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TMI Blog2015 (4) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... n 144A was erroneous and prejudicial to the interest of the revenue and, therefore, the CIT was justified in exercising the jurisdiction under Section 263 of the Act ? (ii) Whether the Tribunal was justified in holding that the compensation received by the Appellant as per the Consent Terms dated 19.08.1994 was on account of relinquishment of the claim for specific performance and, therefore, the same was liable to capital gains tax ? (iii) Whether the Tribunal was justified in holding that the Appellant's case was governed by the ratio laid down in the case of Vijay Flexible Containers (186 ITR 693) and not by the ratio laid down in Abbasbhoy A. Dehgamwalla (195 ITR 28) ? (iv) Whether the Tribunal was justified giving in a judgment on the merits of the case in spite of the fact that the CIT had directed the AO to make fresh assessment as per law ?" 4. Somewhere around June, 1989, the Appellant had entered into an oral agreement with one M/s. Eastern Ceramics Limited (hereinafter referred to as "ECL") to purchase a factory premises at Goregaon, Mumbai along with a vacant piece of land for a total consideration of Rs. 5.80 crores and for that purpose, paid Rs. 5 lacs as earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustment. Accordingly, he made a reference to the Commissioner of Income Tax, who confirmed his view and directed him to decide this issue in regular assessment proceedings after discussing the matter with Range Deputy Commissioner of Income tax. 9. The Appellant, vide his letter dated 24th May, 1996, made an application to the Deputy Commissioner of Income Tax (Range-21), Mumbai, under section 144A of the IT Act, enclosing brief facts, case laws, opinion of Mr. V. H. Patil, Advocate and requested him to issue necessary directions to the Assessing Officer with regard to taxability of the receipt of Rs. 4.95 crores received by way of damages as per the Consent Decree of this Court. 10. During the course of assessment proceedings, in reply to the query of the Assessing Officer, the Appellant submitted that the said receipt of Rs. 4.95 crores was capital receipt not chargeable to tax in its hands. 11. The Deputy Commissioner of Income Tax (Range21), Mumbai gave necessary directions to the Assessing officer vide his order dated 27th May, 1996 under section 144A of the IT Act which are reproduced by the Assessing Officer in his assessment order. As per the said directions, said receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xability of damages is highly debatable. If the issue is debatable, it means more than one view is possible. If that is the position, then, power under section 263 of the IT Act could not be invoked and exercised. The exercise thereof in such circumstances would be contrary to the settled principles. 17. Mr. Toprani submits that, in this case, there was no right to claim specific performance as this Court has held that the Appellant had no right, title or interest in the suit premises. The appellant had merely a right to sue for which it has been awarded damages. Section 6 of the Transfer of Property Act which uses the same expression "property of any kind" in the context of transferability makes an exception in the case of a mere right to sue. It has made clear that the right to sue for damages is not an actionable claim and is not a capital asset, and therefore, damages received pursuant to right to sue is a capital receipt. The aforesaid view was taken in the case of Commissioner of Income Tax vs. Abbasbhoy A. Dehgamwalla and Ors. reported in (1992) 195 ITR 28 . Therefore, on merits also, the Appellant's case is covered by the decision of this Court in the case of Abbasbhoy A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook, read as under: "CONSENT TERMS 1. Declared that the Plaintiffs have no right, title or interest in the property described in Ex. 'A' to the Plaint save and except as provided herein. 2. The Defendants do pay to the Plaintiffs the sum of Rs. 5 Crores on or before 28th February, 1995. 3. In the event of the Defendant not paying the sum of Rs. 5 Crores on or before February 28th, 1995 the Defendants to pay interest thereon at 18% per annum from March, 1 1995. 4. In the event of the Defendants committing default in payment of the decretal debt on or before February 28, 1995 the suit property described in Exhibit A to the Plaint be sold in execution in or towards the satisfaction of the decretal debt by the Commissioner for Taking Accounts by public auction. The surplus sale proceeds if any to be paid to the Defendants. 5. Till the decretal debt is paid the order dated July 10, 1994 to continue. 6. Save as above the Plaintiffs have to other claim against the Defendants. 7. No order as to costs. Dated this 19th day of August, 1994." 21. The Division Bench of this Court accepted these Consent Terms and decreed the Suit by Consent Decree dated 19th August, 1994. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign that right. What he acquired under the said agreement for sale was, therefore property within the meaning of the IT Act and consequently a capital asset. In the Suit that he filed, a settlement was arrived at, at which point of time, the Assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him of the immovable property was relinquishment of the capital asset. There was, therefore, a transfer of a capital asset within the meaning of the IT Act. It is this view which was placed before this Court in the case of Abbasbhoy A. Dehgamwalla and Ors. (supra). 24. However, the Division Bench deciding the issue in the case of Abbasbhoy A. Dehgamwalla and Ors. (supra) noted that once the Assessee's claim to specific performance of the agreement was rejected, then, the alternative claim for damages for breach of agreement even if worded the receipt of tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Suit ended in the Assessee's claim for specific performance being refused and he being entitled to receive the sum stipulated in this Court's order in lieu of the specific performance. In these circumstances, the Assessee was right in urging that he has no right, title or interest in the immovable property. The Tribunal completely misread and misconstrued this Court's order. In the Consent Terms, which are drawn up and based on which the Suit is decreed by the Court, it does not deal with the rival cases on merits. There is no requirement of the Court then passing an order and Judgment on merits of the claim of the parties. The Court is required to apply its mind and consider as to whether the arrangement reached by the parties can be accepted by it. Once it is accepted and an order or decree is passed in terms thereof, then, it is an order of the Court. Thus, the Court has not undertaken any mechanical exercise or has not casually and lightly accepted the terms and approved the same. It has performed a conscious act and in terms of Order XXIII Rule 3 of the Civil Procedure Code, 1908. This clearly means that the relief was refused. One cannot then pick up a stray sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce between contract for sale of an immovable property and sale as emerging from section 54 of the Transfer of property Act, 1882 is thus explained. 28. In this context, the following observations of the Hon'ble Supreme Court in the case of Bai Dosabai vs. Mathurdas Govinddas and Ors. Reported in AIR 1980 SC 1334 are pertinent. "..... The ultimate paragraph of Section 54 of the Transfer of Property Act, expressly enunciates that a contract for the sale of immovable property does not, of itself, create any interest in or charge on such property. But the ultimate and penultimate paragraphs of Section 40 of the Transfer of Property Act make it clear that such a contract creates an obligation annexed to the ownership of immovable property, not amounting to an interest in the property, but which obligation may be enforced against a transferee with notice of the contract or a gratuitous transferee of the property. Thus, the Equitable ownership in property recognised by Equity in England is translated into Indian law as an obligation annexed to the ownership of property, not amounting to an interest in the property, but an obligation which may be enforced against a transferee with n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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