Compensation received from builder for its failure to deliver flats in time taxable under head capital gains: ITAT

Case Details: Smt. Abha Bansal v. PCIT - [2021] 132 taxmann.com 231 (Delhi - Trib.)

Judiciary and Counsel Details

• • Bhavnesh Saini, Judicial Member and O.P. Kant, Accountant Member
  • Gautam Jain, Adv. and Lalit Mohan, CA for the Appellant. Satpal Gulati, CIT DR for the Respondent.

Facts of the Case

Assessee-individual entered into a Builder-Buyer Agreement (BBA) for purchasing a villa. Possession of same was not handed over to assessee within the stipulated time. Thus, BBA was canceled.

Assessee received a certain amount as compensation for the cancellation of BBA on account of the non-delivery of villa. She showed the same as capital receipt and offered it to tax as capital gain under section 45. The Assessing Officer (AO) passed an assessment order accepting the same.

However, the Commissioner invoked revision jurisdiction under section 263 on the ground that such compensation received by the assessee was revenue in nature. CIT held that the transaction of making the investment was a sham transaction, a colorable device to reduce the profit and divert income in order to evade the taxes. The assessee filed the instant appeal before the Tribunal.

ITAT Held

The Delhi Tribunal held that the assessee had made investment for the specific purpose to acquire villa, i.e., capital asset, and had acquired legal right as per BBA. Therefore, the amount received as compensation for giving such a right would amount to capital receipt under section 2(47).

There was a contractual obligation of the builder to pay compensation to the assessee on account of non-delivering of the Villas. The Award was based on scientific examination of the relevant facts.. It may be reiterated again that Arbitration Award was final and binding on the parties and enforceable as it was the Court’s Decree. Therefore, there was no justification to hold that transaction was colored and sham.

Furthermore, compensation did not arise in the course of any trading activity but arose on cancellation of BBA and was not related to any stock-in-trade. Thus, it could not be held as revenue in nature. Accordingly, compensation received by assessee on cancellation of BBA was a capital receipt and taxable as a capital gain.

Case Review

• • CIT v. Canara Bank Ltd. [1967] 63 ITR 328 (SC);
  • CIT v. Aeren R Infrastructure Ltd. [2018] 404 ITR 318 (Delhi);
  • CIT v. D.P. Sandu Bros, Chembur (P.) Ltd. [2005] 142 Taxman 713/273 ITR 1 (SC);
  • Saras Metals (P.) Ltd. v. CIT [2018] 99 taxmann.com 405/[2017] 399 ITR 270 (Delhi);
  • K.R. Srinath v. Asstt. CIT [2004] 141 Taxman 268/268 ITR 436 (Mad.) (para 9.12);
  • CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC);
  • CIT v. Dr. Ashok Kumar [IT Appeal No. 192 of 2000, dated 6-8-2012];
  • Surendra L. Heera Nandani v. Pr. CIT [IT Appeal No. 3226 (Mum.) of 2017, dated 14-2-2018]; (para 9.4);
  • CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 ITR 108 (Bom.)
  • CIT v. Goyal (P.) Family Specific Trust [1987] 35 Taxman 522/[1988] 171 ITR 698 (All.) (para 22) followed.

List of Cases Referred to

• • CIT v. Dr. Ashok Kumar [IT Appeal No. 192 of 2000, dated 6-8-2012] (para 7)
  • Surendra L. Heira Nandani v. Pr. CIT [IT Appeal No. 3226 (Mum.) of 2017, dated 14-2-2018] (para 7)
  • BU Bhandari Schemes v. Pr. CIT [IT Appeal Nos. 637 to 641 (Pune) of 2018, dated 14-11-2018] (para 7)
  • Vishwa Infra – ways (P.) Ltd. v. CIT(Central) [IT Appeal Nos. 596,597 & 599 (Pune) of 2015] (para 7)
  • Rasi Kalal M. Dhariwal (HUF) v. CIT [IT Appeal Nos. 1102 to 1107 (Pune) of 2014] (para 7)
  • Ramamoorthy Vasudevan v. Pr. CIT [IT Appeal Nos. 967 & 968 (Pune) of 2016] (para 7)
  • Dhariwal Industries Ltd. v. CIT [IT Appeal Nos. 1108 to 1113 (Pune) of 2014, dated 23-12-2016] (para 7)
  • Smt. Nama Chinnamma v. Dy. CIT [IT Appeal Nos. 1150-1157 (Hyd.) of 2015, dated 9-8-2017] (para 7)
  • Trinity Infraventures v. Dy. CIT [IT Appeal Nos. 584-589 (Hyd.) of 2015, dated 4-12-2015] (para 7)
  • S. Satyanarayana v. Syed Rasiuddin [IT Appeal Nos. 901 (Hyd.) of 2014] (para 7)
  • Mehtab Alam v. Dy. CIT [IT Appeal No. 288/Luck/2014, dated 18-11-2014] (para 7)
  • Dharmendra Kumar Bansal v. CIT [2014] 48 taxmann.com 53/[2015] 152 ITD 406 (Jp. – Trib.) (para 7)
  • Goodyear India Ltd. v. State of Haryana 1989 taxmann.com 660/[1991] 188 ITR 402 (SC) (para 7.1)
  • CIT v. Sun Engg. Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297 (SC) (para 7.1)
  • Dr. William Britto v. CIT [2015] 56 taxmann.com 170/168 SOT 195 (Panaji – Trib.) (URO) (para 8)
  • Param Transport (P.) Ltd. v. Pr. CIT [2019] 102 taxmann.com 327 (Chattisgarh) (para 8)
  • CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) (para 9.4)
  • CIT v. Canara Bank Ltd. [1967] 63 ITR 328 (SC) (para 9.8)
  • CIT v. Aeren R Infrastructure Ltd. [2018] 404 ITR 318 (Delhi) (para 9.9)
  • CIT v. D.P. Sandu Bros. Chamber (P.) Ltd. [2005] 142 Taxman 713/273 ITR 1 (SC) (para 9.10)
  • Saras Metals (P.) Ltd. v. CIT [2018] 99 taxmann.com 405/[2017] 399 ITR 270 (Delhi) (para 9.11)
  • K.R. Srinath v. Asstt. CIT [2004] 141 Taxman 268/268 ITR 436 (Mad.) (para 9.12)
  • Cheran Properties Ltd. v. Kasturi & Sons Ltd. [2018] 92 taxmann.com 384/147 SCL 352 (SC) (par 10.1)
  • Canara Housing Developing Co. v. Jt. CIT [2017] 81 taxmann.com 472/165 ITD 76 (Bang. – Trib.) (para 10.1)
  • Madhowji Dharamshi Mfg. Co. Ltd. v. CIT [1970] 78 ITR 62 (SC) (par 10.1)
  • Empire Jute Co. Ltd. v. CIT [1980] 3 Taxman 69/124 ITR 1 (SC) (para 10.1)
  • CIT v. Rattan Lal [2016] 153 Taxman 152/284 ITR 162 (All.) (para 11)
  • CIT v. D.K. Gupta [2008] 174 Taxman 476/[2009] 308 ITR 230 (Delhi) (para 13)
  • CIT v. Kulwant Rai [2007] 291 ITR 36 (Delhi) (para 13)
  • Ark Shipping Co. Ltd. v. GRT Shipping Management (P.) Ltd. 2008 (1) ARBLR 317 (para 13)
  • PV Anwar v. Pk Basheer [2014] 10 SCC 473 (para 13)
  • CIT v. Contimeters Electricals (P.) Ltd. [2009] 178 Taxman 422/317 ITR 249 (Delhi) (para 16.1)
  • Pr. CIT v. Krishak Bharati Co-operative Ltd. [2017] 80 taxmann.com 326/247 Taxman 317/395 ITR 572 (Delhi) (para 16.2)
  • CIT v. DLF Ltd. [2013] 31 taxmann.com 158/214 Taxman 91/350 ITR 555 (Delhi) (para 17)
  • CIT (Central) v. Max India Ltd. [2008] 166 Taxman 188/[2007] 295 ITR 282 (SC) (para 17)
  • Malaber Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) (para 17)
  • Pr. CIT v. Delhi Airport Metro Express (P.) Ltd. [2018] 99 taxmann.com 382/[2017] 398 ITR 8 (Delhi) (para 17)
  • CIT v. Deepak Mittal [2010] 324 ITR 411 (Punj.& Har.) (para 19.1)
  • CIT v. Fine Jewellery (India) Ltd. [2015] 55 taxmann.com 514/230 Taxman 641/372 ITR 303 (Bom.) (para 19.2)
  • CIT v. Amit Corpn. [2012] 21 taxmann.com 64/[2013] 213 Taxman 19 (Guj.) (para 19.4)
  • CIT v. Krishna Cap Box (P.) Ltd. [2015] 372 ITR 310 (All.) (para 19.4)
  • Pr. CIT v. Ginger Properties (P.) Ltd. [2017] 88 taxmann.com 613/396 ITR 496 (Guj.) (para 19.4)
  • Toyota Motor Corporation v. CIT [2008] 173 Taxman 458/306 ITR 52 (SC) (para 20)
  • CIT v. Goyal (P.) Family Specific Trust [1987] 35 Taxman 522/[1988] 171 ITR 698 (All.) (para 22)
  • CIT v. Gabriel India Ltd. [1993] 71 Taxman 585/203 ITR 108 (Bom.) (para 22.1)
  • M3M India Holdings v. Dy. CIT [IT Appeal No. 269 (Delhi) of 2018, dated 15-3-2019] (para 23.1)
  • Sanjay Duggal v. ACIT [IT Appeal No. 1813 (Delhi) of 2019, dated 19-1-2021] (para 23.1)
  • Rishabh Build Well (P.) Ltd. v. Dy. CIT [IT Appeal No. 2122 (Delhi) of 2018, dated 4-7-2019] (para 23.1)
  • Supersonic Technologies (P.) Ltd. v. Pr. CIT [IT Appeal No. 2269 (Delhi) of 2019, dated 10-12-2018] (para 23.1)
  • Pr. CIT v. Smt. Shreelekha Damani [2019] 174 DTR 86 (Bom.) (para 23.1)
  • Sonia Gandhi v. Asstt. CIT [2018] 97 taxmann.com 150/257 Taxman 515/407 ITR 594 (Delhi) (para 24).