1989 (10) TMI 73 - AT - Income Tax

Assessee's Receipt Taxable as Capital Gains: Tribunal Rejects Frustration of Contract Arguments

The tribunal upheld the CIT's decision that the amount received by the assessee was taxable as capital gains. The tribunal rejected the arguments of ... - Issues:1. Whether the amount received by the assessee is taxable as capital gains.2. Whether there was a frustration of the contract of sale of the Mill.3. Whether the amount received was damages for breach of contract.4. Whether there was no cost of acquisition for the assessee.Analysis:Issue 1: Taxability of Amount ReceivedThe assessee claimed that the receipt of Rs. 9 lakhs was not taxable as it did not incur any cost for acquiring the right. The ITO and CIT held that the amount was taxable as short-term capital gains. The CIT observed that the Supreme Court decision in CIT vs. B.C. Sreenivasa Shetty was not applicable as the value of the right transferred was not nil. The tribunal confirmed the CIT's order, stating that the amount received was taxable as capital gains.Issue 2: Frustration of ContractThe assessee argued that there was a frustration of the original agreement due to a court order, resulting in no transfer and hence no capital gain. However, the tribunal found that the court order was temporary, and there was no actual frustration of the contract. The tribunal also noted that the second agreement with Bharat Vijay Mills indicated a substitution of contracts, refuting the claim of frustration.Issue 3: Damages for Breach of ContractThe assessee contended that the amount received was damages for breach of contract. However, the tribunal pointed out that the amount was received from the assignee, not the vendor responsible for the breach, making the damages claim invalid.Issue 4: Cost of AcquisitionThe assessee argued that there was no cost of acquisition, relying on the Sreenivasa Shetty case. The tribunal disagreed, stating that the right to acquire a property does have a cost. The tribunal explained that the cheque returned by the vendor was part of the consideration for the obligation to purchase the mill, making the claim of no cost unfounded.In conclusion, the tribunal upheld the CIT's order, confirming the taxability of the amount received by the assessee as capital gains. The tribunal dismissed the appeal, rejecting the arguments of frustration of contract, damages for breach, and lack of cost of acquisition.