ADVANCE MONEY UNDER SALES AGREEMENT

It is Rs.1 lakhs is Income From Other Source. If he gave 1 Lakh Advance for Purchase and Got back 2, the amount of 1 lakh is like a compensation for cancelling the deal. The buyer has no property in his hands to transfer back and call it Capital Gain. 1 lakh is refund and 1 lakh is amount received other than for adequate consideration and taxed as IFOS.

In income tax computation:-

Advance Money Paid for MOU to Purchase Property.

Then you simply adjust 1 lakh to the advance paid as refund and in computation you show 1 lakh as compensation for cancelling MOU.

Yes, only Rs.1,00,000/- will be taxable under the head "Income From Other Sources". 

It would be sale of right and Rs. 100,000/- taxable under the head capital gains. The relevant case law:

The right is created if there is an agreement to sell and the seller backs out. In this case it is a capital gain. However, on rescindment of an MOU that is signed just confirming the price, there is no right created to the aggrived buyer. What he is getting is a sort of a compensation that he will not file any suit to get the sale of property stopped. It is a matter of buying peace. Even if the buyer has no right for creation of the capital gain, he has a piece of paper to create nuisance value and therefore a settlement. The sellers new buyer will not go ahead with a transaction if he reads an advertisement in a newspaper that the aggrived byer may place. The buyer should have a document that has partially created a right to the property by a sale deed for a capital gain and therefore with MOU cancellation he cannot even adjust this gain with a carried forward capital loss. MOU is not conferring such rights to him. Normally when only a small amount is given, it is an MOU. An Agreement to Sell even without giving conveyance creates a right for the buyer. Therefore it depends on the document  between Buyer & Sellers. Sellers who have intentions of fishing for a better deal are very smart in what documents they sign.