Assignment of contractual property rights qualifies for capital gains; penny-stock proceeds may remain unexplained cash credits.
Assignable contractual rights, including rights reinforced by a specific-performance decree to obtain conveyance of immovable property, are property and capital assets. Their assignment for consideration is a transfer taxable as capital gains rather than income from other sources, even where title or possession has not passed. Claims for indexed cost of improvement and residential-investment exemption require verification of supporting records and fresh adjudication. In alleged penny-stock share sales, surrounding circumstances may, on a preponderance-of-probabilities assessment, displace banking and demat documentation and require the taxpayer to establish genuineness. Unusual off-market acquisition, abnormal market movement and lack of credible investment rationale supported treatment of proceeds as unexplained cash credit.
Issues: (i) Whether assignment of contractual rights and rights under a decree to acquire immovable property constituted transfer of a capital asset taxable under the head Capital Gains; (ii) Whether the indexed cost of improvement claim required verification and fresh adjudication; (iii) Whether the claim for exemption under Section 54F required fresh adjudication; (iv) Whether the sale proceeds from shares could be assessed as unexplained cash credit under Section 68.
Issue (i): Whether assignment of contractual rights and rights under a decree to acquire immovable property constituted transfer of a capital asset taxable under the head Capital Gains.
Analysis: Section 2(14) of the Income-tax Act, 1961 covers property of every kind. An assignable contractual right to obtain conveyance of immovable property, including one enforced through a decree for specific performance, is property and therefore a capital asset. Its assignment for consideration amounts to a transfer under Section 2(47), and cannot be assessed under the residuary head under Section 56 merely because title or possession of the underlying land had not passed.
Conclusion: The assigned contractual and decree rights were a capital asset, and their assignment was taxable under the head Capital Gains and not as Income from Other Sources, in favour of the assessee.
Issue (ii): Whether the indexed cost of improvement claim required verification and fresh adjudication.
Analysis: Ledger accounts, bank withdrawal entries, advocate bills and court-fee receipts supporting the improvement expenditure had been furnished but were not examined by the lower authorities. Verification of those materials is necessary for determining the allowable indexed cost in accordance with law.
Conclusion: The indexed cost of improvement claim requires fresh verification and adjudication; no final entitlement was determined.
Issue (iii): Whether the claim for exemption under Section 54F required fresh adjudication.
Analysis: The exemption claim depended on verification of the asserted deposit and withdrawal of funds under the Capital Gains Account Scheme and their utilisation for purchase of land and construction of a residential house. The relevant documents, including the registered conveyance deed, were required to be considered while applying Section 54F of the Income-tax Act, 1961.
Conclusion: The Section 54F exemption claim requires fresh adjudication after considering the relevant evidence and contentions; no final eligibility was determined.
Issue (iv): Whether the sale proceeds from shares could be assessed as unexplained cash credit under Section 68.
Analysis: In alleged penny stock transactions, genuineness may be tested on the preponderance of probabilities from the surrounding circumstances. Although banking records, demat statements, contract notes and payment of securities transaction tax existed, the cumulative circumstances-an unusual off-market acquisition, abnormal price and volume movement, the investee company's lack of supporting fundamentals, suspension of trading, and absence of a credible investment rationale-shifted the burden to the assessee. Those circumstances independently supported the finding that the transactions were not genuine; cross-examination was not indispensable because no third-party statement was the sole basis of the addition.
Conclusion: The share-sale proceeds were rightly treated as unexplained cash credit under Section 68, against the assessee.
Final Conclusion: Consideration for assigning the enforceable right to obtain conveyance must be assessed as capital gains, while the improvement-cost and Section 54F claims require factual verification, and the addition relating to the penny stock share transactions remains sustainable.
Ratio Decidendi: An assignable contractual right, reinforced by a decree, 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.