TaxTMI 
TaxTMI 
1992 (1) TMI 51
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....t the receipt of Rs. 9 lakhs by the assessee as the assignment charge of its rights was a capital gain which was a short-term capital gain. In the appeal filed by the assessee against the action of the Income-tax Officer in taxing the amount of Rs. 6,94,232 under the head "Short-term capital gains", the Commissioner of Incometax (Appeals)-IV, Ahmedabad, by his order dated June 3, 1986, holding that it cannot be said that the value of the right transferred was " nil " and that the cost of acquiring the right and expenditure incurred in acquiring the right had been rightly taken into account by the Incometax Officer, dismissed the appeal confirming the order of the Income-tax Officer. In appeal before the Income-tax Appellate Tribunal, it was urged on behalf of the assessee that there was frustration of the original agreement of sale between the assessee and the vendor and consequently there was nothing which could be assigned with the result that there was no transfer and, therefore, no capital gain at all. It was also urged that, since the cheque for the amount of earnest money of Rs. 5 lakhs had been returned to the assessee by the vendor, the assessee had not incurred any cost fo....
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....y Mills Ltd., by which it assigned its benefits, advantages and obligations under the agreement dated August 12, 1980, in favour of the said assignee for a sum of Rs. 9 lakhs and the vendor joined in the sale agreement as a confirming party. As recorded in the deed of assignment, the vendor returned the cheque for Rs. 5 lakhs to the assessee. As pointed out above, the assessee had claimed before the Income-tax Officer that the receipt of Rs. 9 lakhs was not a taxable receipt as the assessee had not incurred any cost for acquiring its right since the cheque for the earnest amount of Rs. 5 lakhs was returned to the assessee and, therefore, the net surplus of Rs. 6,94,232 realised by the assessee after deduction of the expenditure of Rs. 2,05,768 which was incurred by way of service charge expenses, legal and professional charges and miscellaneous expenses for acquiring the rights and their assignment was not chargeable to capital gains tax. The Income-tax Officer, however, holding that the assessee had incurred the cost by virtue of having given the cheque for Rs. 5 lakhs by way of earnest money to the vendor and the expenditure of Rs. 2,05,768 which was incurred for acquiring the....
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....d Rs. 5 lakhs directly to the vendor in view of the cheque of the earnest amount of Rs. 5 lakhs having been returned to the assessee-assignor. If the amount of Rs. 5 lakhs were retained by the vendor, then an amount of Rs. 5 lakhs would have been paid by the assignee to the assignor in view of the assignee's having undertaken the liability to pay the entire amount of consideration under the deed of assignment. Therefore, it cannot be said that the assessee had acquired rights under the agreement of sale without having had to incur any cost simply because the cheque for Rs. 5 lakhs was returned to it unencashed by the vendor. The amount of Rs. 5 lakhs it received less from the assignee because, instead of being paid to it, it was directly paid to the vendor by the assignee in view of the assignor having been returned the earnest amount by the vendor. Thus, the Tribunal was right in holding that the claim of the assessee that it did not incur any cost in acquiring the rights under the said agreement was not acceptable and in confirming the decision of the Commissioner of Income-tax on that count. Question No. 2 is, therefore, answered in the affirmative and against the assessee. M....
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....estion which arises before us for consideration is as to whether, in all cases where interim orders are passed by courts, it would have the effect of frustrating the contract because, during the period when the interim orders remained operative, the parties could not have performed the terms of the contract. It is settled legal position that the court can give relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract has been frustrated by the inclusion or occurrence of an unexpected event or change of circumstances which was not contemplated by the parties on the date of the contract. In cases like the present one, where there is no question of supervening illegality involved, the proper test for frustration may be formulated as follows : If the promise under the contract were to be enforced as per the terms stipulated, could performance involve a fundamental or radical change from the obligation originally undertaken in view of the changed circumstances ? The important question is whether an unanticipated circumstance has made performance of the promise vitally different from what should reasonably have been within the cont....
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....nction lasted. It was also held that, even after the injunction was vacated, the successful tenderers never made an attempt to pay the balance amount till the date on which the High Court passed an order for maintaining the status quo ante and it was nobody's case that a new contract was ever entered into. The Supreme Court, therefore, held that, there was frustration of alleged contracts in the facts and circumstances of the case. In the instant case, it is clear that time was not treated to be of the essence of the contract. From the latter part of clause 32 of the agreement, it is clear that it was specifically agreed that the purchaser may, instead of rescinding the contract, extend from time to time the time for completing the sale and if the time for completion as stipulated in clause 21, namely, a period of two weeks of the receipt of the necessary permission from the Urban Land Ceiling authorities expired, the vendor would have the option of rescinding the agreement notwithstanding that the purchaser extended time for the same. It was further stipulated that, if the purchaser did not comply with its obligations under the agreement within the time fixed for completion, the v....