TaxTMI 
TaxTMI 
2026 (9) TMI 1250
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....0,00,000/- consideration received on assignment of decree as income from other sources and not giving rise to capital gain earned on transfer of a capital asset as claimed by the Assessee. 2. Ld. CIT(A)/(NFAC) erred in law and on facts to hold that 'Right to litigate is inherently a contingent right and not a right to ownership of immovable property to be construed as a capital asset which gives rise to capital gain on its assignment by a court decree. 3. Ld. CIT(A)/(NFAC) erred in law and on facts in not adjudicating alternate contention that cost of 'Right to litigate' not ascertainable and receipt being for damages cannot be taxable as held by Hon'ble Apex Court in CIT v B C Srinivas Shetty that there can be no capital gain when there is no cost. 4. Ld. CIT(A)/(NFAC) erred in law and on facts in confirming disallowance of Rs. 22,66,531/- claimed as indexed cost of improvement ignoring complete details of cost incurred supported by ledger account from 2000-01 onwards in the books along with payment/withdrawals receipt from bank pass book. 5. Ld. CIT(A)/(NFAC) erred in law and on facts in confirming disallowance of Rs. 99,96,687/....
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....shares of M/s. Kappac Pharma Ltd. as unexplained income and denying exemption under Section 10(38) of the Act. Thus, the Assessing Officer determined the total assessed income of the Assessee at INR.2,26,05,550/-. 4. The appeal preferred by the Assessee against the Assessment Order, dated 29/12/2017, was dismissed by the CIT(A) vide order dated 30/06/2025. 5. Being aggrieved by the above order passed by the CIT(A), the Assessee has preferred the present appeal on the grounds reproduced in paragraph 2 above. 6. We have heard the rival submissions and perused the material on record. Ground Nos. 1, 2, 3 and Additional Ground [Ground No. 10] 7. Ground Nos. 1, 2, 3 and Additional Ground (Ground No. 10) raised by the Assessee relate to the characterization of consideration of INR.1,50,00,000/- received by the Assessee on assignment of the contractual rights and the Court Decree/Hukamnama as 'Income from Other Sources' (as against 'Long Term Capital Gain' as disclosed by the Assessee in the return of income) by the Assessing Officer and computation of capital gains tax liability. 8. Ground No. 1 & 2 challenge the characterization of consideration of INR.1,50,00,000/- ....
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....uted or brought to tax in the hands of the Assessee. It was further submitted that heads of income under Section 14 of the Act are mutually exclusive. If a receipt falls under the head 'Income from Capital Gains', it cannot be brought to tax under the residuary head 'Income from Other Sources' under Section 56 of the Act merely because computation fails or exemption is claimed. 8.2. Per contra, the Learned Departmental Representative placed reliance on the Assessment Order and order passed by the Learned CIT(A), contending that since the original land owners disputed the contract and no registered conveyance deed was executed, the Assessee only held a contingent right to litigate and not a capital asset in terms of Section 2(14) of the Act. Therefore, income arising from transfer of such right was rightly assessed by the Assessing Officer under Section 56 of the Act as 'Income from Other Sources'. 8.3. We have given thoughtful consideration to the rival submissions and have perused the material on record. 8.4. The core issue that arises for consideration is whether in the facts and circumstances of the present case the assignment of rights under a Court Decree/Hukamnama al....
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....ted by Section 2(14) of the Income-tax Act. It held that the amount of Rs. 5,00,000 had been received by the assessee as consideration for assigning its rights under the agreement, which fell within the wide definition of "capital assets" in the Income-tax Act. It also held that the earnest money paid by the assessee to A was the consideration for which the property under the agreement had been acquired. 11. The decision in the case of Tata Services Ltd., was followed by this court in CIT v. Sterling Investment Corporation Ltd.. This was a case where the assessee had entered into an agreement to purchase immovable property and had paid earnest money. Matters dragged on. Ultimately, an agreement was reached and only the sum of Rs. 10,000 was returned to the assessee. The assessee claimed before the tax authorities that it had lost the balance of the earnest money that it had paid and that this was a capital loss. This court was called upon on a reference to decide whether this was correct. It considered the definition of "capital asset" under the Income-tax Act and held that the contractual right of the purchaser to obtain title to immovable property for a price, which righ....
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.... and the sale thereof to him. Earnest money was paid. In exercise of the right to have the conveyance executed in the name of a nominee, the assessee was nominated. The assessee was constrained to file a suit against the contractors for an injunction against selling the property to third parties and he obtained an injunction. When the suit reached hearing, the parties agreed to go to arbitration and the assessee gave up his claim for specific performance of the agreement and retained his right to claim damages. The arbitrator awarded damages in the sum of Rs. 1,02,500. The question before the court was whether the amount of Rs. 1,02,500 could be assessed to tax as a capital gain. The Delhi High Court noted the judgment of this court in the case of Tata Services Ltd. and distinguished it on the facts. The court said that, in the case before it, it had to determine whether the damages received by the assessee were in respect of a capital asset. There was a breach of contract and the assessee received damages in satisfaction thereof. He had a mere right to sue for damages. Assuming the same to be property, it could not be transfered under Section 6(e) of the Transfer of Property Act. ....
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....lant was expected to produce, that the settlement could not be treated as being in the ordinary course of the businesss of the assessee and that there had been a sterilisation of the assessee's capital assets in that the English company had not erected the plant according to stipulation. The decision was, therefore, rendered upon the particular facts of that case, which are not akin to the facts before us. 16. In CIT v. Ashoka Marketing Ltd., the Calcutta High Court held upon the facts that there had been no element of cost in the acquisition of which the sum of Rs. 1,00,000 was paid as liquidated damages under an agreement to purchase the property. In CIT v. Dhanraj Dugar, the facts before the Calcutta High Court were unusual. The assessee was a broker of immovable property. He entered into an agreement with three other persons for the purchase of an immovable property which was to be developed and resold. The assessee was not to pay any part of its purchase price. There were disputes between the four persons and the assessee filed a suit claiming partition. Upon a settlement, the assessee received Rs. 1,00,000. The question was whether the sum of Rs. 1,00,000 was rec....
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....ve legal position, we hold that in the facts and circumstances of the present case the assignment of rights under a Court Decree/Hukamnama along with contractual rights to acquire immovable property constituted transfer of 'capital asset' in terms of Section 2(14) read with Section 2(47) of the Act. Consequently, the consideration of INR.1,50,00,000/- received by the Assessee was chargeable to tax under the head 'Capital Gains' and not as 'Income from Other Sources'. Therefore, the addition of INR.1,44,68,144/- made by the Assessing Officer is set aside and the Assessing Officer is directed to assess the receipt under the head 'Capital Gains' in accordance with law. Thus, Ground No. 1 & 2 raised by the Assessee are allowed while Ground No.3 & Additional Ground (Ground No.10), containing alternative contention, are dismissed as having been rendered infructuous. 9. Ground No. 4 raised by the Assessee pertains to the disallowance of indexed cost of improvement of INR.22,66,531/-. We have considered the rival submission on this issue. It is admitted position that while computing Long Term Capital Gain, the Assessee had claimed indexed cost of improvement of INR.22,66,531/-. The Asse....
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..... 10.2. Per contra, the Learned Departmental Representative relied on the Assessment Order and submitted that the contentions raised by the Assessee were not supported by relevant documentary evidence. Reliance was also placed upon the findings returned by the Learned CIT(A) on this issue. 10.3. We have considered the rival submissions and have perused the relevant material on record. We note that the Assessing Officer and the CIT(A) had rejected the claim of the Assessee on the ground that the Assessee had failed to furnish documentary evidence to establish compliance of statutory conditions for claiming benefit of Section 54F of the Act. It is the case of the Assessee that relevant documents in the form of (a) details/proof of funds deposited and withdrawn from the Capital Gains Account Scheme and its utilized towards purchase of land and constructing for new residential house (b) Registered Conveyance Deed Regn No. 10398 dated 29/10/2016 were furnished by the Assessee. Given the aforesaid position, we deem it appropriate to restore this issue back to the file of the Assessing Officer. The Assessing Officer is directed to adjudicate the claim setup by the Assessee for exemp....
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....plying the test of preponderance of probabilities, the Assessing Officer concluded that the transaction of purchase/sale of shares of Kappac Pharma Private Limited were not genuine and were in the nature of accommodation entry. Therefore, the Assessing Officer added the total sale proceeds of INR.44,80,805/- as unexplained cash credit under Section 68 of the Act in the hands of the Assessee. In appeal, the Learned CIT(A) upheld the addition. As a result, the Assessee is appeal on this issue before this Tribunal. 11.2. We have heard both the sides on this issue. 11.3. It was contented on behalf of the Assessee that (a) the purchase consideration was paid through banking channels; (b) the shares were disclosed in the audited financial statements; (c) the shares were credited to the demat account; (d) the sales were executed through a registered stockbroker on the stock exchange; (e) STT was paid; and (f) the sale consideration was received through banking channels. On the basis of the aforesaid it was contended that the Assessee had discharged the initial onus under Section 68 of the Act. it was also contended that no independent inquiry was conducted by the Assessing Off....
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....Transaction Tax (STT) was paid on each sale transaction as reflected in the contract note-cum-invoices. (h) The gross sale proceeds totaling to INR.44,80,805/- were credited to the bank account via regular banking channels. (i) After deducting the cost of acquisition of INR.2,50,000/-, the Assessee computed LTCG of INR.42,30,805/- and claimed exemption under Section 10(38) of the Act in his return of income for Assessment Year 2015-16. 11.6. The contention of the Assessee is that the transaction of purchase and sale of shares of M/s. Kappac Pharma Ltd. are genuine and in support the Assessee had placed reliance upon the documentary evidences and disclosures made in the financial statements and return of income. On the other hand, the Revenue has contended that the aforesaid transactions are not genuine on the basis of circumstantial evidence and by applying the test of human probabilities. 11.7. We have given thoughtful consideration of the above contentions and are of the considered view that in case involving allegation of bogus penny stock transactions, which are generally structured in a manner that there would be little direct evidence, the genuineness ....