TaxTMI 
TaxTMI 
2026 (9) TMI 709
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....sessed in its entirety as "Income from other sources." The assessee has also challenged the disallowance of expenditure amounting to Rs.62,90,576. Besides these substantive grounds, certain legal grounds have been raised questioning the validity of the reassessment proceedings and the orders passed in relation to a deceased assessee. Since, for the reasons discussed hereinafter, the principal addition is being deleted on merits, the legal grounds are being left open and treated as academic in the present appeal. 3. The relevant facts are that a partnership firm in the name and style of M/s S.P. Building Corporation was constituted under a Deed of Partnership dated 30.01.1974 between late Shri Samrathmal Phoolchand Seth, Shri N.J. Gamadia and Shri Oomar Ahmad. A property bearing Plot No. 14, Mahalaxmi Estate, situated at Carmichael Road, Mumbai, was brought into the partnership by Shri N.J. Gamadia. Shri Oomar Ahmad retired from the firm on 02.08.1976, whereafter the firm continued with late Shri Samrathmal Seth and Shri Gamadia as its remaining partners. Disputes subsequently arose between them in relation to the dissolution of the firm and the ownership and control of the afore....
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....further observed that no possession was handed over under the agreement, a substantial part of the consideration was payable only upon the execution of the final documents and delivery of vacant and peaceful possession, and HDIL had retained the right to terminate the arrangement if the assessee failed to make out a marketable title. On this basis, the Assessing Officer held that the agreement dated 14.07.2006 did not result in the transfer of the land or any right therein in the financial year 2006-07 and that the amounts received until execution of the registered deed retained the character of advances. 6. The Assessing Officer then examined the Deed of Assignment executed in June 2008 and concluded that what was ultimately assigned to HDIL was not the immovable property as such, but the "actionable claim and/or chose in action," together with all the rights, benefits, claims and entitlements arising out of and connected with Suit No. 783 of 1987 and its subject matter. According to him, since the assessee neither conveyed a clear and marketable title nor handed over possession of the property, the consideration was essentially for assigning the right to contest the pending su....
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....by virtue of section 6(e) of the Transfer of Property Act, 1882, is incapable of transfer and cannot be regarded as an actionable claim. Consideration received for giving up such a right is a capital receipt and cannot be brought to tax either as capital gains or as income from other sources. In support of these propositions, reliance was placed upon the judgments of the Hon'ble Bombay High Court in CIT v. Abbasbhoy A. Dehgamwalla (1992) 195 ITR 28 (Bom), Bharat Forge Co. Ltd. v. CIT (1994) 205 ITR 339 (Bom) and Sterling Construction & Investments v. ACIT (2015) 374 ITR 474 (Bom), as well as the decision of the Tribunal in DCIT v. Shelter Developers, ITA No. 3753/Mum/2023, order dated 18.02.2025. The learned Departmental Representative, on the other hand, relied upon the findings of the Assessing Officer and the learned CIT(A) and submitted that the registered Deed of Assignment expressly described its subject matter as an actionable claim and, therefore, the consideration received thereunder had rightly been brought to tax in the Assessment Year 2009-10. 9. We have heard the rival submissions, perused the impugned orders and examined the material placed on record. The character....
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....ed merely to approaching a Court and seeking damages or other relief in respect of an alleged breach or disputed claim, it is neither an actionable claim capable of assignment nor a transferable capital asset in the ordinary sense. The legal effect cannot be altered merely by describing such a right in the deed as an "actionable claim" or "chose in action." 11. The Hon'ble Bombay High Court in CIT v. Abbasbhoy A. Dehgamwalla (supra) held that a right to receive damages consequent upon breach of a contract is a mere right to sue and is not transferable in view of section 6(e) of the Transfer of Property Act. Since such a right cannot be transferred, compensation received for its relinquishment cannot be regarded as consideration arising from the transfer of a capital asset so as to attract the charging provision under section 45. The same principle was reiterated in Bharat Forge Co. Ltd. v. CIT (supra). In Sterling Construction & Investments v. ACIT (supra), the Hon'ble Jurisdictional High Court examined the distinction between an enforceable contractual right to obtain conveyance of an immovable property and a mere claim for damages after the relief of specific performance had c....
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....essing Officer, the assessee did not possess any clear title or transferable interest in the property and merely held a right to contest the pending suit and pursue the consequential claims, then what stood relinquished was essentially a litigative right or a mere right to sue. On either hypothesis, the receipt retained its capital character. The Revenue cannot, on the one hand, deny that the assessee possessed or transferred any proprietary interest in the property and, on the other, treat the consideration received for surrendering the residual litigative claims as an ordinary revenue receipt taxable in its entirety under the residuary head. 14. The further reasoning that, since the amount was not chargeable under the head "Capital gains," it necessarily became taxable under the head "Income from other sources," is equally fallacious. Section 56 is a residuary charging provision, but it is not a provision of unlimited amplitude capable of bringing every receipt within the tax net merely because it does not conveniently fall under another head. The anterior and indispensable requirement is that the receipt must first partake of the character of "income." A capital receipt does ....
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....ordingly, directed to be deleted. 17. Once the addition has been deleted on the aforesaid substantive ground, it is unnecessary for us to adjudicate the subsidiary controversies as to whether the transaction accrued in the Assessment Year 2007-08 or the Assessment Year 2009-10, whether the rights assigned could otherwise be subjected to capital-gains tax, whether the cost of acquisition was capable of determination, whether the value of Rs.11.85 crore adopted as on 01.04.1981 was justified, or whether indexation was admissible. These questions would arise only if the receipt were otherwise found chargeable as capital gains in the year under consideration. Since that is not the basis upon which the assessment has been framed and the gross receipt brought to tax under section 56 has been held to be unsustainable, these issues do not require any adjudication and are left open. 18. The remaining substantive ground relates to the disallowance of expenditure of Rs.62,90,576. The assessee had shown interest income of Rs.97,19,161 and claimed that the expenditure was incurred for earning such income. However, apart from pointing out that the expenditure claimed was less than the inte....