The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the compensation received from the Builder on the cancellation of the flat is taxable as “income from other sources.”
The assessee purchased a flat from a Builder and paid Rs.10,00,000/- and Rs.20,00,000/- as earnest money towards purchase. Subsequently, the assessee paid full consideration of the flat as agreed to in the allotment letter viz. in two cheques of Rs.10,00,000/- and Rs.20,00,000/- vide Cheque No.256619 and 256620 both dated 07.01.2005. The builders have issued receipts of the same to the appellant. Thereafter, the assessee sold his aforesaid flat for a total consideration of Rs.48,75,000/- on 12.09.2011 and claimed exemption under section 54 of the Income Tax Act, 1961.
The Assessing Officer held that the benefit received by the assessee on cancellation of the deal with the builder i.e. Vardhaman Estate Corporation with respect to the property at Vardhaman Heights, Byculla, Mumbai should be treated as income from other sources.
However, the assessee contended before the appellate authorities that the compensation received from the builder on cancellation of the flat is a capital receipt and not chargeable to tax.
The Tribunal relied on the decision of the Co-ordinate Bench in the case of Ashwin S. Bhalekar where it was held that the CIT(A) has rightly deleted the 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.
“Facts being identical, we follow the above order of the Co-ordinate Bench and allow the appeal. As the appeal is allowed, the additional ground “that the compensation received from the builder on cancellation of the flat is a capital receipt and not chargeable to tax” becomes infructuous,” the Tribunal said.
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