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TMI Blog2005 (2) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... axmi Devi Ratani and one Shri Murlidhar Totla were the partners of one firm--M/s Indian Pharmaceuticals. The firm had entered into a contract to purchase certain immovable property from Smt. Ratan Bai Tongia for Rs. 1,05,000. An agreement to that effect was entered into between the parties on 25th Sept., 1970. The agreement was not carried out by the seller and hence, assessee-firm was compelled to file a suit for specific performance of contract against the owner of the property in civil Court. This civil suit was dismissed by the civil Court (7th ADJ, Indore) on 27th Nov., 1976. An appeal was filed in High Court. It is in this appeal, parties to the appeal, i.e., parties to the agreement entered into a compromise on 12th May, 1986. In terms of compromise, the owner/vendor agreed to pay to assessee (purchaser) a sum of Rs. 14,85,001 as what is called consideration or damages. Accordingly, the appeal was disposed of in terms of compromise. 4. For the asst. yr. 1987-88, the AO treated the receipt of Rs. 14,85,001 to be in the nature of capital gains in the hands of assessee and accordingly taxed it. In appeal filed by the assessee, the CIT(A) upheld the view of AO and accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67]1SCR293 and contended that the view taken by Tribunal is in conformity with the law laid down in these cases calling no upturning by this Court. 7. Having heard learned Counsel for the parties and having perused record of the case, we are inclined to answer the question in favour of Revenue and against the assessee. 8. The question referred to this Court came up as the judicial debate shows for the first time directly before Bombay High Court in the case of CIT v. Tata Services Ltd. [1980]122ITR594(Bom) . In this case, assessee had entered into an agreement with "A" to purchase land and had paid earnest money. "A" was reluctant to complete the conveyance; ultimately, a tripartite agreement was entered into between the assessee, "A" and "X" whereunder the assessee transferred and assigned in favour of "X" its right, title and interest under the agreement and received the sum of Rs. 5,00,000 as consideration and a further sum of Rs. 90,000 being the refund of earnest money. The question before the Court in reference was whether the transaction which brought to the assessee, the sum of Rs. 5,00,000 involved the transfer of a capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of relinquishment and the interest of the person relinquishing his interest in the property was given up or abandoned or surrendered. The Court held that the loss to the assessee which had arisen out of the forfeiture of the earnest money that had been paid by it was not allowable as a capital loss. 10. The aforementioned two decisions then came up for examination again third time before Bombay High Court in the case of CIT v. Vijay Flexible Containers (supra). In this case, the assessee firm entered into an agreement with D for purchase of an immovable property. The assessee paid Rs. 17,500 as earnest money. Subsequently, the assessee had to file a suit for specific performance of the agreement for sale or, in the alternative, for damages for its breach. Consent terms were arrived at in the suit and a decree was passed in favour of the assessee for the sum of Rs. 1,75,000 and interest. The said sum was received by the assessee during the course of the previous year relevant to the asst. yr. 1972-73. The ITO held that the right that the assessee had acquired under the agreement for sale was a capital asset. Upon the extinguishment of that right, the assessee had received the sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment of earnest money under the agreement for sale was the cost of acquisition of the capital asset." 12. We respectfully concur with the aforesaid principle of law laid down by Bombay High Court in Vijay Flexible (supra) while answering the question referred to this Court in favour of CIT and against the assessee. Indeed, facts of the case involved in the present case and the one which were subject-matter of Vijay Flexible (supra) are so identical that there is no room for finding out any distinguishing feature so as to take contrary view. Apart from this, learned Counsel for the assessee could not point out any subtle distinction on legal issues to persuade us from differing with the view taken in Vijay (supra) except to place reliance on the decision rendered by Delhi High Court and other two decisions of Supreme Court to which we will deal at a later stage. 13. In our considered opinion, the question referred to us can also be answered against the assessee in the light of definition of "capital assets" as defined in Section 2(14) read with definition of word "transfer" as defined in Section 2(47) ibid. They read as under : "Section 2(14)- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other AOP or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation : For the purposes of Sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in Clause (d) of Section 269UA;" 14. The expression "property of any kind" used in Section 2(14) is of wide import. When we read this expression along with expression defined in Section 2(47)(ii), i.e., extinguishment of any rights therein, we have no hesitation in holding that giving up of right to claim specific performance b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue who had placed reliance on Tata's case (supra), their Lordships observed and in our opinion right as follows : "We are, therefore, left with the question as to whether the right to claim damages in the instant case is a "property of any kind" and thus a "capital asset" under Section 2(14) of the Act. The further question as to whether there was a transfer of such a "capital asset" would arise only if the right to claim damages is held to be a "capital asset". But, again, it will have to be examined if such a right could be transferred. Relying on the decision of the Bombay High Court in CIT v. Tata Services Ltd. [1980]122ITR594(Bom) , it was contended by Shri Wadhera, learned Counsel for the Revenue, that any right which can be called property will be included in the definition of "capital asset" and that a contract for the sale of land is capable of specific performance and is also assignable, and he referred to Section 15 of the Specific Relief Act, 1963. Therefore, according to Shri Wadhera a right to obtain conveyance of immovable property is clearly a "property" as contemplated by Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Supreme Court in the case of Vania (supra) no longer hold to be a good law and stands disapproved by the Supreme Court in later decision rendered in the case of CIT v. Mrs. Grace Collis (supra) in following words : "We have given careful thought to the definition of "transfer" in Section 2(47) and to the decision of this Court in Vania Silk Mills (P) Ltd. [1991]191ITR647(SC) . In our view, the definition clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. We do not approve, respectfully, of the limitation of the expression "extinguishment of any rights therein" to such extinguishment on account of transfers or to the view that the expression "extinguishment of any rights therein" cannot be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. To so read the expression is to render it ineffective and its use meaningless. As we read it, therefore, the expression does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer." ..... X X X X Extracts X X X X X X X X Extracts X X X X
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