Sale Consideration on Transfer of Allotment Right is Taxable under the head ‘Capital Gain’: ITAT Delhi [Read Order]

Sale Consideration on Transfer of Allotment Right is Taxable under the head ‘Capital Gain’: ITAT Delhi [Read Order]

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In Satnam Overseas Exports v. DCIT, the Delhi bench of the ITAT has held that the right to receive a property is a valuable and a transferable right which falls within the ambit of “capital asset” under the provisions of the Income Tax Act. While holding so, the bench clarified that the sale consideration on the transfer of such allotment right (without physical possession of the property) is taxable as Capital Gains and not as “Income from other sources”.

Assessee, had transferred the allotment right in respect of flat allotted to him. The possession of the flat was never taken by the assessee since it did not come into existence and the full cost of the flat was also not paid by the assessee. Assessee claimed that the sale consideration received was taxable under the head “Long Term Capital Gain” since allotment of flat is covered in the definition of capital asset for the purpose of income tax. The assessing authority as well as the appellate authority rejected the contention and held that the same is subject to capital gain tax. Aggrieved by the orders, the assessee approached the Appellate Tribunal.

The question before the Tribunal was that whether the right to receive in the flat is a property which comes in the ambit of capital asset or not.

Answering the above question, the bench relied upon the decision of Bombay High Court in CIT VS. Data Services Ltd wherein the Court held that a right to obtain conveyance of immovable property is “property” as contemplated by section 2(14) of the Income Tax Act, 1961.

Allowing the appeal, the bench said, “in view of the facts in the present case and the decision relied upon by the learned counsel for the assessee more than 90% of the payments made for the said property will tantamount to a right which is transferrable and will be termed as a capital asset. The total payment having been made for Rs.89,50,0001- whereas on transfer the assessee received Rs. 1,19,32,0001- fetching about 30 lakhs profit which has been offered under the head “capital gains”.”

Read the full text of the Order below.

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