P THILLAIKARASI, ERODE V. ITO, WARD-1(4), ERODE

ITA 3204/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4268 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 26-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Principle of natural justice; Capital receipt
• Section: 143(3); 2(14); 143(1); 148; 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , ! ' # , $ #% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.3204/CHNY/2018 & '& /ASSESSMENT YEAR: 2009-10 SHRI P. THILLAIKARASI, 39, CHINNAMUTHU III STREET, ERODE 638 011. VS. INCOME TAX OFFICER, WARD-1(4), ERODE. [PAN: ACVPT 0652J] ( () /APPELLANT) ( *+() /RESPONDENT) () , - / APPELLANT BY : SHRI S.SRIDHAR, SR. ADVOCATE *+() , - /RESPONDENT BY : SHRI M. SRINIVASA RAO, CIT . , /$ /DATE OF HEARING : 13.03.2019 01' , /$ / DATE OF PRONOUNCEMENT : 10.05.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -3, COIMBATORE (HEREINAFTER CALLED AS CIT(A)) DATED 07.11.2018 F OR THE ASSESSMENT YEAR 2009-10. 2. THE APPELLANT RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS IN LAW AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 2 -: 2) THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE GROUNDS OF APPEAL AND WRITTEN SUBMISSIONS IN PROPER PERSPECTIVE. 3) IN SO FAR AS THE TAXABILITY OF COMPENSATION A)THE LEARNED CIT (A) ERRED IN NOT ADJUDICATING THE VERY TAXABILITY OF THE COMPENSATION, ACCRUED TO THE APPE LLANT AS EARLY AS ON 01/07/2007, BY NOT CONSIDERING THE WRIT TEN SUBMISSIONS IN PROPER PERSPECTIVE. B) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) ERRED IN TAXING THE COMPENSATION UNDER CAPITAL GAINS-SHORT TERM WITHOUT CONSIDERING THE WRITTEN SUBMISSIONS IN PROP ER PERSPECTIVE. 4) IN SO FAR AS THE TAXABILITY IN THE ASST.YEAR:200 8-09 THE LEARNED CIT (A) ERRED IN NOT ONLY MISCONSTRUING THE AGREEMENT DT. 18/09/2008, MORE PARTICULARLY, NOT CONSIDERING THE VERY FACT THAT THE PARTIES AGREED TO THE PAYMENT OF COMPENSATION T O THE APPELLANT AS EARLY AS ON 0 1/07/2007 BUT ALSO ERRED IN NOT CO NSIDERING THE AGREEMENT DT. 18/09/2008 IN ENTIRETY, THEREBY ENDOR SING THE VIEWS OF THE ASSESSING OFFICER WRONGLY. 5) IN SO FAR AS THE TAXING THE COMPENSATION UNDER BUSINESS A) THE LEARNED CIT (A) GROSSLY ERRED IN GIVING A FI NDING THAT IT WAS CLAIMED THAT CERTAIN EXPENDITURE IS INVOLVED IN THE FACILITATION OF THE LAND TRANSFER, FOR NO SUCH CLA IM WAS EVER MADE. [TO THAT EFFECT, PETITION ULS.154 WAS FILED O N 15/11/2018 AND THE SAME IS PENDING.] B) THE LEARNED CIT (A) FUNDAMENTALLY ERRED IN CHANG ING THE HEAD OF INCOME CAPITAL GAINS-SHORT TERM TO BUSIN ESS, WITHOUT CONSIDERING THE SETTLED PRINCIPLES AS REGAR DS POWER TO CHANGE THE SAME. C) THE LEARNED CIT (A) ERRED IN TRANSGRESSING INTO THE POWERS OF THE PR.CIT OR CIT, WHO HAD GIVEN SANCTION U/S. 1 51 OF THE IT ACT FOR THE ISSUE OF NOTICE U/S. 148, WHICH MEAN T SATISFACTION ON THE REASONS RECORDED. AND FOR OTHER REASONS THAT MAY BE ADDUCED AT THE TI ME OF HEARING, YOUR APPELLANT PRAYS THAT THE APPEAL BE ADMITTED, C ONSIDERED AND JUSTICE BE RENDERED. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT IS AN INDIVIDUAL DERIVING INCOME UND ER HEAD INCOME FROM HOUSE PROPERTY AND SHARE OF PROFIT FROM PARTNE RSHIP FIRM AND INCOME ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 3 -: FROM OTHER SOURCES. THE RETURN OF INCOME FOR THE A Y 2009-10 WAS FILED ON 10.05.2010 DISCLOSING TOTAL INCOME OF RS. 2,40,8 00/- AND AGRICULTURAL INCOME OF RS. 4,50,000/-. THE SAID RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT) AND THERE WAS NO SCRUTINY ASSESSMENT. SUBSEQUENTLY, NOTICE DATED 24 .09.2015 U/S. 148 OF THE ACT WAS ISSUED PROPOSING TO REASSESS THE TOTAL INCOME. IN RESPONSE TO THE SAID NOTICE, THE APPELLANT FILED RETURN OF I NCOME DISCLOSING INCOME OF RS. 3,09,880/- AND NET AGRICULTURAL INCOME OF RS . 4,50,000/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPL ETED BY THE ITO, WARD-1(4), CHENNAI (HEREINAFTER CALLED AO) VIDE O RDER DATED 26.12.2016 PASSED U/S. 143(3) R/W. 147 OF THE ACT A T TOTAL INCOME OF RS. 3,03,09,880/-. WHILE DOING SO, THE AO BROUGHT TO T AX SUM OF RS. 3 CRORES BEING THE AMOUNT RECEIVED BY THE APPELLANT TOWARDS CONSIDERATION OF COMPENSATION FOR RELINQUISHING RIGHTS IN THE AGREEM ENT ENTERED ON 20.04.2007 WITH ONE SHRI B. RANGASAMY NAIDU ORCHARD S PVT. LTD. 4. THE BACKGROUND FACTS OF THE ISSUE AS CULLED OUT BY THE AO ARE AS UNDER: 6.1. THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 20.04.2007 WITH M/S. B. RANGASAMY NAIDU ORCHARDS PVT. LTD. FOR PURC HASE OF 3.34 ACRES OF LAND SITUATED AT KURICHI VILLAGE, COIMBATO RE FOR A CONSIDERATION OF RS. 5.50 CRORES. 6.2. ON THE VERY SAME DAY, THE ASSESSEE ALSO ENTERE D INTO ANOTHER AGREEMENT FOR THE SALE OF THE VERY SAME PROPERTY TO M/S. TEXCITY SOFTWARE PARKS LTD. FOR A MUCH HIGHER CONSIDERATION OF RS. 10,15,20,000/-. LATER, AS PER AN ENDORSEMENT DATED 01.06.2007, MI. ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 4 -: TEXCITY SOFTWARE PARKS LTD, HAS ENDORSED THE AGREEM ENT IN FAVOUR OF MI. GESTIONE CONSULTING INDIA PVT. LTD. 6.3. THE ASSESSEE SMT. P.THILLAIKARASI IS STATED TO .BE UNABLE TO FULFILL HER OBLIGATION AS SET OUT IN BOTH THE AGREEMENTS I. E. FIRST AGREEMENT DATED 20.04.2007 WITH M/S. B. RANGASAMY NAIDU ORCHA RDS PVT.. LTD AND THE SECOND AGREEMENT DATED 20.04.2007 WITH M/S. TEXCITY SOFTWARE PARKS PVT.. LTD. AFTER MUTUAL DISCUSSION W ITH M/S. B. RANGASAMY NAIDU ORCHARDS PVT. LTD, THE ASSESSEE AGR EED TO ASSIGN THE AGREEMENT BETWEEN THE ASSESSEE AND M/S. B. RANG ASAMY NAIDU ORCHARDS PVT. LTD. TO THE OTHER PARTY M/S. GESTIONE CONSULTING INDIA PVT. LTD., 6.4. AS A RESULT OF THIS, THE AGREEMENT BETWEEN THE ASSESSEE AND M/S. TEXCITY SOFTWARE PARKS LTD. (LATER ASSIGNED TO M/S. GESTIONE CONSULTING INDIA PVT. LTD) CAME TO STAND CANCELLED. FOR THIS ACT, THE ASSESSEE HAS RECEIVED A SUM OF RS. 3,00,00,000/-. 6.5. AS SEEN FROM THE ENDORSEMENTS IN THE MEMORANDU M OF AGREEMENT DATED 18.09.2008 BETWEEN THE M/S. B. RANG ASAMY NAIDU ORCHARDS PVT. LTD. (FIRST PARTY), THE ASSESSEE (SEC OND PARTY) AND M/S. GESTIONE CONSULTING INDIA PVT. LTD. (THIRD PAR TY), THE ASSESSEE HAS RECEIVED THE COMPENSATION OF RS. 3,00,00,000/- AS UNDER: RS. 1,00,00,000/- BY P.O. ON AXIS BANK LTD. DATED 1 3.11.2008. RS. 1 ,50,00,000 BY RTGS ON AXIS BANK LTD. DATED 15.11.2008. RS. 50,00,000/- BY RTGS ON AXIS BANK LTD. DATED 27. 04.2009. 5. THE AO IS OF THE OPINION THAT BY VIRTUE OF SIGN ED AGREEMENT ENTERED BETWEEN SHRI B. RANGASAMY NAIDU ORCHARDS PVT. LTD. TO OTHER PARTY M/S. GESTIONE CONSULTING INDIA PVT. LTD., ASSESSEE HAD R ELINQUISHED OR EXTINGUISHED THE RIGHT OVER THE PARTY WHICH CONSTIT UTES A TRANSFER WITHIN THE MEANING OF S. 2(47) OF THE ACT THEREBY GIVING A RISE TO THE CAPITAL GAINS AND THEREFORE, BROUGHT TO TAX THE COMPENSATIO N RECEIVED OF RS. 3 CRORES BASED ON THE MEMORANDUM OF AGREEMENT DATED 1 8.09.2008 ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 5 -: ENTERED BETWEEN SHRI B. RANGASAMY NAIDU ORCHARDS PV T. LTD. AND M/S. GESTIONE CONSULTING INDIA PVT. LTD. AND THE APPELLA NT. 6. BEING AGGRIEVED BY THE ABOVE ADDITION, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), CONTENDING THAT THERE WAS NO REA SON TO BELIEVE THAT INCOME ESCAPED ASSESSMENT AND THEREFORE, THE INITIA TION OF PROCEEDING U/S. 148 OF THE ACT ARE NOT VALID IN LAW AND CONTEN DING THAT THE RIGHT TO COMPENSATION HAD ACCRUED TO THE APPELLANT AS ON 01 .7.2007 AND THEREFORE, THE ISSUE OF TAXABILITY OR OTHERWISE CAN BE CONSIDERED ONLY IN THE ASSESSMENT YEAR 2008-09 NOT IN 2009-10. FINALL Y, IT IS CONTENDED THAT THE COMPENSATION RECEIVED WAS NOT TAXABLE TO T AX AS IT IS A CAPITAL RECEIPT AND THERE IS NO TRANSFER IS INVOLVED, HENCE , NOT LIABLE TO CAPITAL GAINS. THE LD. CIT(A) CONSIDERING THE SUBMISSIONS M ADE ON BEHALF OF THE ASSESSEE THE DISMISSED THE APPEAL BY HOLDING THAT T HE COMPENSATION IS TAXABLE IN THE YEAR 2009-10 AS THE COMPENSATION HAD ACCRUED TO THE APPELLANT IN TERMS OF THE MEMORANDUM OF AGREEMENT E NTERED BETWEEN THE ASSESSEE AND OTHER TWO PARTIES ON 18.09.2008. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APP EAL. 7. IT IS SUBMITTED THAT THE COMPENSATION HAD ACCRUE D TO THE APPELLANT BY VIRTUE OF THE MEMORANDUM OF AGREEMENT DATED 20.0 4.2007 AND THE MUTUAL UNDERSTANDING REACHED ON 01.07.2007 AND THE SAME WERE IN WRITING ONLY ON 18.09.2008 THEREFORE, THE TERMS WAS REACHED DURING THE ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 6 -: PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008- 09 AND THEREFORE, THE COMPENSATION ACCRUED TO THE APPELLANT DURING TH E YEAR 2008-09 THE ISSUE OF TAXABILITY OR OTHERWISE CAN BE EXAMINED IN THE YEAR 2008-09 NOT IN 2009-10. IT IS FURTHER SUBMITTED THAT THE COMPE NSATION WAS RECEIVED ONLY ON ACCOUNT OF FOREGOING THE RIGHT TO SUE AND WHICH IS NOT CAPITAL ASSET BUT RIGHT IN PERSONAM WHICH IS NOT A CAPITAL ASSET AND WITHIN THE MEANING OF THE PROVISIONS OF S. 2(14) OF THE ACT. THUS, IT IS SUBMITTED THAT THE COMPENSATION RECEIVED CANNOT BE BROUGHT TO TAX UNDER CAPITAL GAINS. HE PLACED RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF BARODA CEMENT & CHEMICALS LTD. VS. CIT [1986] 158 I TR 636 (GUJ.) AND THE ORDER OF CO-ORDINATE BENCH OF TRIBUNAL, AH MEDABAD IN THE CASE OF BHOJISON INFRASTRUCTURE PVT. LTD. IN ITA NO.2449/AH D/2016 DATED 17.09.2018 AND THE DECISION OF HONBLE HIGH COURT OF BOMBAY I N THE CASE OF M/S. STERLING CONSTRUCTION & INVESTMENTS V. ASST. C IT IN ITA NO.1126 OF 2000 DATED 09.04.2015 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE SOLITARY ISSUE INVOLVED IN THE PRESENT APPEAL IS WHETHER OR NOT THE COMPENSATION RECEIVED FOR FOREGOING THE RIGHTS IN THE AGREEMENT TO PURCHASE PROPERTY IS TAXABLE. THE ADMITTED FACTS O F THE CASE ARE THAT THE ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 7 -: APPELLANT ENTERED INTO AN AGREEMENT WITH M/S. B.RAN GASAMY NAIDU ORCHARDS PVT. LTD. TO PURCHASE LAND OF 3.34 ACRES S ITUATED AT KURICHY VILLAGE, COIMBATORE FOR A CONSIDERATION OF RS. 5.5 CRORES. ON THE VERY SAME DAY THE ASSESSEE ENTERED INTO AN AGREEMENT FOR THE SALE OF THE SAME PROPERTY TO M/S. TEXCITY SOFTWARE PARKS LTD. F OR A CONSIDERATION OF RS. 10,15,20,000/-. LATER ON, M/S. TEXCITY SOFTWAR E PARKS LTD. HAS ASSIGNED THE AGREEMENT IN FAVOUR OF M/S. GESTIONE C ONSULTING INDIA PVT. LTD. SUBSEQUENTLY, THE APPELLANT ASSIGNED THE AGRE EMENT BETWEEN THE ASSESSEE AND M/S. B. RANGASAMY NAIDU ORCHARDS PVT. LTD. IN FAVOUR OF M/S. GESTIONE CONSULTING INDIA PVT. LTD. IN TERMS OF WHICH THE ASSESSEE HAS RECEIVED THE COMPENSATION OF RS. 3 CR. STATED T O BE IN CONSIDERATION OF FOREGOING THE RIGHTS IN THE AGREEMENT HELD BY HI M WITH M/S. B. RANGASAMY NAIDU ORCHARDS PVT. LTD. AND OTHERS AND T HE COMPENSATION OF RS. 3 CR. WAS RECEIVED AS UNDER: RS. 1,00,00,000/- BY P.O ON AXIS BANK LTD. DATED 13 .11.2008. RS. 1,50,00,000/- BY RTGS ON AXIS BANK LTD. DATED 1 5.11.2008 RS. 50,00,000/- BY RTGS ON AXIS BANK LTD. DATED 27.04.2009 9. THEN, THE ISSUE THAT ARISES FOR CONSIDERATION WH ETHER OR NOT THIS COMPENSATION OF RS. 3 CR. IS TAXABLE. THE IDENTICA L ISSUE WAS RECENTLY CONSIDERED BY THE CO-ORDINATE BENCH OF TRIBUNAL, AH MEDABAD IN THE CASE OF BHOJISON INFRASTRUCTURE PVT. LTD. (SUPRA) HELD AS FOLLOWS: 10.1 THE ESSENCE OF LONG LIST OF JUDICIAL PRONOUNC EMENTS CITED ON BEHALF OF ASSESSEE IS THAT SECTION 6 OF THE TRANSFER OF PR OPERTY ACT WHICH USES THE SAME EXPRESSION PROPERTY OF ANY KIND' IN THE C ONTEXT OF ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 8 -: TRANSFERABILITY MAKES AN EXCEPTION IN THE CASE OF A MERE RIGHT TO SUE. THE DECISIONS THEREUNDER MAKE IT ABUNDANTLY CLEAR T HAT THE RIGHT TO SUE' FOR DAMAGES IS NOT AN ACTIONABLE CLAIM. IT CANNOT B E ASSIGNED. TRANSFER OF SUCH A RIGHT IS OPPOSED TO PUBLIC POLICY AS IT T ANTAMOUNTS TO GAMBLING IN LITIGATION. HENCE, SUCH A RIGHT TO SUE' DOES NO T CONSTITUTE A CAPITAL ASSET' WHICH IN TURN HAS TO BE AN INTEREST IN PROP ERTY OF ANY KIND'. DESPITE THE DEFINITION OF EXPRESSION CAPITAL ASSET ' IN THE WIDEST POSSIBLE TERMS IN SECTION 2(14) OF THE ACT, A RIGHT TO A CAP ITAL ASSET MUST FALL WITH THE EXPRESSION PROPERTY OF ANY KIND' SUBJECT TO CE RTAIN EXCLUSIONS. NOTWITHSTANDING WIDEST IMPORT ASSIGNED TO THE TERM PROPERTY' WHICH SIGNIFIES EVERY POSSIBLE INTEREST WHICH A PERSON CA N HOLD AND ENJOY, THE RIGHT TO SUE' IS A RIGHT IN PERSONAM AND SUCH RIGH T 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 T HE ABSENCE OF ITS TRANSFERABILITY, THE COMPENSATION/DAMAGES RECEIVED BY ASSESSEE IS NOT ASSESSABLE 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 OR DER DATED 19.03.2014 RELIED UPON ON BEHALF OF THE ASSESSEE HA S MADE REFERENCE TO HOST OF JUDICIAL PRONOUNCEMENTS INCLUDING THE DECIS ION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF BARODA CEMENT AND CHEMICALS LTD. (SUPRA) AND CONCLUDED THE ISSUE IN FAOVUR OF ASSESS EE. 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 LITI GATING IN A COURT OF LAW, THE PARTIES ARRIVED AT A SETTLEMENT WHEREUN DER COMPENSATION IN THE SUM OF RS.1,40,000 CAME TO BE P AID IN FULL AND FINAL SAT IS FACTION TO THE ASSESSEE. COUNSEL F OR THE REVENUE CONTENDS THAT THE COMPROMISE/ARRANGEMENT RESULTED I N EXTINGUISHMENT OF THE ASSESSEE'S RIGHT TO SUE FOR D AMAGES WITHIN THE MEANING OF S. 2(47) OF THE ACT. WHILE ACCEPTING THIS CONTENT ION THE TRIBUNAL HAS PLACED RELIANCE ON THE DECISION OF THIS COURT IN CIT VS. R.M. AMIN (1971) 82 ITR 194 (GUJ). IN THAT CASE THIS COURT OBSERVED THAT THE USE OF THE WORD ' INCLUDE' IN THE DEFINITION OF THE WORD ' TRANSFER' IN S. 2(47) WAS INTENDED TO ENLARG E THE MEANING OF 'TRANSFER' BEYOND ITS NATURAL IMPORT SO AS TO INCLU DE EXTINGUISHMENT /RELINQUISHMENT OF RIGHTS IN THE CAPITAL ASSET FOR THE PURPOSE OF S. 45 OF THE ACT. SINCE THE TRANSFER CONTEMPLATED BY S . 45 IS ONE AS A RESULT WHEREOF CONSIDERATION HAS PASSED TO THE ASSE SSEE OR HAS ACCRUED TO HIM, EXTINGUISHMENT OF THE RIGHT MUST RE LATE TO THAT 'CAPITAL ASSET ' , CORPOREAL OR INCORPOREAL . IT IS , THEREFORE OBVIOUS THAT A TRANSFER OF A CAPITAL ASSET IN ORDER TO AT T RACT LIABILITY TO TAX UNDER THE HEAD 'CAPITAL GAINS' MUST BE A ' TRANSFER ' AS A RESULT WHEREOF SOME CONSIDERATION IS RECEIVED BY OR ACCRUE S TO THE ASSESSEE. IF THE TRANSFER DOES NOT YIELD ANY CONSID ERATION, THE COMPUTATION OF PROFITS OR GAINS AS PROVIDED BY S. 4 8 OF THE ACT WOULD NOT BE POSSIBLE. IF THE TRANSFER TAKES EFFECT ON EXTINGUISHMENT OF A RIGHT IN THE CAPITAL ASSET, THE RE MUST BE RECEIPT OF CONSIDERATION FOR SUCH EXTINGUISHMENT TO AT TRAC T LIABILITY TO TAX. NOW, IN LEGAL PARLANCE, THE TERMS 'CONSIDERATION' A ND 'COMPENSATION' OR 'DAMAGES' HAVE DISTINCT CONNOTATI ONS. THE FORMER IN THE CONTEXT OF SS. 45 AND 48 WOULD CONNOTE PAYME NT OF A SUM OF MONEY TO SECURE TRANSFER OF A CAPITAL ASSET; THE LA TTER WOULD ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 9 -: SUGGEST PAYMENT TO MAKE AMENDS FOR LOSS OR INJURY O CCASIONED ON THE BREACH OF CONTRACT OR TORT. BOTH SS. 45 AND 48 POSTULATE THE EXISTENCE OF A CAPITAL ASSET AND THE CONSIDERATION RECEIVED ON TRANSFER THEREOF. BUT, AS DISCUSSED EARLIER, ONCE T HERE IS A BREACH OF CONTRACT BY ONE PARTY AND THE OTHER PARTY DOES NOT KEEP IT ALIVE BUT ACQUIESCES IN THE BREACH AND DECIDES TO RECEIVE COM PENSATION THEREFOR, THE INJURED PARTY CANNOT HAVE ANY RIGHT I N THE CAPITAL ASSET WHICH COULD BE TRANSFERRED BY EXTINGUISHMENT 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 QUEST ION OF TRANSFER BY EXTINGUISHMENT OF THE ASSESSEE'S RIGHTS THEREIN SINCE SUCH A TRANSFER WOU LD BE HIT BY S. 6(E) OF THE TRANSFER OF PROPERTY ACT. IN ANY VIEW O F THE MATTER, IT IS DIFFICULT TO HOLD THAT THE SUM OF RS.1,40,000 RECEI VED BY WAY OF COMPENSATION BY THE ASSESSEE WAS CONSIDERATION FOR THE TRANSFER OF A CAPITAL ASSET.' 10.3 THE HON'BLE GUJARAT HIGH COURT IN BARODA CEMEN T (SUPRA), IN TURN, REFERRED TO THE CONCEPT OF BREACH OF CONTRACT AS DI SCUSSED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF IRON AND HARDWARE (INDIA) CO. VS. SHAMLAL & BROS. AIR 1954 BOM 423 AS UNDER (P. 645 O F 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 UNDER(P. 425) : IT IS WELL SETTLED THAT WHEN THERE IS A BREACH OF C ONTRACT, THE ONLY RIGHT THAT ACCRUES TO THE PERSON WHO COMPLAINS OF THE BRE ACH IS THE RIGHT TO FILE A SUIT FOR RECOVERING DAMAGES. THE BREACH OF C ONTRACT DOES NOT GIVE RISE TO ANY DEBT AND, THEREFORE, IT HAS BEEN HELD T HAT A RIGHT TO RECOVER ASSIGNABLE BECAUSE IT IS NOT A CHOSE- IN-ACTION. AN ACTIONABLE CLAIM CAN BE ASSIGNED, BUT IN ORDER THAT THERE SHOULD BE AN A CTIONABLE CLAIM THERE MUST BE A DEBT IN THE SENSE OF AN EXISTING OBLIGATI ON. BUT INASMUCH AS A BREACH OF CONTRACT DOES NOT RESULT IN ANY EXISTING OBLIGATION ON THE PART OF THE PERSON WHO COMMITS THE BREACH, THE RIGHT TO RECOVER DAMAGES IS NOT AN ACTIONABLE 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 S AY THAT THE OTHER PAR TY TO T HE CONTRACT WHO COMPLAINS OF THE BREACH HAS ANY AMOUNT DU E TO HIM FROM 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 ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 10 -: EXISTS. THE COURT IN THE FIRST PLACE MUST DECIDE TH AT THE DEFENDANT IS LIABLE IS LIABLE AND THEN IT PROCEEDS TO ASSESS WHA T THAT LIABILITY IS. BUT TILL THAT DETERMINATION THERE IS NO LIABILITY A T 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 SPECIFIC AMOUNT, BUT HE ONLY HAS A RIGHT TO SUE AND CLAIM DAMAGES WHICH MAY OR MAY NOT BE DECREED IN HIS FAVOUR. HE WILL HAVE TO PROVE (I) TH AT THE OPPOSITE PARTY HAD COMMITTED BREACH OF CONTRACT AND (II) THA T HE H AD SUFFERED PECUNIARY LOSSON 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 EOINSTANT IINCUR ANY PECUNIARY OBLI GATION, NOR DOES THE PARTY COMPLAINING OF THE BREACH BECOMES ENTITLE D TO A DEBT DUE FROM THE OTHER PARTY. THE ONLY RIGHT WHICH THE PART Y 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 A MPLY CLEAR BY THE AMENDMENT IN S. 6(E) OF THE TRANSFER OF PROPERTY AC T, WHICH PROVIDES THAT A MERE RIGHT TO SUE FOR DAMAGES CANNOT BE TRAN SFERRED.' QUOTING THE STATEMENT OF LAW ENUNCIATE D 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 H A S OU R 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 RECEI PT 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. 10. THUS, ONCE THE COMPENSATION IS HELD TO BE IS ON LY ON ACCOUNT OF FOREGOING RIGHT TO SUE, WHICH IS A RIGHT IN PERSONAM THE SAME CANNOT BE ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 11 -: BROUGHT TO TAX IN THE LIGHT OF THE JUDICIAL PRECEDE NT DISCUSSED ABOVE. FURTHERMORE, THE HON'BLE SUPREME COURT IN THE CASE OF OBEROI HOTELS (P.) LTD. VS. CIT [1999] 236 ITR 903 (SC) HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE FOR GIVING UP ITS RIGHT TO PURCHASE OR FOR GETTING IT ON LEASE IS A CAPITAL RECEIPT. 11. FURTHER, CLAUSE (IX) TO SUB S. (2) OF S. 56 OF THE ACT WAS INSERTED W.E.F ASSESSMENT YEAR 2015-16 PROVIDING TO ASSETS T O TAX THE AMOUNT ANY SUM OF MONEY RECEIVED AS AN ADVANCE OTHERWISE IN TH E COURSE OF NEGOTIATION FOR TRANSFER OF CAPITAL ASSET IF SUM IS FORFEITED AND DOES NOT RESULT IN TRANSFER OF CAPITAL ASSET ONLY W.E.F 01. 04.2015. 12. THE AMOUNT RECEIVED IN GIVING UP THE RIGHT FOR SPECIFIC PERFORMANCE WAS HELD TO BE CAPITAL RECEIPT TO THE SAME EFFECT I N THE DECISION OF HONBLE HIGH COURT OF MADHYA PRADESH IN THE CASE OF CIT VS. SMT. LAXMIDEVI RATANI [2008] 296 ITR 363 (MP) . IN THE LIGHT OF ABOVE LEGAL POSITION, THE AMOUNT OF COMPENSATION RECEIVED BY TH E ASSESSEE CANNOT HELD TO BE A REVENUE RECEIPT, BUT IS A CAPITAL REC EIPT AND NOT LIABLE TO TAX AND IT CANNOT BE BROUGHT TO TAX UNDER CAPITAL GAIN FOR THE REASON THAT IT IS NOT A CAPITAL ASSET. THUS, IN THE LIGHT OF ABOVE D ECISIONS AND THEREFORE, WE REVERSE THE ORDERS OF LOWER AUTHORITIES AND ALLO W THE APPEAL FILED BY THE ASSESSEE. ITA NO.3204/CHNY/2018 (AY: 2009-10) :- 12 -: 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED ON THE 10 TH DAY OF MAY, 2019 IN CHENNAI. SD/ - SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! ' # ) (INTURI RAMA RAO) $ /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 10 TH MAY, 2019. EDN, SR. P.S , */34 54'/ /COPY TO: 1. () /APPELLANT 2. *+() /RESPONDENT 3. . 6/ ( )/CIT(A) 4. . 6/ /CIT 5. 47 */ /DR 6. & 8 /GF