Provisions 45 of Income Tax Act applies to compensation received from allotment of proposed building

Raghav Maheshchandra Trivedi Vs CIT (ITAT Ahmedabad)

ITAT Ahmedabad held that compensation received from proposed building by way of allotment is extinguishment of right in relation to capital asset and hence provisions of section 45 of the Income Tax Act gets applicable.

Facts- On verification of the assessment order, PCIT found that the assesse received a compensation of Rs. 1,92,18,157/- from M/s. Adarsh Developers and Others on purchase of a villa at Bangalore. Since the developer failed to execute the contract and defaulted in completing the project thereby the assessee got this compensation through litigation at National Consumer Disputes Redressal Commission (NCDRC), New Delhi.

PCIT issued a show cause notice that the compensation received by the assessee is required to be assessed as “Income from Other Sources” rather than “Income from Capital Gains” as per Section 2(14) of the Act. The same was confirmed by PCIT. Being aggrieved, the present appeal is filed.

Conclusion- It is been held by the Co- ordinate Benches of the Tribunal that compensation received by the assessee from the proposed building by way of allotment is actually extinguishment of a right in relation to capital asset, in view of the provisions of section 2(47)(vi) of the Act. This clearly falls within the definition of transfer and hence provisions of section 45 is applicable. Therefore the Revision proceedings initiated by the Ld. CIT (IT &TP) is liable to be quashed.

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