2012 (5) TMI 316 - AT - Income Tax

Exchange of residential flat - exemption from capital gains u/s 54 - held that - the assessee had exchanged old flat with new flat to be constructed by the builder under development agreement which amounts to transfer under section 2(47) of the Act. - Thus, the only other condition which is required to be satisfied is that assessee either purchases a new residential flat within the prescribed limit or constructs a new residential flat within a period of 3 years from the date of transfer. The acquisition of a new flat under a development agreement in exchange of the old flat amounts to construction of new flat. - Decided in favor of assessee. Taxability of compensation of Rs. 7,01,460/- received by the assessee for alternate accommodation during the period of construction of property for 18 months. - held that - displacement compensation is not related to any capital asset. - he compensation had been paid in connection with the alternate accommodation given to the assessee to facilitate construction of the flat. Since the actual rent paid by the assessee for the alternate accommodation was lower than the amount received, there was net income to the assessee which has been rightly taxed as income from other sources. - Addition confirmed - Decided against the assessee.

Summary

Issues:
1. Dispute over addition of long term capital gain on surrender of flat.
2. Dispute over taxability of compensation for alternate accommodation.

Issue 1:
The first issue revolves around the addition of Rs. 43,91,866 as long term capital gain due to the surrender of a flat. The assessee exchanged their old flat for a new one and received cash compensation, which was invested in REC bonds. The Assessing Officer (AO) disallowed the claim under section 54 of the Income Tax Act, stating that the conditions for exemption were not met. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal. The Tribunal, after careful consideration, disagreed with the lower authorities. It held that the exchange of flats constituted a transfer and that the new flat's construction within 3 years satisfied the conditions for exemption under section 54. The Tribunal also noted that the cash compensation was part of the consideration for the old flat and thus exempt under section 54. The Tribunal allowed the exemption subject to verification of possession of the new flat within the stipulated time frame.

Issue 2:
The second issue pertains to the taxability of compensation received for alternate accommodation during the construction period. The AO treated this compensation as income from other sources, which was confirmed by the CIT(A). The assessee contended that the compensation was a capital receipt and not taxable. The Tribunal reviewed the case and noted that the compensation was for alternate accommodation and not related to any capital asset. As the actual rent paid was lower than the compensation received, the net amount was rightly taxed as income from other sources. The Tribunal upheld the CIT(A)'s decision in this regard.

In conclusion, the Tribunal partly allowed the assessee's appeal, granting exemption under section 54 for the capital gain on the surrendered flat while upholding the taxability of compensation for alternate accommodation as income from other sources.