Tax treatment of compensation awarded by court/ builder
This query is : Resolved
23 January 2018
Hi All!
A client of mine invested in a housing project and had paid most part of the cost of the flat after taking loan from bank. The housng project however could not be completed and the builder failed to deliver the completed flat to the client.
Letter of allotment however was issued to him at the initial level itself while entereing into the agreement.
My client and others filed a case in court and after about 7-8 years, the court issued orders that the cost of the property along with interest at 8% p.a. be returned to my client and others like him by the builder. So, my client received a big lump sum amount which included original cost of the flat plus interest for all the years together.
My query is that how should this amount be treated for taxability in his Income tax return?
- Should the total amount be taxed in the year of receipt as revenue receipt or should this be treated as capital receipt?
- Should I ignore the cost of flat part and just show te interest part as income?
- What should be the tax treatment of this interest part- revenue income or is this a capital receipt since it is related to a capital asset.
- Should not this interest part be bifurcated over all the years to which it relates and then taxed in the return of each such year thereby reducing the tax burden on my client?
There was a court case also which can be applied here, some experts have pointed this out on the caclubindia forum earlier:-
- https://www.caclubindia.com/forum/will-compensation-received-from-builder-attract-cgas-377748.asp
- https://home.kpmg.com/content/dam/kpmg/pdf/2014/01/Subhas-Chandra-Parmanandka.pdf
Would request all members and experts to help me out here.
Thanks in Advance!
A client of mine invested in a housing project and had paid most part of the cost of the flat after taking loan from bank. The housng project however could not be completed and the builder failed to deliver the completed flat to the client.
Letter of allotment however was issued to him at the initial level itself while entereing into the agreement.
My client and others filed a case in court and after about 7-8 years, the court issued orders that the cost of the property along with interest at 8% p.a. be returned to my client and others like him by the builder. So, my client received a big lump sum amount which included original cost of the flat plus interest for all the years together.
My query is that how should this amount be treated for taxability in his Income tax return?
- Should the total amount be taxed in the year of receipt as revenue receipt or should this be treated as capital receipt?
- Should I ignore the cost of flat part and just show te interest part as income?
- What should be the tax treatment of this interest part- revenue income or is this a capital receipt since it is related to a capital asset.
- Should not this interest part be bifurcated over all the years to which it relates and then taxed in the return of each such year thereby reducing the tax burden on my client?
There was a court case also which can be applied here, some experts have pointed this out on the caclubindia forum earlier:-
- https://www.caclubindia.com/forum/will-compensation-received-from-builder-attract-cgas-377748.asp
- https://home.kpmg.com/content/dam/kpmg/pdf/2014/01/Subhas-Chandra-Parmanandka.pdf
Would request all members and experts to help me out here.
Thanks in Advance!
24 January 2018
The deal is LTCG. Citation - Subhas Chandra Parmanandka V ITO
2014 (1) TMI 1364 - ITAT (Kol)
2014 (1) TMI 1364 - ITAT (Kol)
Message likes :
1 times
25 January 2018
Thank you for your valuable input Sir.
But I also came across this piece of news - http://www.business-standard.com/article/pf/tax-on-interest-received-as-compensation-114080401047_1.html
Should I not take all the additional income as interest and tax it in the year of receipt if I go by this?
But I also came across this piece of news - http://www.business-standard.com/article/pf/tax-on-interest-received-as-compensation-114080401047_1.html
Should I not take all the additional income as interest and tax it in the year of receipt if I go by this?
Message likes :
1 times
26 January 2018
Read the writings. There is merit in the argument (last para) Being a vexed issue
proceed with caution.
proceed with caution.
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