INCOME TAX ACT, 1961

Section 14

Head of income - Income on account of surrender of rights by assessee vis-a-vis property - 'Income from capital gains' or 'Income from other sources' -

Assessee-HUF was tenant of a property. A MOU was entered into between the assessee and owner of the property and thereafter, the property was sold. To settle the claims of the assessee, the owner paid certain amount to the assessee on surrender of the rights of the assessee to the property. Assessee claimed deduction of the said amount under section 54EC as the same was invested in capital bonds. Therefore, income from long-term capital gain was disclosed as nil. However, AO did not accept the said claim of the assessee and the said amount was added back to the income of the assessee as 'Income from other sources'. Held: There was nothing to show that the MOU entered into between assessee and the owner was fabricated or ante-dated. Further, the property in question was disclosed by the owner in its return of income for the relevant period. Further, the assessee disclosed the amount received from the owner for settlement of its claim to the property and also disclosed that the said amount was invested in capital bonds. Thus, the said amount was received by the assessee as long-term capital gain in view of surrender of rights by the assessee vis-a-vis the property in question. In such circumstances, merely on the basis of suspicion, the Revenue ought not to have rejected the claim of the assessee that the said amount was received as long-term capital gain and accordingly, the deduction under section 54EC was allowed.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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