Builder Incentives For Timely Payment Cannot Be Taxed As 'Income from Other Sources': ITAT Delhi

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 26 February held that rebates or concessions provided by a builder under an apartment buyer's agreement cannot be treated as taxable income under Section 56 of the Income Tax Act, 1961.

A Bench comprising Judicial Member Anubhav Sharma and Accountant Member Manish Agarwal was hearing the appeal filed by Satya Prasan Rajguru against the order of the National Faceless Appeal Centre, which had confirmed the additions made by the Assessing Officer for Assessment Year 2021–22. It held:

“"The 'purchase' for the purpose of Section 54F of the Act has to be considered on a broader perspective and what is material is to understand if the assessee as the vendee of property has acquired right and interest in a new asset which is superior to the rights of the seller thereby giving assessee right of possession, enjoymentand even right to transfer superior to that of the seller."

The taxpayer declared a total income of approximately Rs. 1.94 crore and claimed a deduction of Rs. 9.65 crore under Section 54F for investment in a residential apartment in “The Camellias” project in Gurugram.

During the assessment proceedings, the Assessing Officer noted that the taxpayer had purchased the apartment for about Rs. 23.13 crore against a stated price of around Rs. 32.95 crore and had received rebates of Rs. 9.81 crore from the developer. Treating these rebates as income, the officer added the amount under the head “Income from Other Sources” under Section 56.

The officer also denied the deduction under Section 54F on the ground that the assessee allegedly owned more than one residential house on the date of transfer of the original capital asset and that the new property had not been registered in the assessee's name within the prescribed time.

The Tribunal, however, found that the rebate granted by the builder was not a benefit arising independently but formed part of the contractual terms in the apartment buyer's agreement. The rebate included components such as a down-payment rebate, move-in rebate, special rebate, and timely payment rebate, all linked to compliance with the payment schedule.

It observed that such concessions are commonly offered by builders to encourage early or timely payments and cannot be treated as “income earned” by the purchaser.

Addressing the objection that the new property had not yet been registered, the Tribunal held that registration of the sale deed is not the sole determinant of “purchase” for the purposes of Section 54F. What matters is whether the assessee has acquired substantial rights in the property, including possession and the ability to enjoy it. Since the assessee had paid the entire consideration and been issued possession of the apartment, the purchase requirement under Section 54F stood satisfied.

Accordingly, the Tribunal held that the tax authorities had erred in denying the exemption and in treating the builder's rebate as taxable income and allowed the appeal.

For Appellant: Dr. Rakesh Gupta, Adv. and Shilpa Gupta, CA, Saksham Agrawal, CA and Ashok Garg, Adv.

For Respondent: Pooja Swaroop, CIT, DR