2020 (3) TMI 421 - AT - Income Tax

ITAT rules part payment & allotment letter as capital assets, surplus on flat cancellation as LTCG

The ITAT ruled in favor of the appellant, determining that the allotment letter and part payment constituted a capital asset. The surplus received upon ... Capital gain - LTCG - capital asset u/s 2(14) - Exemption u/s 54/54F - Right in the asset relinquished/ surrendered after booking of flat - Period of holding - surplus/ compensation received by the appellant on surrender of his rights in a property (booking rights in flat) - HELD THAT:- We are of the view that the assessee on booking acquired a right in the asset on 10.04.2007. The asset/interest in asset/ flat was surrendered in 25th July 2011, therefore, the assessee retained right in the asset for more than 36 month, therefore, the assessee was qualified for claiming LTCG on cancellation/surrender of such asset and the compensation so received is qualified for LTCG. The case law relied by ld. DR for the revenue in case of Shobha jain Vs CIT [2016 (10) TMI 973 - ALLAHABAD HIGH COURT] in our view is not applicable on this grounds of appeal. The facts of this case are entirely based on different facts. In the said case, the dispute was with regard to disallowance under section 54F. The assessing officer disallowed the exemption holding that it is permissible only in respect of residential house is purchased or constructed within the stipulated period. The assessee has shown agreement for purchase of land. And the assessee failed to show that there was transfer of property by execution of sale deed. The Tribunal recorded a clear finding that there was no sale of property in dispute for the reasons that no document of sale deed was placed before the revenue authority. Moreover, the assessee in the present case claimed right in the asset, which was remained in the ownership of assessee for more than 36 month when it was relinquished/ surrendered. In the result, ground no.1 of the appeal is allowed. Issues Involved:1. Whether the allotment letter issued by the builder for booking rights coupled with part payment made towards purchase consideration constitutes a capital asset.2. Whether the surplus received by the appellant on cancellation of booking of a flat by the builder is a capital receipt or income chargeable to tax under the head 'income from other sources'.3. Whether the appellant is entitled to consequential reliefs under sections 54/54F of the Income Tax Act.Detailed Analysis:Issue 1: Allotment Letter as Capital AssetThe appellant argued that the allotment letter dated 10.04.2007, along with part payment towards the purchase consideration, constituted a capital asset. The Assessing Officer (AO) and the CIT(A) disagreed, stating that provisional booking did not give rise to a capital asset. The ITAT referenced the definition of 'capital asset' under Section 2(14) of the Income Tax Act, which includes 'property of any kind held by an assessee'. The term 'property' is broadly defined to include every possible interest which a person can hold or enjoy. The ITAT cited the jurisdictional High Court's ruling in PCIT vs. Vembu Vaidyanathan, which clarified that the date of allotment is the relevant date for determining the acquisition of a capital asset. The ITAT concluded that the appellant acquired a right in the flat on 10.04.2007, thus constituting a capital asset.Issue 2: Nature of Surplus Received on CancellationThe appellant received Rs. 15,66,000 as compensation upon cancellation of the flat booking. The AO treated this surplus as 'income from other sources' rather than a capital receipt. The ITAT examined the definition of 'transfer' under Section 2(47) of the Act, which includes relinquishment of the asset or extinguishment of any rights therein. The ITAT referenced the case of CIT vs. Vijay Flexible Container, where it was held that the right to obtain conveyance of immovable property is a capital asset. The ITAT also cited the case of CIT vs. Tata Services Ltd., which established that the right to obtain conveyance of immovable property is property under Section 2(14) and thus a capital asset. The ITAT concluded that the surplus received by the appellant on surrendering the booking rights qualifies as a long-term capital gain (LTCG).Issue 3: Entitlement to Relief under Sections 54/54FThe appellant claimed deduction under Section 54F for investing in another flat. The AO denied this claim, as the surplus was treated as 'income from other sources'. However, since the ITAT determined that the surplus qualifies as LTCG, the appellant is entitled to relief under Section 54/54F. The ITAT directed the AO to verify the facts in accordance with the provisions of Section 54/54F and grant the exemption accordingly.Conclusion:The ITAT set aside the orders of the authorities below and decided in favor of the appellant. The surplus received on the cancellation of the flat booking is treated as LTCG, and the appellant is entitled to relief under Sections 54/54F. The appeal filed by the assessee was allowed.