TMI Blog2023 (9) TMI 746X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was the right to sue for damages and the compensation was paid under the decree towards the said right to sue. As considering judgments of various High Courts including the two judgments of the Hon ble Jurisdictional High Court in favour of the assessee, the impugned order of the ld. PCIT cancelling the assessment order solely relying on the judgment of M/s. Vijay Flexible Containers [ 1989 (9) TMI 16 - BOMBAY HIGH COURT] which is not applicable on the facts of the assessee s case cannot be sustained and is hereby set aside and the order of the Assessing Officer accepting the claim is upheld. Also once the ld. AO has examined this issue threadbare relying upon the various judgments of the High Court which was cited before him accepting the claim, then ld. PCIT cannot set aside the assessment order within the scope of u/s. 263 is not adjudicated as we have already held on merits that the judgment of the ld. PCIT is incorrect in law. Accordingly, the appeal of the assessee is allowed. - Shri Amit Shukla, Judicial Member And Shri Amarjit Singh, Accountant Member For the Assessee : Shri Pradip Kapasi For the Revenue : Ms. Zeenia Handa ORDER PER AMIT S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellation by cheque. the plaintiff had failed to perform his obligations and there was No readiness or willingness on the part of the plaintiff to perform the contract. the said MOU was not capable of specific performance. the MOU was not stamped or registered and was admissible in evidence. it was never planned to or possible to develop commercial premises. that no case made out for specific performance by plaintiff of MOU, the Plaintiff was estopped from claiming allotment of the suit premises. claiming that the Suit was not maintainable. suppression of material facts and circumstances by the Plaintiff. the suit was not bonafide and was merely an afterthought. claiming that the Plaintiff has failed to make out the case for the grant of ad-interim reliefs. 5. Thereafter, a consent decree dated 10/07/2017 was passed by the Hon ble Bombay High Court on the basis of consent terms filed by the parties. As per the consent decree an amount of Rs. 7,65,26,000/- was agreed to be paid by the Aadi Properties LLP by way of damages for its inability to provide the commercial space and the assessee not waiving the right to sue as per Para 9 and 10 of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted from Notice of Motion No. 499 of 2016) and the MOU, and the amount of Rs. 25,00,000/- (Rupees Twenty Five Lakh only) paid by the Plaintiff to the Defendant on 08th July, 2010 under the MOU, shall also be refunded without interest by Defendant to the Plaintiff and is included in the aforesaid sum of Rs. 7,65,26,000/- (Rupees Seven Crore Sixty Five Lakh Twenty Six Thousand only) payable by Defendant to the Plaintiff. 6. The return of income was filed on 30/10/2018 declaring income of Rs. 7,48,63,770/-. In the said return of income assessee claimed that compensation of Rs. 7,65,26,000/- received for not suing the M/s. Aadi Properties LLP was a capital receipt not liable to be taxed. The case of the assessee was selected for scrutiny under the E-assessment Scheme 2019 for verifying the claim of exemption. In the course of assessment proceedings, the ld. AO issued notices from time to time inquiring about, whether the receipts of Rs. 7,65,26,000/- towards compensation under consent decree was taxable or not? The assessee in response has complied with all the notices and filed its reply alongwith the case laws in support electronically before the ld. AO and the copies of all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65,26,000/-, the ld. AO has made the addition on account of capital gain on such compensation received. 9. In the reply to the show-cause notice assessee submitted that the case of the assessee is not covered by the judgment of the Hon ble Bombay High Court in the case of Vijay Flexi Containers supra, because the said judgment relate to specific performance of the impugned contract but here in this case the specific performance of the contractor was not possible and therefore, there was no possibility to impose the performance of the contract and here assessee had only right to sue . Assessee also relied upon the decision of the Hon ble Madras High Court in the case of Venkateswara Aiyer vs. Kallor LLLath Raman Nambudri, AIR 1917 Mad 358, wherein the Hon ble Madras High Court has considered the case of CIT vs. Vijay Flexi Containers supra and decided that right to sue in such cases is a capital receipt and not chargeable to tax. Apart from that, assessee had also relied all other judgments which has been referred in the impugned order. The ld. PCIT rejected the replies / explanation of the assessee and held that the Assessing Officer neither during the assessment proceedings u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred. The relevant portion of Section 6 of Transfer of Property Act reads as under:- What may be transferred 6. Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force- (a) The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman, or any other mere possibility of a like nature, cannot be transferred. (b) A mere right of re-entry for breach of a condition subsequent cannot be transferred to anyone except the owner of the property affected thereby. (c) An easement cannot be transferred apart from the dominant heritage. (d) An interest in property restricted in its enjoyment to the owner personally cannot be transferred by him. (d) A right to future maintenance, in whatsoever manner arising, secured or determined, cannot be transferred (e) A mere right to sue cannot be transferred (f) A public office cannot be transferred, nor can the salary of a public officer, whether before or after it has become payable. (g) Stipends allowed to military, naval, air-force and civil pensioners of the government and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by tax authority. Relevant extracts of the judgment right to receive compensation is 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 s. 2(14), a right to a capital asset must fall within the expression property of any kind' and must not fall within the exceptions. Sec. 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 there under 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... the right acquired in lieu thereof was only a mere right to sue, it cannot be accepted that the amount was received as consideration for the transfer of a ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. The assessee filed suit before Trial Court of 'specific performance' and to grant of damages for breach of said agreement. The Court passed consent decree, under which ECL agreed to pay 5 crores to assessee by way of damages. 16.1 The Assessing Officer made a reference under section 144A to the Deputy Commissioner seeking his opinion regarding taxability of amount received by assessee. The Deputy Commissioner gave directions to Assessing Officer to the effect that said receipt of damages was not taxable in the hands of the appellant neither as business income nor as capital gains, nor as casual or non-recurring receipt. Accordingly, the Assessing Officer completed the assessment. 16.2 The Commissioner exercising his powers under section 263 passed a revisional order holding that while making the assessment, the Assessing Officer failed to consider the decision of the Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693/48 Taxman 86 and, therefore, the order passed by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. The Hon ble High Court observed and held as under:- 23. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uture. Once such a transfer cannot be obtained as the Decree for specific performance has been refused, then, the receipt of monetary sum cannot be taxed as claimed by the Revenue. This is apparent from a reading of paras 8 and 9 of the Division Bench Judgment. In these circumstances, the reliance placed on another Division Bench Judgment of this Court need not be considered. 26. In the present Appeal, the Tribunal failed to note that in this case as well the specific performance of the agreement was refused. It is erroneously held that the claim of the Assessee regarding specific performance had never been rejected by this Court. A reading of the order passed by the Division Bench leaves us in no manner of doubt that such a Decree was expressly denied. The Consent Terms may constitute an agreement or contract between the parties, however, a Consent Decree is passed after the agreement is placed before the Court and the Court applies its mind and records a satisfaction that the terms are not contrary to law or public policy. That they can be accepted and based on that a Decree can be passed. Therefore, it is not an agreement between the parties, by which the Suit was disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, partition or refund of earnest money if any person sues for specific performance of a contract for the transfer of immovable property. That power is to be found in section 22 of the Specific Relief Act, 1963. By section 21, the Court has a power to award compensation in certain cases and by sub-section (1) thereof, it is clarified that in a Suit for specific performance of a contract, the Plaintiff may also claim compensation for its breach, either in addition to, or in substitution of such performance. When such relief is claimed in substitution of performance, then, by virtue of sub-section (2) of section 21, the Court can award the Plaintiff compensation even if it decides the specific performance ought not be granted. However, there are specific provisions which the Plaintiff must comply with. Eventually, the jurisdiction to decree specific performance conferred in a Court is discretionary and it is not bound to grant such relief merely because it is lawful to do so (see section 20 of the Specific Relief Act, 1963). 27. The agreement for sale of immovable property itself does not create any right, title or interest in the immovable property, which is subject matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the judgment of Vijay Flexi Containers cannot be complied with. 18. Now coming to the decision of Vijay Flexi Containers (supra), in that case, the parties had entered into agreement for sale deed dated 10/11/1959 to purchase immovable property which was stamped and registered and right to have the immovable property was acquired under the said agreement. Thereafter, an amount of Rs. 17,500/- was paid to the vendors as earnest money as per the agreement for sale. However, vendor did not perform his obligations. Thereafter a suit was filed in the Hon ble Bombay High Court for specific performance of the said agreement of sale and only in alternative, damage of Rs. 1,17,500/- for the breach of the agreement was claimed and must be paid. In that case, the project was in existence to claim the right in the property and the specific performance was possible, however, the buyer settled for damages. There the buyer gave up his right to claim specific performance and took only damages for non-performance and not for right to sue and accordingly, consent terms were arrived. There was no such clause which accepted that no Specific Performance was possible, neither a clause which said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognized types of interest which have the Insignia or characteristic of proprietary rights. We are to determine whether damages received by the assessee were in respect of transfer of a 'capital asset' There was a breach of contract and the assessee received damages in satisfaction thereof. He had a mere right to sue for damages. Assuming the same to be 'property' this could not be transferred under s. 6(e) of the Transfer of Property Act........... The damages which were received by the assessee cannot be said to be on account of relinquishment of any of his assets or on account of extinguishment of his right of specific performance under the contract for sale . Under s. 5 of the Transfer of Property Act, transfer of property means an act by which a person conveys property to another and 'to transfer property' is to perform such act. A mere right to sue may or may not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry contract for the sale of goods may generally be transferred and the buyer has the right sue for to the goods .. Since the transfer contemplated by s. 45 is one as a result whereof consideration has passed to the assessee or has accrued to him, extinguishment of the right must relate to that 'capital asset', corporeal or incorporeal. It is, therefore, obvious that a transfer of a capital asset in order to attract liability to tax under the head 'capital gains must be transfer' as a result whereof some consideration is received by or accrues to the assessee. If the transfer does not yield any consideration, the computation of profits or gains as provided by s. 48 of the Act would not be possible. If the transfer takes effect on extinguishment of a right in the capital asset, there must be receipt of consideration for such extinguishment to attract liability to tax. Now, in legal parlance, the terms 'consideration' and 'compensation' or 'damages' have distinct connotations. The former in the context of ss. 45 and 48 would connote payment of a sum of money to secure transfer of capital asset; the latter would suggest payment to make a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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