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BRIEF FACTS OF THE CASE1
- Suvarna Chandrakant Bhojane ('the Assessee'), had entered into a development agreement for construction of flats on her land.
- As per the terms of the agreement, the Assessee was to receive certain flats in lieu of her land.
- The agreement provided that if the developer was unable to deliver the flats within the stipulated timeline, he shall pay cash compensation to the Assessee.
- Since, the Developer was unable to construct the flats within the stipulated timeline, he paid interest amounting to INR 1.85 crores as compensation to the Assessee.
- The Assessee offered this income to tax under the head "Income from Capital Gains".
- However, the Assessing Officer ('AO') invoked the provisions of Section 50C of the Income-tax Act, 1961 ('the Act') thereby contending that the stamp duty value shall be taxed and accordingly offered the stamp duty value of INR 3.51 crores to tax under the head Income from Long Term Capital Gains.
- On appeal, the Commissioner of Income-tax (Appeals), upheld the claim of AO and confirmed the addition.
- Aggrieved by this decision, the Revenue preferred an appeal before the Income Tax Appellate Tribunal ('ITAT'), Mumbai.
OBSERVATIONS OF ITAT
- The Tribunal observed that Section 50C of the Act is a deeming provision and it applies only when there is transfer of an immovable property or a right therein. The provisions of this section should not be invoked when no such transfer takes place.
- In the present case, the ITAT observed that there was no transfer of any immovable property or any right in immovable property by the Assessee.
- The Assessee had only received interest in the form of cash compensation for delay in delivery of flats within the stipulated timeline by the Developer.
- The Tribunal further pointed out that in the case of the Assessee's husband, where the facts and circumstances were identical, the CIT(A) had already held that Section 50C of the Act was not applicable to such cash compensation. Additionally, the Revenue had not contested that decision
- The Tribunal further took note of the case laws as sited by both the Assessee. However, it was observed that the case laws relied upon were not directly relevant as none of them dealt with a situation involving receipt of cash compensation or interest for delay in the delivery of flats
- The Tribunal emphasized that a plain reading of Section 50C of the Act makes it clear that the provision comes into play only when an immovable property or a right in immovable property is actually transferred.
- Since in the present case there was no transfer of immovable property, and the Assessee had only received a monetary compensation for delay, the Tribunal held that invoking Section 50C of the Act was not justified.
- In the present case, the Assessee had received interest @ 12% p.a. for the delay in handing over of the flats. The Tribunal held that the receipt is neither 'long term capital gains' nor Section 50C of the Act can be applied.
- Based on these findings, the Tribunal concluded that the application of Section 50C of the Act to the cash compensation received by the Assessee was incorrect.
- Accordingly, the appeal filed by the Assessee was allowed in the favor of the Assessee.
AURTUS COMMENTS
- The Tribunal has reinforced that the scope of Section 50C of the Act is confined strictly to cases involving an actual transfer of immovable property or a transfer of right in an immovable property. This provision cannot be extended to cover instances when no such transfer takes place.
- Additionally, the receipt of cash compensation or interest for delay on account of non-performance under a development agreement, even though connected to the underlying development agreement, shall not fall within the ambit of provisions of Section 50C of the Act.
Footnote
1 Suvarna Chandrakant Bhojane [TS-1404-ITAT-2025(Mum)]
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