TMI Blog1989 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee paid to the vendors, as required by the said agreement for sale, the sum of Rs. 17,500 as earnest money. The assessee was constrained to file a suit in this court (being Suit No. 361 of 1964) for specific performance of the said agreement for sale or, in the alternative, for damages for its breach. Consent terms were arrived at in the suit and decree was passed in favour of the assessee for the sum of Rs. 1,17,500 and interest. The sum of Rs. 1,17,500 was received by the assessee during the course of the previous year relevant to the assessment year 1972-73. The Income-tax Officer held that the right that the assessee had acquired under the said agreement for sale was a capital asset. Upon the extinguishment of that right, the assessee had received the sum of Rs. 1,17,500. Deducting the cost of acquisition of the capital asset in the amount of Rs. 17,500 and expenses and legal charges in the sum of Rs. 17,904, the Income-tax Officer found the capital gain to be Rs. 82,086. The Appellate Assistant Commissioner allowed the appeal preferred by the assessee holding that the said agreement for sale did not bring a capital asset into existence. The Revenue preferred an appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reate interest in immovable property, created a personal obligation of a fiduciary character which could be enforced by a suit for specific performance not only against the vendor but also against a purchaser for consideration with notice. The Madras High Court, in Venkateswara Aiyar v. Kallor Illath Raman Nambudhri, AIR 1917 Mad 358, held that an executory contract for the conveyance of land was not a mere right to sue. The right to sue was no doubt involved in it on breach of its stipulations, but before breach there was also the right to have the land conveyed. A mere right to sue was applicable only to cases where there had been a breach sounding in damages and where the specific enforcement of the contract could not be obtained. The aforegoing discussion leads, we think, to the conclusion that the right to obtain a conveyance of immovable property falls within the expression "property of any kind" used in section 2(14) of the Income-tax Act and is, consequently, a capital asset. The very issue arose before this court in CIT v. Tata Services Ltd. [1980] 122 ITR 594. The assessee there had entered into an agreement with A to purchase land and had paid earnest money. A was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 980] 122 ITR 594 (Born). The court rejected the argument that if the right to purchase was given up and the vendor was relieved of his obligation, there would be no capital gain. The court approved of what had been said in the case of CIT v. Rasiklal Maneklal (HUF) [1974] 95 ITR 656 (Bom), in regard to the essential features of a transaction of relinquishment, namely, that the property 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 decisions in the cases or Tata Services Ltd. [1980] 122 ITR 594 (Born) and Sterling Investment Corporation Ltd. [1980] 123 ITR 441 (Bom) negative all the three submissions that have been made before us by Mr. Zaveri, learned counsel for the assessee, namely, that no capital asset was acquired by the assessee as a result of the said agreement for sale ; that, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions and the authorities which we have cited above, we cannot, with respect, agree that the right acquired under an agreement to purchase immovable property 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, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee from his normal business as a broker or upon a distribution of a capital asset. The court held that even if there was any transfer of a capital asset by reason of the settlement, it had not cost the assessee anything in terms of money so that the question of computation of a capital gain could not arise. This decision was rendered upon its own facts. There remains for consideration a decision of the Gujarat High Court in CIT v. Hiralal Manilal Mody [1981] 131 ITR 421, which Mr. Zaveri cited. The question in this case was whether the damages received by the assessee for breach by the seller of an agreement to purchase immovable property was a revenue receipt. The assessee had been held by the Tribunal not to be a dealer in immovable property. The court found that the Tribunal had applied the correct legal tests in arriving at its conclusion that the assessee had not been proved to be a dealer in immovable property and, accordingly, it held that the amount which he had received by way of damages was not a revenue receipt. Having regard to the nature of the controversy before the court, this case does not render us any assistance. we see, with respect, no convincing re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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