2015 (5) TMI 571 - AT - Income Tax

Tribunal confirms property rights acquired in 1996, compensation taxed as long-term capital gains

The Tribunal upheld the CIT(A)'s decision, ruling that the assessee acquired rights in the property from 18.01.1996, and the compensation was to be taxed ... Capital gain arising out of the acquisition of land - sale of rights in the property - acquisition of property but transfer deed was not registered - short term capital gain or long term capital gain - Held that:- In the facts of the present case, where the possession of land had been given to the assessee in line with the terms agreed upon between the parties consequent to which an irrevocable Power of Attorney was executed, which has not been cancelled till date and also where the land was mutated in 7/12 records in the name of assessee by way of entry No.1777, dated. 04.11.1996 establishes the case of assessee of having acquired rights over the land as per section 53A of the Transfer of Property Act. The arrangement between the parties confirms the handing over of the possession of land though in the sale deed executed on 31.08.2000, the control and possession of land was given to the assessee as absolute owner. Applying the ratio laid down by in Chaturbhuj Dwarkadas Kapadia Vs. CIT (2003 (2) TMI 62 - BOMBAY High Court), where the assessee had acquired certain rights over the property under the Development Agreement and the irrevocable Power of Attorney and the part possession of the property having been given to the assessee, we hold that there was effective transfer on the date of execution of Agreement dated 18.01.1996. Consequently, the assessee acquired certain rights in the said property from 18.01.1996 and the compensation received by the assessee in view thereof, is to be taxed in the hands of the assessee as income from long term capital gains. We uphold the order of CIT(A) - Decided against revenue. Issues Involved:1. Treatment of capital gain arising from the acquisition of land.2. Determination of the date of transfer of the land.3. Legitimacy of possession claimed by the assessee.4. Applicability of section 53A of the Transfer of Property Act.5. Assessment of gains as short-term or long-term capital gains.Detailed Analysis:1. Treatment of Capital Gain:The primary issue in this appeal is the treatment of gain arising from the sale of rights in the property. The Revenue contended that the gain should be treated as short-term capital gain, while the assessee claimed it should be treated as long-term capital gain. The CIT(A) had treated the gain as long-term capital gain, which the Revenue challenged.2. Determination of the Date of Transfer:The CIT(A) examined the terms of the Development Agreement, Power of Attorney, and supplementary Development Agreement, noting that the appellant was given the right to develop the land from 18.01.1996. The CIT(A) observed that the possession of the land was effectively transferred to the assessee on this date, as per section 53A of the Transfer of Property Act. The CIT(A) relied on the Hon'ble Bombay High Court's decision in Chaturbhuj Dwarkadas Kapadia Vs. CIT, which held that rights over the property vested with the assessee from the date of the Development Agreement.3. Legitimacy of Possession:The Revenue argued that the possession was given on 31.08.2000, the date of the Sale Deed, and not earlier. However, the CIT(A) found that the possession was given to the assessee on 18.01.1996, based on the Development Agreement and the registered Irrevocable Power of Attorney. The CIT(A) noted that the land was mutated in the 7/12 records in the name of the assessee by way of entry No.1777, dated 04.11.1996, which supported the assessee's claim of possession.4. Applicability of Section 53A of the Transfer of Property Act:The CIT(A) held that the assessee had acquired effective rights over the land as per section 53A of the Transfer of Property Act. This section deals with part performance of a contract and provides that if the transferee has taken possession of the property, the transfer is considered effective from the date of the agreement. The CIT(A) concluded that the assessee had part possession of the property from 18.01.1996, thus supporting the treatment of the gain as long-term capital gain.5. Assessment of Gains:The CIT(A) directed that the compensation receipts be treated as long-term capital gains, as the assessee had acquired rights in the property from 18.01.1996. The Tribunal upheld this view, dismissing the Revenue's appeal. The Tribunal noted that the arrangement between the parties confirmed the handing over of possession of the land, and the compensation received by the assessee was to be taxed as long-term capital gains.Conclusion:The Tribunal upheld the CIT(A)'s order, concluding that the assessee had acquired rights in the property from 18.01.1996, and the compensation received was to be taxed as long-term capital gains. The appeal of the Revenue was dismissed.