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RAJAMANI H (PARTNER)     03 March 2010

TAXABILITY OF RECEIPT

One of my client received a lump sum of Rs. 2 Lacs for allowing another party to use a portion of his land to reach his property.  No period is mentioned in the deed and it is permanant one.  We are treating the receipt as capital receipt and credit the amount from the value of the land so that the cost of the land is reduced by the said sum.   We are of the opinion that there is no transfer of property as the rights of the property is not relinquished and further the client is retaining the same rights and continue to retain the same even after the grant of rights to the another party.  The AO treated the entire sum as rent and included the same under other sources.   Is the action of the AO valid one on the basis of the facts narrated above?  Even if the amount is treated as rent, is AO justified to include the entire amount as income for a single year?  



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 2 Replies

Vineet (Director)     05 March 2010

Dear Sir

 

By allowing easement rights to the other person, it is for sure that some rights have been transferred. Now it is matter of debate whether the same is capital receipt or revenue depending upon the agreement between the parties.

 

If the easement rights have been granted in perpetuity with any right of revocation, it is clear that the receipts are in nature of capital receipts and capital gains tax would arise.  Otherwise being revenue receipt, the same will be taxed as income from other source and the period of grant of easement rights unacertainable the AO has no option but to tax the same in year of receipt.

Vineet (Director)     05 March 2010

Correction please : without any right of revocation for capital receipt


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