TMI Blog2023 (2) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... any capital asset for receiving the compensation and it is merely a right to sue for damages cannot be considered as a capital asset could not be accepted. As decided in H. Anil Kumar [ 2011 (1) TMI 1159 - KARNATAKA HIGH COURT] since the word transfer in relation to capital asset is defined under the IT Act, 1961 it is not necessary to import the meaning assigned to them under the provisions of the Transfer of Property Act. The word Capital Asset as defined in the IT Act, 1961 means any kind of property held by the assessee which is not necessarily be confined to the immovable property. Similarly, the definition of word transfer in relation to capital asset includes sale, exchange or relinquishment of the asset . The said asset need not necessarily be an immovable property. In the instant case, the assessee has paid an amount during 2001 while entering into an agreement with the seller. We are therefore of the considered view that the compensation received by the assessee arises out of the transfer of capital asset in the nature of relinquishment of the specific performance of the contract shall be treated as transfer of capital asset within the meaning of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was in possession of two residential houses. The assessee vide letter dated 6/12/2019 submitted the details called for. The Ld. AO then issued a show cause notice dated 14/12/2019 stating that countering the claim of the assessee the Ld. AO requested the assessee to show cause the reason for treating one house property as commercial property whereas as per the GVMC records it is a residential property . In response to the show cause notice the assessee submitted that it is not a residential property and used only for commercial purposes. Considering the replies of the assessee, the Ld. AO disallowed the deduction claimed U/s. 54F of the Act for Rs. 2,90,30,172/- and assessed the same as income of the assessee. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the Ld. Authorized Representative of the assessee submitted that the assessee by mistake has claimed the compensation received of Rs. 3 Crs in a suit for damages for breach in performance of the contract as long term capital gains whereas it is a compensation received which is considered to be a capital receipt not exigible to tax. Considering the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AO be upheld. The Ld. DR placed heavy reliance on the following case laws: (i) CIT vs. Balbir Singh Maini [2017] 86 Taxmann.com 94 (SC) (ii) CIT vs. H. Anil Kumar [2012] 20 taxmann.com 430 (Karnataka) (iii) Decision of the ITAT, Delhi F Bench in the case of ACIT vs. Shri Ramit Vohra in ITA No. 4373/Del/2012, dated 19/09/2019. Per contra, the Ld. AR argued that the assessee filed a suit either for the specific performance of the contract or in the alternative compensation shall be provided to the assessee for the breach of contract. The Ld. AR further submitted that since it is a compensation for the damages for breach of contract through a compromise decree on 20/03/2017, the assessee received a sum of Rs. 3 Crs and hence it is a capital receipt. The Ld. AR further argued that the assessee has merely extinguished his right to sue and has not sold any capital asset which will constitute a transfer as defined under section 2(47) of the Act. The Ld. AR further submitted that a mere right to sue cannot be transferred as per section 6(e) of the Transfer of Property Act and hence it cannot be considered as a capital asset. The Ld. AR placed reliance on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3 Crs in lieu of the property. It is the contention of the assessee that since the amount received by her is in the kind of compensation / damages and hence shall be treated as a capital receipt. It was argued by the Ld. AR that there is no transfer of capital asset and the receipt is purely arising out of the damages for breach of contract which is not a transferable right. We also find from the argument of the Ld. AR that the assessee has wrongly claimed exemption U/s. 54F of the Act. The main issue before us is whether the receipt of amount of Rs. 3 Crs received by the assessee is a capital receipt or an income to be taxed under capital gains . We find from the submissions of the Ld. AR, initially the assessee has claimed it as a capital gains while filing the return of income and during the assessment proceedings. Later, the assessee claimed it as a capital receipt before the Ld. CIT(A) which was allowed by the Ld. CIT(A). In this context, it is relevant to understand the definition of capital asset as defined U/s. 2(14) of the Act. Sec. 2(14)(a): Capital Asset means Any kind of property held by an assessee, whether or not connected with business or profession of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble property. 9. The relevant paragraph of the ratio held by Hon ble Karnataka High Court in the case of CIT vs. H. Anil Kumar (supra) is as follows: 23. From the aforesaid judgments it is clear that the right to obtain a conveyance of immovable property falls within the expression 'property of any kind' used in s. 2(14) of the Act and consequently it is a capital asset. It is because the expression 'property of any kind' is of wide import. When this expression is read along with the expression defined in s. 2(47)(ii) i.e., 'extinguishment of any rights therein', the giving up of a right of specific performance by the assessee to get conveyance of immovable property in lieu of receiving consideration, results in the extinguishment of the right in property, thereby attracting the rigor of s. 2(14) r/w s. 2(47). Giving up of a right to claim specific performance by conveyance in respect to an immovable property, amounts to relinquishment of the capital asset. Therefore, there was a transfer of capital asset within the meaning of the Act. The payment of consideration under the agreement of sale, for transfer of a capital asset is the cost of acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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