Law:

Section:

Section 74, read with section 2(14) of the Income-tax Act, 1961 [Corresponding to section 24(2A), read with section 2(4A) of the Indian Income-tax Act, 1922] - Losses - Under head 'capital gains' - Whether compensation, or damages paid for, to carry out a contract to purchase a property cannot be regarded as a loss arising from sale, exchange, relinquishment or transfer of a capital asset within meaning of section 2(4A) of 1922 Act - Held, yes - After having entered into agreement to purchase certain property, assessee was unwilling to complete transaction - To be absolved of liability to purchase, assessee executed contract to sell said property to another purchaser at a lower price and assessee as confirming party, paid difference between price stipulated to be paid by him and price paid by purchaser - Whether consideration paid by assessee was in substance consideration paid for being permitted to avoid obligation to purchase property and, therefore, it could not be regarded as loss falling under head 'capital gains' within meaning of section 24(2A) of 1922 Act - Held, yes FACTS On 18-9-1946, the assessee entered into an agreement with one 'K' to purchase a piece of land together with a house standing thereon. After having entered into the agreement, the assessee was unwilling to complete the transaction because the house which he had agreed to purchase was popularly describsd as vagmukhi and it was a common superstition that avagmukhi house brings ill-luck to the owner. On 11-4-1947, the assessee procured two other persons who agreed to purchase the property and executed a contract to sell the house to those persons at a lower price and the balance was paid by the assessee as a confirming party to 'K'. In the assessment of income-tax, the assessee claimed to deduct the amount paid by him and certain costs incurred in respect of this transaction from his total income as a loss from business. In the alternative, he claimed that it was a capital loss and the same was liable to be set off under section 24 of 1922 Act against capital gains under section 12B. The ITO rejected the contention of the assessee, holding that the agreement to purchase the house was not…

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