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TMI Blog2022 (6) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... ry inquiries to ascertain facts whether stamp paper purchased by the assessee is genuine or fake one. In absence of any inquiry, the AO cannot come to a conclusion that stamp paper purchased is not genuine one and consequently, on that basis the transaction between the parties cannot be questioned, more particularly, when other evidences filed by the assessee, including confirmation from buyer reveals that transaction took place between the parties. Extinguishment of rights therein also includes within definition of capital asset and consequently, comes under transfer as defined u/s.2(47) Thus what was received by the assessee by virtue of MOU is consideration received for transfer of rights in property and thus, same is assessable under the head income from capital gains . The learned CIT(A), after considering relevant facts has rightly held that the Assessing Officer has erred in assessing compensation under the head income from other sources . Hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the Revenue - I.T.A.No.2369/Chny/2019 And C.O.No.98/Chny/2019 In ITA No.2369/Chny/2019 - - - Dated:- 15-6-2022 - Shri G. Manjunatha, Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elinquishment of his right in a property in favour of M/s.Landmark Construction (M/s. Land Housing Projects Chennai Pvt.Ltd.) and claimed deduction u/s.54F of the Income Tax Act, 1961. The Assessing Officer has called upon the assessee to explain with necessary evidences transactions give rise to long term capital gain and consequent deduction claimed u/s.54F of the Income Tax Act, 1961. In response, the assessee submitted that he had entered into Memorandum of Understanding with M/s. Landmark Construction, a proprietary concern, on 28.11.2006 for purchase of 20,000 sq.ft of saleable area together with proportionate undivided share at pre-launch price of Rs.3000/- per sq.ft and has also paid Rs.1,00,000/- advance in cash. It was further submitted that due to delay in implementation of project, the assessee has relinquished his right in the property to be constructed by M/s. Landmark Construction and received compensation of Rs.5 crores in cheque after deducting necessary TDS applicable as per law. 4. The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to A.O., except MOU, no other reliable document was submitted in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y acknowledgement proof for having served it on M/s. Landmark Construction. The so called correspondences of M/s. Landmark Construction with the assessee does not contain any enclosures of the things which could have convinced the assessee that there is some sort of progress in the MOU agreement. So, on this ground also the assessee s claim does not hold good. The assessee is stating that he had extinguished / relinquished the so called capital right does not hold good, on the ground that when an MOU is in vogue and the relinquishment is done based on a letter. The amount that has been paid as compensation is not a small amount which could be done other than by a cancellation agreement of the MOU. As the assessee could have claimed the right again after some year by showing the proof of the MOU copy. It is also further seen that the project has not never came into existence and hence, that also casts a shadow of doubt on the entire transaction. On this point also the assessee s contention that it is a relinquishment of capital right does not hold good. It is also not convincing that somebody would go for a lower rate than the one that was agreed upon 9 years before on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain derived from transfer of property and consequently, deduction claimed u/s.54F of the Act should be allowed. The learned CIT(A), after considering relevant submissions of the assessee and also taken note of certain judicial precedents, including decision of the Hon ble High Court of Madras in the case of K.R.Srinath Vs ACIT (2004) 268 ITR 436 (Mad) held that the Assessing Officer has rejected claim of the assessee on the basis of certain assumptions and doubts about MOU between the parties, however, failed to give any valid reason for not considering transaction of the assessee within the meaning of section 2(47) of the Income Tax Act, 1961. The learned CIT(A) further observed that except making certain allegations on the MOU regarding non-registration of document and absence of witnesses, the Assessing Officer has failed to make out a case that transaction between the assessee and builder is sham transaction and has arranged to claim benefit of deduction u/s.54F of the Income Tax Act, 1961. Therefore, the learned CIT(A) allowed claim of the assessee towards deduction u/s.54F of the Income Tax Act, 1961, and directed the Assessing Officer to delete additions made towards compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of the capital asset fell to the ground On the basis of the above discussion, there were no merits In the appeal and the same was liable to be dismissed It is also relevant here to refer to the decision of Hon ble High Court of Bombay in the case of CIT vs Tata services Limited (122 ITR 594)(Bom) wherein it was declared as follows: The word property used in section 2(14) was a word of widest amplitude and the definition of this was re-emphasised by the use of the words of any kind . Thus, any right which could be called property would be Included In the definition of capital asset A contract for sale of land was capable of specific performance and was also assignable and, therefore, a right to obtain conveyance of Immovable property was dearly a property as contemplated by section 2(14). Thus, it is settled law that the right to obtain conveyance of immovable property is a property as contemplated by section 2(14). Consequently, any Long Term Capital Gains arising therein is eligible for further relief as per the provisions of the Income Tax Act. 4.3 As regards the case on hand, the location of the Land on which the property was proposed to have come up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision. The subject was placed before the Special Sanction Committee meeting held on 13.11.2018 and the Committee noted that the site under reference was reclassified from Special Hazardous Industrial use Zone to produce pre-cast concrete slabs/ beams manufacturing. Further the Committee deliberated the subject in detail and noted that the subject was earlier placed before the Authority thrice and in A.R. No. 61/2018 the Authority had decided to place the subject (Permitting (Commercial use in Industrial use) in the Special Sanction Committee for Suitable decision by observing that any lower order use in Industrial use zone could be placed for special Sanction. The committee also considered the developments in the surrounding areas and took cognizance of the earlier consent to establish letter awarded by TNPCB for group development and the pros and cons of the proposed residential development at the site and decided to permit the residential activity in the site zoned for Industrial Use Zone. Hence the proposed residential development is permissible in the Industrial use zone. Thus, it is clearly seen that the said project could not be launched due to reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, however, failed to prove transaction with necessary evidences in light of various reasons given by the Assessing Officer to term arrangement between the parties is not a genuine transaction. 7. The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that the Assessing Officer has never doubted transaction between the parties, however, rejected claim of the assessee only on the basis of certain defects in MOU, including authenticity of stamp paper issued by the Stamps Registration Department and absence of witness in the document. The learned A.R for the assessee further submitted that if at all, any defect in the document, said error is rectifiable defect under the provisions of Stamp duty Act, however, same does not invalidate transaction between the parties. The learned AR further submitted that as per provisions of section 2(47) of the Income Tax Act, 1961, term transfer includes relinquishment of any right in asset or extinguishment of any right therein. Therefore, extinguishment of any right in relation to capital asset would be treated as transfer and thus, when the assessee has extinguished his right by MOU, sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction. It is also not in dispute that said right has been extinguished by surrender of his right in proposed property in favour of the builder. Therefore, the issue needs to be examined in the given facts and circumstances of the case is whether extinguishment of any right in property or asset amounts to transfer within the definition of transfer as defined u/s.2(47) of the Income Tax Act, 1961, or profit from a contract which is assessable under the head income from other sources . The definition of term transfer has been defined u/s.2(47), as per which, transfer in relation to capital asset includes sale, exchange or relinquishment of asset or extinguishment of any rights therein. As per the said definition, even extinguishment of any rights in a property would also cover under the definition of transfer. Therefore, once extinguishment of any right in a property comes under definition of transfer , as defined u/s.2(47) of the Act, then consequential consideration received for transfer of property would come under the provisions of section 45 of the Income Tax Act, 1961, and thus, the assessee has rightly computed capital gains towards consideration received for extinguishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such right has been given up readily and received a sum in question, same would come within definition of capital asset and consequently, consideration is assessable under the head capital gains . The ITAT., Mumbai Benches in the case of ACIT Vs. Ashwin S.Balekar in ITA No.6822/Mum/2016 has also dealt with similar issue of allotment of land to the assessee by builder and subsequent cancellation of allotment and after considering relevant facts, held that compensation received by the assesseein lieu of surrender of right is assessable under the head capital gains . The Hon ble Kerala High Court in the case of CIT Vs. Grace Collis (2001) 248 ITR 323 has held that extinguishment of any rights therein, include extinguishment of rights in capital asset independent of or otherwise, then on account of transfer. The sum and substance of ratios laid down by various courts are that extinguishment of rights therein also includes within definition of capital asset and consequently, comes under transfer as defined u/s.2(47) of the Income Tax Act, 1961. 12. In this view of the matter and considering facts and circumstances of the case and also by following ratios laid down by various Hon bl ..... 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