Right to sue compensation treated as capital receipt, not business income or capital gains, despite related-party allegations.

Compensation received for relinquishing a mere right to sue was treated as a capital receipt, because a right to sue is not transferable property and is not a capital asset for capital gains purposes. The Tribunal held that the earlier co-ordinate bench ruling in the assessee's own case applied on identical legal and factual principles, and rejected the first appellate authority's factual distinctions as unsustainable. Allegations of a circular arrangement or related-party involvement did not change the character of the receipt, so it could not be assessed as business income or unexplained cash credit. The addition was therefore unsustainable.

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Issues: Whether the compensation received for relinquishment of the right to sue was taxable as income, including as business income or unexplained cash credit.

Analysis: The compensation arose after termination of the development arrangements and represented consideration for the assessee's relinquishment of its right to sue. A mere right to sue is not transferable property and does not constitute a capital asset for the purposes of capital gains taxation. The Tribunal also found that the factual distinctions drawn by the first appellate authority from the assessee's earlier year were not sustainable, and that the earlier co-ordinate bench decision in the assessee's own case applied on identical legal and factual principles. The surrounding allegations of a circular arrangement or related-party involvement did not alter the legal character of the receipt so as to convert the amount into taxable business income.

Conclusion: The compensation was a capital receipt not chargeable to tax as business income or capital gains, and the addition was unsustainable.

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