Urgent query - taxation on cancellation of agreement

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 December 2018 My father passed away in 2016 and later we came to know that had entered into registered sale agreements with 4 agriculture land owners during 2011 to 2015 on a land aggregator role on behalf of a land development company through an unregistered "assignment agreement to purchase land" in 2011 under the conditions that the company has/will pay for cost of acquiring these lands.

Now, the company has approached my family (as legal heirs of the agreement) to execute a Cancellation Agreement forfeiting all the advances paid by my father (i.e. on behalf of the company) towards acquisition of land. All agreements are Registered have a 4 month limitation and no forfeiture clause thus seeming to be open-ended.

What are the tax implications on my family if we went ahead for Cancellation of Agreement by forfeiting the advances paid? Does forfeiting the advances amount to capital gains or income from other sources and why?

Any help from the experts is highly appreciated.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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20 December 2018 Section 56(2)(ix) taxable under income from other sources.

Querist : Anonymous

Querist : Anonymous (Querist)

20 December 2018 Sir, doesn't section 56(2) (IX) apply only for the seller who is in receipt of the advances. My father is the buyer, now as legal heirs we are only forfeiting the advances we paid. Is this taxable at my hands if we willingly cancel the agreement forfeiting the advances as is it not a loss for us?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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20 December 2018 Not taxable in your hands. Yes it's a loss to you.

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