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TMI Blog2022 (6) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... ey have correctly offered INR 15,94,000/- as Long Term Capital gains and the same ought to be allowed as claimed in the Return of Income filed. 2. The learned CIT (A) erred in confirming the action of the Assessing Officer in not granting exemption under section 54EC of INR 15,94,000/- as claimed by your appellants. Your appellants submit that they have correctly claimed the exemption under section 54EC as per the provisions of the Income Tax Act, 1961 and the same ought to have been allowed as claimed." 3. The brief facts relevant to the issues before us are that the Appellant filed return of income for Assessment Year 2013-14 on 18.02.2014 declaring total income of INR 58,900/-. The case of the Appellant was selected for scrutiny and notice under Section 143(2) dated 03.09.2014 was issued to the Appellant. During the course of assessment proceedings the Assessing Officer noticed that the Appellant has shown Long Term Capital Gains (LTCG) of INR 15,94,000/- and has claimed exemption under Section 54EC of the Act having invested INR 16,00,000/- in bonds issued by National Highway Authority of India (NHAI) on 06.03.2013.The Appellant was asked to justify the aforesaid claims. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty will be conferred on the assessee, only after receipt of possession of the property, before taking over possession/occupation the assessee will not have any right on the property. In support of this view, there are various judicial decisions, where in it is decided that only on receiving the possession of the property, the assessee will acquire any rights on the property. In the instant case, even though the purchase agreement was registered, the rights on the property were not transferred to the assessee. 4.6. As per the terms and conditions of the agreement, the builder has not handed over the possession to the assessee, and hence, the agreement has automatically become null and void. The payment made by the assessee remained as advance for acquiring property. Since, the property has not become a capital asset in the hands of the assessee, the said transaction cannot be termed as sale and purchase of immoveable property and resultant gain/loss also cannot be treated as capital gains. Builder has compensated the assessee for not performing the specific contract with in the specified time and not for purchasing the property from the assessee. 4.7. In view of the above, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three installments of INR 15,00,000/- each out of which the first installment was to be paid on or before 30.04.2012 and the last installment to be paid on or before 30.06.2012. The unregistered Cancellation Deed, dated 14.03.2012, wherein the amount of INR 60,00,000/- was mentioned, was signed to ensure that the Developer makes the agreed payment of INR 60,00,000/-. However, the same was not registered as the Appellant was not sure whether the payment would be made by the Developer since a cheque issued by the Developer on 24.03.2012 for INR 15,00,000/- was returned unpaid on account of insufficient funds. It was only after receipt of substantial payment of INR 45,00,000/- on/by 03.09.2012, that the Appellant agreed for registration of a cancellation deed. Accordingly, Cancellation Deed, dated 11.09.2012, was registered on 12.09.2012 leading to extinguishment of rights in the Flat. Accordingly, the Appellant had offered to tax LTCG of INR 15,94,000/- as income for the Assessment Year 2013-14. The investment of INR 16,00,000/- in bonds issued by NHAI was made on 06.03.2013 which is within a period of six months from the end of the month in which extinguishment of rights by virtue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the registered Cancellation Deed dated 11.09.2012 did not make a reference to the sum of INR 60,00,000/-. The payments made by the Appellant were in the nature of advance and did not have the character of cost of acquisition of the 'right' as claimed by the Appellant. He submitted that the findings of the Assessing Officer that there was no LTCG arising within the meaning of Section 45 of the Act which were confirmed by the CIT(A) need to be upheld. 9. We have considered the rival submissions and perused the material on record. In our view, the both the Assessing Officer and the CIT(A) have failed to appreciate the statutory protection/rights available to the Appellant under the provisions of Maharashtra Ownership Flat Act, 1963 and Maharashtra Ownership Flat Rules, 1964. The relevant extract of Clause 45 of the PA read as under: "45 The Agreement shall always be subject to the provisions contained in the Maharashtra Ownership Flat Act, 1963 and the Maharashtra Ownership Flat Rules, 1964 or the Companies Act, 1956, or the Maharashtra Apartment Ownership Act as the case may be or any amendments or re-enactment thereof for the time being in force or any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anced. In our view, the consideration that weighed with the authorities below were relevant for determining the issue of title of the Flat and not the rights/interest in the same. We are unable to agree with the conclusion drawn by Assessing Officer/CIT(A) that the Appellant has no right/interest in the Flat. Even the CIT(A), while concluding in paragraph 4.18 (reproduced herreinbelow), has observed that "it was a simple flat purchase deal that went bad": "4.18 It also needs to be noticed that while the first payment was made by the appellant to the Developer on 02.08.1996, the Agreement for Purchase was signed after a long hiatus on 06.03.2002 and was eventually cancelled through the registered Cancellation Deed after another long hiatus on 11.09.2012. The appellant made the last of its 10 installment payments to the Developer on 01.01.1998, which is soon after the Developer got the notice dated 11.06.1997 from the Municipal authorities about the illegality of the ongoing construction, as discussed ante. The totality of circumstances show that it was a simple flat purchase deal that went bad and the appellant obtained a sum of Rs. 60 lakhs from the Developer. The deal had nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bligation to pay INR 60,00,000/- to the Appellant, there was no reason for Assessing Officer/CIT(A) to doubt the veracity/validity of Cancellation Deed, dated 11.09.2012 which was a registered document merely for the reason that the amount of INR 60,00,000/- was not stated therein. Accordingly, we hold that payment of INR 60,00,000/- received by the Appellant from the Developer is the consideration from transfer of capital asset resulting in income chargeable to tax as Capital Gains (and not Income from Other Sources) in the hands of the Appellant. 14. We note that the Assessing Officer had denied the benefit of Section 54EC of the Act to the Appellant holding that the investment in the bonds issued by NHAI was made after a period of 11 months taking the date of execution of unregistered Cancellation Deed, dated 24.03.2012. The conclusion of the Assessing Officer in this regards are as under: "5. Without prejudice to the above, the claim of Long term capital gains and allowability of exemption claimed by the assessee u/s. 54EC, is discussed as under: 5.1. With regards to receipt of compensation from the Builder, the notice U/s. 133(6) was issued to M/s. Vora Estate Developers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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