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TMI Blog2023 (8) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... nst claim of long term capital loss of Rs. 81,42,760/- on sale of capital asset by the appellant in the instant year. 2.1 That the learned AO/DRP has failed to appreciated that appellant had acquired the capital asset in the shape of right in an office space in 2007 and therefore sale of such capital asset in financial year 2017-18 constituted long term capital asset and as such any loss arising on sale had to be computed as long term capital loss after indexatioin and not short term capital loss. 2.2 That the finding that "the assessee could have transferred the said property as absolute owner only after having such a title in first place, could have matured only after completion of due payments" is factually incorrect, legally erroneous and wholly untenable. (Tax Effect Rs. 69,463/-) 3. That the learned AO/DRP has also erred both in law and on fact in making an addition of Rs. 24,86,030/- representing capital receipt accrued to the appellant in the shape of compensation from Emaar MGF Ltd. and, erroneously held as income for the instant year. (Tax Effect Rs. 7,55,264/-) 4. That the learned AO/DRP has included amount of Rs. 24,86,030/- twice both in capital gain calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red long term capital loss of INR 81,42,760/-. Therefore, the AO show caused the assessee to explain and furnish the requisite details to substantiate the basis of sale consideration of INR 1,09,00,000/- how it was arrived at. The explanation as offered by the assessee was not found acceptable by the Assessing Authority, on the basis that the assessee in its computation of income declared total sale consideration of his unit No. 03-012A in Digital Greens at Gurgaon as on 19.02.2018 at INR 1,33,86,030/-. The said property was booked in year 2007 and its payment was made on various dates starting from 2007-08 to the Assessment Year 2017-18. Its final payment of INR 3,88,746/- was made on 23.02.2018 thus, the effective date of purchase of the property was taken as on 23.02.2018. Thus, the Assessing Officer made addition of INR 3,37,202/- on account of Short Term Capital Gain. Further, the Assessing Officer show caused the assessee as to why the compensation of INR 24,86,030/- received from M/s MGF Limited, should not be treated as interest / income from other source. In response thereto, the assessee filed its reply. However, that reply was not found acceptable by the AO. He made addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king following additions: Sr.No. Particulars Amount in Rs. i) Short Term Capital Gain: Being capital gain on sale of office space in Project Digital Greens of M/s Emaar MGF Land Ltd. at Sector 61, Gurgaon, Haryana. (Long term capital loss of Rs. 81,42,760/- as claimed by assessee disallowed) 3,37,202/- ii) Income from other sources: Being compensation credit adjusted towards cost of the asset by M/s Emaar MGF Land Limited, Emaar MGF had given compensation credit due to delay in offer of possession on which TDS u/s 194A is also deducted. 24,86,030/- Total additions made 28,23,232/- 1.7. That on 20.07.2022 assessee filed an appeal before Hon'ble Tribunal against the order dated 26.06.2022 passed u/s 143(3) rws 144C(13) of the Act. 2. That ground no 2 to 2.2 relates to grievance of appellant in respect of addition of Rs. 3,37,202/- representing alleged short term capital gain as against claim of long term capital loss of Rs. 81,42,760/- on sale of capital asset by the appellant in the instant year. 2.1 Sequence of transactions relating to purchase and sale of office Space in Project Digital Greens of M/s Emaar MGF Land Ltd. at Sector- 61, Gurgaon, Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2,15,28,790 v) Long Term Capital Gain 81,42,760 2.3 It is submitted that the Learned Assessing officer in the draft assessment order dated 28.09.21 disallowed the claim of Long Term Capital Loss of Rs. 81,42,760/- instead made an addition of Rs. 3,37,202/- on account of Short Term Capital Gain stating as under: The reply of the assessee was perused but not found tenable. The assessee in its computation of income has shown total sale consideration of his Unit No. 03-012A in Digital Greens at Gurgaon as on 19.02.2018 at Rs. 1,33,86,030/-. The said property was booked in 2007 and its payment was made on various dates in between 2007-08 to 2017-18. Its final payment of Rs. 3,88,746/- was made on 23.02.2018 and thus, a total payment of Rs. 1,30,48,428/- for the said property was made. As right in property has occurred on final payment of Rs. 3,88,746/- on 23.02.2018, hence, the effective date of purchase of the property is taken as 23.02.2018. Hence, it is apparent that it is a case of short term capital gain not a case of Long term capital loss as claimed by the assessee in its computation of income and the same is calculated as under: (Para 5 on page 2 of final order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of PCIT vs Vembhu Vidyanathan affirmed by Apex Court in 265 Taxman 535 (SC) PCIT vs. Vembhu Vidyanathan (Pages 1-4 of JPB) The High Court has held as under: 4. Having heard learned counsel for the parties, we notice that 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 the purpose of capital gain tax as a date of acquisition. It was noted that such allotment is final unless it is cancelled or the allottee withdraw from the scheme and such allotment would be cancelled only under exceptional circumstances. It was noted that the allottee gets title to the property on the issue of allotment letter and the payment of installments was only a follow-up action and taking the delivery of possession is only a formality. 5. This aspect was further clarified by the CBDT in its later circular No.672 dated 16th December, 1993. In such circular representations were made to the board that in cases of allotment of flats or houses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of transfer. 2. The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme of the Delhi Development Authority amounts to purchase or its construction by the Delhi Development Authority on behalf of the allottee. Under the Self- Financing Scheme of the Delhi Development Authority the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the Scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If there is a failure on the part of the Delhi Development Authority to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement in financial year 2010-11. Therefore, in our view, the date of acquisition of the residential flat has to be reckoned from the date of the allotment letter. While coming to the aforesaid conclusion, we have drawn support from the decisions cited before us by learned counsel appearing for the assessee. Therefore, in our view, the benefit of indexed cost of acquisition should be available to the assessee based on the payments made beginning from financial year 2005-06and not from the execution of the apartment buyers' agreement, as directed by learned DRP. iv) ITA NO. 2558/Del/2010 dated 13.08.2010 in the case of Mr. Praveen Gupta vs. ACIT (Pages 73-80 of JPB) 29. According to the aforementioned definition, capital asset means property of any kind held by an assessee whether or not connected with the business or profession and it excludes certain items which while considering the facts of the present case are not relevant. Therefore, it has to be seen that whether by entering into an agreement vide which the assessee was allotted a particular flat by allotment letter whether the assessee has held any asset or not? By entering into an agreement to allot a flat, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (Page 102 of paper book) ii) As per Clause 17 of Buyer's agreement, assessee was entitled for compensation for delay in possession offered calculated @9% per annum simple interest. (Page 105 of paper book) 3.2 In pursuance of aforesaid clauses of agreement dated 22.08.2009, as per Emaar MGF statement of account dated 19.02.2018, credit of net compensation Rs. 22,37,431 was given to assessee. The same is adjusted with total cost payable by assessee. Gross Compensation 24,86,030 Less TDS u/s 194A 2,48,603 =22,37,431 Net Compensation credit. 3.3 It is submitted that the aforesaid compensation is duly treated as capital receipt and considered as part of sale consideration for the purpose of computing capital gain, details tabulated as under: S.No. Particular Amount i) Sales Consideration Received 1,09,00,000 ii) Emaar MGF Land Ltd Compensation Credit: 24,86,030 iii) Total Consideration 1,33,86,030 iv) Less: Less: Indexed Cost - 2,15,28,790 v) Long Term Capital Loss 81,42,760 3.4 The Ld AO in the final order dated 26.06.2022 has held as under: 10. The assessee received amount of Rs. 24,86,030 form Enact MGF Land Limited and the deductor had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructed by the Board/assessee from the money deposited by the allottees and which stipulated that the assessee would have to pay interest to the allottees if the flats were not provided within a certain time frame. Upon there being a delay in the construction of flats, the assessee paid interest at the agreed rate to the allottees in terms of the letter of allotment. The AO viewed the payment to be interest under section 2(28A) which was set aside by the Commissioner who held that the payment made was in the nature of compensation for the delay in handing over possession of the flats. This view was affirmed by the Tribunal. Confirming the decision of the Tribunal, the High Court held that the money was paid on account of damages suffered by the allottee for delay in completion of the flats. Notably. in coming to its finding, the High Court considered the decision of the Madras High Court in Viswapriya relied on by Mr Ghosal for the Revenue in the instant case- and held that the nature of the assessee's business in Viswapriya involved a return on investment made by the investor which was assured to be over and above a fixed percentage. The High Court in H.P. Housing Board's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. Since there is neither any borrowing of money nor incurring of debt on the part of the assessee, in the present factual scenario, interest as defined under section 2 (28A) of the Act can have no application to such payments. Consequently, there was no obligation on the part of the assessee to deduct tax at source and consequently no disallowance could have been made under section 40 (a) (ia) of the Act. ii) 132 Taxmann.com 231 (Delhi- Trib.) Smt. Abha Bansal vs. The Pr. CIT (Central), Gurgaon 9.12 It is clear that the compensation received by the assessee on cancellation of the Builder-Buyer Agreement is capital receipt and taxable as capital gains. The view of the A.O. was, therefore, in accordance with Law and cannot be impeached by the Learned PCIT. In view of the above, we do not subscribe to the view of the Ld. D.R. that since no compensation is mentioned in the Builder-Buyer Agreement are to be payable as per agreement, then, the compensation is revenue in nature. It is devoid of merit as discussed above. We also do not agree with the submissions of the Ld. D.R. that payment of compensation was a colourable device to evade the taxes. The Ld. D.R. referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the assessee. In this regard, the assessee pointed out that he had booked office space in project Digital Greens of M/s Emaar MGF Land Ltd. at Sector-61, Gurgaon, Haryana and he was allotted the office space vide allotment letter issued by M/s. Emaar MGF Land Ltd. for a sale consideration of INR 131.25 lacs on 14.08.2008. The assessee had paid booking amount of INR 15,00,000/- to the builder and thereafter, he made payment of installment on various dates from Financial Year 2006-07 to 2017-18. Total payment made was INR 1,30,48,828/- and indexed cost claimed by the assessee was INR 2,15,28,790/-. Thus, as per Ld. Counsel for the assessee, the assessee had infact incurred loss. The AO treated transfer of asset in favour of the assessee on 23.02.2018 when the last installment was paid and he treated it as short term capital gain and disallowed capital loss of INR 81,42,760/-. The submission of the assessee is that date of acquisition of property would be reckoned from date of allotment of property i.e. 14.08.2008 and the benefits of indexation should be available to the assessee on the payment made basis. Reliance placed on the judgement of Hon'ble Bombay High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise out of sale of the property is short term or long term. The objection is accordingly disposed of." 7. We find that Ld. DRP had directed to AO for deciding the issue afresh after ascertaining as to when the title unto the property was transferred in favour of the assessee. But the AO without adverting to objection of the assessee, treated the date of last payment of installment as the date of transfer of title. Admittedly, in this case, no Sale Deed was executed, the assessee sold his rights unto the capital asset in question vide agreement to sell dated 05.12.2017. The vendee took possession of the unit from the builder on 17.10.2018. Hence, as per the assessee himself possession of property in question was taken in the year 2018. Now let us examine as to when transfer of capital asset was made in favour of the assessee by the builder. Section 2(47) of the Act defines transfer. For the sake of clarity, section 2(47) of the Act is reproduced as under:- 2(47) "transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion received amounting to INR 24,86,030/- by the assessee from the builder whether it is a capital receipt or a Revenue receipts. Hon'ble Delhi High Court in the case of PCIT vs Aaran R. Infrastructure Ltd. [2018] 404 ITR 318 (Del.) decided the issue by observing as under:- "The facts are that the assessee engages itself in the business of real estate and had entered into a consortium agreement with its associates which defines the role, rights and responsibilities. This consortium entered into an agreement to sell with one JMA Buildcom Private Limited for purchase of 10 acres of land for a consideration of Rs. 15 crores. The seller JMA Buildcom defaulted in its commitment within the prescribed and extended time limit. Ultimately, upon parties resorting to the Dispute Settlement Arbitration; a settlement was arrived at and an award was made based upon the parties' eventual settlement. The amount received by the assessee as a part of its entitlement (as consortium) was credited in its books of account as a capital stream. The Assessing Officer and the Commissioner of Income-tax (Appeals) held that the amounts were revenue in nature as the land would have been part of the stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adiators (supra) pertinently examines both situations first, where a direct link exists between the products or the ultimate purpose which the assessee intends to put the equivalent and second, expanding the amounts and what is the eventual income on one hand, and on the other hand, conclusions on the stock-in-trade as well. The relevant observations are extracted as follows (page 806 of 201 ITR): "The assessee carried on the business of manufacturing radiators and not ingots. They were imported to be converted into strips and sheets at Bombay. The link which could create direct relationship between the finished goods and raw material was snapped even before it reached Bombay. Payment made for loss of such goods did not bear any nexus with the assessee's business. May be that if it had reached, it could have been, after conversion into strips and sheets, used as raw material. But so long as it did not reach Bombay and was not converted into raw material, the connection it bore with the assessee's business was remote. And any payment made in respect of it could not be said to accrue from business. In Strong & Co. of Ramsey Ltd. v. Woodifield (Surveyor of Taxes) [1906] 5 TC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner turns to profit by keeping it in his own possession; circulating capital is what he makes profit by parting with it and letting it change hands. Therefore, circulating capital is capital which is turned over and in the process of being turned over, yields profits or loss. It is well settled as the High Court observed in the judgment under appeal that what is capital assets in the hands of one person may be trading assets in the hands of the other. The determining factor is the nature of the trade in which the asset was employed. Compensation received for immobilisation, sterilization, destruction or loss, total or partial, of a capital asset would be capital receipt. If a sum represented profit in a new form then that was income but where the agreement related to the structure of the assessee's profitmaking apparatus and affect the conduct of the business, the sums received for cancellation or variation of such agreement would be a capital receipt." In the present case too, the purpose of the ultimate use of the assessee's land when acquired was rendered irrelevant on account of the seller/JMA Buildcom Private Ltd. defaulting in its commitment. This rendered the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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