Capital receipt treatment for compensation in lieu of a mere right to sue defeats capital gains and section 263 revision.

Compensation received under a consent decree was treated as a capital receipt because specific performance of the commercial space allotment had become impossible and the assessee was left only with a mere right to sue, which is not transferable under section 6(e) of the Transfer of Property Act, 1882. On that basis, the receipt was viewed as compensation in lieu of a non-transferable right rather than consideration for transfer of a capital asset, so it was not chargeable to capital gains tax or other income on the stated facts. The revisionary order under section 263 was also considered unsustainable because it rested on precedent dealing with a different factual situation.

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Issues: Whether compensation received under the consent decree for inability to obtain specific performance of the commercial space allotment was a capital receipt not chargeable to tax, and whether the revisionary order under section 263 could be sustained on the basis of the cited jurisdictional precedent.

Analysis: The compensation was paid because the project had been aborted and specific performance of the allotment was not possible. On these facts, the assessee was left only with a mere right to sue, and under section 6(e) of the Transfer of Property Act, 1882 such a right is not transferable. The arrangement under the consent decree was therefore treated as compensation in lieu of the right to sue, not as consideration for transfer of a capital asset. The authorities dealing with cases where specific performance was available and then relinquished were distinguished, while the line of authority holding that damages received for breach of contract, where only a right to sue survives, are not taxable as capital gains was applied. In that view, the revisionary interference based solely on the cited precedent was held unsustainable.

Conclusion: The compensation was not taxable as capital gains or other income on the facts of the case, and the revisionary order under section 263 was not justified.

Ratio Decidendi: Where specific performance of an agreement is impossible and the assessee receives compensation only in lieu of a mere right to sue, the receipt is a capital receipt not liable to capital gains tax, and revision under section 263 cannot be sustained by treating the assessment as erroneous and prejudicial merely on a misplaced reliance on precedent dealing with a different factual situation.

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