Dharampal Saghera Vs ITO (ITAT Chandigarh)
ITAT Chandigarh held that compensation under a family settlement is liable to be assessed under the head ‘Capital Gain’ and not ‘Income from Other Sources’. Thus, deduction u/s. 54 and 54EC allowed and addition made by AO set aside.
Facts- In the present case, the assessee had declared the amount of ₹1.75 crore in the course of a family settlement regarding House No. 55, Sector 9-A, Chandigarh, as long-term capital gain, claimed deductions u/s. 54 and 54EC of the Act. The amount was received in lieu of relinquishment of her long-standing possessory and beneficial rights in the property which she had occupied since the 1960s.
During the reassessment, the AO held that since the assessee lacked legal ownership, the amount could not be treated as consideration for the transfer of a capital asset. The AO treated it the same as a gift u/s. 56(2) and assessed it as “income from other sources”.
CIT(A) upheld the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- Held that the assessee is entitled to the relief claim. The assessee has rightly claimed deduction under Sections 54 and 54EC, supported by investment documents. The AO and CIT(A) erred in treating the receipt as income from other sources in the absence of legal title, disregarding settled law that ownership for tax purposes includes possessory and beneficial rights. Thus, we hold that the receipt of ₹1 .75 crore constitutes long-term capital gain and is eligible for deduction under Sections 54 and 54EC. The reassessment and addition made by the AO are not sustainable in law.
