The Delhi Bench of Income Tax Appellate Tribunal ( ITAT )ruled that the compensation of Rs.5,947,940 received by the assessee from Jaypee Greens Greater Noida for the delayed delivery of a property was a capital receipt and not taxable income.
Atul Sharma,appellant-assessee,was a practicing advocate and partner at M/s. Link Legal, filed his income tax return for Assessment Year(AY) 2014-15 on 30.11.2014, declaring an income of Rs. 6,501,934. The case was selected for Limited Scrutiny under Computer Aided Scrutiny Selection(CASS) due to discrepancies between the gross interest reported and Form 26AS, along with mismatches in the Profit & Loss account.
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During assessment, the Assessing Officer (AO) found unreported interest income of Rs. 5,947,942 from Jaypee Associates Ltd. and Rs. 47,520 from DLF Utilities Ltd., adding Rs. 5,995,462 to the income. On appeal, the Commissioner of Income Tax (Appeals)[CIT(A)] partially allowed relief, directing the AO to recompute “Income from Other Sources” after deducting Rs. 2,425,426 under section 57(iii) for housing loan interest paid.
The assessee’s counsel submitted that Jaypee Greens Greater Noida had allotted a unit to the assessee, which was to be delivered within 39 months but was delayed. To compensate for the delay, the company paid Rs. 5,947,940 as damages. The counsel cited the Delhi Tribunal’s decision in the assessee’s previous case (ITA No. 5803/Del/2013), which held that such compensation constituted a capital receipt.
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The Tribunal, upon reviewing the case, agreed with the assessee’s position regarding the compensation from Jaypee Greens Greater Noida. It cited a key judgment by the Himachal Pradesh High Court, which had ruled that compensation for delayed delivery of flats was a capital receipt, not taxable income.It further referred to a decision by the Calcutta High Court, which had clarified that compensation calculated at an interest rate should not be treated as taxable interest.
The appellate tribunal highlighted that the compensation was not related to a borrowed sum but was for damages due to the delay in delivery, which excluded it from being considered as “interest” under section 2(28A) of the Act.
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The two member bench comprising Sudhir Kumar (Judicial Member) and Shamim Yahya (Accountant Member) referring to the previous decision in the assessee’s own case (ITA No. 5803/Del/2013), concluded that the compensation amount of Rs. 5,947,980 received by the assessee from Jaypee Greens Greater Noida was indeed a capital receipt, and not taxable.
Therefore, the tribunal allowed the assessee’s appeal, ruling that the compensation was not chargeable to tax.
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