2019 (4) TMI 1839 - AT - Income Tax

Long Term Capital Gain OR Income from other sources - surrender of rights in a property acquired and held for more than 3 years - compensation received by assessee for relinquishment of his rights in a property - HELD THAT -Assessee on booking acquired a right in the asset on 10.04.2007. The asset/interest in asset/ flat was surrendered in 25th July 2011, therefore, the assessee retained right in the asset for more than 36 month, therefore, the assessee was qualified for claiming LTCG on cancellation/surrender of such asset and the compensation so received is qualified for LTCG. The case law relied by ld. DR for the revenue in case of Shobha jain Vs CIT 2016 (10) TMI 973 - ALLAHABAD HIGH COURT in our view is not applicable on this grounds of appeal. The facts of this case are entirely based on different facts. In the said case, the dispute was with regard to disallowance under section 54F. The assessing officer disallowed the exemption holding that it is permissible only in respect of residential house is purchased or constructed within the stipulated period. The assessee has shown agreement for purchase of land. And the assessee failed to show that there was transfer of property by execution of sale deed. The Tribunal recorded a clear finding that there was no sale of property in dispute for the reasons that no document of sale deed was placed before the revenue authority. Moreover, the assessee in the present case claimed right in the asset, which was remained in the ownership of assessee for more than 36 month when it was relinquished/ surrendered. In the result, ground no.1 of the appeal is allowed.

Summary

Issues Involved:

1. Treatment of compensation received for relinquishment of rights in a property.
2. Eligibility for Long Term Capital Gain (LTCG) and exemption under Section 54/54F of the Income Tax Act.
3. Validity of treating the amount received as interest income under "Income from Other Sources."

Detailed Analysis:

1. Treatment of Compensation Received for Relinquishment of Rights in a Property:

The primary issue was whether the compensation received by the assessee for relinquishing his rights in a property should be treated as interest income or as a Long Term Capital Gain (LTCG). The assessee argued that the compensation should be treated as LTCG since the rights in the property were held for more than three years. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] treated the compensation as interest income, arguing that no actual transfer of the property occurred, and thus, it should be taxed under "Income from Other Sources."

The Tribunal referred to the definition of "capital asset" under Section 2(14) and "transfer" under Section 2(47) of the Income Tax Act, which includes the relinquishment of an asset or extinguishment of any rights therein. The Tribunal also cited the Hon’ble Bombay High Court's decision in CIT vs. Vijay Flexible Container, which held that the right to obtain a conveyance of immovable property falls within the expression "property of any kind" and is a capital asset.

The Tribunal concluded that the assessee acquired a right in the asset upon booking the flat and retained this right for more than 36 months before relinquishing it. Therefore, the compensation received qualified as LTCG rather than interest income.

2. Eligibility for Long Term Capital Gain (LTCG) and Exemption under Section 54/54F:

The assessee claimed LTCG on the compensation received and sought exemption under Section 54 of the Income Tax Act, asserting that the proceeds were invested in purchasing another residential flat. The AO denied this claim, arguing that the compensation was interest income and not eligible for LTCG treatment.

The Tribunal, however, held that the assessee's right in the property was a capital asset held for more than 36 months, thus qualifying for LTCG. Consequently, the assessee was eligible for exemption under Section 54, provided the proceeds were invested in a new residential property.

The Tribunal directed the AO to verify the facts and grant the exemption under Section 54/54F in accordance with the law.

3. Validity of Treating the Amount Received as Interest Income under "Income from Other Sources":

The AO treated the compensation as interest income, arguing that the flat was never transferred to the assessee, and the booking was merely provisional. The CIT(A) upheld this view, stating that no conveyance deed was executed, and the possession of the flat was never taken.

The Tribunal disagreed, stating that the assessee's right to the property was a capital asset, and the compensation received upon relinquishing this right should be treated as LTCG. The Tribunal emphasized that the booking of the flat created a right in the property, which was relinquished after more than three years, thus qualifying for LTCG treatment.

Conclusion:

The Tribunal allowed the appeal, holding that the compensation received by the assessee for relinquishing his rights in the property should be treated as LTCG. The assessee was entitled to the consequential benefit of deduction under Section 54/54F, subject to verification by the AO. The Tribunal's decision was based on the interpretation of "capital asset" and "transfer" under the Income Tax Act and relevant judicial precedents.