The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) presided by Mr. I G. Manjunatha, Accountant Member, and Mr. Anikesh Banerjee, Judicial Member has held that compensation received for relinquishment of right in a property is assessable under ‘income from capital gains’ and eligible for deduction u/s 54F.
The assessee, Mr. Keezhayur Sowrirajan Sreenivasa claimed deduction under section 54F for the compensation received for relinquishment of right in a property in favor of M/s. Landmark Construction. The Assessing Officer has rejected the claim of the assessee and assessed compensation received by the assessee instead of surrendering his rights in property under the head income from other sources.
On appeal, the CIT (A) allowed the 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 compensation received from the builder in terms of MOU under the head ‘income from other sources’. Aggrieved revenue preferred appeal before ITAT.
The counsel for the revenue submitted that the stamp paper on which MOU between the parties was entered is not having any serial number, therefore, the genuineness of the MOU is in doubt. Further submitted by the appellant counsel that the assessee could not produce any other evidence to prove that he had right in the property and such right has been relinquished in favor of the other party.
The counsel for the assessee submitted that if there is any defect in the document, it is a rectifiable defect under the provisions of the Stamp duty Act, however, the same does not invalidate the transaction between the parties.
The Tribunal observed that extinguishment of any rights in a property would cover under the definition of transfer under section 2(47), 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 extinguishment of his right in the property.
The Tribunal has held that “we are of the considered view that 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’”.
Mr. G.Johnson appeared for the appellant revenue and Advocates Mr. K.Senguttuvan and Mr. V.Veeraraghavan appeared for the respondent-assessee.
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