2016 (2) TMI 568 - AT - Income Tax

Deduction u/s.54F - Held that - Since the assessee had a right in the said property which he released and obtained ₹ 3 crores in lieu of the same, therefore, the gain that has arised is capital gain. The assessee is therefore entitled to get deduction u/s.54F from such capital gain. However, since the lower authorities have not verified the claim of allowability of deduction u/s.54F from such capital gain, therefore, we restore the issue to the file of the AO with a direction to verify the claim of deduction made by the assessee and upon satisfaction allow appropriate relief u/s.54F. The ground raised by the assessee is accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of Rs. 3 crores received by the assessee: whether it should be taxed as capital gains or as brokerage/commission.
2. Validity of the assessee's claim for exemption under section 54F of the Income Tax Act.
3. Consideration of the additional ground raised by the assessee regarding the amount received as damages and its taxability.

Issue-wise Detailed Analysis:

1. Taxability of Rs. 3 crores received by the assessee:

The core issue revolves around whether the Rs. 3 crores received by the assessee should be taxed as capital gains or as brokerage/commission. The assessee claimed the amount as long-term capital gain exempt under section 54F, while the AO and CIT(A) treated it as brokerage or commission income.

The facts reveal that the assessee, a partner in M/s. Real Value Advertiser, received Rs. 3 crores from Fullmoon Housing & Finance Pvt. Ltd. for relinquishing his rights in a plot of land at Baner, Pune. The AO received information during a survey under section 133A and issued a notice under section 148. The AO found discrepancies in the MOUs presented and concluded that the Rs. 3 crores should be taxed as brokerage or commission.

The CIT(A) upheld the AO's decision, stating that the assessee did not have any rights in the property and the documents provided were unregistered and merely notarized. The CIT(A) emphasized that the amount received could not be treated as long-term capital gains due to the lack of credible evidence supporting the assessee's claim of holding development rights.

2. Validity of the assessee's claim for exemption under section 54F:

The assessee argued that the amount received was for relinquishing his rights in the property, qualifying it as capital gains and eligible for exemption under section 54F. The assessee presented various documents, including MOUs and a Power of Attorney, to substantiate his claim of holding development rights in the property.

The ITAT found merit in the assessee's argument, referencing the decision in the case of Tata Services Ltd., where the Bombay High Court held that compensation received for relinquishing rights in a property constituted capital gains. The ITAT concluded that the assessee had a right in the property, and the Rs. 3 crores received for relinquishing this right should be treated as capital gains. The ITAT directed the AO to verify the claim of deduction under section 54F and allow appropriate relief.

3. Consideration of the additional ground raised by the assessee regarding the amount received as damages and its taxability:

The assessee raised an additional ground, arguing that the Rs. 3 crores should be considered as damages and exempt from tax. The ITAT admitted the additional ground for adjudication but ultimately found no merit in this argument. The ITAT held that the amount was paid as per the MOU, and the decisions cited by the assessee were not applicable to the facts of the case.

Conclusion:

The ITAT concluded that the Rs. 3 crores received by the assessee should be treated as capital gains, not as brokerage or commission. The ITAT directed the AO to verify and allow the deduction under section 54F. The additional ground raised by the assessee regarding damages was dismissed. The appeal was partly allowed for statistical purposes.