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Facts
The appellant received cash compensation from a builder due to the delay in handing over flats as per a Development Agreement, instead of the flats themselves. The Revenue applied Section 50C of the Income Tax Act, using the stamp duty valuation, to compute capital gains on this compensation.
Held
The Tribunal held that Section 50C of the Income Tax Act is applicable only when an immovable property or a right in immovable property is transferred. Since the appellant received cash compensation for a delay and not from the transfer of property, Section 50C was not applicable. The addition made by the Assessing Officer was therefore incorrect.
Key Issues
Whether Section 50C of the Income Tax Act is applicable to cash compensation received due to delay in construction/handover of property, as opposed to the transfer of the property itself.
Sections Cited
50C, 2(47)(vi)
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Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Smt. Beena Pillai (JM) & Shri Omkareshwar Chidara (AM)
1. The appellant has not entered in to agreement to sale the flats. But as per the alternative mechanism provided in the agreement as per clause 2, the total consideration received is Rs. 18500000/- only (Assessee's share 50%).
2 Suvarna Chandrakant Bhojane 2. The Stamp Duty Valuation for Rs.35141100/- is only hypothetical since there is no agreement to transfer. 3. The Income Tax is levy on real Income the Appellant has realized Rs. 18500000/- in full and final settlement towards compensation received on investment for land given for development.
4. That the Appellant has received Rs.18500000/- only towards full and final consideration as per clause 2 of the development agreement.
That the flats were not ready after the expiry of 44 months and even not ready till date therefore the appellant has received consideration of Rs.18500000/- calculated @12% p.m. as consideration.
6. That the M/s SOVANI & ASSOCIATES by their letter dt.07.12.2017 confirm that they have not transferred any flats to the appellant, and therefore they have paid compensation 12% to be applied on Rs.13245000/- which is ready reckoner cost for 15000 Sq.ft. to be given to appellant. Ground No.3 In the facts and circumstances of the case and in law the learned Assessing Officer erred in charging Long Term Capital Gain Tax on Rs.8032610/- instead of Rs.7094909/- ignoring the fact that the applied has declared Rs.937701/- in the Return of Income.
The appellant crave leave to add amend or alter delete any or all the above Grounds of Appeal.
2. In this appeal, the appellant states that a Development Agreement was entered into by them with a builder, as per which the appellant gets certain number of flats in lieu of their land after construction and if they could not give the flats within the stipulated period, the appellant is entitled for some cash compensation. In this case, the builder/developer could not construct the flats and give to the appellant as per agreement and hence paid Rs. 1.85 crore as compensation which was offered by appellant as long-term capital gains in lieu of the land. The Revenue is of the opinion that section 50C of the Income Tax Act is applicable even for cash compensation received and applied stamp duty valuation at Rs. 3.51 crore and accordingly long term capital gains was computed.
3 Suvarna Chandrakant Bhojane 2.1 The Ld. AO’s computation of long term capital gains was upheld by Ld. CIT(A) and aggrieved by the order of this First Appellate Authority, an appeal was filed by the appellant with the above grounds.
During the hearing proceedings before the ITAT, the Ld. AR of the appellant has argued that the appellant is 50% of shareholder of compensation received from builder and other 50% was received by her husband where similar addition was made. The Ld. CIT(A) who decided the case of her husband decided the issue in favour of appellant and held that section 50C of the Act is not applicable to the amount of cash compensation received and provisions of section 50C of the Act are attracted only when the land/building is transferred. The Department did not contest the issue to ITAT. Since the circumstances are similar and the amount received is the same, i.e., another 50% of compensation, the Revenue cannot take different stand. The Ld. CIT(A) who gave relief to her husband relied on the ratio of decision rendered by Hon'ble Supreme Court in the case of CIT Vs. Balbir Singh Maini 12 SCC 354 and held that section 2(47)(vi) of the Act and its definition of “transfer” is applicable to transfer of immovable properties and not the transfer of title. In the impugned case, what was transferred is title of right in the land and the amount received is in lieu of extinguishment of right to transfer the title. In view of the decision rendered by Ld. CIT(A) in the case of her husband and the decision of Hon'ble Supreme Court, the Ld. AR of the appellant submitted that the addition made by Ld. AO should be deleted.
Per contra, Ld. DR has relied on the decision of Hon'ble Bombay High Court in the case of Vidarbha Veneere 473 ITR 546 (Bom) for the proposition that section 50C of the Act extends to transactions involving rights in property including development right. He also relied on the decision of Hon'ble Supreme Court in the case of Kartikeya Sarabhai Vs. CIT 94 Taxman 164 (SC) for the proposition that section 2(47) of the Act is an inclusive definition and provides for the relinquishment of an asset or right therein. Hence, the entire amount received as compensation towards her share has 4 Suvarna Chandrakant Bhojane to be taxed under the head “capital gains” and consequently section 50C of the Act is applicable to this receipt of compensation, argued by Ld. DR.
5. Heard both sides. In the impugned case, the issue is whether provisions of section 50C of the Act can be made applicable when cash compensation was received. The cases-law relied on by both sides actually did not deal with the issue on hand. Hence, from the plain reading of section 50C of the Act, it is observed that section 50C comes into picture only when immovable property is transferred and that too after comparing with the stamp duty value of Government. Here, what was received by appellant is cash compensation as ‘interest’@ 12% per annum for the delay in handing over of flats. This is neither ‘long term capital gains’ as contended by appellant nor section 50C of the Act can be applied because it is not immovable property or a right in immovable property as contended by Revenue. As mentioned above, the issue relates to cash compensation receipt, section 50C is not applicable because it is neither immovable property nor right in immovable property was transferred. Moreover, in the similar circumstances, the Ld. CIT(A) in appellant’s husband’s case held that section 50C is not applicable which was not contested by Department, the issue has become final and hence invoking section 50C in appellant’s case is not correct.
Appellant’s appeal is allowed. Order pronounced in the open Court on 06/10/2025.