Law:

Section:

Section 2(14), read with section 2(47), of the Income-tax Act, 1961 - Capital gains - Capital asset - Assessment year 1987-88 - Whether giving up of right to claim specific performance by an assessee to get conveyance of immovable property, in lieu of receiving consideration, would result in extinguishment of right in property and it would thereby attract rigour of section 2(14), read with section 2(47) - Held, yes FACTS The assessee-firm entered into a contract to purchase certain immovable property at Rs. 1,05,000. The agreement was not carried out by the seller and, hence, the assessee-firm filed a suit for specific performance of contract against the seller which was dismissed. However, subsequently, the parties compromised and the seller agreed to pay certain sum as damages to the assessee. The Assessing Officer treated the receipt of the said amount to be in the nature of capital gains and taxed it accordingly. On appeal, the Commissioner (Appeals) upheld the view of the Assessing Officer. On further appeal, the Tribunal held that the receipt in question could not be regarded and/or taxed as capital gains as defined under section 2(47) and, thus, it deleted the addition made by the Assessing Officer. On reference : HELD The expression 'property of any kind' used in section 2(14) is of wide import. When the said expression is read along with the expression defined in section 2(47)(ii), i.e., extinguishment of any rights therein, there is no doubt that giving up of right to claim specific performance by an assessee to get conveyance of immovable property in lieu of receiving consideration resulted in extinguishment of right in property thereby attracting the rigour of section 2(14), read with section 2(47). In other words, the action on the part of the assessee in the instant case in giving up its right to claim the property and instead accepting the money compensation was a clear case of relinquishment of a right in the property resulting in transfer as defined in section 2(47). When the Legislature in its wisdom defines a particular type of transaction to be in the nature of transfer for taxing purpose, then the effect has to be given to such transaction…

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