Compensation for delay in real estate allotment treated as long-term capital gains, not income from other sources.

Compensation received under the Real Estate (Regulation and Development) Act, 2016 for delay or failure in performance was linked to the assessee's capital asset and the rights arising from the booking and instalment payments. Because extinguishment of those rights can amount to a transfer under section 2(47)(ii) of the Income-tax Act, 1961, the receipt was treated as consideration connected with a capital asset rather than a mere interest-like payment. It was therefore assessed as long-term capital gains and not as income from other sources under section 56.

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Issues: Whether compensation received under the Real Estate (Regulation and Development) Act, 2016 on account of delay or failure in performance was taxable as income from other sources or assessable as long-term capital gains.

Analysis: The compensation was held to be linked to the assessee's capital asset and the rights arising from the booking and payments made over the years. Section 18(1) of the Real Estate (Regulation and Development) Act, 2016 contemplates compensation computed with reference to the prescribed interest rate, and section 2(47)(ii) of the Income-tax Act, 1961 treats extinguishment of rights in relation to a capital asset as a transfer. On these facts, the receipt was not treated as a mere interest-like amount chargeable under section 56 of the Income-tax Act, 1961.

Conclusion: The compensation was rightly assessed as long-term capital gains and not as income from other sources.

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