The law under section 51
and 56(2)(ix) provides for the taxability of forfeiture of advance money
received in the hands of seller. Till AY 2014-15, the forfeited sum was
deductible from the cost and even the excess of forfeited money over cost was
capital receipt not taxable by virtue of Supreme Court Judgment in Travoncore
Rubbers. In the hands of buyer the forfeiture of amount by reason of failure on
the part of buyer was not treated as capital loss by virtue of Bombay High
Court Judgement in Sterling Investment Corporation 123 ITR 441. However wef AY
2015-16, the forfeited amount is taxable in the hands of seller as Income from
other Sources and no reduction from cost of the asset has to be made.
