2018 (1) TMI 697 - AT - Income Tax

Property ownership not acquired, assessee not taxable under Section 50C. Appeal dismissed, CO infructuous. Importance of property agreement conditions emphasized.

Jt. Commissioner of Income-tax, (OSD), Circle – 3 (1), Hyderabad Versus D. Sesha Giri Rao, Hyderabad

Jt. Commissioner of Income-tax, (OSD), Circle – 3 (1), Hyderabad Versus D. Sesha Giri Rao, Hyderabad - TMI Issues Involved:1. Validity of the reassessment proceedings under Section 147 of the Income-tax Act, 1961.2. Ownership and transfer of the property in question.3. Applicability of Section 50C of the Income-tax Act, 1961.4. Determination of long-term capital gains.Detailed Analysis:1. Validity of the Reassessment Proceedings under Section 147:The reassessment was initiated based on information received from the ITO (Intelligence) indicating that the assessee sold a non-agricultural land for a consideration significantly lower than its market value. The AO issued a notice under Section 148, and the assessee sought reasons for reopening the assessment, which were provided along with a notice under Section 143(2).2. Ownership and Transfer of the Property:The property in question was subject to a series of agreements and power of attorney (POA) transactions spanning several decades. The key agreements included:- 1967: The original owners purchased the land.- 1980: A POA was given to the assessee to sell the land.- 1990: An irrevocable GPA was executed in favor of the assessee.- 1995: A sale agreement was entered into between the GPA holder (assessee) and M/s NDL Estates Pvt. Ltd.- 2006: A registered sale-cum-GPA was executed, later registered in 2008.The CIT(A) observed that the assessee never fulfilled the conditions of the agreements and that the original owners ultimately received payment from M/s NDL Infratech (P) Ltd in 2010. The original owners also revoked the GPA in 2009 and denied signing any document except the MOU in 2010.3. Applicability of Section 50C:The AO applied Section 50C, which pertains to the valuation of the property for capital gains purposes based on the stamp duty value. The CIT(A) held that Section 50C was not applicable as the assessee never acquired ownership of the property. The property was encumbered and subject to multiple litigations, reducing its market value.4. Determination of Long-Term Capital Gains:The AO computed long-term capital gains based on the SRO value, but the CIT(A) concluded that the assessee was not the real owner and thus not liable for capital gains tax. The CIT(A) noted that the original owners admitted long-term capital gains in their returns for AY 2011-12 and received payments from M/s NDL Infratech (P) Ltd.Conclusion:The Tribunal upheld the CIT(A)'s order, agreeing that the assessee never acquired ownership of the property and thus could not be taxed under Section 50C. The appeal by the revenue was dismissed, and the CO filed by the assessee was deemed infructuous. The judgment emphasized the importance of fulfilling conditions in property agreements and the distinction between possession and ownership for tax purposes.