24 June 2016
During F. y. 2014-15 I have book a flat and paid first two installment i.e. 715000 but in the F.Y. 2015-16 i have surrendered my flat to builder. At the time of surrender builder had deducted 350000/- as penalty and refund balance amount.
I have sold one of my flat in the F.y. 2015-16. from which i have long term capital gain.
My question is , can i adjust surrender value from my long term capital gain while computing taxable income.
In my opinion the tax treatment of the same would as under: -
Forfeiture of earnest money by the vendor if due to default on the part of vendee, will not amount to relinquishment of a right in that asset. Therefore the amount forfeited will not be allowed as a capital loss under the head capital gains as uprooted in CIT vs. Sterling Investment Corporation Ltd (1980) 123 ITR 441.
However, if the seller fails to honor the deal and pays the buyer double the compensation, this will be treated as capital gain because it amounts to relinquishment of a right by the buyer.
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