|CORAM:||Mahavir Prasad (JM), Pradip Kumar Kedia (AM)|
|SECTION(S):||2(14), 2(47), 28(va)|
|CATCH WORDS:||capital asset, capital vs. revenue receipt, right to sue, transfer|
|DATE:||September 17, 2018 (Date of pronouncement)|
|DATE:||September 29, 2018 (Date of publication)|
|FILE:||Click here to view full post with file download link|
|S. 2(14)/ 28(va): The "right to sue" which arises on breach of a development agreement is a "personal right" and not a "capital asset" which can be transferred. Consequently, the damages received for relinquishment of the "right to sue" is a non-taxable capital receipt (all judgements considered)|
A development agreement was executed which enabled the assessee to utilize the land for construction and for sharing of profits. This right/advantage accrued to the assessee was sought to be taken away from the assessee by way of sale of land. The prospective purchaser as well as the defaulting party (owner) perceived threat of filing suit by developer and consequently paid damages/ compensation to shun the possible legal battle. The intrinsic point with respect to accrual of ‘right to sue’ has to be seen in the light of overriding circumstances as to how the parties have perceived the presence of looming legal battle from their point of view. I t is an admitted position that the defaulting party has made the assessee a confirming party in the sale by virtue of such development agreement and a compensation was paid to avoid litigation. This amply shows the existence of ‘right to sue’ in the perception of the defaulting party.