The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) held that no income tax is to be levied on compensation from builders in lieu of a consumer court order as the same is in the nature of capital receipt.
Raghav Maheshchandra Trivedi, the assessee is an individual and non-resident. For the assessment year 2015-16, the assessee filed his return of income admitting total income of Rs. 37,66,640/- under “income from house property”, “income from capital gain” and “Income from other sources”.
The assessment was completed by passing an assessment order, admitting the returned income which resulted in a refund of Rs.32, 95,970/- which is inclusive of interest of Rs. 4, 29,915/- under section 244A of the Income Tax Act, 1961.
On verification, the principal commissioner of income tax (PCIT) found that the assessee received a compensation of Rs. 1, 92, 18,157/- from M/s. Adarsh Developers and Others on purchase of a villa at Bangalore.
Since the developer failed to execute the contract and defaulted in completing the project thereby the assessee got this compensation through litigation at National Consumer Disputes Redressal Commission (NCDRC), New Delhi.
The principle of Income Tax (PCIT) issued a show cause notice that the compensation received by the assessee is required to be assessed as “Income from Other Sources” rather than “Income from Capital Gains” as per Section 2(14) of the Income Tax Act 1961.
Since the assessee was not in possession of a capital asset, against the booking amount of a villa, the assessee got the compensation as there is no capital asset involved no question of invoking capital gains as per the provisions of section 45 of the Income Tax Act, 1961. Therefore the assessment order passed by the assessing officer without making any enquiry is an erroneous order and prejudicial to the interest of revenue and why the assessment order not be set aside and to do afresh.
Counsel for the assessee, Ajay Singh contended that for the assessment Year 2015-16 assessee’s status was a non-resident as per the Performa along with the copy of the passport, copies of the NRO Bank and NRE Bank account with proper explanation and other properties details.
He also pleaded that the invocation of revision proceedings under section 263 is bad in law and liable to be quashed.
The counsel for the department, A.P. Singh submitted that the Assessing Officer has not made proper enquiries on the claim of the assessee and simply granted the relief which is no doubt an erroneous order and prejudicial to the interest of revenue since a huge refund is granted to the assessee. Therefore the revision proceedings are required to be upheld.
The Coram comprising the account member Waseem Ahmed and the judicial member T.R Senthilnkumar observed that the assessment order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue.
The coordinate benches of the tribunal held that the compensation received by the assessee from the proposed building by way of allotment is actually the extinguishment of a right in relation to a capital asset, in view of the provisions of section 2(47)(vi) of the Income Tax Act,1961.
This clearly falls within the definition of transfer and hence provisions of section 45 are applicable. Therefore the revision proceedings initiated by the commissioner of income tax (CIT (IT & TP)) is liable to be quashed. The appeal filed by the assessee got allowed.
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