Computation of Taxable income after taking capital gain/loss

This query is : Resolved

Sakshi (Querist)
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21 July 2022 Please confirm these computations and interpretations.

Overview- Buyer had entered into the agreement with the builder in Nov 2013 for purchasing of Under Construction Property.The same was supposed to be completed in Nov 2017.

But the builder in Nov 2017 had failed to complete the construction of the same.In pursuance of the same, Buyer had approached the builder to refund the amount so paid where the builder completely disagreed to pay the amount so paid.

After having been rejected by the builder, the buyer had approached the National Consumer Court.

NCC was delivered the case and ordered to the builder to pay the buyer in Dec 2021 the amount so paid also including interest @ 8%.

Question 1- Computation of Capital Gain/Loss-

Answer 1-

As per Section 2(14)(a) ,capital asset means a right to obtain conveyance of immovable property, was clearly “property” as contemplated.

Further as per section 2(47)(ii) read with section 45, extinguishment of any right in a capital asset shall be regarded as transfer and liable to capital gain tax.

Moreover, as per discussed case laws of Richa Bagrodia Vs. Dy. CIT [2019] (Mum), Holding period for the purpose of capital gains is thus to be considered from the date of allotment of flat and not from the date of possession of flat.

Therefore the date on which allotment letter was issued and the date on which award is given by court shall be the period of holding.

Computation of Capital Gains/Loss-

Amount Awarded by Court- Rs 75,00,000(excluding interest@8%)

Less- Indexed Cost of Acquisition- Rs 1,07,72,545

FY 12-13 Rs 18,50,000*272(331)/200= Rs 30,61,750
FY 13-14 Rs 37,50,000*272(331)/220= Rs 56,42,045
FY 14-15 Rs 15,00,000*272(331/240= Rs 20,68,750

Capital Loss - Rs 32,72,545

Clarification 1- Whether these computations and interpretations are correct ?

Question 1- Treatment of Interest received as in pursuance of COURT AWARD in the hands of BUYER and whether TDS was supposed to be deducted by builder?

Answer 1-

As per section 2(28A) “interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.

Therefore The relevant provisions of laws that deal with the particular case are Section 14(1)(d) and 39(1)(d) of the Consumer Act, 1986 and 2019, respectively, and Section 2(28A), Section 56 and Section 194A of the Income-tax Act, 1961, the compensation granted under the Consumer Protection Act, 1986/2019 does not qualify as income under the Income-tax Act, even though the same is computed by way of ‘interest’. Therefore, there is no requirement to pay tax on the amount of compensation received under the Consumer Protection Act. The amount received as a refund by you from the builder along with interest @ 8% per annum should not be treated as taxable income.

Clarification 2-Whether these interpretations are correct ?

Please have a look and confirm whether any interpretations/computations are incorrect.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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21 July 2022 Well, add some case laws where the builders paid interest for cancellation of the agreement as they could not provide the flats in stipulated time, which was treated as taxable income over the principal amount paid back. The same was taxable under IFOS. Final decision is at the discretion of ITD.

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