Sections 2(14), 2(47), 45, 56 – Giving up of a right to claim specific performance by conveyance in respect of an immovable property amounts to relinquishment of capital asset. It is not necessary that in all such cases there should have been a lis pending between the parties and in such lis the right to specific performance has to be given up. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of capital gains. Amount received in lieu of giving up the said right constitutes capital gains and is exigible to tax

16. [2020] 117
taxmann.com 520 (Bang.)(Trib.) Chandrashekar
Naganagouda Patil vs. DCIT ITA No.
1984/Bang/2017 A.Y.: 2012-13 Date of order: 29^th
June, 2020

Sections 2(14),
2(47), 45, 56 – Giving up of a right to claim specific performance by
conveyance in respect of an immovable property amounts to relinquishment of
capital asset. It is not necessary that in all such cases there should have
been a lis pending between the parties and in such lis the right
to specific performance has to be given up. The payment of consideration under
the agreement of sale, for transfer of a capital asset, is the cost of
acquisition of capital gains. Amount received in lieu of giving up the
said right constitutes capital gains and is exigible to tax

FACTS

The assessee, an
individual, entered into an agreement dated 9^th February, 2005 to
purchase a vacant site in Amanikere village, Bangalore for a consideration of
Rs. 27,60,000. He paid an advance of Rs. 2,75,000 and agreed to pay the balance
at the time of registration of sale deed. The vendor of the property was
required to make out a marketable title to the property. Under clause 8 of the
agreement, the assessee had a right to enforce the terms by way of specific
performance.

On 8^th
February, 2011, Mr. Channakeshava as vendor, along with the assessee as a
confirming party, sold the property to a third party for a consideration of Rs.
82,80,000. The preamble to the sale deed stated that the assessee has been
added as a confirming party as he was the agreement holder who had a right to
obtain conveyance of the property from the owner. Out of the consideration of
Rs. 1,200 per sq. feet, a sum of Rs. 500 per sq. feet was to be paid to the
vendor, Mr. Channakeshava, and Rs. 700 per sq. feet was to be paid to the
assessee.

The assessee
considered the sale consideration of Rs. 48,30,000 so received under the head
capital gains. The A.O. was of the view that under the agreement dated 9^th
February, 2005, the assessee did not have any right over the property except a
right to get refund of advance paid. Accordingly, he taxed Rs. 45,55,000 under
the head income from other sources.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O.
by observing that the assessee did not file any suit for specific performance
and did not have any right over the capital asset.

Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that
the Karnataka High Court has in the case of CIT vs. H. Anil Kumar [(2011)
242 CTR 537 (Kar.)] held that the right to obtain a conveyance of
immovable property falls within the expression `property of any kind’ used in
section 2(14) and consequently it is a capital asset. The Tribunal held that
the right acquired under the agreement by the assessee has to be regarded as
‘capital asset’. Giving up of the right to claim specific performance by
conveyance in respect of an immovable property amounts to relinquishment of the
capital asset. Therefore, there was a transfer of capital asset within the
meaning of the Act. The payment of consideration under the agreement of sale,
for transfer of a capital asset, is the cost of acquisition of the capital
asset. Therefore, in lieu of giving up the said right, any amount
received constitutes capital gain and it is exigible to tax. It is not
necessary that in all such cases there should have been a lis between
the parties and in such lis the right to specific performance has to be
given up. The Tribunal held that the CIT(A) erred in holding that the assessee
did not file a suit for specific performance and therefore cannot claim the
benefit of the ratio laid down by the Hon’ble Karnataka High Court in
the case of H. Anil Kumar (Supra).

The Tribunal
allowed the appeal filed by the assessee.