|The Tax Publishers2020 TaxPub(DT) 5380 (Del-Trib)
INCOME TAX ACT, 1961
Section 51 Section 56(2)(ix)
Where the assessee had forfeited the advance received and retained towards sale of property from the buyer who could not pay the remaining amount as per agreement and had not paid any tax thereon, the said amount could not be taxed as 'Income from other sources' under section 56(2)(ix) as the said provision was not in existence in the said year of assessment but, till the assessment year 2015-16, the amount of forfeiture is not liable to be taxed but would go only in reducing the value of the asset while computing the taxability of the assessee under the head 'Capital gains'. The amount received would be treated in accordance with section 51, applicable w.e.f. 1-4-2015.
Capital gains - Forfeiture of advances on agreement to sell - Application of section 56(2)(ix) (inserted w.e.f. 01-04-2015) for prior assessment years -
Assessee entered into an agreement to sell a property on 24-12-2011 for which Rs. 12.5 crores was taken as advance from the buyer. Subsequently the said deal fell through with the amount of Rs. 12.5 crores being forfeited. Then, in financial year 2006-07 also, the assessee was in receipt of Rs. 18 crores which was forfeited in assessment year 2007-08. It was the case of the AO that these, amounts should be taxed as income from other sources under section 56(2)(ix). On appeal by assessee, the FAA held that it was a capital receipt and fell within the scope of section 51 and cannot be taxed under section 56(2)(ix) especially when the said section did not exist in the year of assessment. Subsequently, the Commissioner (Appeals) passed a rectification order under section 154 taxing the same alleging that the amount of Rs. 18 lakhs and Rs. 12.5 lakhs was more than the cost of the property and thus the amount received was receipt of money without adequate consideration also squarely hit by section 56(2)(ix). On this rectification order, there was the appeal of the assessee and the cross-objections by the revenue. Held: Till the assessment year 2015-16, the amount of forfeiture is not liable to be taxed but would go only in reducing the value of the asset while computing the taxability of the assessee under the head 'Capital gains'. The rectification order of the Commissioner (Appeals) was incorrect as the amount cannot be taxed under section 56(2)(ix). When there was no section 56(2)(ix) in the said year of assessment, the Rs. 18 crore receipt was also upheld in favour of the assessee in a separate order of the Delhi High Court that it will need to go to offset the cost of acquisition under section 51.
Relied:CIT v. Meera Goyal 2014 TaxPub(DT) 1648 (Del-HC)
FAVOUR : In assessee's favour
A.Y. : 2013-14
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