AI Drafter 
TaxTMI 
TaxTMI 
2019 (7) TMI 221
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...., by not considering the written submissions in proper perspective. b) Without prejudice to the above, the learned CIT (A) erred in taxing the compensation under "Capital Gains-Short Term" without considering the written submissions in proper perspective. 4) In so far as the taxability in the Asst.year:2008-09 The learned CIT (A) erred in not only misconstruing the agreement dt. 18/09/2008, more particularly, not considering the very fact that the parties agreed to the payment of compensation to the appellant as early as on 0 1/07/2007 but also erred in not considering the agreement dt. 18/09/2008 in entirety, thereby endorsing the views of the Assessing Officer wrongly. 5) In so far as the taxing the compensation under "Business" a) The learned CIT (A) grossly erred in giving a finding that" it was claimed that certain expenditure is involved in the facilitation of the land transfer", for no such claim was ever made. [To that effect, petition uls.154 was filed on 15/11/2018 and the same is pending.] b) The learned CIT (A) fundamentally erred in changing the head of income "Capital Gains-Short Term" to "Business", without consid....
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....ssee Smt. P.Thillaikarasi is stated to .be unable to fulfill her obligation as set out in both the agreements i.e. first agreement dated 20.04.2007 with M/s. B. Rangasamy Naidu Orchards Pvt.. Ltd and the second agreement dated 20.04.2007 with M/s. Texcity Software Parks Pvt.. Ltd. After mutual discussion with M/s. B. Rangasamy Naidu Orchards Pvt. Ltd, the assessee agreed to assign the agreement between the assessee and M/s. B. Rangasamy Naidu Orchards Pvt. Ltd. to the other party M/s. Gestione Consulting India Pvt. Ltd., 6.4. As a result of this, the agreement between the assessee and M/s. Texcity Software Parks Ltd. (later assigned to M/s. Gestione Consulting India Pvt. Ltd) came to stand cancelled. For this act, the assessee has received a sum of Rs. 3,00,00,000/-. 6.5. As seen from the endorsements in the Memorandum of Agreement dated 18.09.2008 between the M/s. B. Rangasamy Naidu Orchards Pvt. Ltd. (First Party), the assessee (Second Party) and M/s. Gestione Consulting India Pvt. Ltd. (Third Party), the assessee has received the compensation of Rs. 3,00,00,000/- as under: Rs. 1,00,00,000/- by P.O. on Axis Bank Ltd. dated 13.11.2008. Rs. 1 ,50....
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....al asset but "right in personam" which is not a capital asset and within the meaning of the provisions of s. 2(14) of the Act. Thus, it is submitted that the compensation received cannot be brought to tax under capital gains. He placed reliance on the decision of Hon'ble High Court of Gujarat in the case of Baroda Cement & Chemicals Ltd. vs. CIT [1986] 158 ITR 636 (Guj.) and the order of Co-ordinate Bench of Tribunal, Ahmedabad in the case of Bhojison Infrastructure Pvt. Ltd. in ITA No.2449/Ahd/2016 dated 17.09.2018 and the decision of Hon'ble High Court of Bombay in the case of M/s. Sterling Construction & Investments v. Asst. CIT in ITA No.1126 of 2000 dated 09.04.2015. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities. 8. We heard the rival submissions and perused the material on record. The solitary issue involved in the present appeal is whether or not the compensation received for foregoing the rights in the agreement to purchase property is taxable. The admitted facts of the case are that the appellant entered into an agreement with M/s. B.Rangasamy Naidu Orchards Pvt. Ltd. to purchase land of 3.34 acres situated ....
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....t in personam and such right cannot certainly be transferred. In order to attract the charge of tax on capital gains, the sin qua non is that the receipt must have originated in a 'transfer' within the meaning of Section 45 r.w.s. 2(47) of the Act. In the absence of its transferability, the compensation/damages received by assessee is not assessable as capital gains. 10.2 The co-ordinate bench of ITAT, Ahmedabad in the case of Deputy CIT(A) vs. Shekhar G. Patel ITA No.1997/Ahd/2010 order dated 19.03.2014 relied upon on behalf of the assessee has made reference to host of judicial pronouncements including the decision of the Hon'ble Gujarat High Court in the case of Baroda Cement and Chemicals Ltd. (supra) and concluded the issue in faovur of assessee. The Co-ordinate bench highlighted the relevant part of the decision of the Hon'ble Gujarat High Court which is reproduced hereunder : "18. The assessee had undoubtedly a right to sue M/s K.C.P. Ltd. for damages for breach of contract. Instead of litigating in a Court of law, the parties arrived at a settlement whereunder compensation in the sum of Rs. 1,40,000 came to be paid in full and final sat is faction ....
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....et, there could be no quest ion of transfer by extinguishment of the assessee's rights therein since such a transfer would be hit by s. 6(e) of the Transfer of Property Act. In any view of the matter, it is difficult to hold that the sum of Rs. 1,40,000 received by way of compensation by the assessee was consideration for the transfer of a capital asset." 10.3 The Hon'ble Gujarat High Court in Baroda Cement (supra), in turn, referred to the concept of breach of contract as discussed by the Hon'ble Bombay High Court in the case of Iron and Hardware (India) Co. vs. Shamlal & Bros. AIR 1954 Bom 423 as under (p. 645 of 158 ITR): "10. Chagla, C.J., had an occasion to consider this aspect of the law in Iron and Hardware (India) Co. vs. Shamlal & Bros. AIR 1954 Bom 423. The learned Chief Justice observed as under(p. 425) : It is well settled that when there is a breach of contract, the only right that accrues to the person who complains of the breach is the right to file a suit for recovering damages. The breach of contract does not give rise to any debt and, therefore, it has been held that a right to recover assignable because it is not a chose- in....
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.... damages for breach of contract between the parties. Pointing out that so far as the law in India is concerned, there is no qualitative difference in the nature of the claim, whether it be for liquidated damages or unliquidated damages, the Supreme Court proceeded to state the law as under (p. 1273): ''When there is a breach of contract, the party who commits the breach does not eoinstant iincur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in s. 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred.' Quoting the statement of law enunciate d by Chagla C.J., which is extracted earlier, the Supreme Court stated (p. 127 3) : 'This statement in our view represents the correct legal position and h a s our full concurrence'. 12. It would seem well-settled from the above discussion that after there is a breach of contract....