INCOME TAX ACT, 1961

Section 45

Capital gains - Taxability - Receipt of additional compensation towards assessee foregoing right to sue -

Property under consideration was subject-matter of extensive litigation which ultimate got culminated into sale of property by assessee as per consent terms, between assessee and certain other parties. The assessee, along with others, executed deed of conveyance in favor of 'H' Ltd. for aggregate sale consideration of Rs. 4 Crores. Additional compensation of Rs. 9 Crores was payable to assessee only pursuant to consent terms before Supreme Court for time, money and effort put in by him to challenge acquisition of suit property and for pursuing litigation before the Authorities, Bombay High Court and Supreme Court. The additional compensation was towards time, cost and effort of assessee in pursuing litigation. And further warding off of his right to sue at any forum/authority court of law. AO held said compensation was part and parcel of the transaction of sale of property and, therefore, taxable under the head Capital gains.Held: Additional compensation in the nature of damges granted by Apex Court to assessee on account of time, effort and cost put in by the assessee single handedly for over a decade to challenge the acquisition of suit properties. By accepting such compensation, assessee had foregone 'right to sue' or contest the case further at any forum, whatsoever, there, could not be any transfer of a 'right to sue' under Indian Law and any capital receipt arising from a right could not, therefore, be considered capital gains as the cost of the said right being indeterminable, the charging section would fail.