TMI Blog2023 (8) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature of receipt - Compensation received by the assessee from the builder - capital receipt or Revenue receipts - HELD THAT:- As relying on Aaran R. Infrastructure Ltd [ 2018 (5) TMI 261 - DELHI HIGH COURT ] we are of the considered view that the lower authorities were not justified in treating the amount as revenue receipts, the same deserves to be deleted. The ground raised by the assessee is thus, allowed. - Shri Kul Bharat Judicial Member And Shri M. Balaganesh, Accountant Member For the Assessee : Ms. Monika Agarwal, Adv. For the Revenue : Shri Vizay B. Vasanta, CIT(DR) ORDER PER KUL BHARAT, JM This appeal by Assessee is directed against the order of Assistant Commissioner of Income Tax passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ( the Act ) dated 26/06/2022 for Assessment Year 2018- 19. The assessee has raised following grounds of appeal:- 1. That the learned Assistant Commissioner of Income Tax, Circle- INT-Tax-2(1), Delhi ( AO ) has erred both in law and on facts in determining total income of the appellant at Rs. 33,60,600/-as against declared income of Rs. 5,37,371/- in an order of assessment dated 26.6.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident Indian filed his original return of income on 26.07.2018 declaring gross total income of INR 5,37,371/-. The case was selected for scrutiny and notice U/s 143(2) of the Act, was issued and duly served upon the assessee. In response thereto, the assessee company filed the requisite details to the Assessing Officer. 2.1 Thereafter, the Assessing Officer after considering the submission of the assessee passed a draft Assessment Order U/s 144C of the Act on 28.09.2021 thereby, he proposed to make an addition of INR 3,37,202/- in respect of the Short Term Capital Gain and a sum of INR 24,86,030/- treating the compensation received as income from the other sources. The assessee filed his objection before the Ld. DRP who vide order dated 11.05.2022, disposed off the objection and directed the Assessing Officer to verify regarding transfer of the property when the title of such property was transferred further in respect of the other objection, the Assessing Officer was directed to verify the claim of the assessee. 2.2 In pursuance of directions of Ld.DRP, the Assessing Officer proceeded to frame the final assessment order. During the course of Assessment proceeding, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eens of M/s Emaar MGF Land Ltd. at Sector 61, Gurgaon, Haryana.) (81,42,760) iii) Income from other sources 81,301 iv) Refund Claimed 8,08,120 1.2 That aforesaid return was selected for scrutiny by way of notice dated 28.09.2019 u/s 143(2) of the Act.(Please refer page 1 of Draft Assessment Order). That thereafter notices u/s 142(1) of the Act were issued which were duly complied with. (Please refer page 34 of Paper book). 1.3 That on 28.09.2021 the learned Assessing Officer passed draft order u/s 144C of the Act wherein assessed income is proposed at Rs. 33,60,600/-, proposing following additions: Sr.No. Particulars Amount in Rs. i) Short Term Capital Gain: Being capital gain on sale of office space in Project Digital Greens of M/s Emaar MGF Land Ltd. at Sector 61, Gurgaon, Haryana. (Long term capital loss of Rs. 81,42,760/- as claimed by assessee disallowed) 3,37,202/- ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) 21.02.2007 The Assessee booked an office space in Project Digital Greens of M/s Emaar MGF Land Ltd at Sector 61, Gurgaon, Haryana. -Booking Receipt 19 ii) 14.08.2008 (Booking amount of Rs. 15 lacs were paid by assessee.) Allotment letter was issued by M/s Emaar MGF Land Ltd. As per allotment letter unit no 03-312A was allotted to assessee for a total consideration of Rs. 131.25 lacs. 7-9 iii) 22.08.2009 Buyer's agreement was executed between assessee and M/s Emaar MGF Land Ltd. i) As per Clause 15 of Buyer's agreement, possession of the Unit shall be handed over to assessee within 36 months. ii) As per Clause 17 of Buyer's agreement, assessee was entitled for compensation for delay in possession offered calculated @9% per annum simple interest. 76-123 Iv) 2006-2007 to 2017-18 Payments made by assessee from February 2007 to 2017-18 till February 2018 FY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Emaar MGF Land Ltd Compensation Credit: 24,86,030 iii) Total Consideration 1,33,86,030 iv) Less: Indexed Cost -2,15,28,790 v) Long Term Capital Gain 81,42,760 2.3 It is submitted that the Learned Assessing officer in the draft assessment order dated 28.09.21 disallowed the claim of Long Term Capital Loss of Rs. 81,42,760/- instead made an addition of Rs. 3,37,202/- on account of Short Term Capital Gain stating as under: The reply of the assessee was perused but not found tenable. The assessee in its computation of income has shown total sale consideration of his Unit No. 03-012A in Digital Greens at Gurgaon as on 19.02.2018 at Rs. 1,33,86,030/-. The said property was booked in 2007 and its payment was made on various dates in between 2007-08 to 2017-18. Its final payment of Rs. 3,88,746/- was made on 23.02.2018 and thus, a total payment of Rs. 1,30,48,428/- for the said property was made. As right in property has occurred on final pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; which is an incorrect proposition. 2.6 It is submitted that date of acquisition of property has to be reckoned from date of allotment of property i.e. 14.08.2008 and benefit of indexed cost of acquisition should be available to assessee based on payments made. In this regard assessee places reliance on below mentioned judgments: i) ITA No. 1459 of 2016 of Bombay High Court in the case of PCIT vs Vembhu Vidyanathan affirmed by Apex Court in 265 Taxman 535 (SC) PCIT vs. Vembhu Vidyanathan (Pages 1-4 of JPB) The High Court has held as under: 4. Having heard learned counsel for the parties, we notice that the CBDT in its circular No.471 dated 15th October, 1986 had clarified this position by holding that when an assessee purchases a flat to be constructed by Delhi Development Authority ( D.D.A. for short) for which allotment letter is issued, the date of such allotment would be relevant date for the purpose of capital gain tax as a date of acquisition. It was noted that such allotment is final unless it is cancelled or the allottee withdraw from the scheme and such allotment would be cancelled only under exceptional circumstances. It was noted that the allottee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 54F of the IT Act, 1961. 15-10-1986 Capital gains Sections 54, 54F. Sections 54 and 54F of the Income-tax Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefits available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of transfer. 2. The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme of the Delhi Development Authority amounts to purchase or its construction by the Delhi Development Authority on behalf of the allottee. Under the Self- Financing Scheme of the Delhi Development Authority the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the Scheme. The allotment is cancelled on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuance of allotment letter would be considered to be the date of acquisition of the property. This is so because, the allotment is final unless it is cancelled or the allottee withdraws from the scheme. In case of assessee before us, as well, the allotment letter issued by the developer/builder is final, as, it is in respect of a specifically identifiable property and has ultimately culminated in execution of apartment buyer's agreement in financial year 2010-11. Therefore, in our view, the date of acquisition of the residential flat has to be reckoned from the date of the allotment letter. While coming to the aforesaid conclusion, we have drawn support from the decisions cited before us by learned counsel appearing for the assessee. Therefore, in our view, the benefit of indexed cost of acquisition should be available to the assessee based on the payments made beginning from financial year 2005-06and not from the execution of the apartment buyers' agreement, as directed by learned DRP. iv) ITA NO. 2558/Del/2010 dated 13.08.2010 in the case of Mr. Praveen Gupta vs. ACIT (Pages 73-80 of JPB) 29. According to the aforementioned definition, capital asset means prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneously held as income from other sources. 3.1 It is submitted that on 21.02.2007 the assessee booked an office space in Project Digital Greens of M/s Emaar MGF Land Ltd at Sector 61, Gurgaon, Haryana. On 22.08.2009 a Buyer's agreement was executed between appellant and M/s Emaar MGF Land Ltd.(Page 76- 123 of paper book) i) As per Clause 15 of Buyer's agreement, possession of the Unit shall be handed over to assessee within 36 months. (Page 102 of paper book) ii) As per Clause 17 of Buyer's agreement, assessee was entitled for compensation for delay in possession offered calculated @9% per annum simple interest. (Page 105 of paper book) 3.2 In pursuance of aforesaid clauses of agreement dated 22.08.2009, as per Emaar MGF statement of account dated 19.02.2018, credit of net compensation Rs. 22,37,431 was given to assessee. The same is adjusted with total cost payable by assessee. Gross Compensation 24,86,030 Less TDS u/s 194A 2,48,603 =22,37,431 Net Compensation credit. 3.3 It is submitted that the aforesaid compensation is duly treated as capital receipt and considered as part of sale consideration for the purpose of computing capital gain, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Development Corpn. Ltd (Page 81-87 87 of J PB) 16. From the above definition it appears that the term 'interest' has been made entirely relatable to money borrowed or debt incurred and various gradations of rights and obligations arising from either of the two. The parenthesis in the section is in the nature of a qualification of the borrowing of money/incurring of debt and what it includes. The issue which falls for decision therefore is whether payment for delayed allotment of a plot of land by the Housing Board to an allottee will fall under the definition of 'interest' under section 2 (28A) of the Act. 17. The decision of the Himachal Pradesh High relied on by Mr Khaitan is on a very similar set of facts. In that case, the H.P. Housing Board floated a scheme under which flats were to be constructed by the Board/assessee from the money deposited by the allottees and which stipulated that the assessee would have to pay interest to the allottees if the flats were not provided within a certain time frame. Upon there being a delay in the construction of flats, the assessee paid interest at the agreed rate to the allottees in terms of the letter of allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comity of Courts. 18. We accordingly are of the view that the payment made by the assessee to the allottee was in terms of the agreement entered between them where the liability of the assessee would arise only if it failed to make the plots available within the stipulated time. Hence, the payment made under the relevant clause was purely contractual and as rightly held by the Tribunal, in the nature of compensation or damages for the loss caused to the allottee in the interregnum for being unable to utilise or possess the flat. The flavour of compensation becomes evident from the words used in the particular clause. The expression 'interest' used in Clause 7 (reproduced above) may be seen merely as a quantification of the liability of the assessee in terms of the percentage of interest payable by the State Bank of India. Since there is neither any borrowing of money nor incurring of debt on the part of the assessee, in the present factual scenario, interest as defined under section 2 (28A) of the Act can have no application to such payments. Consequently, there was no obligation on the part of the assessee to deduct tax at source and consequently no disallowance coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es below. 6. We have heard the rival submissions and perused the material available on records. The entire dispute in the present appeal relates transfer of capital asset and compensation received on account of delay in construction by the builder of property. The assessee claimed consideration received by him out of transfer of capital asset as capital loss and compensation for delay in possession as capital receipt. On the other hand, the AO treated the surplus as short term capital gain and compensation as revenue receipts and taxed it as income from other sources. So far question whether the assessee is entitled for set off of capital loss on account of transfer of capital asset is concerned, the assessee s contention is that the year of acquisition of capital assets should be taken as the year when the allotment for office space was issued to the assessee. In this regard, the assessee pointed out that he had booked office space in project Digital Greens of M/s Emaar MGF Land Ltd. at Sector-61, Gurgaon, Haryana and he was allotted the office space vide allotment letter issued by M/s. Emaar MGF Land Ltd. for a sale consideration of INR 131.25 lacs on 14.08.2008. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of purchase being the date on which ownership of the property was transferred in the name of the assessee, modality of the payment for acquiring or owning the property is not relevant here. The acquisition of the property is related to date of transfer of the property as per Transfer of the Property Act. In fact, as per section 2(47) of the IT Act, the term of transfer in relation to a capital asset bears an inclusive definition. This may be important for indexing cost of acquisition of property which is to be calculated, based on the schedule of payments made. The same observation has been made in case of Lakshman M. Charanjiva Vs ITO by ITAT, Mumbai Bench. The AO is directed to verify as to when the title of the property was transferred in the name of the assessee by passing a speaking order. Accordingly, the AO may decide whether the capital gains arise out of sale of the property is short term or long term. The objection is accordingly disposed of. 7. We find that Ld. DRP had directed to AO for deciding the issue afresh after ascertaining as to when the title unto the property was transferred in favour of the assessee. But the AO without adverting to objection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. 8. In the instant case, admittedly, the allotment letter was issued back in the year 2007 and substantial payment had been made before the year 2018 when final payment was made. Therefore, looking to the facts of the present case and above-mentioned judicial precedents relied by the assessee, we find merit into the contention that the AO erred in treating the surplus to be short term capital gain without giving benefit of indexation. We therefore, direct the AO to re-compute gain, if any after giving benefit of indexation as provided under law and decide the issue in the light of judgement of Hon ble Bombay High Court in the case of PCIT vs Vembhu Vidyanathan (supra). The ground raised by the assessee is allowed for statistical purpose. 9. The next issue is whether the compensation received amounting to INR 24,86,030/- by the assessee from the builder whether it is a capital receipt or a Revenue receipts. Hon ble Delhi High Court in the case of PCIT vs Aaran R. Infrastructure Ltd. [2018] 404 ITR 318 (Del.) decided the issue by observing as under:- The facts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit making apparatus as the land which was profit making apparatus for the assessee was not supplied by JMA Buildcom (P.) Ltd. as per the agreement entered into between the assessee and associates, and JMA Buildcom (P.) Ltd. Appreciating the same, compensation was awarded in the arbitration proceedings initiated against JMA Buildcom (P.) Ltd. In other words, the basis of award remained the lost profit due to non-supply of the land, i.e. profit making apparatus and not on loss of profit. We thus find that the only inference can be drawn is that the compensation received by way of reward due to non-supply of land by JMA Buildcom (P.) Ltd. under the agreement was capital receipt. We hold as such. The ground No. 2 is accordingly allowed. In view of this finding, the remaining grounds 5, 67 and 9 have become academic only and these grounds are accordingly disposed off. The judgment in Universal Radiators (supra) pertinently examines both situations first, where a direct link exists between the products or the ultimate purpose which the assessee intends to put the equivalent and second, expanding the amounts and what is the eventual income on one hand, and on the other hand, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of that capital asset, such payment would amount to a capital payment in the hands of the payee. Secondly, if any payment was made for sterilization of the very source of profit-making apparatus of the assessee, or a capital asset, then that would also amount to a capital receipt in the hands of the recipient. On the other hand if forest leases were merely stock-in-trade and payments were made for taking over the stock-in-trade, then no question of capital receipt comes. The sum would represent payment of revenue nature or trading receipts. Whether in a particular case, for the contracts of the type with which we are concerned, payment were capital receipts or not would depend upon the facts and circumstances of the case. In this connection it is important to bear in mind that normally in trade there are two types of capital, one circulating capital and the other fixed capital. Fixed capital is what the owner turns to profit by keeping it in his own possession; circulating capital is what he makes profit by parting with it and letting it change hands. Therefore, circulating capital is capital which is turned over and in the process of being turned over, yields profits or loss. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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