Taxability on compensation received

369 views 7 replies

vennesh

Article

29 Points Joined January 2015

hello everyone,

one of our cilent is in agreement(written) with the surrounding housing soc. whereby no society shall develop its building beyond a certain height however one of the surrounding building has went under redevelopment and has crossed the restricted height,hence the society developer has agreed to pay certain amount to our cilent as compensation for breach of agreement.

please clarify whether such receipt would classify as capital or revenue receipt, or whether such compensation can be deemed as paid for surrender of right.

thankyou

Replies (7)

Rishi Mehta

Ur friend

1533 Points Joined June 2017

Taxable under section 56(2)(vii) if amount of compensation exceeds Rs. 50,000.00

vennesh

Article

29 Points Joined January 2015

hello Mr.Rishi,

first of all thank you for replying

as to my knowledge Section 56(2)(vii) enumerates the provision for taxations in regarding to gift received but here in the case the cilent has received compensation for termination of agreement, hence according to me it cannot be consider as gift,

please help.

RAJA P M

"Do the Right Thing...!!!"

128147 Points Joined January 2015

As per My View...

It's not taxable....

It held that such compensation should be in the nature of a "capital receipt", which "is outside the scope of income that can be chargeable to tax". In other words, such compensation cannot be subject to income tax.

In case received any Interest or Surplus will be treated as "IFOS"....

Please wait any experts reply...

vennesh

Article

29 Points Joined January 2015

Hello Mr.Raja

thankyou for replying

can you also please provide with case references (if any)

Rishi Mehta

Ur friend

1533 Points Joined June 2017

Compensation received as a consideration for the breach of term agreed in the contract.

Therefore, compensation so received cannot be said received without consideration and section 56(2)(vii) will not be applicable in the present case.

Amount cam be capital receipt.

Divakar agarwal

Student

247 Points Joined May 2016

compensation received will not be taxable as it is a capital receipt.
However if the compensation paid on or after 1.04.18 then the compensation received will be taxable u/s 56(2)(xi) in the hands of receipent as inserted by FA' 18