Capital loss treatment denied where payment was only damages for non-fulfilment of a property purchase agreement.

Payment made to escape an agreement to purchase immovable property was treated as compensation or damages for non-fulfilment of the contract, not as a loss arising from a sale, exchange, relinquishment or transfer of a capital asset. The analysis held that the assessee had not acquired and then disposed of property rights at a loss; instead, it paid the difference between the agreed purchase price and the amount received from the ultimate purchasers to be relieved of the obligation to buy. On that reasoning, the claimed loss did not fall within the capital gains provisions of the Income-tax Act, 1922, and the claim to capital loss failed.

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Issues: Whether the amount paid by the assessee on failing to complete an agreement to purchase immovable property constituted a loss falling under the head "capital gains" within the meaning of section 24(2A) of the Income-tax Act, 1922.

Analysis: The transaction was not one in which the assessee acquired property and later sold his rights at a loss. In substance, the assessee entered into an agreement to purchase, became unwilling to complete it, and paid the difference between the stipulated purchase price and the amount received from the ultimate purchasers so as to be relieved of the obligation to buy. Such payment was compensation or damages for non-fulfilment of the agreement, not consideration arising from a sale, exchange, relinquishment, or transfer of a capital asset within the meaning of section 2(4A) of the Income-tax Act, 1922. The claimed loss therefore did not fall within section 12B of the Income-tax Act, 1922.

Conclusion: The question was answered in the negative and the assessee's claim to treat the loss as a capital loss failed.

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