Assignment of decree-backed land rights is treated as capital gains, while penny-stock proceeds remain unexplained cash credit.
Assignable contractual and decree-backed rights to obtain conveyance of immovable property constitute capital assets, and their assignment for consideration is a transfer taxable as capital gains rather than income from other sources. Indexed cost of improvement requires verification of ledger accounts, bank withdrawals, advocate bills and court-fee receipts before allowance. Eligibility for residential-house exemption depends on consideration of capital-gains account deposits, withdrawals, conveyance evidence and relevant circulars. In penny-stock transactions, documentary records may be displaced where surrounding circumstances-including unusual off-market acquisition, abnormal price and volume movements, suspension, weak company fundamentals and no credible investment rationale-establish lack of genuineness on a preponderance of probabilities; share-sale proceeds may then be treated as unexplained cash credit and long-term capital-gains exemption denied.
Issues: (i) Whether consideration received on assignment of a court decree and contractual rights to acquire land is taxable under the head Capital Gains rather than Income from Other Sources; (ii) Whether the claim for indexed cost of improvement requires verification of the documentary evidence; (iii) Whether the claim for exemption under Section 54F requires fresh adjudication after considering evidence of capital-gains account deposits, withdrawals and investment in a new residential house; and (iv) Whether sale proceeds from shares were liable to be added as unexplained cash credit under Section 68 and exemption for long-term capital gains could be denied.
Issue (i): Whether consideration received on assignment of a court decree and contractual rights to acquire land is taxable under the head Capital Gains rather than Income from Other Sources.
Analysis: Sections 2(14) and 2(47) treat property of any kind held by an assessee and its assignment or relinquishment as a capital asset and transfer respectively. An enforceable contractual and decree-backed right to obtain conveyance of immovable property is an assignable proprietary right, not merely a contingent right to litigate or a bare right to sue. The assignment of that right for consideration therefore attracted the head Capital Gains and could not be assessed under the residuary head Income from Other Sources.
Conclusion: The assigned contractual and decree-backed rights were a capital asset and their assignment was a transfer; the consideration is chargeable under Capital Gains, in favour of the assessee.
Issue (ii): Whether the claim for indexed cost of improvement requires verification of the documentary evidence.
Analysis: The record showed that ledger accounts, bank withdrawal entries, advocate bills and court-fee receipts supporting the claimed improvement expenditure had been furnished, but had not been examined by the lower authorities. Verification of those documents was therefore necessary before determining the allowable indexed cost.
Conclusion: The indexed-cost claim is remitted for documentary verification and fresh determination in accordance with law.
Issue (iii): Whether the claim for exemption under Section 54F requires fresh adjudication after considering evidence of capital-gains account deposits, withdrawals and investment in a new residential house.
Analysis: The exemption was denied for want of evidence of compliance with the statutory conditions. The assessee asserted that deposits and withdrawals under the Capital Gains Account Scheme and a registered conveyance for land intended for construction of a residential house had been furnished. These materials require consideration in determining eligibility under Section 54F, including the applicability of the relevant circular.
Conclusion: The Section 54F claim is remitted for fresh adjudication after considering the supporting material and granting opportunity of hearing.
Issue (iv): Whether sale proceeds from shares were liable to be added as unexplained cash credit under Section 68 and exemption for long-term capital gains could be denied.
Analysis: In alleged penny-stock transactions, genuineness is tested on the cumulative effect of surrounding circumstances and the preponderance of probabilities. Although purchase and sale documents, demat records, contract notes and banking entries were produced, the scrip was covered by the investigation report; acquisition occurred through an unusual off-market physical transaction; its price and volume movements were abnormal; trading was suspended; the company lacked corresponding fundamentals; and no credible investment rationale was shown. These circumstances displaced the evidentiary value of the documents and shifted the onus, which remained undischarged. The addition rested on independent circumstantial evidence and not solely on any third-party statement requiring cross-examination.
Conclusion: The share-sale proceeds were rightly treated as unexplained cash credit under Section 68 and the exemption claim was rightly denied, against the assessee.
Final Conclusion: The receipt from assignment of the decree-backed contractual rights must be assessed as capital gains; the claims for indexed improvement cost and Section 54F exemption require fresh verification; and the addition concerning the penny-stock share transactions remains sustained.
Ratio Decidendi: An assignable contractual or decree-backed right to obtain conveyance of immovable property is property constituting a capital asset, and its assignment for consideration is a transfer chargeable under the head Capital Gains.