2014 (5) TMI 478 - AT - Income Tax

Tribunal validates assessment on deceased person, directs AO to recompute tax based on market value.

The Tribunal upheld the assessment order passed on a deceased person, confirming the validity of framing the assessment in the hands of the legal heir. ... Assessment order passed on dead person – STCG treated as LTCG – Expenses incurred on transfer of residential flat – Held that:- The notice was issued in the name of the dead person but the assessment has been properly framed in the hands of the legal heir which means that the AO has substituted the deceased with the legal heir – there was no infirmity in the legality of the assessment order - The assessee was a tenant since 1960 and that tenancy rights was converted into an ownership rights in a flat by virtue of an agreement with the builder - The flat was subsequently transferred giving rise to Long Term Capital Gain. - Decided against the assessee. Relying upon CIT Vs Abrar Alvi [2000 (3) TMI 20 - BOMBAY High Court] - what was transferred vide sale deed was not tenancy right but the building itself and therefore, cost of ownership rights was to be allowed as deduction for working out capital gains - asset sold by the assessee is the property which was given to him on surrender of tenancy rights - Cost of acquisition of this asset is the market value of the tenancy right as on the point of time when it was surrendered - the assessee came into possession of the sold flat on surrender of his tenancy rights - the flat sold by the assessee is the property which was given to him on surrender of tenancy rights – the AO is directed to re-compute the capital gain tax liability by taking the cost of acquisition of the flat as market value of the tenancy right as on the point of time when it was surrendered – Decided in favour of Assessee. Issues Involved:1) Assessment order passed on a deceased person2) Treatment of consideration as short term capital gain3) Disallowance of expenses on transfer of residential flatAnalysis:Issue 1: Assessment order passed on a deceased personThe appeal raised concerns about the assessment order being confirmed despite being passed on a deceased person. The Tribunal noted that while the notice was issued in the name of the deceased, the assessment was appropriately framed in the hands of the legal heir. The Tribunal found no legal flaw in this process, as the AO had substituted the deceased with the legal heir. Furthermore, the first appeal was filed and decided in the name of the legal heir, affirming the validity of the assessment order.Issue 2: Treatment of consideration as short term capital gainThe dispute revolved around the categorization of the consideration of Rs. 32 lakhs as short term capital gain instead of long term capital gain. The AO had treated the gains arising from the transfer of the flat as short term capital gain since the property was sold within 36 months of acquisition. The CIT(A) upheld this decision, emphasizing that the assessee received the flat free of cost and thus, the cost of acquisition was considered nil. However, the assessee argued that the new flat was acquired through the extension of existing tenancy rights, warranting the computation of long term capital gain. Citing relevant case law, the Tribunal directed the AO to recompute the capital gain tax liability by considering the market value of the tenancy right at the time of surrender, allowing for a fair assessment based on the actual acquisition cost.Issue 3: Disallowance of expenses on transfer of residential flatThe CIT(A) also disallowed the expenses of Rs. 60,000 claimed by the assessee on the transfer of the residential flat. The Tribunal, while addressing the primary issue of capital gains treatment, did not specifically mention the resolution of this expense disallowance. Therefore, it can be inferred that the Tribunal's decision primarily focused on the capital gains treatment aspect, leaving the expense disallowance issue unaddressed in the judgment.In conclusion, the Tribunal partially allowed the appeal for statistical purposes, directing the AO to recompute the capital gain tax liability based on the market value of the tenancy right at the time of surrender. The judgment provided a detailed analysis of the issues raised by the assessee, ensuring a fair assessment and resolution of the dispute regarding the categorization of capital gains.