Capital Lost by Individual - Can this be treated as Capital Loss

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An individual invested money in a real estate project via an MOU, but the developer has failed to launch and refuses to return the funds. With a key partner deceased and the project stalled, the investor is unable to recover their capital. The question is whether this loss can be treated as a capital loss, even though the individual invested in their personal capacity and not as part of a business. While it's a capital transaction, simply being unable to recover funds might not automatically qualify as a capital loss unless the developer's inability to fulfil obligations is formally established, such as through bankruptcy.

Sunil Sharma

Sunil Sharma (Querist)
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24 July 2024 Invested money with a real estate developer in Sep 2021 by entering into an MOU. However developer failed to launch the project to date and refusing to give back the amount. One of the key partners of the Developer passed away in Nov 2023. Assessee is unable to recover the monies invested. Can the individual claim the amount so invested and lost as Capital Loss. Please note this individual is not in business but invested in individual capacity.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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24 July 2024 No, A capital loss is a loss on the sale of a capital asset such as a stock, bond, mutual fund or investment real estate.

Sunil Sharma

Sunil Sharma (Querist)
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25 July 2024 When I paid by Chequ legally through a duly Notarised MOU Agreement a Right to acquire the property accrues. Due to the failure of the Developer (Death of the key partner, financial difficulties etc.), the project is not launched and Developer refused to pay the monies. Since my Right is extinguished will it not be a Capital Loss on extinguishment of Right. In effect lots of Capital invested is lost forever. How to claim this loss of capital if it is not STCL/LTCL

Nikhil Kaushik

Nikhil Kaushik (Expert)
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02 August 2024 it is a capital transaction. That is what was held by Mumbai ITAT. However, in that case the extinguishment of the right was established on paper and the end result was still a gain.

inability to recover the amounts may not constitute extinguishment of the right unless the entity has been declared bankrupt and shut down. All you have right now is a case of money stuck with the builder.

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