2013 (8) TMI 364 - AT - Income Tax

Tribunal decision on assessments, capital gains, deductions, cost of acquisition, protective addition, and additional evidence

The tribunal upheld the reopening of assessments and the chargeability of capital gains under sections 2(47)(v) and (vi). It allowed deductions under ... Long Term Capital Gain u/s 45 - transfer u/s 2(47) - vacant land - Possession given by the society to the developer under joint development agreement - Advance Received or Actual Sales – Held that:- As per Section 45 of IT Act, income-tax was to be charged under the head 'capital gain' on transfer of a capital asset and shall be deemed to be the income of the previous year in which transfer took place - The year of transfer was the crucial year and not the time of the receipt - 'Accrue' means 'to arise or spring as a natural growth or result', to come by way of increase' - 'Arising' means 'coming into existence or notice or presenting itself' – both the words were used in contradistinction to the word 'receive' and indicate a right to receive - They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income, which was more or less inchoate and which was something less than a receipt - An unenforceable claim to receive an undetermined or undefined sum does not give rise to accrual - it was not only the money which has been received by the assessee which was required to be taxed but the consideration which had accrued to the assessee was also required to be taxed. Deemed transfer of property u/s 2(47) – section 2(47)(v) r.w. section 45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property was not effective or complete under the general law – Held that:- Charging an item of income under the head 'Capital gains' require that there should be some profit, Such profit must be arising on account of transfer and there should be capital asset which has been transferred - There was no dispute that a capital asset was involved and there was some profit also – Capital gain would be computed by considering the full value of consideration whether received or accruing as a result of the transfer - relying upon Mysore Minerals Ltd. v. CIT [1999 (9) TMI 1 - SUPREME Court] it was not only the consideration received which was relevant but the consideration which had accrued was also relevant - irrevocable general power of attorney which leads to over all control of the property in the hands of the Developer, even if that means no exclusive possession by the Developer would constitute transfer - It can be said that it had to be construed as 'possession' u/s 2(47). Receipt of consideration and registration of property relevant or not - Entitlement for Exemption u/s 54EC - Agreement subject to approvals and permissions – Condition for transfer of land – conditions and encumbrances Past consideration recievable towards the proposed transfer - Computation of Capital Gain –Part performance of contract u/s 53A of TPA – registration of the terms of agreement - Held that:- It was not necessary to get the instrument of transfer registered for the purpose of Income-tax Act when a person had got a valid legally conveyed after complying with the requirements of the law - Technically it can be said that the developer had purchased the membership of the Members in the society which would lead to enjoyment of the property and in that technical sense, clause (vi) of Section 2(47) is applicable - reference has been made only to Section 54 and Section 54EC - Section 54 deals with deduction in case the assessee being an individual or HUF, transfers the residential house - the assessee had transferred the plot – thus it cannot be said that deduction u/s 54F and 54 was same - no ground had been raised for deduction u/s 54F. When the plots remain unallotted and obviously legal ownership and beneficial ownership belonged to the society. Had the plots been allotted to some members before entering into the JDA then it could have been said that the plots have already been allotted and therefore, the society was not responsible for the same. Once the plots were owned by the assessee obviously the transfer of the same would lead to arising of profit which has to be taxed u/s 45. We are of the opinion that lower authorities have correctly rejected the arguments that income from such plots, if any, should be charged under the head 'business profits' because it is a settled law that if an income falls under specific head of income contained in Section 14 under Chapter IV then the same has to be taxed under that head. Revised Return u/s 139(5) – Whether CIT(A) erred on facts and in law in sustaining the action of the AO in rejecting the revised return filed during the course of assessment proceedings without assigning reasons – Held that:- Revised return can be filed at any time before the expiry of one year from the end of relevant A.Y. or before completion of assessment whichever is earlier - limitation of one year would expire on 31.3.2009 whereas revised return had been filed on 7.10.2009 which was clearly beyond the limitation prescribed u/s 139(5) – In any case no disadvantage had occurred to the assessee because in the revised return the assessee had included a sum on account of capital gain and the whole dispute in the assessment relates to capital gain arising out of sale. Introduction of Additional Grounds - Whether the CIT(A) failed to appreciate that the income could have been assessed in the hands of the Society and not the appellant – Held that:- Two additional grounds in respect of charging of capital gain, have been raised which had been argued the same are admitted – both the parties adopted identical arguments - the issue raised and additional grounds i.e. issue of chargeability of capital gain decided against the assesse. Issues Involved:1. Reopening of assessment.2. Chargeability of capital gain.3. Deduction under sections 54 and 54F.4. Mistake in calculating the cost of acquisition.5. Protective addition in the hands of the society.6. Admission of additional evidence.Detailed Analysis:1. Reopening of Assessment:The reopening of assessment was challenged on the grounds that the reasons recorded for reopening did not disclose the date and were not in accordance with the law. However, the tribunal found that the reasons were recorded before issuing the notice and that the absence of a date did not invalidate the reasons. The tribunal upheld the reopening of the assessment, citing the decision of the Hon'ble Supreme Court in ACIT v. Rajesh Jhaveri Stock Broker Pvt Ltd. (291 ITR 500), which allows reopening based on prima facie reasons.2. Chargeability of Capital Gain:The main issue was whether the transfer of plots through a Joint Development Agreement (JDA) constituted a transfer under section 2(47) of the Income Tax Act, thereby attracting capital gains tax. The tribunal held that the execution of an irrevocable Special Power of Attorney and the terms of the JDA indicated that possession and control over the property were transferred to the developer, thus constituting a transfer under section 2(47)(v) and (vi). The tribunal also rejected the argument that the consideration should only include amounts received and not accrued, citing sections 45 and 48 of the Act, which require the full value of consideration received or accruing to be taxed.3. Deduction under Sections 54 and 54F:The tribunal found that the deduction under section 54 was not applicable as the asset transferred was a plot and not a residential house. For section 54F, it was noted that the assessee must invest the capital gain in a new residential house within the stipulated period. The tribunal remanded some cases to the Assessing Officer to verify if further payments were made within the two-year period and to allow the deduction accordingly.4. Mistake in Calculating the Cost of Acquisition:The tribunal directed the Assessing Officer to allow the full cost of acquisition after applying the inflation index, as the details were not available on record.5. Protective Addition in the Hands of the Society:The tribunal upheld the deletion of the protective addition made in the hands of the society, stating that it was the individual members who were liable for capital gains tax as they had surrendered their rights in the plots to the society, which then entered into the JDA with the developer.6. Admission of Additional Evidence:In some cases, the tribunal found that additional evidence was admitted without recording reasons, violating Rule 46A(2). However, in the lead case, similar additional evidence was admitted, and the tribunal considered it while deciding the issue.Conclusion:The tribunal upheld the reopening of assessments and the chargeability of capital gains under sections 2(47)(v) and (vi). It allowed deductions under section 54F subject to verification of investment within the stipulated period and directed the Assessing Officer to correctly compute the cost of acquisition. The tribunal dismissed the protective addition in the hands of the society and addressed the admission of additional evidence based on compliance with Rule 46A(2).