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TMI Blog2019 (4) TMI 1839X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No. 1028/Mum/2018 - - - Dated:- 10-4-2019 - SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER For the Appellant : Shri S.M. Makhija (C.A.) For the Respondent : Shri S.K. Mishra (Sr. DR) ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of ld. Commissioner of Income-tax (Appeals)-32, hereinafter referred as ld CIT (A), Mumbai dated 15.06.2017 for Assessment Year 2012-13, which in turn arises from the assessment order dated 13.03.2015 passed under section 143(3) of the Income-tax Act (for short the Act ). The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee and asked to substantiate as to how the cancellation of booking of flat is treated as Long Term Capital Gain (LTCG) and how the deduction is claimed under section 54 of the Act and why the amount may not be taxed as interest income under the head Income from Other Sources , as the assessing officer took his view that the flat was never transferred in the name of assessee. The assessee filed his reply vide reply dated 10.10.2014. and relied upon the decision of Hon ble Bombay High Court in CIT vs. Tata Services Ltd. [122 ITR 594] and CIT vs. Vijay Flexible Container [186 ITR 693]. The assessee also made alternative claim vide his application dated 28.01.2015 that he is eligible for exemption under section 54 of the Act even if the right of any property (cancelled property) is not considered as residential property, he is eligible for exemption under section 54F. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer concluded that there was no transfer of any asset nor there is purchase in 2007 nor sold in 2011. As per letter of cancellation dated 25.07.2011, filed by assessee only provisional booking was made which was cancelled vide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee merely made a booking and cancelled it subsequently, therefore the assessee is not entitled to claim LTCG in respect of amount received on the ground of compensation from the builder. In support of his submission, the ld. DR relied upon the decision of Hon ble Allahabad High Court in Smt. Shobha Jain vs. CIT [75 Taxmann.com 223 (Ald.). 6. We have considered the rival submissions of the parties and have gone through the orders of authorities below. We have also deliberated on the case law relied by ld. AR for the assessee and the ld. DR for the revenue. We have noted that there is no dispute that the assessee booked one flat on 10.04.2007 at the total cost of ₹ 20,88,519/-. The assessee paid ₹ 2,51,000/- on 02.04.2007 and further ₹ 13,00,000/- on 05.05.2007. Therefore, the assessee paid aggregate of ₹ 15,51,000/-. The assessee cancelled the booking and received ₹ 24,77,804/- against the payment of ₹ 15,51,000/- thereby the assessee earned a sum of ₹ 9,26,804/- over and above the payment made by him. The assessing officer treated the said sum of ₹ 9,26,804/- as interest, without making any investigation form the builde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et was a short term capital gain. The controversy between the assessee and the revenue revolves around the question as to when the assessee can be stated to have acquired the capital asset. The assessee argued that the residential unit in question was acquired on the date on which the allotment letter was issued by the builder which was on 31st December, 2004. The Assessing Officer however contended that the transfer of the asset in favour of the assessee would be complete only on the date of agreement which was executed on 17th May, 2008. 3. CIT appeals and the Tribunal held the issue in favour of the assessee relying on various judgments of different High Courts including the judgment of this Court in case of Commissioner of Income-Tax, Bombay City I Vs. TATA Services Limited 1. Reliance was also placed on CBDT circulars. 4. Having heard learned counsel for the parties, we notice the CBDT in its circular No.471 dated 15th October, 1986 had clarified this position by holding that when an assessee purchases a flat to be constructed by Delhi Development Authority ( D.D.A. for short) for which allotment letter is issued, the date of such allotment would be relevant date for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .V. Dhuru, cannot be treated as 'capital gains' in the hands of the assessee passed the following order ; 3. Section 45 of the Income-tax Act, 1961 ('the Act') makes any profits or gains arising from the transfer of a capital asset chargeable to income-tax under the head 'Capital gains'. A capital asset is defined by section 2(14) of the Act to mean 'property of any kind held by an assessee'. The word 'transfer' in relation to a capital asset is defined by section 2(47) to include' the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein'. The Supreme Court held the word 'property', in Ahmed GM. Ariff v. CWT [1970] 76 ITR 471, to be 'a term of widest import and signifying every possible interest which a person can clearly hold or enjoy'. The issue that arises in this reference is: Is the right conferred upon the assessee by the said agreement for sale 'property of any kind'? 4. Under the provisions of section 54 of the Transfer of Property Act, 1882, a contract for the sale of immovable property is a contract that a sale of such property shall take place on terms s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had entered into an agreement with A to purchase land and had paid earnest money. A was reluctant to complete the conveyance. Ultimately, a tripartite agreement was entered into between the assessee, A and X where under the assessee transferred and assigned in favour of X its right, title and interest under the agreement and received the sum of ₹ 5 lakhs as consideration and a further sum of ₹ 90,000 being the refund of earnest money. The question before the Court in reference was whether the transaction which brought the assessee the sum of ₹ 5 lakhs involved the transfer of a capital asset and gave rise to a capital gain. The Court noted the definitions of 'capital asset' and 'transfer' under the Act. It noted that a contract for the sale of land was capable of specific performance and was assignable and, in this behalf, relied upon the Madras High Court judgment aforementioned. It concluded that a right to obtain conveyance of immovable property was property as contemplated by section 2(14) . It held that the amount of ₹ 5 lakhs had been received by the assessee as consideration for assigning its rights under the agreement, which fell wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of a capital asset; and that, in the further alternative there had been no capital gain because there had been no cost of acquisition of the capital asset. Mr. Zaveri, therefore, attempted to persuade us to take a view different from that taken by this Court in the afore mentioned cases. While we are not persuaded to do so, we must record that it is his industry which has brought to our attention the decisions that we refer to in this judgment. 9. The Delhi High Court in the case of CIT v. R. Dalmia [1987] 163 ITR 517, considered the question as to whether the right acquired by the assessee under agreements to sell immovable property was not a proprietary right. Following the earlier judgment of the Delhi High Court in CIT v. J. Dalmia [1984] 149 ITR 215, it was held that the right acquired by the assessee under the agreements to sell had to be held not to be a proprietary right and, hence, not a capital asset. In the earlier judgment of the Delhi High Court the facts were that one 'K' had entered into an agreement with contractors for the construction of a building upon land owned by them and the sale thereof to him. Earnest money was paid. In exercise of the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the Act. We may at this stage also deal with the further argument that there was no consideration for the acquisition of the capital asset. In our view, this Court was right in the view that it took that the payment of earnest money under the agreement for sale was the cost of the acquisition of the capital asset. 11. Our attention was invited by Mr. Zaveri to the judgment of the Andhra Pradesh High Court in CIT v . Barium Chemicals Ltd. [1987] 168 ITR 164 / 31 Taxman 471. The facts there were that the assessee had entered into an agreement with an English company for the erection of a plant. Trial runs of the plant showed that the plant was defective. In the meanwhile the English company had left the erection site. Negotiations resulted in a settlement whereby the English company paid to the assessee sums aggregating to ₹ 47,20,939. As a condition, the assessee waived its claim against the English company. The Court held that these sums could not be brought to tax as capital gains. This decision was rendered in the context of the findings that the business of the assessee was in the chemicals that the plant was expected to produce, that the settlement could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason to take a view other than that which has been taken by this Court in the cases of Tata Services Ltd. (supra) and Sterling Investment Corpn. Ltd. (supra) . We must, hold, therefore, that the assessee acquired a capital asset by reason of the said agreement for sale, that there was a transfer of that capital asset when the assessee entered into consent terms and relinquished it, and that the capital asset had been acquired for the cost of ₹ 17,500 paid as and by way of earnest money under the said agreement for sale. 15. The question that is posed asks whether the amount of ₹ 1 lakh can be treated as a capital gain in the hands of the assessee. We find that the ITO had deducted from out of the total sum of ₹ 1,17,500 received by the assessee under the consent terms the amount of ₹ 17,500 as being the cost of acquisition of the asset and the sum of ₹ 17,904 on account of expenses and legal charges. The assessment was made by him, rightly, on the basis that the capital gain was of ₹ 82,086. Accordingly, we answer the question thus: the amount of ₹ 82,086 shall be treated as a capital gain in the hands of the assessee. 10. Consider ..... 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