Section 51 — the law in short
What the courts have decided on section 51, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Travancore Rubber and Tea Co Ltd v CIT
Supreme CourtHelps taxpayerSuperseded by amendment
A buyer defaulted and I forfeited his earnest money and advance on a sale of a capital asset that never went through. Is the forfeited money taxable income?
No, on the law as it then stood. The Supreme Court held that money received as advance or earnest on the proposed sale of a capital asset is a capital receipt, and the cancellation of the sale is not a subsequent event that changes its character. Section 51 confirms this: advance or other money received and retained on an earlier negotiation for transfer is deducted from the cost of acquisition when the asset is eventually sold. The distinction between earnest money and advance loses its significance, because section 51 covers 'other money' as well. The appeals were allowed.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.