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Issues involved: Determination of whether a sum of Rs. 1 lakh received as damages for non-performance of an agreement constitutes a revenue receipt or a capital gain.
Summary: The High Court of Calcutta addressed two key questions in this judgment. Firstly, whether the sum of Rs. 1 lakh received as damages from a contract was a revenue receipt or a short-term capital gain. Secondly, whether the same sum received as damages for non-performance of the agreement was a capital receipt not subject to capital gains tax. The Revenue argued that the Rs. 1 lakh received as liquidated damages was a revenue receipt due to its nature as a business transaction. The agreement specified that if the transaction could not be completed due to the vendor's fault, Rs. 1 lakh in liquidated damages was to be paid. However, as the vendor failed to complete the agreement because of title issues, the assessee did not incur any cost in acquiring the Rs. 1 lakh. Therefore, it was contended that it could not be considered a capital gain as there was no transfer of a capital asset involved. Upon reviewing the facts and the Tribunal's reasoning, the Court agreed with the Tribunal's findings that the Rs. 1 lakh was neither a capital gain nor a revenue receipt. Since there was no transfer of a capital asset as per the Income-tax Act, 1961, and the amount did not meet the criteria of a capital asset, it was concluded that the sum did not fall under the categories of capital gain or revenue receipt. Consequently, the Court ruled in favor of the assessee on both questions, affirming that the Rs. 1 lakh was not a capital gain or a revenue receipt. The judgment was unanimous, with no order as to costs. *Separate Judgment by SATISH CHANDRA C. J.:* The Chief Justice concurred with the decision.
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