TMI Blog1989 (10) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... e come about we shall presently see. 3. The assessee entered into an agreement on the 12th of August, 1980 with one New Commercial Mills Co. Ltd. (hereinafter referred to as the 'vendor') to buy the textile machinery for a total sum of Rs. 2,75,00,000 and gave by way of deposit or earnest money an amount of Rs. 5 lakhs by cheque which the solicitor of the vendor was to hold as stake holder. By another agreement dated 19-8-1980 the assessee also acquired the right to use the trade marks of the vendor and for that the assessee was to pay royalty at a percentage fixed in the agreement. 4. The Hon'ble Gujarat High Court vide its order dated 12th August, 1980 on a winding up petition against the vendor restrained it from dealing with its pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded over it became earnest money paid by the assessee. He also observed that the assessee had incurred the said expense of Rs. 2,05,768 which was also the cost of acquiring the rights and assigning them. Therefore, according to the Income-tax Officer the Supreme Court decision in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 on which the assessee had inter alia was not applicable. The Income-tax Officer added up the said amount of Rs. 5 lakhs to the amount of Rs. 9 lakhs and from the total of Rs. 14 lakhs deducted a total of the said amounts of Rs. 5 lakhs and Rs. 2,05,768 i.e. Rs. 7,05,768 holding the balance to be taxable as short-term capital gain. The Commissioner has confirmed the Income-tax Officer's order observing that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged frustration of the contract was entirely a new case which was never put forward before the Income-tax Officer or the Commissioner. He submitted that actually there was no frustration of the contract, that the Supreme Court decision relied on by the assessee was not applicable and that it was actually a case of substitution of the old contract between the assessee and the New Commercial Mills by the new contract i.e. the contract between the assessee and the Bharat Vijay Mills. He submitted that the issue was settled by the assessee itself because in the statement of income filed by the assessee the assessee had stated in the notes as follows :-- "During the year under assessment the assessee has received Rs. 9 lakhs from M/s. Bharat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills but from the assignee Bharat Vijay Mills. If it was damages it would be received from the party who was responsible for performing the contract. Therefore, this plea regarding damages cannot be accepted. That brings us to the two main submissions which have been made on behalf of the assessee. 9. It is said that there was a frustration of the contract of sale of the mill. However, it is clear from the court's order which has been referred to above that it was only a temporary injunction and ultimately that injunction was vacated, although after the second agreement of October, 1980 with the Bharat Vijay Mills. The Supreme Court decision in the case of H.E.H. the Nizam's Jewellery Trust does not help the assessee because in that cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submission that there was no cost of acquisition. The assessee has relied upon the Supreme Court decision in the case of B.C. Srinivasa Setty but that case has no application here because there the court was concerned with the situation where no cost could be contemplated. There could be no cost of goodwill which was built up over a course of time in a newly established business. That is not the situation here. The right to acquire a property not only can have a cost but does have a cost. 11. The only fact on which the assessee's claim that it was acquired free of cost is based is that the cheque for the earnest money was returned by the vendor. The apparent here is not real. This is so because the real nature of transaction is not f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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