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2020 (4) TMI 296 - AT - Income TaxExemption u/s 54F - Nature of source of income / gain for investment - LTCG or not - Assessee given advance for purchase of land in the year 2005 and accordingly acquired right for specific performance of agreement of sale - acquiring of capital asset within the meaning of sec.2(14) - HELD THAT - There is no dispute with regard to the fact that the assessee had entered into an agreement of sale for purchase of an agricultural land located in Venkatala Village, Yelahanka Hobli, Bengaluru North Tq. A perusal of the said agreement would show that as per clause 4.6 of the agreement, the vendor shall effect conversion of scheduled property from agricultural to non-agricultural use . As per clause-6, either of the party committing breach shall be liable to pay cost, expenses, damages, losses incurred by the aggrieved party. In the case of H Anil Kumar 2011 (1) TMI 1159 - KARNATAKA HIGH COURT assessee entered into an agreement for purchase an immovable property and paid ₹ 1,00,000/-as advance. Subsequently the assessee filed a suit for specific performance of the agreement for sale. Thereafter, the assessee withdrew the suit for specific performance in lieu of payment of ₹ 7,50,000/-. The Hon'ble jurisdictional Karnataka High Court held that right of specific performance of the contract of sale constitutes Capital asset and compensation received for giving up the above said right constitutes capital gains. Facts of the present case are identical with the facts available in the case of H Anil Kumar (supra). The assessee herein has given advance for purchase of land in the year 2005 and accordingly acquired right for specific performance of agreement of sale. The said right constitutes capital asset within the meaning of sec.2(14) of the Act. Subsequently, the assessee has received money for giving up the said right. The same shall constitute capital gains in the hands of the assessee as per the decision rendered by the jurisdictional High Court in the case of H Anil Kumar (supra). In the instant case, it is not the case of assessing officer that the assessee did not get the right of specific performance of agreement of sale upon entering the sale agreement between the assessee and the seller. In the absence of such a legally valid finding, in our view, the revenue cannot place reliance on the decision rendered by Hon'ble Supreme Court in the case of Balbir Singh Maini 2017 (10) TMI 323 - SUPREME COURT - Decided against revenue.
Issues Involved:
1. Eligibility for exemption under Section 54F of the Income Tax Act. 2. Classification of liquidated damages as capital gains or income from other sources. 3. Determination of the nature of rights acquired and relinquished under the agreement. 4. Applicability of case laws and previous judgments. Issue-wise Detailed Analysis: 1. Eligibility for Exemption under Section 54F: The Revenue contended that the assessee was not eligible for exemption under Section 54F because the transaction did not qualify as capital gains. The CIT(A) held that the liquidated damages received by the assessee were capital gains since they were received on extinguishment of rights vested in the property. The Tribunal upheld this view, agreeing that the rights acquired under the agreement constituted a capital asset and their relinquishment led to capital gains. 2. Classification of Liquidated Damages: The Assessing Officer (AO) classified the liquidated damages as income from other sources, arguing that the payment was for breach of contract and not for the extinguishment of rights in a capital asset. The CIT(A) disagreed, stating that the damages were for the relinquishment of rights and not merely for breach of contract. The Tribunal supported this interpretation, noting that the damages were specifically mentioned in the agreement and constituted consideration for the transfer of rights. 3. Determination of the Nature of Rights Acquired and Relinquished: The assessee entered into an agreement to purchase agricultural land, paying an advance. When the seller failed to execute the conveyance deed, a cancellation agreement was made, and the assessee received liquidated damages. The Tribunal noted that the right to enforce specific performance constituted a capital asset under Section 2(14) of the Act. The relinquishment of this right, therefore, resulted in capital gains. The Tribunal relied on various case laws, including the Karnataka High Court's decision in the case of H Anil Kumar, which held that compensation for giving up the right to specific performance constitutes capital gains. 4. Applicability of Case Laws and Previous Judgments: The Tribunal reviewed several case laws cited by the assessee, including decisions from the High Courts of Madhya Pradesh, Andhra Pradesh, and Madras, which supported the view that relinquishment of rights under an agreement constitutes a capital asset transfer. The Tribunal distinguished the Supreme Court's decision in CIT Vs. Balbir Singh Maini, which involved a joint development agreement not registered under the Transfer of Property Act, rendering it ineffective in law. The Tribunal found that this case was not applicable to the present facts, where the assessee had a valid right of specific performance. Conclusion: The Tribunal upheld the CIT(A)'s decision, affirming that the liquidated damages received by the assessee were capital gains arising from the extinguishment of rights in a capital asset. The assessee was eligible for exemption under Section 54F, and the appeal by the Revenue was dismissed. The judgment emphasized the importance of the nature of rights acquired and relinquished under agreements and the applicability of relevant case laws in determining the tax treatment of such transactions.
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