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TMI Blog2022 (12) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment was subsequently cancelled by the State of Goa and consequently, the Assessee received a refund of Rs. 28,03,68,246/-. The said refund included a sum of Rs. 9,86,07,762/- as compensation calculated as simple interest@10%per annum, over and above the amount paid by the Assessee for the allotment of the said plot of land. The said amount was received by the Assessee during the Financial Year ('FY') 2012-13 and accordingly, the Assessee filed its Return of Income ('ITR') for AY 2013-14, and claimed a long term capital loss of Rs. 2,45,85,883/-. 3. The Assessee e-filed its ITR on 29th September, 2013, for the AY 2013-14, declaring a total income of Rs. 56,41,070/-. The case of the Assessee was selected for scrutiny through CASS for the specified reason, which reads as "Low capital gain with respect to sales consideration". The Assessing Officer ('AO'), after perusing the replies and explanations filed by the Assessee with respect to the compensation received on cancellation of the plot, accepted the ITR of the Assessee, vide assessment order dated 15th February, 2016, passed under Section 143(3) of the Income Tax Act, 1961 ('the Act'). 4. However, the Principal Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable views permissible and therefore, the judgment of the Supreme Court in Commissioner of Income Tax, (Central) Ludhiana v. Max India Limited, (2007) 15 SCC 401, is not applicable to the facts of the present case. He states that the ITAT failed to appreciate that since the property was not held by the Assessee as a Capital Asset, the Assessee is not entitled for a claim of indexation and therefore, the AO erred in accepting the ITR filed by the Assessee and the same has resulted in the passing of the erroneous assessment order dated 15th February, 2016. 9. He states that the ITAT failed to appreciate that the AO had not analysed the aspect that the compensation amount received by the Assessee for cancellation of its lease deed is taxable under the head 'Income from other sources' and therefore, by virtue of lack of application of law by the AO, the assessment order is erroneous. 10. He states that the ITAT failed to appreciate that the AO, before accepting the claim of the Assessee, has not determined whether the compensation received by the Assessee should be taxed under the head 'Income from other sources' or 'Long Term Capital Gains' and therefore, the PCIT rightly invoked i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered the compensation received from the Government of Goa under the head 'Capital Gains' in his Return of Income. 14. The Assessee has specifically stated that the transaction in the present case is on account of a registered lease deed executed in favour of the Assessee and it is not a case of a Power of Attorney transaction as erroneously mentioned in the SCN. The Assessee stated that the PCIT fell in error in treating the compensation received by the Assessee as simple interest @10% per annum, as 'Interest' income. The Assessee therefore contended that it has rightly treated the plot and its leasehold rights therein as its Capital Asset. 15. We are unable to agree with the finding of the PCIT that the leasehold interest of the Assessee in the plot was not a Capital Asset. The terms of lease deed evidence that the Assessee was entitled to construct on the plot and offer the built-up space for IT Software and IT enabled Services Industries. Further, the Assessee was also permitted to sub-lease, assign, transfer, alienate and part with the compensation of the constructed building along with proportionate land thereunder for setting up IT Software and IT enabled Services Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In these circumstances, we fail to see how it could be said that the provisions of Section 12-B of the said Act cannot be brought into play. The grant of the leases in question, in our view, amounts to a transfer of capital assets as contemplated under Section 12-B of the said Act..." The Supreme Court in the aforesaid judgment was considering the provision of Income Tax Act, 1922. Section 12-B of the Income Tax Act, 1922 corresponds to Section 45 of the Act. The Supreme Court, thus, held that the transfer by way of lease would amount to transfer of a capital asset and therefore tax is leviable as capital gains. From a reading of the above referred judgment, it is clear that the transfer by way of lease is treated as transfer of a capital asset on the principle that the lease creates an interest in the land and therefore to that extent, it extinguishes the right of the transferor. 18. The said judgment of the Supreme Court was also followed by the predecessor benches of this Court in Rajesh Gupta HUF Vs. PCIT-11, [Judgment and Order dated 26th February, 2018 in ITA 264/2018]and the CIT Vs. The Indian Newspaper Society, [Judgment and Order dated 10th December, 2015 in ITA 918/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee who is a real estate developer, intended to construct a building and further sub-lease or transfer such a building to third parties to earn income, it would constitute a capital asset as held by the Supreme Court in the case of C.I.T., Bombay City v. Bombay Burmah Trading Corpn., Bombay, (1986) 3 SCC 709. 22. The reference to a Power of an Attorney transaction in the grounds of appeal is incorrect since there was no Power of Attorney executed in favour of the Assessee as noted in the order of the PCIT. 23. We are, therefore, of the considered opinion that the leasehold rights held by the Assessee in the plot was a Capital Asset and that the compensation received by the Assessee from the Government of Goa on the cancellation of the plot was a capital receipt and not a revenue receipt. It is trite law that if an agreement for transfer of rights in an immovable property is not performed by the transferor, the transferee is entitled for compensation as he/she is deprived of the price of escalation. Therefore, the character of payment received as compensation by the transferee bears the character of capital receipt. The payment of interest in the facts of the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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