2016 (5) TMI 370 - AT - Income Tax

Appeal success: Unregistered MOU invalidates property transfer, no capital gains tax. Reopening assessments upheld, no gains assessed.

Dr. Devendra H. Dave, Shri Rajiv D. Dave, Ms. Ansuya H. Dave Versus ITO Ward 11 (2) (2), Mumbai

Dr. Devendra H. Dave, Shri Rajiv D. Dave, Ms. Ansuya H. Dave Versus ITO Ward 11 (2) (2), Mumbai - [2016] 49 ITR (Trib) 561 Issues Involved:1. Validity of notice served on AOP/BOI/co-owner.2. Proper jurisdiction for the assessment order.3. Legitimacy of 'assumed Long Term Capital Gains' on substantive and protective bases.4. Assessment of capital gains in the hands of individual co-owners versus AOP/BOI.5. Validity of reopening assessments under Section 147/148 of the Income Tax Act.Detailed Analysis:1. Validity of Notice Served on AOP/BOI/Co-Owner:The assessee contended that no valid and legal notice was served on the AOP/BOI/co-owner. The Tribunal noted that no such claim was made during the assessment proceedings. The CIT(A) observed that the property was inherited by family members, and the ownership did not lead to the formation of an AOP. The shares of the respective co-owners were definite and ascertainable, and the income from the property was to be assessed in the hands of the co-owners, not as an AOP.2. Proper Jurisdiction for the Assessment Order:The assessee argued that the assessment order was passed without proper jurisdiction. The Tribunal upheld the CIT(A)'s decision, stating that the AO had jurisdiction over the individual co-owners and not over an AOP, as no AOP was formed. The property was inherited, and the shares were definite and ascertainable, making the assessment in individual capacity valid.3. Legitimacy of 'Assumed Long Term Capital Gains':The AO treated the amount received from GCB as income from capital gains, asserting that the possession of the property was handed over to GCB, which constituted a transfer under Section 2(47) of the Act. The CIT(A) upheld this view, noting that the possession was handed over for demolition and reconstruction, and the compensation was received. However, the Tribunal found that the MOU was unregistered and thus did not constitute a valid transfer under Section 53A of the Transfer of Property Act, 1882, as amended by the Registration Act, 1908. Consequently, no capital gains could be brought to tax.4. Assessment of Capital Gains in the Hands of Individual Co-Owners versus AOP/BOI:The Tribunal agreed with the CIT(A) that the income should be assessed in the hands of the individual co-owners and not as an AOP. The property was inherited, and the shares were definite and ascertainable. The Tribunal rejected the assessee's contention that the income should be assessed in the hands of an AOP.5. Validity of Reopening Assessments Under Section 147/148:In the cases of Mr. Rajiv D. Dave and Ms. Ansuya H. Dave, the AO reopened the assessments based on new and tangible material indicating that the respective assessees had not disclosed their share of long-term capital gains. The Tribunal upheld the reopening of assessments, noting that the AO had a direct and live link with the formation of belief that income had escaped assessment. The reopening was done within four years from the end of the assessment year, making it valid and proper.Conclusion:The Tribunal allowed the appeal in ITA No. 1038/Mum/2013, concluding that no valid transfer of property occurred under Section 53A of the Transfer of Property Act, 1882, due to the unregistered MOU, and thus, no capital gains could be taxed. The appeals in ITA No. 155 & 156/Mum/2015 were partly allowed, upholding the reopening of assessments under Section 147/148 but rejecting the substantive assessment of capital gains in the hands of the respective assessees.