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The Tax Publishers2020 TaxPub(DT) 3397 (Bang-Trib) INCOME TAX ACT, 1961
Section 45 Section 54F
Where assessee gave advance for purchase of agricultural land but seller failed to execute deed and later on paid liquidation charges along with advance paid by assessee, liquidation charges so received by assessee were received for extinguishment of right acquired for specific performance of agreement of sale and said right constituted “capital asset” within the meaning of section 2(14), therefore, liquidation charges were taxable as capital gains and not as income from other sources.
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Capital Gains - Right to specific performance - Assessee gave advance for purchase of agricultural land but seller failed to execute deed - Receipt of liquidation charges from seller, whether transfer of capital asset
Assessee entered into an agreement for purchase of agricultural land and paid advance to seller. Since seller could not execute the conveyance deed, cancellation agreement was entered between the parties, as per which, certain sum was agreed to be paid to assessee, which also included advance so paid and liquidated damages. Assessee offered said amount as long-term capital gains and also claimed exemption under section 54F. AO alleged that liquidated damages received by assessee were on account of breach of contract and 'not towards extinguishment of any rights in a capital asset'. Accordingly, AO assessed same as income under the head 'Income from other sources'. CIT(A), however, allowed appeal of assessee by holding that liquidation charges were capital gain in hands of the assessee, since same was received on extinguishment of rights vested with assessee in the scheduled property. CIT(A) also allowed deduction under section 54F.Held: Assessee gave advance for purchase of land and accordingly acquired right for specific performance of agreement of sale. The said right constituted 'capital asset' within the meaning of section 2(14). Subsequently, assessee received money for giving up the said right. The same shall constitute capital gains in the hands of the assessee. In instant case, it was not case of AO that assessee did not get 'right of specific performance of agreement of sale' upon entering sale agreement between assessee and seller.
Followed:CIT & Anr. v. H. Anil Kumar (2011) 242 CTR (Karn-HC) 537 : 2011 TaxPub(DT) 1517 (Karn-HC), Distinguished:CIT v. Balbir Singh Maini (2017) 398 ITR 537 (SC) : 2017 TaxPub(DT) 4346 (SC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2010-11
IN THE ITAT, BANGALORE BENCH
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