2020 (9) TMI 1044 - AT - Income Tax

Exemption u/s. 54F denied - adding Long term capital gain treating the same as ''Income from Other Sources - HELD THAT - We find no infirmity in the allotment letter once it is examined along with the bank statement, ledger account and letter of cancellation. Similar issue arose before the Tribunal in Ashwin S. Bhalekar 2018 (5) TMI 1887 - ITAT MUMBAI CIT(A) has rightly deleted addition made by the AO in regard to disallowance of the claim of the assessee disallowing deduction of long term capital gain under section 54 of the Act on the premise that the compensation received is income from other sources - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 54 of the Income Tax Act.
2. Non-acceptance of the letter of allotment as evidence of ownership.
3. Incorrect computation of compensation received.
4. Treatment of compensation received as "Income from Other Sources" instead of Long Term Capital Gains.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 54:
The assessee claimed exemption under Section 54 of the Income Tax Act, asserting that the capital gains from the sale of a flat were reinvested in a new residential property. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied this exemption, treating the compensation received from the builder as "Income from Other Sources" rather than Long Term Capital Gains. The Tribunal found that the assessee had indeed acquired a right to the flat through the allotment letter and had reinvested the gains in a new property, thus qualifying for the exemption under Section 54.

2. Non-acceptance of the Letter of Allotment:
The CIT(A) did not accept the letter of allotment as valid evidence of ownership, citing various deficiencies such as lack of registration, absence of detailed terms, and the fact that the letter was not signed by the assessee. The Tribunal, however, found that the allotment letter, when corroborated with bank statements, ledger accounts, and the cancellation letter, sufficiently established the assessee's ownership rights in the flat. This was in line with precedents where booking rights or rights to obtain title of property were considered capital assets.

3. Incorrect Computation of Compensation Received:
The AO computed the compensation received from the builder as ?52,75,000 instead of ?48,75,000, leading to an inflated assessment of income. The assessee contended that ?4,00,000 was returned to the builder, reducing the net compensation to ?48,75,000. The Tribunal concurred with the assessee's computation, noting that the excess amount was indeed repaid, and thus the correct figure should be ?48,75,000.

4. Treatment of Compensation as "Income from Other Sources":
The AO treated the compensation received from the builder upon cancellation of the flat booking as "Income from Other Sources" rather than Long Term Capital Gains. The Tribunal referenced similar cases, such as ACIT v. Ashwin S. Bhalekar, where compensation for surrendering booking rights was considered a capital gain. The Tribunal concluded that the assessee's right to the flat constituted a capital asset, and the compensation received upon its cancellation should be treated as Long Term Capital Gains, making the assessee eligible for exemption under Section 54.

Conclusion:
The Tribunal allowed the appeal, ruling in favor of the assessee on all counts. The compensation received from the builder was deemed a capital receipt and not chargeable to tax as "Income from Other Sources." The Tribunal's decision was based on a thorough examination of the allotment letter, bank statements, and relevant case law, affirming the assessee's right to claim exemption under Section 54 for reinvesting the capital gains in a new residential property. The order was pronounced on 28/08/2020.