Enforceable property allotment rights as capital assets: relinquishment, transfer consideration, MAT treatment, and section 35D claim.

A registered memorandum of understanding and allotment letter in an under-construction property created an enforceable right to acquire the property, and that right was treated as a capital asset. On relinquishment of the right after a holding period exceeding 36 months, the transaction was treated as a transfer for capital gains purposes, with computation required on the indexed cost of acquisition. Amounts described as liquidated damages were treated as part of the same transfer consideration because they were inextricably linked to the relinquishment, but they were not to be added to book profit under MAT beyond the statutory adjustments permitted. The section 35D claim was also stated to be allowable on the record.

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Issues: (i) Whether the assessee's rights created under a registered memorandum of understanding and allotment letter in an under-construction property constituted a capital asset, and whether relinquishment of those rights on cancellation resulted in a transfer giving rise to long-term capital gain or loss; (ii) whether the amount described as liquidated damages formed part of the consideration for transfer of the capital asset and could be brought to tax under MAT; (iii) whether the claim under section 35D was allowable.

Issue (i): Whether the assessee's rights created under a registered memorandum of understanding and allotment letter in an under-construction property constituted a capital asset, and whether relinquishment of those rights on cancellation resulted in a transfer giving rise to long-term capital gain or loss.

Analysis: The registered memorandum of understanding and allotment letter created an enforceable right in favour of the assessee to acquire the allotted area in the future project. Such right was property of the widest amplitude and therefore a capital asset. The right, once relinquished on cancellation, fell within the definition of transfer. The holding period showed that the right had been held for more than 36 months, and the computation had to be made under the capital gains provisions by taking the indexed cost of acquisition.

Conclusion: In favour of the assessee. The right constituted a capital asset and its relinquishment amounted to transfer; the capital-gains computation was required to be recomputed accordingly.

Issue (ii): Whether the amount described as liquidated damages formed part of the consideration for transfer of the capital asset and could be brought to tax under MAT.

Analysis: The amount labelled as liquidated damages arose from the same transaction and was inextricably connected with the relinquishment of the assessee's rights. The nomenclature could not change the substance of the transaction. The full consideration for transfer therefore included both the refunded amount and the damages. For MAT, the sum was not liable to be added merely because it was carried to capital reserve, as the audited accounts could not be rewritten beyond the limited statutory adjustments.

Conclusion: In favour of the assessee. The amount formed part of the transfer consideration, and it could not be added to book profit under MAT in the manner adopted by the lower authorities.

Issue (iii): Whether the claim under section 35D was allowable.

Analysis: The expenditure represented preliminary and share issue related outlay claimed in accordance with the statutory amortisation pattern. The claim had been consistently made and supported by the record, and no material was shown to dislodge it.

Conclusion: In favour of the assessee. The disallowance under section 35D was deleted.

Final Conclusion: The appeal succeeded to the extent that the capital loss/capital gain computation was directed to be recomputed on the correct consideration, the MAT adjustment on the disputed sum was disallowed, and the section 35D claim was allowed.

Ratio Decidendi: A registered, enforceable right to acquire immovable property under an allotment arrangement is a capital asset, and its relinquishment constitutes transfer; any amount intrinsically connected with that relinquishment forms part of the transfer consideration, while MAT computation cannot be altered beyond the adjustments permitted by statute.

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