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TMI Blog2004 (4) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... could be no assessment of capital gain on the transfer of the capital asset falls to the ground. - Judge(s) : A. S. VENKATACHALA MOORTHY., P. K. MISRA. JUDGMENT The judgment of the court was delivered by A. S. Venkatachalamoorthy J. -The assessee on April 3, 1986, entered into an agreement to purchase an extent of 7,394 sq. ft., in S. No. 35/3 situated at Geddadahalli village, Bangalore, belonging to one Krishnamurthy, for a total consideration of Rs. 2,00,000. On the date of agreement, a sum of Rs. 40,000 was paid by him and it was further agreed that the balance of Rs. 1,60,000 would be paid at the time of execution and registration of a sale deed. Both parties reserved the right to specific performance of the agreement. Nearly four years thereafter, that was on March 21, 1990, again another agreement was entered into in the nature of deed of cancellation, in and by which the assessee agreed for termination of the earlier agreement and allowed the owner of the land to sell the said property to any person and at any price of his choice. As a consideration for this, the assessee was paid a sum of Rs. 6,00,000, apart from refunding the advance of Rs. 40,000 to the assessee. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission is made to the effect that there could be no assessment of the capital gains where there was no cost of acquisition incurred by the assessee for acquiring the right in the property. Learned counsel appearing for the Revenue contended that under the agreement dated April 3, 1986, the assessee had acquired a right in the property. The word "property" used in section 2(14) of the Income-tax Act is a word of widest amplitude and that any right that could be called property would be included in the definition of "capital asset". Under the agreement, the assessee acquired a right to obtain a conveyance of an immovable property and that was a property as contemplated under section 2(14). Learned counsel explained that by entering into a deed of cancellation, the assessee relinquished the right, which he acquired under the first agreement, accepting a sum of Rs. 6,00,000 from the owner of the land. The assessee had extinguished his right in an immovable property as per section 2(47). The case involved a transfer attracting liability to capital gains tax. On the question of cost of acquisition, learned counsel contended that the assessee had incurred a cost of Rs. 40,000, which was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether or not connected with his business or profession, but does not include . ." The next relevant provision is section 2(47), which is to the following effect: " 'transfer', in relation to a capital asset, includes, - (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishments of any rights therein ; or (iii) . . . " (i) In Ahmed G. H. Ariff v. CWT [1970] 76 ITR 471, the Supreme Court while considering the question whether in the facts of that case the right of the assessee to receive a specified share of the net income from the wakf estate is an asset, the capitalised value of which is assessable to wealth-tax, observed as follows: " 'Property' is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy . . ." The court also pointed out that in Commissioner, Hindu Religious Endowments v. Shri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [1954] SCR 1005, it was held that there was no reason why that word should not be given a liberal and wide connotation and should not be extended to those well-recognised types of interests which had the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount received from the third party minus earnest money paid by him) would be capital gains in the hands of the assessee and subject to deduction on account of legal and other expenses. We hereunder extract the relevant portion from the said judgment: "What is a capital asset is defined in section 2(14) of the Income-tax Act, 1961. Under that provision, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The other sub-clauses which deal with what property is not included in the definition of capital asset are not relevant. Under section 2(47), a transfer in relation to a capital asset is defined as including the sale, exchange or relinquishment of the asset or the extinguishments of any right therein or the compulsory acquisition thereof under any law. The word 'property', used in section 2(14) of the Income-tax Act, is a word of the widest amplitude and the definition has re-emphasised this by use of the words 'of any kind'. Thus, any right which can be called property will be included in the definition of 'capital asset'. A contract for sale of land is capable of specific performance. It is also assignable. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1987] 168 ITR 164 (AP) now cited before us by learned counsel for the assessee and various other rulings. The High Court has pointed out after referring to the facts and circumstances of those cases that those rulings would not apply to the facts and circumstances of the case on hand. We are in entire agreement with the judgment of the Bombay High Court in CIT v. Vijay Flexible Containers [1990] 186 ITR 693. Learned counsel for the assessee placed reliance on certain rulings of the Supreme Court, which we now proceed to consider chronologically. (a) Learned counsel submitted that in the ruling reported in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC), the Supreme Court held that the transfer of goodwill generated in a newly commenced business cannot be termed as an asset within the meaning of section 45 of the Income-tax Act, 1961, and the transfer of goodwill initially generated in a business does not give rise to a capital gain for the purposes of income-tax. Likewise, the mere giving up of the right to claim specific performance by conveyance to him of immovable property does not give rise to a capital gain for the purpose of income tax. Learned counsel also submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills P. ltd. v. CIT [1991] 191 ITR 647 (SC) was a case where the appellant-company carried on business of manufacture and sale of art-silk cloth. During 1957, it purchased machinery worth a few lakhs and gave it on hire to another mill at an annual rent basis. The other mill, as bailee of the machinery, insured the machinery along with its own machinery against fire. Some time thereafter, a fire broke out in the premises of the other mill and caused extensive damage to the machinery belonging to the appellant. The insurance company settled the claim with the other mill, which received a certain amount and out of which paid a few lakhs to the appellant on account of destruction of the machinery. The Tribunal took the view that the insurance amount was not received by the appellant as transfer of capital asset and only on account of damage to its machinery and section 45 was not attracted. The High Court reversed this finding. On appeal, the Supreme Court held that capital gains tax was attracted under section 45 by transfer and not merely by extinguishment of rights howsoever brought about. The court held that the extinguishment of right not brought about by transfer was outside t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had given up or relinquished his right of specific performance and as consideration for relinquishing that right, the assessee was paid a sum of Rs. 6,00,000. The right, title and interest acquired under the agreement of sale clearly fall within the definition of capital asset (section 2(14)). Instead of assigning the right to third party/parties, the assessee relinquished those rights. We have already seen that the definition of transfer in section 2(47) is wide enough to include relinquishment of an asset. With regard to the contention that there was no cost of acquisition incurred by the assessee for obtaining the rights under the agreement dated April 3, 1986, and consequently there could be no capital gains assessable, it is to be noted that at the time of agreement of sale the assessee paid Rs. 40,000. That payment was made pursuant to the agreement. Only by paying the said amount the assessee acquired the right to get the sale deed executed in his favour. At this juncture, we may refer to the observation in the decision of the Bombay High Court in CIT v. Tata Services Ltd. [1980] 122 ITR 594, where it is observed as under: "The assessee had paid at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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