1992 (1) TMI 51 - HC - Income Tax

Summary

Issues Involved:
1. Frustration of the original agreement of sale.
2. Cost of acquisition incurred by the applicant.
3. Liability to capital gains tax.

Summary:

Issue 1: Frustration of the Original Agreement of Sale
The Tribunal was right in law in holding that the original agreement of sale between the applicant and the vendors was not frustrated by the interim orders of the High Court dated August 12, 1980, and August 14, 1980, and, therefore, there could be a valid assignment of the said agreement by the applicant. The court noted that the assessee did not rescind the contract but proceeded to assign its benefits and liabilities under the contract to the assignee. The agreement itself envisaged that the purchaser could assign his rights and liabilities. The temporary injunction did not result in any fundamental or radical change in the obligations originally undertaken. Therefore, there was no frustration of the contract.

Issue 2: Cost of Acquisition Incurred by the Applicant
The Tribunal was right in law in holding that there was a cost of acquisition incurred by the applicant in respect of the agreement of purchase of the mills sought to be assigned by the applicant. The assessee had incurred an expenditure of Rs. 2,05,768 for acquiring the rights under the agreement and for their assignment. The cheque for Rs. 5 lakhs given as earnest money was to be adjusted towards the total price of the textile mill. The liability to pay the total consideration was assigned to the assignee, and the cheque was returned to the assignor. Thus, the Tribunal correctly held that the assessee had incurred a cost in acquiring the rights under the agreement.

Issue 3: Liability to Capital Gains Tax
The Tribunal was right in law in holding that the applicant was liable to capital gains tax in respect of Rs. 9,00,000 received by it in consideration of the assignment of the contract of purchase of the mills. Given the conclusions on the first two issues, the assessee was liable for the tax on capital gains. The reference was disposed of with no order as to costs.