Transferable right in a booked flat can trigger long-term capital gains on surrender, with section 54/54F relief requiring verification.

A booked flat creates a transferable right in immovable property that constitutes a capital asset, and surrender or cancellation of that right amounts to a transfer giving rise to long-term capital gains when held for more than 36 months. The receipt was therefore not taxable as income from other sources. Because the consideration arose from transfer of a capital asset, exemption under section 54/54F had to be examined on the prescribed factual conditions, and the Assessing Officer was directed to verify the claim and allow relief in accordance with law.

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Issues: (i) Whether compensation received on cancellation and surrender of rights in a booked flat was taxable as long-term capital gain and not as income from other sources. (ii) Whether the assessee was entitled to consequential exemption under section 54/54F.

Issue (i): Whether compensation received on cancellation and surrender of rights in a booked flat was taxable as long-term capital gain and not as income from other sources.

Analysis: A booked flat gave the assessee a transferable right in property within the meaning of capital asset. The right arose on booking and was surrendered after more than 36 months. On the principles governing property rights in immovable property and transfer by relinquishment or extinguishment of rights, the amount received on cancellation represented consideration for transfer of a capital asset. The characterization of the receipt as interest or income from other sources was not accepted.

Conclusion: The receipt was assessable as long-term capital gain and not as income from other sources, in favour of the assessee.

Issue (ii): Whether the assessee was entitled to consequential exemption under section 54/54F.

Analysis: Once the receipt was held to arise from transfer of a capital asset, the claim for exemption had to be examined under the applicable provisions governing investment in a residential house. The matter required verification of the factual conditions prescribed by section 54/54F and consequential allowance in accordance with law.

Conclusion: The Assessing Officer was directed to verify the claim and grant exemption in accordance with law, in favour of the assessee.

Final Conclusion: The appeal succeeded and the assessee obtained relief on the characterization of the receipt as capital gains with corresponding consideration of the exemption claim.

Ratio Decidendi: A right acquired under an agreement or booking in immovable property is a capital asset, and surrender or relinquishment of that right constitutes a transfer giving rise to capital gains when the right has been held for the requisite period.

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