Following a Karnataka High Court decision, in a recent case, the Bangalore Bench of the Indian Income-tax Appellate Tribunal has held that the relinquishment of rights under an agreement are capital assets, and thus, the income arising from such relinquishment is taxable as capital gains.

The expression “capital asset” has been defined under Indian tax law to mean “property of any kind”, subject to certain exclusions. Indian courts have examined this issue and held that contractual rights such as leasehold rights, subscription rights to shares of a company, rights to obtain a sale deed, and rights to title over immovable property are capital assets.

However, in the Vodafone case, India’s Supreme Court (Justice S. Radhakrishnan in his separate judgment) explicitly stated that contractual rights in an agreement do not sound in “property”, and hence, cannot, in the absence of a statutory stipulation, be considered as capital assets. We are not sure why the Vodafone judgment was not brought to the notice of the Tribunal. The issue will remain open pending a higher court ruling.