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 asset - transfer by relinquishment/surrender of rights - long term capital gain - allotment letter as date of acquisition - relinquishment of booking/allotment rights - exemption under section 54/54F - applicability of CBDT circulars to allotment schemesCapital asset - allotment letter as date of acquisition - transfer by relinquishment/surrender of rights - long term capital gain - applicability of CBDT circulars to allotment schemes - Whether provisional booking/allotment letter together with payments created a capital asset and whether surrender/cancellation of such booking giving rise to surplus is a transfer attracting long term capital gain treatment. - HELD THAT: - The Tribunal applied the established principle that the word 'property' in the definition of 'capital asset' is of the widest import and that a right to obtain conveyance under an allotment/allotment-letter-based scheme constitutes property capable of being a capital asset. Reliance was placed on CBDT circulars treating allotment as the date of acquisition in construction/allotment schemes and on precedents holding that a contractual right to obtain conveyance is assignable and not a mere right to sue. The assessee here received an allotment letter and made payments, retained the right for over 36 months and subsequently relinquished the right on cancellation. In those circumstances the relinquishment/surrender of the booking amounted to a transfer of a capital asset and the surplus/compensation received on cancellation was held to qualify as long term capital gain in the hands of the assessee. [Paras 8, 10]Assessee's provisional booking/allotment created a capital asset; surrender/cancellation of that right resulted in a transfer attracting long term capital gain treatment, and the appeal on this issue is allowed.Final Conclusion: The appeal is allowed. The orders of the authorities below are set aside and, following the applicable Board circulars and judicial precedents, the surplus received on cancellation of the flat booking is treated as long term capital gain arising from relinquishment of a capital asset; consequential claims (including under section 54/54F) are to be dealt with in accordance with law. 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.