Right to sue is not a capital asset; consent decree damages were held outside capital gains tax.

Compensation received under a consent decree for the loss of a mere right to sue was treated as a non-taxable capital receipt, not capital gains. The analysis applied the principle that a right to sue is not transferable under section 6 of the Transfer of Property Act, 1882, and therefore is not a capital asset under section 45 of the Income-tax Act, 1961. Damages awarded in lieu of an unenforceable specific performance claim were distinguished from consideration for transfer of a surviving property right, so the amount remained outside capital gains tax.

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Issues: Whether compensation received under a consent decree in lieu of the right to sue was liable to tax as capital gains under the Income-tax Act, or whether it was a non-taxable capital receipt.

Analysis: The compensation arose because specific performance of the underlying arrangement was found to be impossible and the decree recorded payment of damages in lieu of the assessee's right to sue. A mere right to sue is not transferable under section 6 of the Transfer of Property Act, 1882, and does not amount to a capital asset for the purposes of section 45 of the Income-tax Act, 1961. The matter was held to be covered by the line of authority treating damages for breach of contract, where no transferable capital asset survives, as a capital receipt not chargeable to capital gains tax. The Tribunal also distinguished the decision relied on by the Revenue on the basis that, on the present facts, no right in the property survived and no specific performance was available.

Conclusion: The compensation was not taxable as capital gains and remained a capital receipt in favour of the assessee.

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