2014 (5) TMI 884 - AT - Income Tax

Court Upholds Tax Assessment, Denies Capital Gain Exemptions, Indexation

The court upheld the decisions of the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)), dismissing the appeal. The entire sale ... Entire sale consideration taxed – Sale of land – Computation of capital gain - Family agreement – Documents not registered for stamp duty purpose – Held that:- Following Shashikant Laxman Kale And Another Versus Union of India And Others [ 1976 (1) TMI 172 - Supreme Court Of India] - family arrangement entered into with a view to resolve family dispute, which is bonafide, voluntary and not induced by fraud, coercion or undue influence does not require registration - Such family arrangement by itself would convey right, title and interest in immovable property without any further requirements - the family arrangement as per the written document has been effected on 11/11/2005 which is much prior to the sale of the property - in the registered sale deed all the family members are parties in respect of their respective shares as per the family arrangement. The assessee is required to prove as to whether the family arrangement dated 11-11-2005 has been acted upon in letter and spirit - assessee has also refused to accept the family arrangement by observing that there is no relation between the share of lands of the family members as per partition deed and the sale consideration shown in their hands - There is no evidence on record to show that the family members actually became owners of the properties falling into their irrespective shares as per the family arrangement - no document has been produced to establish ownership of the property in the name of the family members as per the partition deed - no such evidence was also produced before the authorities - it is difficult to accept the assessee’s claim of division of property as per the partition deed dt. 112005 - entire sale consideration at the hands of the assessee for computing capital gain – Decided against Assessee. Rejection of claim of indexation from 1981 – Held that:- There was no infirmity in the order of the revenue authorities - the assessee has contended that the land in question was received by assessee’s family earlier to 1981 - thus, fair market value of the property as on 1/4/1981 should be taken for indexation, but there are no material on record to show that assessee’s family were owners of the property prior to 1981 - the certificate dated 24-2-1993 issued by the Revenue Divisional Officer clearly proves the fact that the assessee became owner of the property in the year 1992-93 as a result of purchase from the original owners – Decided against Assessee. Denial of exemption u/s 54F of the Act – Assessee more than one house on the date of sale of the property – Held that:- The assessee did not hold more than one property as alleged by the AO, but the discussions made by the CIT (A) - The assessee has not been able to controvert the finding of the CIT (A) with supporting evidence - the assessee has not been able to prove that the so called family arrangement was actually acted upon, the assessee’s claim that after the family arrangement the assessee was not the owner of any residential house cannot be accepted – thus, the order of the CIT(A) is upheld – Decided against Assessee. Claim of 40% of sale consideration – Liability for capital gain – Held that:- Capital gain cannot be computed on 60% of the land as there is no cost of acquisition - The AO well as the CIT (A) rejected the contention of the assessee - AO after examining the provisions of the Tenancy Act, 1950 has held that the ratio of 60:40 has been imposed only for the purpose of protecting the interests of the protected tenant as well as his family members so long as they continue to be the tenants - as per the certificate issued by the Revenue Divisional Officer the land was purchased by the assessee and his family members - the finding of the CIT (A) that the cost of acquisition to the extent of ₹ 27,200/- to be made applicable to the entire land appears to be logical and appropriate – there is no reason to interfere with the order of the CIT (A) – Decided against Assessee. Issues Involved1. Taxation of entire sale consideration for computation of capital gain.2. Rejection of family arrangement due to non-registration.3. Denial of indexation from 1981.4. Denial of exemption under Section 54F.5. Limitation of capital gain to 40% of the sale consideration.Detailed Analysis1. Taxation of Entire Sale Consideration for Computation of Capital GainThe assessee challenged the decision of taxing the entire sale consideration received from the sale of land, arguing that it should be divided according to a family arrangement made by a partition deed dated 11/11/2005. The Assessing Officer (AO) noted that the assessee, along with co-owners, sold property for Rs. 42.70 crores, with the assessee's share being higher than reported. The AO reopened the assessment and taxed the entire sale consideration in the assessee's hands, disregarding the family arrangement as it was not registered. The CIT(A) upheld this view, stating that the partition deed was not valid without registration, and the properties were not demarcated or alienable separately.2. Rejection of Family Arrangement Due to Non-RegistrationThe primary reason for rejecting the family arrangement was its non-registration. The CIT(A) and AO argued that the unregistered deed could not be relied upon. However, the assessee contended that non-registration does not invalidate the family arrangement, citing several legal precedents. The court examined these precedents, noting that family arrangements do not require registration if they are bona fide, voluntary, and not induced by fraud, coercion, or undue influence. However, the assessee failed to provide evidence that the family arrangement was acted upon, leading to the rejection of this ground.3. Denial of Indexation from 1981The assessee claimed indexation benefits from 1981, arguing that the land was under protected tenancy before 1981. The AO and CIT(A) rejected this claim, noting that the land was purchased in 1992-93, as evidenced by a certificate from the Revenue Divisional Officer. The court upheld this decision, finding no material evidence to support the assessee's claim of ownership before 1981.4. Denial of Exemption under Section 54FThe assessee's claim for exemption under Section 54F was denied on the grounds that the assessee owned more than one house at the time of the sale. The CIT(A) confirmed this, and the court found no evidence to contradict this finding. The court also noted that since the family arrangement was not proven to be acted upon, the claim that the assessee did not own any residential house after the arrangement was not accepted.5. Limitation of Capital Gain to 40% of the Sale ConsiderationThe assessee argued that only 40% of the sale consideration should be liable for capital gain, as 60% of the land was acquired as protected tenants with no ascertainable cost. The AO and CIT(A) rejected this, stating that the entire land was purchased for Rs. 27,200, and this cost should apply to the entire land. The court upheld this decision, finding the CIT(A)'s reasoning logical and appropriate.ConclusionThe court dismissed the appeal, upholding the decisions of the AO and CIT(A) on all grounds. The entire sale consideration was taxed in the hands of the assessee, the family arrangement was not accepted due to lack of registration and evidence of being acted upon, indexation from 1981 was denied, exemption under Section 54F was not granted, and the capital gain was not limited to 40% of the sale consideration.