TaxTMI 
TaxTMI 
2000 (11) TMI 39
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....n the respective assessment years, whether the assessee was entitled to the reduction out of sale consideration of the rights to receive the royalty and other incident4l benefits to the third party for the purposes of computation of Capitol gains ?" Facts : The assessee is a public limited company. Brush Electrical Engineering Co. Ltd. (BEEC), a concern incorporated in England, entered into an agreement with an Indian company, namely, Southern Switchgear Ltd., (SSL) on December 12, 1963. As per this agreement, BEEC agreed to furnish technical data and information and to give certain other incidental ser vices to the SSL which were required for the manufacture of switchgear products specified-in the agreement. SSL in consideration was required to pay royalty to the BEEC. SSL commuted defaults in paying royalty amount as per the collaboration agreement. The aggregate of the arrears due came to Rs. 13,92,025 as on August 12, 1966. There was a supplemental agreement between BEEC and SSL by a document dated August 12, 1966. That was only to provide for the covenants which they subsequently entered into in regard to the collaboration agreement. On October 16, 1975, Industrial Credits....
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....p; 1979-80 83,521 1980-81 83,521 1981-82 83,521 1982-83 83,521  ....
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....e, the questions referred to in paragraph No. 1 of this judgment have been referred to this court for its opinion. Counsel for the parties have been heard at length. Questions Nos. 1 and 2 : As the questions raised before us arise from the same set of facts and are facets of the same argument (alternatively) we propose to deal with both of them together. Section 2(14) of the Act defines "capital asset" to mean property of any kind held by an assessee, whether or not connected with his business or profession, excluding those set out in the said provision. Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided be charge able to income-tax under the head "Capital pins" and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 provides the mode of computation and deductions. It provides that the income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the fallowing amounts, namely, (i) expenditure incurred ....
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....n made. Improvement is something which would raise the value of the asset. We fail to see as to how the interest due from SSL could improve the value of the asset. SSL had failed to discharge its primary debt to repay the principal amount. Unpaid amount of interest due on the principal amount would not enhance the value of the asset. The argument raised on the premise that there was an improvement of the asset cannot be accepted and has rightly been rejected by the Tribunal. BEEC had a bundle of rights which had been born out of the consultancy agreement dated December 12, 1963, as modified by the supplementary agreement dated August 12, 1996. The right to receive interest, in case of default by the SSL was one of the rights. The right by itself was not an independent asset. The asset was the aggregate of all the rights which the BEEC had acquired on account of the agreements which it had made with SSL. The assessee also transferred to TESCL the same bundle of rights without splitting it in any way. The right to receive interest is directly related to the act on the part of the debtor who made a defaults The right to receive any amount by way of interest is the consequence of the....