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TMI Blog2014 (9) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... The amount was received because the assessee had given up its right to purchase and/or to operate the property - it is loss of source of income to the assessee and that right is determined for consideration. Following the decision in Kettlewell Bullen And Company Limited Versus Commissioner Of Income-Tax, Calcutta [1964 (5) TMI 4 - SUPREME Court] - The amount was received because the assessee had given up its right to purchase and/or to operate the property and the amount was held to be capital receipt and not revenue receipt by giving up its right to purchase and/or to operate the property, injury was inflicted on the capital asset of the company thereby resulting in loss of source of income - the assessee has released/discharged qualcomm from the project agreement thereby giving up its right to purchase/acquire the equipment from the party and this act has certainly inflicted an injury to the capital structure of the assessee company resulting in loss of source of income - the entire sum was capital receipt not liable to tax – Decided against revenue. - I.T.A No. 735/Kol/2012 - - - Dated:- 5-9-2014 - Shri Mahavir Singh, JM And Shri Shamim Yahya, AM,JJ. For the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a capital asset. Hence, according to him, no capital gains can arise and finally he treated the entire receipt of ₹ 3.5 cr. as capital receipt by observing as under: In the light of the above discussion and findings and considering the entire facts and circumstances of the case and the emerging legal position, I am of the opinion that the entire sum of ₹ 3.50 cr. received by the appellant was a capital receipt not liable to tax. It may however be added that the appellant initially accepted the sum of ₹ 75 lakhs as taxable capital gain but as appears from the facts and various judgments and agreements, the appellant had no right over the land at the time of MOU and had also no right in the land at the time of sale of the said land by Eastern Paper Mills to Amba High Rise under valid orders of the competent court the entire receipt was a capital receipt. The appellant has successfully demonstrated that his admission before the AO was not in accordance with law. Hence, as the entire sum of ₹ 3.5 crores is held to be capital receipt and not liable to tax, thus these grounds of the appellant are allowed. Aggrieved against the order of CIT(A), revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar ( Salt Lake City) in Book No. l Volume No. 420 pages 58 to 75 being no 6959 for the year 2006. 5. Thereafter, assessee moved Division Bench of Hon'ble Calcutta High Court and Court vide its order dated 19.9.2006 set aside the order of the Single Bench dated 21.4.2006. The said Eastern Paper Mills and the Skylark with whom the agreement was entered into filed the petition before the Hon'ble Supreme Court. The Hon'ble Supreme Court ordered the listing of the petition but at the same time vide its order dated 22.1 .2007 directed that the parties shall maintain status quo as of today (i.e. on 22.1. 2007). The Hon'ble Supreme Court also directed the assessee not to press application for cancellation of the sale deed executed by Eastern Paper Mills till petition is heard by Supreme Court. From these facts, it was clear that on 22.1.2007 the said Amba High Rise, being the Purchaser, was in possession of the property was legal owner since the status quo was ordered to be maintained till the respective suits were to be decided in one way or the other. It a1so shows that neither the order of the single bench allowing sa1e nor the order of Div. Bench Setting As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as received. The assessee could not have acquired the property because there was no order of court for transfer of property in the name of the assessee. Even the MOU/agreement cannot be used for specific performance of contract to purchase the property. The only alternative left with the assessee to sue these above stated parties by virtue of MOU and do assert its claim. Now, the issue is, whether a right to sue is an asset or not, is to be decided in the given facts and circumstances of the case. When a company court approved the sale in favour of Skylark India Ltd. and such sale deed was executed, the assessee was having no right over the property. Section 6 of the Transfer of Property Act, 1882, makes an exception in clear terms that a right to sue is not an asset. This proposition is supported by the decision of Hon'ble Supreme Court in the case of Oberoi Hotels Pvt. Ltd. Vs. CIT (1999) 236 ITR 903 (SC), wherein it is held as under: The question whether the receipt is capital or revenue is to be deter- mined by drawing a conclusion of law ultimately from the facts of the par- ticular case and it is not possible to lay down any single test as infallible or any single cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC), and submitted that the assessee had the business of running hotels in various countries and the amount which is received by him is for the termination of the first contract which was executed in 1970 and, therefore, it should be considered his revenue receipt. In that case, the court was dealing with a trading contract and held that compensation paid in respect of the rights arising under the trading contract would be a revenue receipt and must be referred to the profits which would be made in carrying out that contract. The court has also observed (page 164): . . . whether a payment of compensation for termination of an agency is a capital or revenue receipt, it would have to be considered whether the agency was in the nature of capital asset in the hands of the assessee, or whether it was only part of his stock-in-trade. The aforesaid judgment was considered in the case of Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC), wherein the court has held as under (page 270) : Whether, a particular receipt is capital or income from business, has frequently engaged the attention of the courts. It may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and giving up the contractual right on the basis of the principal agreement has resulted in loss of source of the assessee's income. In this view of the matter, the order passed by the High Court is set aside and the appeal is allowed. The question is answered in favour of the assessee and against the Revenue by holding that receipt in the hands of the assessee was capital receipt. 7. From the above case law of Hon'ble Supreme Court it is clear that the facts of the present case are directly comparable with the said case. The amount was received because the assessee had given up its right to purchase and/or to operate the property and the said amount was held to be capital receipt and not revenue receipt as held by Hon'ble Supreme Court observing that by giving up its right to purchase and/or to operate the property, injury was inflicted on the capital asset of the company thereby resulting in loss of source of income. In the present case also the assessee has released/discharged qualcomm from the project agreement thereby giving up its right to purchase/acquire the equipment from the said party and this act has certainly inflicted an injury to the capital struc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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