1. On September 18, 1946, the assessee entered into an agreement with one Kesarbai and others to purchase a piece of land together with a house sanding thereon, at Walkeshwar Road, Bombay, for Rs. 4 lakhs. Under the agreement of sale, the transaction was to be completed by the purchaser within 3 months. 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 described as vagmukhi and it was a common superstition that a vagmukhi house brings ill-luck to the owner. On April 11, 1947, the assessee procured two other persons who agreed to purchase the property and executed a contract to sell the house to those persons for Rs. 3,45,000. Thereafter, a sale deed was executed by Kesarbai and others of the property to which the assessee was a confirming party, whereunder Rs. 3,45,000 were paid by the purchasers and the balance was paid by the assessee as a confirming party. 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 against capital gains under section 12B of the Income-tax Act. The Income-tax Officer rejected the contention of the assessee, holding that the agreement to purchase the house was not in the course of a business conducted by the assessee and that the amount of consideration paid by the assessee under the deed of sale was not liable to be set off as a capital loss under section 12B of the Income-tax Act. That order was confirmed by the Appellate Assistant Commissioner. Before the Tribunal, the assessee acquire in the view of the income-tax authorities that the transaction entered into by the assessee was not in the course of his business. He merely claimed the benefit of section 12B of the Income-tax Act. The Tribunal held that by entering into an agreement of purchase, the assessee did not become the owner of the property and it was not possible to assume that the agreement to purchase the property under which the 'assessee was bound to lose could by itself be styled as a capital assets.' They further observed that the loss of the assessee was due to non-fulfillment of the agreement to purchase the property and that such a loss was not covered by section 12B of the Income-tax Act.
2. At the instance of the assessee, the Tribunal has referred the following question :
'Whether on the facts and in the circumstances of the case, the loss of Rs. 76,598 is a loss falling under the head 'capital gains' within the meaning of section 24(2A) of the Income-tax Act ?'
3. The assessee after entering into a contract to purchase the property on September 18, 1946, was admittedly unwilling to complete the contract and he wanted to be absolved of the liability to purchase the property for consideration. Even after the period of the agreement expired, the assessee purported to convey his rights under the agreement on April 11, 1947, and paid a sum of Rs. 55,000 under the conveyance dated May 19, 1947, to make up the consideration which the vendors had to receive. This is not a case in which after having paid the price for purchasing the property the assessee had sold his rights at a loss. If the transaction had taken the form of sale of the rights under an agreement at a loss, it would have been necessary for us to consider whether the benefit of an agreement to purchase immovable property may be regarded as 'property' within the meaning of section 2(4A) read with section 12B of the Indian Income-tax Act. In the present case, in substance the transaction between the vendors, the assessee and the ultimate purchasers appears to have assumed the form under which the property was conveyed to the ultimate purchasers and the assessee made up him and the price paid by the purchasers. The consideration paid by the assessee was in substance consideration paid for being permitted to avoid the obligation to purchase the property. By no stretch of imagination, in our judgment, can compensation or damages paid for failing to carry out a contract to purchase a property be regarded as a loss arising from sale, exchange, relinquishment or transfer of a capital asset within the meaning of depreciation section 2(4A) of the Income-tax Act.
4. We, therefore, answer the question in the negative.
5. The assessee to pay the costs of the Commissioner.
6. Question answered in the negative.