TMI Blog2020 (4) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ee filed a suit for specific performance of the agreement for sale. Thereafter, the assessee withdrew the suit for specific performance in lieu of payment of ₹ 7,50,000/-. The Hon'ble jurisdictional Karnataka High Court held that right of specific performance of the contract of sale constitutes Capital asset and compensation received for giving up the above said right constitutes capital gains. Facts of the present case are identical with the facts available in the case of H Anil Kumar (supra). The assessee herein has given advance for purchase of land in the year 2005 and accordingly acquired right for specific performance of agreement of sale. The said right constitutes capital asset within the meaning of sec.2(14) of the Act. Subsequently, the assessee has received money for giving up the said right. The same shall constitute capital gains in the hands of the assessee as per the decision rendered by the jurisdictional High Court in the case of H Anil Kumar (supra). In the instant case, it is not the case of assessing officer that the assessee did not get the right of specific performance of agreement of sale upon entering the sale agreement between the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of transfer of any capital asset within the meaning of sec. 2(14) r.w.s 2(47) of the Act. According to the AO, the said payment was made for breach of contract and not towards extinguishment of any rights in a capital asset . Accordingly, he assessed the same as income under the head Income from other sources. 4. The ld CIT(A), however, agreed with the contentions of the assessee and held that the liquidated damages received by the assessee is capital gain in the hands of the assessee, since the same was received on extinguishment of rights vested with the assessee in the scheduled property. The ld CIT(A) also held it to be long term capital gain and accordingly directed the AO to allow deduction u/s 54F of the Act. The Revenue is aggrieved by the decision so rendered by ld CIT(A). 5. We heard the parties and perused the record. We noticed that the assessee has relied on various case laws before ld CIT(A) and the first appellate decided the issue in favour of the assessee by considering those case laws. For the sake of convenience, we extract below the relevant observations made by the ld CIT(A) on this issue. 8. A careful reading of Sub-Clause (vi) of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 for the immovable property was a relinquishment of a capital asset. 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. 5. CIT Vs. Mrs. Grace Collis (2001) (248 ITR 323) observed that: 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 Pvt. Ltd.'s case (1991) 191 ITR 647. In our view, the definition clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. We do not approve, respectfully, of the limitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons 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. 9.1. In K.R. Srinath V Asstt CIT 2004 141 Taxman 268 (Mad) it was held that 'when an agreement for purchase of property is later cancelled, there is relinquishment of right. Where an assessee initially paid an advance under an agreement for purchase of a property, reserving right to specific performance of the agreement, and later received consideration under another agreement under which the earlier agreement was cancelled and the vendor was allowed to sell the property to any person at any price, there was a relinquishment of right by the assessee which amounts to 'transfer', and the resulting gain was assessable as capital gains. Since the assessee had paid a sum for acquiring the right to acquire the sale deed, it could not be said that there was no cost of acquisition'. 9.2 The Hon'ble Madras High Court in the case cited supra also dealt with the issue as to 'whether by termination of earlier agreement and by allowing vendor to sell property to any person at any price, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired on account of 'Agreement for Sale' entered into by the appellant amounting to ₹ 50 lakh is to be considered as the cost acquisition of the asset I property which is in the nature of capital asset within the meaning of section 2(14) of the l.T.Act. And as per the 'Agreement for Sale', the date of completion of the sale shall be 31/03/2006 subject to the Vendor i.e., Sri Y. Narsaraju effecting conversion of the property for non-agricultural use. 11. Having considered the acquisition of right as per the 'Agreement for Sale' as extinguishment of such right or whether it is breach of contract. After perusing the Cancellation of Agreement of Sale' and also the case laws relied upon by the appellant, it is held that consideration received for cancellation of sale in the form of liquidated damages are nothing but consideration received towards transfer of rights or extinguishment / relinquishment of rights and not for breach of contract. The damages to be received for breach of contract has been specifically mentioned in the agreement for sale in separate clause, whereas in the main clause, the consideration in the form of liquidated damages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the seller could not convert the status of land into non agriculture as originally agreed. Hence a cancellation agreement was entered on 20/4/2009, by which the original sale agreement was cancelled and assessee received compensation in the form of liquidated damages. The ld AR submitted that the said compensation was received towards extinguishment of assessee s right for enforcement for specific performance. Hence the same shall constitute capital gains in the hands of the assessee, as per the decision rendered by Hon ble jurisdictional high court in the case of H Anil Kumar (Supra). 9. The ld AR further submitted that the decision rendered in the case of Balbir Singh Maini (Supra) is based on different set of facts which is not applicable to the issue under consideration. In the case before Hon ble Supreme Court the parties entered into joint development agreement but the same was not registered as per the requirement of Amendment Act of 2001, even though the Joint development agreement fell within the sec. 53A of the Transfer of Property Act prior to its amendment in 2001. The Hon ble Supreme Court held that since the joint development agreement was not registered, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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