Bhojison Infreastructure Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-1(1)(2), Ahmedabad

ITA 2449/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1156 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 28-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Earning of tax free income; Cost of acquisition; Wrong claim; Capital receipt
• Section: 143(3); 2(14)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2449/AHD/2016 ( ASSESSMENT YEAR : 2008-09) BHOJISON INFRASTRUCTURE PVT. LTD. 4, SHRI GHANSHYAM PARK CO.OP. HOU. SOCY. LTD., B/H. PARASKUNJ SOCIETY, SATELLITE ROAD, JODHPUR, AHMEDABAD - 380015 / VS. THE INCOME TAX OFFICER WARD 1(1)(2), AHMEDABAD ./ ./ PAN/GIR NO. : AAACB7764K ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DHIREN SHAH, A.R. / RESPONDENT BY : SHRI APOORVA BHARDWAJ, SR.D.R. DATE OF HEARING 13/08/2018 !'# / DATE OF PRONOUNCEMENT 17/09/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-1, AHMEDAB AD (CIT(A) IN SHORT), DATED 26.07.2016 ARISING IN THE ASSESSMENT ORDER DATED 11.03.2015 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (THE ACT) CO NCERNING ASSESSMENT YEAR 2008-09. ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE ADS AS UNDER:- I. ADDITION ON ACCOUNT OF LONG TERM CAPITAL GAIN TREAT ING AS WRONG CLAIM RS.1,51,988/-. 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FAC TS IN CONFIRMING THE ADDITION OF RS.1,51,988/- AS MADE BY THE LD. A.O. ON ACCOUNT OF LONG TERM CAPITAL GAIN TREATING AS WRONG CLAIM. THE LD. CIT (A) HAS FAILED TO PROP ERLY CONSIDER THE WRITTEN SUBMISSION FILED BY THE APPELLANT. II. ADDITION ON ACCOUNT OF EXEMPT INCOME CLAIMED TREATING THE SAME AS BUSINESS INCOME- RS. 2,47,03,600/- I. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 2,47,03,500/- AS MADE BY THE LD. A.O WHILE TREA TING THE EXEMPT INCOME AS INCOME FROM. BUSINESS AND PROFESSION. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN FAILING TO PROPERLY CONSIDER APPELLANT COMPANY'S DETAILED WRITTEN SUBMISSION AND VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT COMPANY. 3. THAT THE LD. CIT (A) HAS FAILED TO CONSIDER THE FACT THAT AS PER THE DECISION OF THE HON'BLE JURISDICTIONAL GUJARAT HIGH COURT IN TH E CASE OF BARODA CEMENT & CHEMICALS LTD VS CIT (1986) 53 CTR 260 (GUJ) AND OT HER JUDICIAL PRONOUNCEMENTS, RIGHT TO SUE AS PER THE PROVISIONS OF SECTION 6(E ) OF THE TRANSFER OF PROPERTY ACT, IS NOT A PROPERTY AND THEREFORE IT IS NOT A 'CAPITAL A SSET' AND AS A CONSEQUENCE, IMPUGNED RECEIPT OF RS. 2,47,03,600/- RECEIVED AS C OMPENSATION / DAMAGES FOR RELINQUISHMENT OF RIGHT TO SUE IN THE COURTS OF LAW WOULD ONLY BE A CAPITAL RECEIPT IN THE HANDS OF THE APPELLANT COMPANY NOT SUBJECT TO T AX. 3. GROUND NO.1 RELATES TO ADDITION OF RS.1,51,988/- BY DENYING THE INDEXATION ON COST OF ACQUISITION WHILE COMPUTING T HE LONG TERM CAPITAL GAINS. 4. ADDRESSING THE ISSUE, THE LEARNED AR FOR THE ASS ESSEE SUBMITTED THAT THE LIMITED CONTROVERSY ON THE ISSUE PERTAINS TO DENIAL OF INDEXATION BENEFITS ON THE COST OF ACQUISITION OF L AND UNDER SALE GIVING RISE OF THE LONG TERM CAPITAL GAINS. THE LEARNED A R POINTED OUT THAT NOTWITHSTANDING THE FACT THAT DOCUMENTS IN RESPECT OF LAND ACQUIRED 7- 8 YEARS BACK COULD NOT BE PRODUCED, THE LAND WAS DU LY REFLECTED IN THE BALANCE SHEET FOR LAST MANY YEARS. IT WAS THEREAFT ER CONTENDED THAT THE AO HAS DULY ACCEPTED THE LONG TERM CAPITAL GAIN ON SALE OF SUCH LAND PARCELS. THIS BEING SO THE COST OF ACQUISITION OF RS.4,19,533/- ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 3 - REQUIRES TO BE ACCEPTED AS SACROSANCT. THE AO HAS GRANTED LONG TERM CAPITAL GAIN BASED ON THE AFORESAID AMOUNT OF COST OF ACQUISITION BUT HOWEVER HAS DENIED INDEXATION BENEFIT WHICH IS INEX PLICABLE. PER CONTRA, THE LEARNED DR RELIED UPON THE ORDER OF THE AO & CIT(A). 5. A SIMPLE PERUSAL OF THE ORDERS OF THE AUTHORITIE S BELOW SUGGEST THAT THE COST OF ACQUISITION OF RS.4,19,533/- HAS B EEN ADMITTED AND THE LONG TERM CAPITAL GAIN HAVE ALSO BEEN ACCEPTED. TH EREFORE, THE BENEFIT OF STATUTORY INDEXATION COST TO OFFSET THE EFFECT O F INFLATION CANNOT BE DENIED. ONCE, THE COST OF ACQUISITION IS DETERMINE D AND THE LAND UNDER SALE WAS FOUND TO BE A LONG TERM CAPITAL ASSET, IND EXATION OF COST OF ACQUISITION BECOMES AUTOMATIC AS PER THE STATUTORY PROVISIONS OF THE ACT. THEREFORE, WE DO NOT FIND ANY RATIONALE FOR D ENIAL OF INDEXATION BENEFITS. THEREFORE, THE AFORESAID ADDITION OF RS. 1,51,988/- ARISING ON ACCOUNT OF SUCH DENIAL REQUIRES TO BE REVERSED. TH E AO IS DIRECTED TO DELETE THE ADDITION ON THIS SCORE. 6. IN THE RESULT, GROUND NO.1 OF THE ASSESSEES APP EAL IS ALLOWED. 7. GROUND NO.2 CONCERNS TREATMENT OF CAPITAL RECEIP T CLAIM AS REVENUE INCOME BY THE AO. 8. THE LEARNED AR FOR THE ASSESSEE IN THIS REGARD P OINTED OUT THAT THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT D ATED 30.03.2007 BY VIRTUE OF WHICH A RIGHT IN THE PROPERTY/LAND WAS CREATED IN FAVOUR OF THE ASSESSEE BY THE OWNER OF THE LAND, SHRI SURESHB HAI M. PATEL. THE LEARNED AR SUBMITTED THAT DESPITE DEVELOPMENT AGREE MENT ENTERED INTO BY THE LANDLORD, IT HAS DECIDED TO SALE THE SAID LA ND TO OTHER PARTIES INSTEAD OF CONTINUING WITH DEVELOPMENT PROPOSAL OF THE SAID LAND AS PER THE TERMS AND CONDITIONS OF THE DEVELOPMENT AGR EEMENT. THUS, QUOTED FROM THE DECISION OF HONBLE GUJARAT HIGH CO URT IN BARODA ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 4 - CEMENT & CHEMICALS LTD. VS. CIT 158 ITR 636 (GUJ) T HE ONLY RECOURSE AVAILABLE TO THE ASSESSEE COMPANY WAS TO F ILE A SUIT IN THE COURTS OF LAW FOR SPECIFIC PERFORMANCE OF PREEMPTIV E RIGHT TO PURCHASE THE LAND AS PER THE DEVELOPMENT AGREEMENT. SUCH RI GHT TO FILE A SUIT IN THE COURTS OF LAW FOR SPECIFIC PERFORMANCE OF PREEM PTIVE RIGHT TO PURCHASE THE LAND AS PER DEVELOPMENT AGREEMENT IS N OTHING BUT A RIGHT TO SUE AND AS PER THE PROVISIONS OF SECTION 6(E) O F THE TRANSFER OF THE PROPERTY ACT, RIGHT TO SUE IS NOT CAPABLE OF BEIN G TRANSFERRED. THE LEARNED AR POINTED OUT THAT AFTER THE BREACH OF DEV ELOPMENT AGREEMENT, THE ONLY RIGHT SURVIVES FOR THE ASSESSEE WAS RIGHT TO SUE THE VENDOR. THE LEARNED AR CANVASSED THAT SUCH RIGHT TO SUE FOR DAMAGES IS NOT AN ACTIONABLE CLAIM AND IS NOT TRANS FERRABLE ON ACCOUNT OF EMBARGO CAST UPON BY SECTION 6(E) OF THE TRANSFE R OF PROPERTY ACT. IT WAS FURTHER CONTENDED THAT RIGHT TO SUE ALSO D OES NOT HAVE ANY COST OF ACQUISITION. THE LEARNED AR PROFESSED THAT THERE IS NO PROPERTY IN SUCH RIGHT TO SUE AS DISCUSSED IN WIDE RANGING DE CISIONS RENDERED BY THE COURTS AND TRIBUNALS. SUCH RIGHT TO SUE DOES NOT FALL WITHIN THE SWEEP OF DEFINITION OF CAPITAL ASSET UNDER S. 2(1 4) OF THE ACT. THIS APART, THE RIGHT TO SUE IS A PERSONAL RIGHT AND I S NOT SUSCEPTIBLE TO TRANSFER FOR ITS TAXABILITY. CONSEQUENTLY, THE D AMAGES RECEIVED FROM THE POTENTIAL PURCHASER FOR SUCH RELINQUISHMENT OF RIGHT TO SUE IN THE COURTS OF LAW FOR BREACH OF DEVELOPMENT AGREEMENT I S CLEARLY A NON- TAXABLE CAPITAL RECEIPT. 8.1 THE LEARNED AR SUBMITTED THAT THE ISSUE IS NO L ONGER RES INTEGRA AND IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y FOLLOWING THE DECISIONS INCLUDING THE DECISION OF THE HONBLE JUR ISDICTIONAL HIGH COURT: I. BARODA CEMENT & CHEMICALS LTD. VS. CIT [1986] 15 8 ITR 636 (GUJARAT) II. CIT VS. ASHOKA MARKETING LTD. [1986] 164 ITR 66 4 (CALCUTTA) ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 5 - III. CIT VS. J. DALMIA [1985] 149 ITR 215 (DELHI) IV. SHRI SEKHAR G. PATEL L/H. OF LATE SHRI GOVINDBH AI C. PATEL ITA NO. 1997/AHD/2010 (AHMEDABAD TRIB) V. POPULAR ESTATE MANAGEMENT LTD. VS. ITO (AY: 2009 -10) ITA NO. 212/AHD/2014 (AHMEDABAD TRIB) VI. POPULAR ESTATE MANAGEMENT LTD. VS. ITO (AY: 200 8-09) ITA NO. 3116/AHD/2015 (AHMEDABAD TRIB) VII. SAYTAM FOOD SPECIALTIES (P) LTD. V. DCIT [2015 ] 57 TAXMANN.COM 194 (JAIPUR TRIB) VIII. GOVINDBHAI C. PATEL VS. DCIT [2010] 36 SOT 02 70 (AHMEDABAD- TRIB.) IX. LEAD COUNSEL OF QUALIFIED SETTLEMENT FUND [2016 ] 381 ITR 1 (AAR) X. ABERDEEN CLAIMS ADMINISTRATION INC. [2016] 381 I TR 55 (AAR) XI. SATYAM FOOD SPECIALITIES (P.) LTD. VS. DCIT [20 15] 57 TAXMANN.COM 194 (JAIPUR-TRIB) 8.2 THE LEARNED AR ACCORDINGLY SUBMITTED THAT THE C ONSIDERATION RECEIVED IN LIEU OF RIGHT TO SUE IS A CAPITAL RE CEIPT WHICH IS NOT TAXABLE AT ALL SINCE THERE IS NO PROPERTY INVOLVED IN IT FOR IT TO BE REGARDED AS CAPITAL ASSET U/S. 2(14) OF THE ACT. T HE LEARNED AR ALSO QUIPPED THAT ASSETS CONNECTED TO BUSINESS CAN ALSO BE REGARDED AS CAPITAL ASSET UNDER S.2(14) OF THE ACT PROVIDED SUC H ASSET IS IN THE NATURE OF PROPERTY. THE RIGHT TO SUE NOT BEING I N THE NATURE OF PROPERTY IS NOT CHARGEABLE TO TAX BEING A CAPITAL R ECEIPT. 8.3 THE LEARNED AR NEXT SUBMITTED THAT SECTION 28(V A) WAS INSERTED TO INCLUDE CERTAIN SUM RECEIVABLE IN THE NATURE OF FORGOING RIGHT IN CERTAIN INTANGIBLE PROPERTIES AS BUSINESS INCOME. HOWEVER THE PRESENT CASE ALSO DOES NOT FALL UNDER S. 28(VA) OF THE ACT AS RECEIPT IS NOT IN THE NATURE OF ACTIVITIES SPECIFIED THEREIN. ELABOR ATING FURTHER, THE ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 6 - LEARNED AR CONTENDED THAT THE COMPENSATION AMOUNT R ECEIVED IS IN RESPECT OF RELINQUISHMENT OF ASSESSEES RIGHT TO S UE IN A COURT OF LAW WHICH RIGHT CANNOT BE REGARDED AS REVENUE RECEIPT T AXABLE AS BUSINESS INCOME UNDER S.28(VA) OF THE ACT. THE PROVISIONS O F SECTION 28(VA) OF THE ACT ARE VERY CLEAR THAT THE COMPENSATION RECEIV ED IN LIEU OF RIGHT TO SUE DOES NOT FALL UNDER THESE PROVISIONS. THE LEARNED AR ACCORDINGLY SUBMITTED THAT THE ACTION OF THE AO AND CIT(A) IS OPPOSED TO BE LEGAL PRINCIPLES DELINEATED IN THE JU DICIAL PRECEDENTS AND THUS REQUIRES TO BE SET ASIDE AND RELIEF AS REQ UESTED IN THE GROUNDS OF APPEAL BE ALLOWED. 9. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AO & CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL REFERRED TO IN TERMS OF RULE 18(6) OF THE ITAT RULES, 1963 AND ALSO THE CASE LAWS CITED. THE SUBSTANTIVE QUESTION THAT ARISES FOR CO NSIDERATION IS WHETHER DAMAGES RECEIVED BY THE ASSESSEE FOR BREACH OF DEVELOPMENT AGREEMENT ARE CAPITAL IN NATURE OR OTHERWISE CHARGE ABLE TO TAX. IT IS THE CASE OF THE ASSESSEE THAT THE COMPENSATION/DAMA GES RECEIVED BY THE ASSESSEE FROM THE PURCHASER ON TRANSFER OF LAND UNDER DEVELOPMENT AGREEMENT IS CAPITAL IN NATURE. IT IS THE CASE OF THE ASSESSEE THAT THE ONLY RIGHT THAT ACCRUES TO THE ASSESSEE WHO COMPLAI NS OF THE BREACH IS RIGHT TO FILE A SUIT FOR RECOVERY OF DAMAGES FROM T HE DEFAULTING PARTY. THE BREACH OF CONTRACT DOES NOT GIVE RISE TO ANY DE BT AND THEREFORE A RIGHT TO RECOVER DAMAGES IS NOT ASSIGNABLE BECAUSE IT IS NOT A CHOSE-IN- ACTION. FOR ACTIONABLE CLAIM TO BE ASSIGNED, THERE MUST BE A DEBT IN THE SENSE OF AN EXISTING OBLIGATION TO CONSIDER IT TO BE AN ACTIONABLE CLAIM. IT IS THE CASE OF ASSESSEE THAT THE ASSESSE E HAD A MERE RIGHT TO SUE WHICH IS NEITHER A CAPITAL ASSET WITHIN THE ME ANING OF SECTION ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 7 - 2(14) OF THE ACT NOR IS CAPABLE TO BEING TRANSFERRE D AND THEREFORE NOT CHARGEABLE UNDER S.45 OF THE ACT. 10.1 THE ESSENCE OF LONG LIST OF JUDICIAL PRONOUNCE MENTS CITED ON BEHALF OF ASSESSEE IS THAT SECTION 6 OF THE TRANSFE R OF PROPERTY ACT WHICH USES THE SAME EXPRESSION PROPERTY OF ANY KIN D IN THE CONTEXT OF TRANSFERABILITY MAKES AN EXCEPTION IN THE CASE O F A MERE RIGHT TO SUE. THE DECISIONS THEREUNDER MAKE IT ABUNDANTLY C LEAR THAT THE RIGHT TO SUE FOR DAMAGES IS NOT AN ACTIONABLE CLAIM. IT CANNOT BE ASSIGNED. TRANSFER OF SUCH A RIGHT IS OPPOSED TO PUBLIC POLIC Y AS IT TANTAMOUNTS TO GAMBLING IN LITIGATION. HENCE, SUCH A RIGHT TO SUE DOES NOT CONSTITUTE A CAPITAL ASSET WHICH IN TURN HAS TO B E AN INTEREST IN PROPERTY OF ANY KIND. DESPITE THE DEFINITION OF E XPRESSION CAPITAL ASSET IN THE WIDEST POSSIBLE TERMS IN SECTION 2(14 ) OF THE ACT, A RIGHT TO A CAPITAL ASSET MUST FALL WITH THE EXPRESSION P ROPERTY OF ANY KIND SUBJECT TO CERTAIN EXCLUSIONS. NOTWITHSTANDING WIDE ST IMPORT ASSIGNED TO THE TERM PROPERTY WHICH SIGNIFIES EVERY POSSIB LE INTEREST WHICH A PERSON CAN HOLD AND ENJOY, THE RIGHT TO SUE IS A RIGHT IN PERSONAM AND SUCH RIGHT CANNOT CERTAINLY BE TRANSFERRED. IN ORDER TO ATTRACT THE CHARGE OF TAX ON CAPITAL GAINS, THE SIN QUA NON IS THAT THE RECEIPT MUST HAVE ORIGINATED IN A TRANSFER WITHIN THE MEANING OF SECTION 45 R.W.S. 2(47) OF THE ACT. IN THE ABSENCE OF ITS TRANSFERAB ILITY, THE COMPENSATION/DAMAGES RECEIVED BY ASSESSEE IS NOT AS SESSABLE AS CAPITAL GAINS. 10.2 THE CO-ORDINATE BENCH OF ITAT, AHMEDABAD IN TH E CASE OF DEPUTY CIT(A) VS. SHEKHAR G. PATEL ITA NO.1997/AHD/ 2010 ORDER DATED 19.03.2014 RELIED UPON ON BEHALF OF THE ASSES SEE HAS MADE REFERENCE TO HOST OF JUDICIAL PRONOUNCEMENTS INCLUD ING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BAROD A CEMENT AND CHEMICALS LTD. (SUPRA) AND CONCLUDED THE ISSUE IN F AOVUR OF ASSESSEE. ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 8 - THE CO-ORDINATE BENCH HIGHLIGHTED THE RELEVANT PART OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT WHICH IS REPRODUCED HEREUNDER: '18. THE ASSESSEE HAD UNDOUBTEDLY A RIGHT TO SUE M/ S K.C.P. LTD. FOR DAMAGES FOR BREACH OF CONTRACT. INSTEAD OF LITIGATI NG IN A COURT OF LAW, THE PARTIES ARRIVED AT A SETTLEMENT WHEREUNDER COMPENSATION IN THE SUM OF RS.1,40,000 CAME TO BE PAID IN FULL AND FINAL SATISFACTION TO THE ASSESSEE. COUNSEL FOR THE REVENUE CONTENDS T HAT THE COMPROMISE/ARRANGEMENT RESULTED IN EXTINGUISHMENT O F THE ASSESSEE'S RIGHT TO SUE FOR DAMAGES WITHIN THE MEANING OF S. 2 (47) OF THE ACT. WHILE ACCEPTING THIS CONTENTION THE TRIBUNAL HAS PL ACED RELIANCE ON THE DECISION OF THIS COURT IN CIT VS. R.M. AMIN (19 71) 82 ITR 194 (GUJ). IN THAT CASE THIS COURT OBSERVED THAT THE US E OF THE WORD 'INCLUDE' IN THE DEFINITION OF THE WORD 'TRANSFER' IN S. 2(47) WAS INTENDED TO ENLARGE THE MEANING OF 'TRANSFER' BEYON D ITS NATURAL IMPORT SO AS TO INCLUDE EXTINGUISHMENT/RELINQUISHME NT OF RIGHTS IN THE CAPITAL ASSET FOR THE PURPOSE OF S. 45 OF THE A CT. SINCE THE TRANSFER CONTEMPLATED BY S. 45 IS ONE AS A RESULT W HEREOF CONSIDERATION HAS PASSED TO THE ASSESSEE OR HAS ACC RUED TO HIM, EXTINGUISHMENT OF THE RIGHT MUST RELATE TO THAT 'CA PITAL 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 A 'TRANSFER' AS A RESULT WH EREOF SOME CONSIDERATION IS RECEIVED BY OR ACCRUES TO THE ASSE SSEE. IF THE TRANSFER DOES NOT YIELD ANY CONSIDERATION, THE COMP UTATION 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 EXT INGUISHMENT TO ATTRACT LIABILITY TO TAX. NOW, IN LEGAL PARLANCE, T HE TERMS 'CONSIDERATION' AND 'COMPENSATION' OR 'DAMAGES' HAV E DISTINCT CONNOTATIONS. THE FORMER IN THE CONTEXT OF SS. 45 A ND 48 WOULD CONNOTE PAYMENT OF A SUM OF MONEY TO SECURE TRANSFE R OF A CAPITAL ASSET; THE LATTER WOULD SUGGEST PAYMENT TO MAKE AME NDS FOR LOSS OR INJURY OCCASIONED ON THE BREACH OF CONTRACT OR TORT . BOTH SS. 45 AND 48 POSTULATE THE EXISTENCE OF A CAPITAL ASSET AND T HE CONSIDERATION RECEIVED ON TRANSFER THEREOF. BUT, AS DISCUSSED EAR LIER, ONCE THERE IS A BREACH OF CONTRACT BY ONE PARTY AND THE OTHER PAR TY DOES NOT KEEP IT ALIVE BUT ACQUIESCES IN THE BREACH AND DECIDES T O RECEIVE COMPENSATION THEREFOR, THE INJURED PARTY CANNOT HAV E ANY RIGHT IN THE CAPITAL ASSET WHICH COULD BE TRANSFERRED BY EXTINGU ISHMENT TO THE DEFAULTER FOR VALUABLE CONSIDERATION. THAT IS BECAU SE A RIGHT TO SUE FOR DAMAGES NOT BEING AN ACTIONABLE CLAIM, A CAPITA L ASSET, THERE COULD BE NO QUESTION OF TRANSFER BY EXTINGUISHMENT OF THE ASSESSEE'S RIGHTS THEREIN SINCE SUCH A TRANSFER WOULD BE HIT B Y S. 6(E) OF THE TRANSFER OF PROPERTY ACT. IN ANY VIEW OF THE MATTER , IT IS DIFFICULT TO HOLD THAT THE SUM OF RS.1,40,000 RECEIVED BY WAY OF COMPENSATION BY THE ASSESSEE WAS CONSIDERATION FOR THE TRANSFER OF A CAPITAL ASSET.' ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 9 - 10.3 THE HON'BLE GUJARAT HIGH COURT IN BARODA CEMEN T (SUPRA), IN TURN, REFERRED TO THE CONCEPT OF BREACH OF CONTRACT AS DISCUSSED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF IRON AND H ARDWARE (INDIA) CO. VS. SHAMLAL & BROS. AIR 1954 BOM 423 AS UNDER ( P. 645 OF 158 ITR): '10. CHAGLA, C.J., HAD AN OCCASION TO CONSIDER THIS ASPECT OF THE LAW IN IRON AND HARDWARE (INDIA) CO. VS. SHAMLAL & BROS. AIR 1954 BOM 423. THE LEARNED CHIEF JUSTICE OBSERVED AS UNDE R(P. 425) : 'IT IS WELL SETTLED THAT WHEN THERE IS A BREACH OF CONTRACT, THE ONLY RIGHT THAT ACCRUES TO THE PERSON WHO COMPLAINS OF T HE BREACH IS THE RIGHT TO FILE A SUIT FOR RECOVERING DAMAGES. THE BR EACH OF CONTRACT DOES NOT GIVE RISE TO ANY DEBT AND, THEREFORE, IT H AS BEEN HELD THAT A RIGHT TO RECOVER ASSIGNABLE BECAUSE IT IS NOT A CHO SE-IN-ACTION. AN ACTIONABLE CLAIM CAN BE ASSIGNED, BUT IN ORDER THAT THERE SHOULD BE AN ACTIONABLE CLAIM THERE MUST BE A DEBT IN THE SEN SE OF AN EXISTING OBLIGATION. BUT INASMUCH AS A BREACH OF CONTRACT DO ES NOT RESULT IN ANY EXISTING OBLIGATION ON THE PART OF THE PERSON W HO COMMITS THE BREACH, THE RIGHT TO RECOVER DAMAGES IS NOT AN ACTI ONABLE CLAIM AND CANNOT BE ASSIGNED.' PROCEEDING FURTHER, THE LEARNED CHIEF JUSTICE STATE D (P. 425) : 'IN MY OPINION, IT WOULD NOT BE TRUE TO SAY THAT A PERSON WHO COMMITS A BREACH OF THE CONTRACT INCURS ANY PECUNIA RY LIABILITY, NOR WOULD IT BE TRUE TO SAY THAT THE OTHER PARTY TO THE CONTRACT WHO COMPLAINS OF THE BREACH HAS ANY AMOUNT DUE TO HIM F ROM THE OTHER PARTY. AS ALREADY STATED, THE ONLY RIGHT WHICH HE HAS THE RIGHT TO GO TO A COURT OF LAW AND RECOVER DAMAGES. NOW, DAMAGES ARE THE COMPENSATION WHICH A COURT OF LAW GIVES TO A PARTY FOR THE INJURY WHICH HE HAS SUSTAINED. BUT, AND THIS IS MOST IMPOR TANT TO NOTE, HE DOES NOT GET DAMAGES OR COMPENSATION BY REASON OF A NY EXISTING OBLIGATION ON THE PART OF THE PERSON WHO HAS COMMIT TED THE BREACH. HE GETS COMPENSATION AS A RESULT OF THE FIAT OF THE COURT, THEREFORE, NO PECUNIARY LIABILITY ARISES TILL THE COURT HAS DE TERMINED THAT THE PARTY COMPLAINING OF THE BREACH IS ENTITLED TO DAMA GES. THEREFORE, WHEN DAMAGES ARE ASSESSED, IT WOULD NOT BE TRUE TO SAY THAT WHAT THE COURT IS DOING IS ASCERTAINING A PECUNIARY LIAB ILITY WHICH ALREADY EXISTS. THE COURT IN THE FIRST PLACE MUST D ECIDE THAT THE DEFENDANT IS LIABLE IS LIABLE AND THEN IT PROCEEDS TO ASSESS WHAT THAT LIABILITY IS. BUT TILL THAT DETERMINATION THERE IS NO LIABILITY AT ALL UPON THE DEFENDANT.' IT WOULD APPEAR FROM THE ABOVE OBSERVATIONS THAT ON BREACH OF CONTRACT THE DEFAULTER DOES NOT INCUR ANY PECUNIARY LIABILITY NOR DOES THE INJURED PARTY BECOMES ENTITLED TO ANY SPEC IFIC AMOUNT, BUT HE ONLY HAS A RIGHT TO SUE AND CLAIM DAMAGES WHICH MAY OR MAY NOT ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 10 - BE DECREED IN HIS FAVOUR. HE WILL HAVE TO PROVE (I) THAT THE OPPOSITE PARTY HAD COMMITTED BREACH OF CONTRACT AND (II) THA T HE HAD SUFFERED PECUNIARY LOSS ON ACCOUNT THEREOF. 11. THE ABOVE OBSERVATIONS OF CHAGLA, CJ., WERE QUO TED WITH APPROVAL BY THE SUPREME COURT IN UNION OF INDIA VS. RAMAN IRON FOUNDRY AIR 1974 SC 1265. IN PARA 9 OF THE JUDGMENT , THE SUPREME COURT CONSIDERED THE CLAIM FOR LIQUIDATED DAMAGES F OR BREACH OF CONTRACT BETWEEN THE PARTIES. POINTING OUT THAT SO FAR AS THE LAW IN INDIA IS CONCERNED, THERE IS NO QUALITATIVE DIFFERE NCE IN THE NATURE OF THE CLAIM, WHETHER IT BE FOR LIQUIDATED DAMAGES OR UNLIQUIDATED DAMAGES, THE SUPREME COURT PROCEEDED TO STATE THE L AW AS UNDER (P. 1273): 'WHEN THERE IS A BREACH OF CONTRACT, THE PARTY WHO COMMITS THE BREACH DOES NOT EO INSTANTI INCUR ANY PECUNIARY OBLIGATION , NOR DOES THE PARTY COMPLAINING OF THE BREACH BECOMES ENTITLED TO A DEB T DUE FROM THE OTHER PARTY. THE ONLY RIGHT WHICH THE PARTY AGGRIEVED BY THE BREACH OF THE CONTRACT HAS IS THE RIGHT TO SUE FOR DAMAGES. THAT IS NOT AN ACTIONABLE CLAIM AND THIS POSITION IS MADE AMPLY CLEAR BY THE AMENDMENT IN S. 6(E) OF THE TRANSFER OF PROPERTY ACT, WHICH PROVIDES THAT A MERE RIGHT TO SUE FOR DAMAGES CANNOT BE TRANSFERRED.' QUOTING THE STATEMENT OF LAW ENUNCIATED BY CHAGLA C .J., WHICH IS EXTRACTED EARLIER, THE SUPREME COURT STATED (P. 127 3) : 'THIS STATEMENT IN OUR VIEW REPRESENTS THE CORRECT LEGAL POSITION AND HAS OUR FULL CONCURRENCE'. 12. IT WOULD SEEM WELL-SETTLED FROM THE ABOVE DISCU SSION THAT AFTER THERE IS A BREACH OF CONTRACT FOR SALE OF GOODS, NO THING IS LEFT IN THE INJURED PARTY SAVE THE RIGHT TO SUE FOR DAMAGES OR SPECIFIC PERFORMANCE WHICH CANNOT BE TRANSFERRED UNDER S. 6( E) OF THE TRANSFER OF PROPERTY ACT SINCE IT IS A MERE RIGHT T O SUE AND NOT AN ACTIONABLE CLAIM.' 10.4 IN VIEW OF THE ABOVE FACTS AND IN THE LIGHT OF PLETHORA OF CASE LAWS RELIED UPON, WE ARE DISPOSED TO HOLD THAT THE RECEIPT TOWARDS COMPENSATION IN LIEU OF RIGHT TO SUE IS OF CAPITA L NATURE WHICH IS NOT CHARGEABLE TO TAX UNDER S.45 OF THE ACT. 11. AT THIS JUNCTURE, IT MAY BE PERTINENT TO OBSERV E THAT THE REVENUE HAS INTER ALIA QUESTIONED THE BASIS GIVING RISE TO THE CAUSE OF AC TION FOR CREATION OF RIGHT TO SUE. WE DO NOT SEE ANY PURPORT IN SUCH ASPECT. A DEVELOPMENT AGREEMENT WAS EXECUTED WHICH ENABLED THE ASSESSEE TO UTILIZE THE LAND FOR CONSTRUCTION AND F OR SHARING OF PROFITS. ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 11 - THIS RIGHT/ADVANTAGE ACCRUED TO THE ASSESSEE WAS SO UGHT TO BE TAKEN AWAY FROM THE ASSESSEE BY WAY OF SALE OF LAND. THE PROSPECTIVE PURCHASER AS WELL AS THE DEFAULTING PARTY (OWNER) P ERCEIVED THREAT OF FILING SUIT BY DEVELOPER AND CONSEQUENTLY PAID DAMA GES/COMPENSATION TO SHUN THE POSSIBLE LEGAL BATTLE. THE INTRINSIC P OINT WITH RESPECT TO ACCRUAL OF RIGHT TO SUE HAS TO BE SEEN IN THE LIG HT OF OVERRIDING CIRCUMSTANCES AS TO HOW THE PARTIES HAVE PERCEIVED THE PRESENCE OF LOOMING LEGAL BATTLE FROM THEIR POINT OF VIEW. IT IS AN ADMITTED POSITION THAT THE DEFAULTING PARTY HAS MADE THE ASS ESSEE A CONFIRMING PARTY IN THE SALE BY VIRTUE OF SUCH DEVELOPMENT AGR EEMENT AND A COMPENSATION WAS PAID TO AVOID LITIGATION. THIS AM PLY SHOWS THE EXISTENCE OF RIGHT TO SUE IN THE PERCEPTION OF TH E DEFAULTING PARTY. THUS, THE EXISTENCE OF RIGHT TO SUE COULD NOT BE BRUSHED ASIDE. 12. WE SHALL NOW ADVERT TO THE CLAIM OF THE REVENUE THAT AMOUNT RECEIVED TOWARDS RELINQUISHMENT OF SUCH RIGHT IS PU RELY A REVENUE RECEIPT. IN THIS REGARD, WE NOTICE THAT THE COMPEN SATION WAS NOT RECEIVED AS A RESULT OF TERMINATION OF ADVANTAGES A SSOCIATED WITH DEVELOPMENT RIGHTS BUT WAS CLAIMED TO BE RECEIVED T O RELINQUISH THE RIGHTS OF THE ASSESSEE TO SUE AGAINST THE VENDOR OF THE LAND. THE ASSESSEE HAS RECEIVED THE COMPENSATION AMOUNT ON SA LE OF PROPERTY OCCASIONED DUE TO BREACH OF DEVELOPMENT AGREEMENT. THE DEVELOPMENT AGREEMENT WAS THUS FRUSTRATED BY SALE O F LAND BY THE OWNER. THE OBSERVATION OF THE CIT(A) THAT ASSESSEE HAD OBTAINED THE POSSESSION OF THE PROPERTY FROM SELLER IS BELEAGUER ED ONE. AS POINTED OUT ON BEHALF OF THE ASSESSEE, THE POSSESSION ARE T YPICALLY GIVEN TO A DEVELOPER FOR THE PURPOSES OF DEVELOPMENT. SUCH AC T IS IN THE NATURE OF LICENSE TO DEVELOP THE PROPERTY WHILE THE POSSES SION OF THE PROPERTY CONTINUES TO REMAIN VESTED WITH THE VENDOR. ON A P LAIN READING, WE OBSERVE THAT CONSIDERATION RECEIVED FOR RELINQUISHM ENT OF RIGHT TO SUE DOES NOT FALL UNDER THE PROVISIONS OF SECTION 28(VA) OF THE ACT. ITA NO. 2449/AHD/16 [BHOJISON INFRASTRUCTURE PVT. LTD. VS. ITO] A.Y. 2008-09 - 12 - WE FURTHER FIND FROM THE FACTS OF THE CASE THAT ASS ESSEE HAS NOT RECEIVED THIS AMOUNT UNDER AN AGREEMENT FOR NOT CAR RYING OUT ACTIVITY IN RELATION TO ANY BUSINESS OR NOT TO SHARE IN KNOW HOW, PATENT, COPYRIGHT, TRADEMARK, LICENSE ETC. AS SPECIFIED UND ER S.28(VA) OF THE ACT ENACTED FOR ITS TAXABILITY UNDER THE HEAD OF BU SINESS INCOME. CONSEQUENTLY, WE ARE OF THE CONSIDERED VIEW THAT CO MPENSATION RECEIVED IN LIEU OF RIGHT TO SUE COULD NOT BE REG ARDED AS REVENUE RECEIPT. THEREFORE, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. 13. CONSEQUENTLY, GROUND NO.2 OF THE ASSESSEES APP EAL IS ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 17/09/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 17/09/201 8