INCOME TAX ACT, 1961

Section 56(2)(vii)

Income from other sources - Addition made under section 56(2)(vii) - Difference between the amount paid to the land owners and the market price estimated by Registration Department -

Assessee purchased a property from five owners of the land. Vendors / owners of the land have already entered into an agreement for sale. In order to clear the title, assessee paid Rs. 1,58,00,000 to agreement holder. The balance amount was paid to the owners of the land. While computing capital gain, assessee claimed amount paid to agreement holder as cost of acquisition. However, AO found that amount paid to agreement holder were in the nature of brokerage, therefore, it cannot be considered as cost of the property under section 56(2)(vii). Since Rs. 1,58,00,000 was paid to agreement holder and each co-owner of the property was paid Rs. 49,00,125, therefore, the total value of the property was more than guideline value. Unless the payment was made to the agreement holder, assessee could not purchase property. Held: The right to purchase property can be specifically enforced through a court of law. Therefore, when there was pre-existing right to sell the property in favour of agreement holder, assessee could not purchase the property unless the agreement to purchase the property in favour of holder was discharged. Tribunal was of the considered opinion that payment made to pre-existing agreement holder to purchase the property to the extent of Rs. 1,58,00,000 had to be considered as cost of the property/ purchase price. In fact, assessee had paid more than the market value fixed by Registration Department. Therefore, there was no question of computing any income under section 56(2)(vii) and addition was deleted

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2015-16

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