Tax treatment on receiving back of forfeited money

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Rohit Sharma

Audit Manager

36 Points Posted on 02 June 2015

Hello Experts,

Please provide your comments on following query:

I had given some advance money for purchase of land to a party but he failed to deliver the land and after 5 years he is giving me my advance money with increased value. I need to know the tax treatment in my hand if there would be any?

Thanks

Rohit

Replies (9)

DEEPU HN

Associates

69 Points Posted on 02 June 2015

Advance money will not taxable and if u received excess of advance money taxable under other income.

Rohit Sharma

Audit Manager

36 Points Posted on 02 June 2015

Any section or case law for your comment?

Bishwajit Mitra

Propritor

23 Points Posted on 02 June 2015

Excess monies received over the advanced amount is taxable as Casual Income.

harshit darji

accountant

404 Points Posted on 02 June 2015

we can assume it as income from other sources

Pankaj Kumar Pareek

Article Assistant

24 Points Posted on 02 June 2015

It taxable under income from other sources if you received it on or after 01/04/2014...

Z

Tax Consultation (US and India)

2348 Points Posted on 02 June 2015

If he failed to deliver the property because of fault on his behalf then why did he forefietted the advance ? Further you could have sued him for non performance of the specific contract

One view can be taken that the excess money which you are now receiving is for surrendering your right to acquire that land and hence there is a transfer and such excess shall be liable to be taxed under the head capital gain.

Advance money forefieted is income for the receiver from 1.04.14 [S.56(2)(ix)]

Anju Agiwal

Student CA Final

30 Points Posted on 02 June 2015

Please refer case of K.R.Srinath v Asstt.CIT(2004)..amt recd in excess will be chargeable to cg tax

LALIT KUMAR

CA FINAL STUDENT

22 Points Posted on 03 June 2015

Excess amount received will be taxable as capital gains. Refer K.R.srinath case.

Rohit Sharma

Audit Manager

36 Points Posted on 03 June 2015

Thanks All, I got the answer and reference is here below:

It will be treated as capital asset as the definition of transfer in relation to capital asset includes

(i) the sale, exchange or relinquishment of the asset; or

(ii) the extinguishment of any rights therein

Treatment in the hands of buyer

Due to default on the part of vendor : vendee receives some compensation besides the refund of the earnest money paid by him, such compensation shall be subject to capital gains as it will amount to relinquishment of a right by the vendee. [CIT V. Vijay Flexible Container (1990)186 ITR 693(BOM) and K.R.Srinath v. Asst.CIT (2004)268 ITR 436 (MAD)].