Registered flat purchase rights can qualify as a capital asset, and cancellation compensation may be taxed as capital gains with section 54EC relief.

Registered rights under a flat purchase agreement were treated as a capital asset because the agreement created enforceable purchaser rights protected by the Maharashtra Ownership Flats Act, 1963. Extinguishment of those rights through a registered cancellation deed amounted to transfer under the Income-tax Act, so the compensation linked to cancellation was assessable as capital gains and not as income from other sources. For section 54EC, the relevant transfer date was the registered cancellation deed, and investment in NHAI bonds within six calendar months satisfied the statutory time limit, making exemption available.

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Issues: (i) whether the compensation received on cancellation of the flat purchase arrangement was taxable as capital gains or as income from other sources; (ii) whether exemption under section 54EC was available on the investment made in NHAI bonds.

Issue (i): whether the compensation received on cancellation of the flat purchase arrangement was taxable as capital gains or as income from other sources.

Analysis: The registered agreement for purchase created enforceable rights in favour of the purchaser, and those rights were protected by the Maharashtra Ownership Flats Act, 1963. The statutory scheme under sections 4(1A)(a)(ii), 8 and 11 of the Maharashtra Ownership Flats Act, 1963 recognised rights of a flat purchaser and corresponding obligations of the promoter. The cancellation deed registered on 12.09.2012 extinguished those rights, and the receipt of compensation was linked to that extinguishment. Such extinguishment amounted to transfer of a capital asset within the meaning of sections 2(14) and 2(47) of the Income-tax Act, 1961. Accordingly, the receipt could not be assessed as income from other sources.

Conclusion: The amount received was assessable as capital gains and not as income from other sources.

Issue (ii): whether exemption under section 54EC was available on the investment made in NHAI bonds.

Analysis: For section 54EC, the relevant date of transfer was the date of the registered cancellation deed, not the earlier unregistered document. The investment in NHAI bonds made on 06.03.2013 fell within six calendar months of the transfer. The expression used in the provision was applied on a calendar-month basis, and the investment satisfied the statutory time limit.

Conclusion: The assessee was entitled to exemption under section 54EC.

Final Conclusion: The additions made by the lower authorities were set aside, and the assessee's claims regarding capital gains treatment and section 54EC relief were accepted.

Ratio Decidendi: Rights arising from a registered flat purchase agreement constitute a capital asset, and extinguishment of those rights by a registered cancellation deed amounts to transfer for capital gains purposes; for section 54EC, the six-month period runs from the date of such registered transfer and is to be computed in calendar months.

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