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Amount received from government for land cases

Deepak (Ca Final) (50 Points)

06 March 2016

Respected All,

Please advice me in tax treatment,I am going to receive some consideration from government for Land which is not agriculture land .From last 5 years case was going on in court and now they want to compromise by giving sum lumpsum amount .Please guide me the taxability of this compensation .It will be tax as capital gain or other sources.And i have to pay 50 % to the person who run the case and who bear all the expenses of the case . Please guide me how to show the income and expenses that will be in my hand and taxability treatment in the hand of person whom i will pay 50%.

Thank You Deepak

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2 Replies

Kuldipsinh Jadeja (Job) (357 Points)
Replied 07 March 2016

It would be taxable under the head Capital gain. Such Capital gain is not taxable in the year in which capital asset is transferred but it is taxable in the first year in which initial compensation(or part thereof) is first received. Litigation expenses are deductible from sale consideration. So it would be taxable in the year when you actually receive the amount of compensation. Refer provisions of section 45(5) of Income Tax Act

Deepak (Ca Final) (50 Points)
Replied 07 March 2016

Thank You Kuldip Ji,

Can you please clear one more query

I will have to give 50 % of the compensation to my friend as we agreed before filling suit against Government So what my friend will shown in his income tax it will be treated as commision income or what? ?

Regards

Deepak