1984 (5) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Assessability of the amount received as capital gains.
2. Nature of the right to claim damages.
3. Transferability of the right to claim damages.
4. Cost of acquisition of the right under the contract for sale.

Summary:

1. Assessability of the Amount Received as Capital Gains:
The primary issue was whether the amount of Rs. 1,02,500 received by the assessee was assessable as capital gains other than long-term capital gains. The Income-tax Appellate Tribunal held that the rights acquired by the assessee were not proprietary rights but personal rights, which do not fall within the definition of "capital asset" u/s 2(14) of the I.T. Act, 1961. Consequently, the Tribunal rejected the inclusion of this amount as capital gains in the taxable income of the assessee.

2. Nature of the Right to Claim Damages:
The court examined whether the right to claim damages in the instant case is "property of any kind" and thus a "capital asset" u/s 2(14) of the Act. It was concluded that the right to claim damages, which arose from the breach of contract, was a mere right to sue and not a proprietary right. Therefore, it could not be considered a capital asset.

3. Transferability of the Right to Claim Damages:
The court referred to s. 6(e) of the Transfer of Property Act, which states that a mere right to sue cannot be transferred. Since the right to claim damages is a mere right to sue, it cannot be transferred. The court held that there was no transfer of a capital asset in this case, and thus, the amount received could not be assessed as capital gains.

4. Cost of Acquisition of the Right Under the Contract for Sale:
The court noted that the cost to the assessee of acquiring the right under the contract for sale was nil. However, given the conclusion that the right to claim damages was not a capital asset and could not be transferred, it was unnecessary to delve into the cost of acquisition issue.

Conclusion:
The court answered the question in the negative and in favor of the assessee, concluding that the amount of Rs. 1,02,500 received as damages was not assessable as capital gains. The parties were left to bear their own costs.