1992] 195 ITR 16 (Bom)) and, by our judgment delivered yesterday, it was held that both the amounts of Rs. 2,52,000 (being damages for breach of contract) and Rs. 1,56,030 being interest thereon for the period from January 30, 1959, to the date of consent decree, i.e., June 11, 1969, had accrued to the assessee on the date of the consent decree, i.e., on June 11, 1969, and that, as a result thereof, no part of the amount of damages or interest was includible as "asset" belonging to him on any of the valuation dates falling before the date of the consent decree. However, it may be desirable to briefly refer to the facts once again. The assessee had agreed to take on lease certain land and the Government of India had agreed to give it to the assessee. That was in 1945. The deal did not go through. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim that he had no capital asset and the amount of Rs. 2,52,000 could not be treated as capital gains. As regards the amount of Rs. 1,56,030, however, the Appellate Assistant Commissioner agreed with the Income-tax Officer and held that the said amount represented interest accrued and received by the assessee on the amount of compensation during the previous year and since the money was received as a result of the consent decree during the previous year, it was rightly taxed in that year. Both the assessee and the Department filed appeals against the order of the Appellate Assistant Commissioner before the Tribunal. The case of the Department was that even the amount of compensation, i.e., Rs. 2,52,000, ought to have been taxed as capital gains. The case of the assessee was that the amount of Rs. 1,56,030 was not taxable as the income of the assessee at all. For reasons more or less similar to those given by the Appellate Assistant Commissioner, the Tribunal dismissed both the assessee's and the Department's appeals. Placing reliance on the decisions of our High Court in the cases of CIT v. Tata Services Ltd. [1980] 122 ITR 594 and CIT v. Vijay Flexible Containers [1990] 186 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed as the assessee's income under the head "Capital gains" in view of the Supreme Court decision in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294. Shri Dastur further contended that, in this case, there was no "transfer" at all within the meaning of section 45 read with section 2(47). His submission is that, considering the case from any point of view, the amount of Rs. 2,52,000 is not taxable as the income of the assessee for the assessment year 1970-71 as capital gain at all. Section 45(1), as it stood at the relevant time, reads as under: " 45 (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54 and 54B, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. " Shri Dastur is evidently right in contending that profits or gains arising from the transfer of a capital asset under section 45 are to be taxed as income of the previous year in which the transfer takes place. It, thus, becomes necessary to examine as to whether the "transfer" of the assessee's right to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is trite law that income can be held to accrue only when the assessee acquires a right to receive the income. Unlike compensation payable by the State when it acquires a citizen's land under the Acts such as the Land Acquisition Act where the right to receive compensation is a statutory right, the right that a person acquires on the establishment of a breach of contract is at best a mere right to sue. Despite the definition of the expression "capital asset" in the widest possible terms in section 2(14), a right to a capital asset must fall within the expression "property of any kind" and must not fall within the exceptions. Section 6 of the Transfer of Property Act which uses the same expression "property of any kind" in the context of transferability makes an exception in the case of a mere right to sue. The decisions thereunder make it abundantly clear that the right to sue for damages is not an actionable claim. It cannot be assigned. Transfer of such a right is as much opposed to public policy as is gambling in litigation. As such, it will not be quite correct to say that such a right constituted a "capital asset" which in turn has to be "an interest in property of any kind". T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parties, there would have been prolonged litigation between the parties and it is difficult to say with any amount of certainty as to what would have been the fate of the litigation. In our judgment, the only reasonable conclusion is that the right to receive damages in this case accrued to the assessee on the date of the consent decree only. Since, as already stated by us, the right under the agreement came to an end in the year 1961, if not earlier, and the right acquired in lieu thereof was only a mere right to sue, it cannot be accepted that the amount of Rs. 2,52,000 was received as consideration for the transfer of a "capital asset", i.e., his right to the execution of a lease deed in terms of the 1945 agreement during the previous year. In that view of the matter, we are in agreement with the Tribunal that no part of the amount of Rs. 2,52,000 was taxable as capital gains. In the premises, it is not necessary to consider the other aspects of the question such as whether there was any transfer at all or whether there being no cost of acquisition of such a capital asset, the amount was taxable. This takes us to the assessee's reference. So far as the first questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pear to us to clearly lay down that interest in the case of an assessee following the mercantile system of accountancy must be taken to have accrued from year to year and not on the date of the order of the court granting enhanced compensation from the date of delivery of possession of the land till the date of such order. In the circumstances, we take the view that interest in the present case also is taxable as if it had accrued from year to year from January 30, 1959, to the date of consent decree. Thus, that part of interest which is referable to the amount of compensation for the year under reference alone will be taxable as the income of the previous year. We are aware that there is some contradiction between our judgment in the wealth-tax references and the judgment herein. While deciding the wealth-tax references, we have held that the right to receive damages and interest thereon accrued to the assessee on the date of the consent decree. In this income-tax reference, we have held that interest has accrued from year to year. In view of the Supreme Court decisions in CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 and CIT v. T. N. K. Govindaraju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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