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2014 (3) TMI 727 - AT - Income TaxScope of the Term capital asset u/s 2(14) of the Act Deletion made on account of LTCG earned - Receipt of compensation on relinquishment of right to obtain conveyance of land - Whether the CIT(A) has erred in holding that the rights held by the assessee were not property u/s.6(e) of the Transfer of Properties Act and not a capital asset as defined under the 1961 Held that - The decision in Baroda Cement and Chemicals Ltd. vs. CIT 1985 (12) TMI 55 - GUJARAT High Court followed - compensation received cannot be treated as consideration because right to sue is not a property under section 6(e) of the Property Act and thus did not become a capital asset under section 2(14) of the Act - There is a divergent view of High Courts on the issue - The Bombay High Court and Madras High Court are against the assessee, whereas the Gujarat High Court, Delhi High Court are in favour of assessee - The law is well settled if there is two views are possible, the view which is in favour of assessee is to be adopted The decision in Pradip J. Mehta v. CIT 2008 (4) TMI 6 - Supreme Court followed - It is well-settled that when two interpretations are possible, then invariably, the court would adopt the interpretation which is in favour of the taxpayer and against the Revenue - the order of the CIT(A) upheld Decided against Revenue.
Issues Involved:
1. Whether the rights held by the assessee were 'property' under Section 6(e) of the Transfer of Properties Act and a 'capital asset' as defined under the Income Tax Act, 1961. 2. Whether the deletion of the addition of Rs. 10,44,08,966/- on account of long-term capital gains earned by the assessee on receipt of compensation for relinquishment of right to obtain conveyance of land was justified. Issue-wise Detailed Analysis: 1. Whether the rights held by the assessee were 'property' under Section 6(e) of the Transfer of Properties Act and a 'capital asset' as defined under the Income Tax Act, 1961: The Revenue argued that the rights held by the assessee constituted 'property' and thus a 'capital asset' under the Income Tax Act. They contended that the right to obtain conveyance of immovable property was assignable and thus should be considered property. The Revenue cited several judgments, including CIT v. Sterling Investment Corporation Ltd., CIT v. Tata Services Ltd., and CIT v. Vijay Flexible Containers, to support their position that such rights are indeed capital assets. Conversely, the assessee argued, based on the decision of the Hon'ble Gujarat High Court in Baroda Cement and Chemicals Ltd. vs. CIT and other relevant case laws, that the right to sue for specific performance of an agreement does not constitute 'property' under Section 6(e) of the Transfer of Properties Act and, therefore, cannot be considered a 'capital asset' under the Income Tax Act. The assessee emphasized that the compensation received was for relinquishing the right to sue, not for transferring a capital asset. The Tribunal reviewed the case laws cited by both parties and noted the divergent views among different High Courts. Ultimately, the Tribunal upheld the decision of the CIT(A), aligning with the Hon'ble Gujarat High Court's judgment in Baroda Cement and Chemicals Ltd. vs. CIT, which held that the right to sue is not a property and thus not a capital asset. 2. Whether the deletion of the addition of Rs. 10,44,08,966/- on account of long-term capital gains earned by the assessee on receipt of compensation for relinquishment of right to obtain conveyance of land was justified: The Revenue contended that the CIT(A) erred in deleting the addition made by the AO, arguing that the compensation received by the assessee should be taxed as long-term capital gains. They maintained that the right to obtain conveyance of land was a capital asset, and its relinquishment for compensation should be considered a transfer attracting capital gains tax. The assessee countered that the compensation received was for relinquishing the right to sue, not for transferring any capital asset. They relied on the Hon'ble Gujarat High Court's decision in Baroda Cement and Chemicals Ltd. vs. CIT and other supporting judgments, which established that compensation for breach of contract does not constitute capital gains. The Tribunal, after examining the rival contentions and relevant case laws, found that the CIT(A) correctly deleted the addition. They emphasized that the Hon'ble Gujarat High Court's ruling in Baroda Cement and Chemicals Ltd. vs. CIT was binding and directly applicable to the case. The Tribunal also noted that when there are conflicting judgments from different High Courts, the view favorable to the assessee should be adopted, as per the Hon'ble Supreme Court's ruling in Pradip J. Mehta v. CIT. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order. They concluded that the rights held by the assessee were not 'property' under Section 6(e) of the Transfer of Properties Act and not a 'capital asset' under the Income Tax Act. Consequently, the compensation received for relinquishing the right to sue was not taxable as long-term capital gains. The Tribunal's decision was based on the binding precedent set by the Hon'ble Gujarat High Court in Baroda Cement and Chemicals Ltd. vs. CIT and other supporting judgments.
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