2010 (12) TMI 1324 - AT - Income Tax

ITAT Chennai rules in favor of assessee on capital gains assessment for AY 2000-01 and 2002-03

Ms. Visalakshi Anandkumar Versus The Jt. Commissioner of Income-Tax, Cir. III, Tiruchirapalli

The ITAT Chennai ruled in favor of the assessee for the assessment years 2000-01 and 2002-03 regarding the assessment of capital gains. For the AY ... - 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the transfer of the capital asset was completed for the purpose of sec. 2(47) of the Income-tax Act read with sec. 53A of the Transfer of Property Act on 27-08-1992 (previous year ending 31-03-1993) when substantial part of consideration was received and possession was with the buyer, or whether capital gain arose in later assessment years. 2. Whether amounts received pursuant to a subsequently executed registered sale deed by a Power of Attorney holder (showing higher consideration) can be taxed as capital gains under sec. 45(5)(b) of the Income-tax Act as an 'enhancement' by a court, Tribunal or other authority. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Completion of transfer under sec. 2(47) read with sec. 53A - timing of chargeability of capital gains Legal framework: Sec. 2(47) defines transfer for capital gains; sec. 53A of the Transfer of Property Act recognises that where a buyer is in possession in part-performance of a contract of sale and substantial part of consideration is paid, the transferee is deemed to have acquired an interest in the property notwithstanding non-registration of the deed. Precedent treatment: No earlier judicial precedents were relied upon by the Tribunal in the judgment; the Court applied statutory language and facts to determine the date of transfer. Interpretation and reasoning: The Tribunal examined lease and sale documentation and factual matrix: (a) earlier lease to intermediary and subsequent lease to the eventual purchaser showed purchaser's possession prior to the sale agreement; (b) agreement of sale dated 27-08-1992 recorded that the purchaser had taken over the undertaking and substantial part of consideration (Rs.50 lakhs of Rs.62 lakhs) was paid on that date; (c) cessation of lease-rent receipts corroborated transfer of possession; (d) the assessee's later computation statement claiming only agreement and not sale did not displace statutory effect of sec. 53A where possession in part performance and substantial payment had occurred. The Assessing Officer's inference that possession was handed over only on receipt of balance consideration on 10-12-1999 was treated as an unwarranted implication unsupported by any contemporaneous statement or record; the Tribunal gave primacy to documentary evidence of possession and payment at the date of the agreement. Ratio vs. Obiter: Ratio - where purchaser is in possession in part performance and substantial part of consideration is paid, the transfer as defined in sec. 2(47) is completed at that stage and capital gains are chargeable in the relevant previous year; the Tribunal's conclusion that the transfer occurred in the previous year ending 31-03-1993 is a binding ratio of the decision. Obiter - comments regarding the Assessing Officer's lack of contemporaneous statement are factual observations ancillary to the ratio. Conclusion: The transfer was completed in the earlier year (previous year ending 31-03-1993 relevant to AY 1993-94). Consequently, capital gains could not be validly assessed in the later impugned assessment years (AY 2000-01 and AY 2002-03) in respect of the same property. Issue 2: Applicability of sec. 45(5)(b) to amounts shown in a later registered sale deed executed by a Power of Attorney holder Legal framework: Sec. 45(5)(b) treats as income by way of capital gains the amount by which compensation or consideration is enhanced or further enhanced by any court, Tribunal or other authority; sub-clauses and explanations clarify that the provision operates where initial compensation/consideration is subsequently enhanced by a court/tribunal/authority. Precedent treatment: The Tribunal applied the statutory text; no precedent distinguishing similar facts was cited. Interpretation and reasoning: The Tribunal held that sec. 45(5)(b) applies only where enhancement is effected by a court, Tribunal or other authority. The later registered sale deed reflecting a larger consideration executed by a Power of Attorney holder (a director acting as attorney) did not constitute enhancement by such an authority. Further, the Tribunal reasoned that the assessee could not effect a transfer in a later year where, by operation of sec. 53A and sec. 2(47), the transfer had already been completed earlier. The identity of the Power of Attorney holder as a director/attorney did not convert the document into an enhancement by a court/tribunal/authority within sec. 45(5)(b). The statutory requirement that the enhancement be by a court, Tribunal or other authority was not satisfied; therefore the subsection was inapplicable. Ratio vs. Obiter: Ratio - sec. 45(5)(b) does not apply where the alleged enhancement arises from a private transaction evidenced by a later sale deed executed by an attorney, and where the original transfer was completed earlier under sec. 53A; such later receipts cannot be treated as enhancements by a court/tribunal/authority and so are not taxable under sec. 45(5)(b). Obiter - factual observations that the Power of Attorney holder was a director and that she could hold a power of attorney are explanatory and ancillary. Conclusion: Sec. 45(5)(b) had no application to the amounts shown in the later registered sale deed executed by the Power of Attorney holder; the Assessing Officer's addition of the larger consideration to the assessee's income in AY 2002-03 was erroneous. Both additions in the impugned years were therefore quashed. Cross-references and final disposition The resolution of Issue 1 (transfer completed earlier under sec. 53A and sec. 2(47)) directly negates the possibility of fresh taxable transfer in subsequent years and is dispositive of the assessments for the impugned years; Issue 2 independently confirms that sec. 45(5)(b) cannot be invoked to tax proceeds shown in a later registered deed signed by an attorney as an 'enhancement' by an authority. Both grounds led to allowance of the appeals and quashing of capital gains additions in the impugned assessment years.