2004 (7) TMI 285 - AT - Income Tax

Appellate Tribunal rules forfeited amount not taxable as capital gains for assessment year 1998-99

Smt. Smita N. Shah. Versus Joint Commissioner Of Income-tax, Special Range 7.

The Appellate Tribunal ITAT BOMBAY-H considered the computation of long term capital gains for the assessment year 1998-99. The main issue was whether ... Chargeable As Issues:Computation of long term capital gains.Analysis:The appeal before the Appellate Tribunal ITAT BOMBAY-H concerned the computation of long term capital gains for the assessment year 1998-99. The main issue raised in the appeal was twofold. Firstly, whether capital gain could be charged on the forfeited amount of Rs. 21,02,000, and secondly, whether the forfeited amount should be deducted from the cost of acquisition or from the indexed cost of acquisition. The property in question underwent negotiations for transfer, with the assessee receiving an advance of Rs. 21,02,000, which was later forfeited when the sale did not materialize. The Assessing Officer initially calculated the capital gains on the forfeited amount separately and then recalculated the capital gains when the property was eventually sold. The Assessing Officer considered the cost of acquisition as 'Nil' and computed long-term capital gains, adding the forfeited amount to the total. The CIT(A) upheld the Assessing Officer's order.The Tribunal analyzed the provisions of the Income-tax Act, 1961, particularly sections 45, 48, and 51, which deal with the computation of capital gains and adjustments in case of negotiations for transfer. Section 45 specifies that for capital gains to arise, there must be a transfer of a capital asset. In this case, since the amount was forfeited without the actual transfer of the asset, it could not be considered as capital gains. Section 51 provides for the deduction of any advance or money received in negotiations from the cost of acquisition. The Tribunal noted that the indexed cost of acquisition was not mentioned in section 51, and therefore, it could not be substituted. The Tribunal upheld the CIT(A)'s decision to consider the cost of acquisition at 'Nil' value, as per the clear language of the statute.The Tribunal emphasized the importance of interpreting the statute based on the plain and unambiguous language used. It highlighted that interpretation is necessary only in cases of ambiguity, with the primary goal being to ascertain the legislative intent. In this case, since the language of the statute was clear, the Tribunal upheld the decision to consider the cost of acquisition at 'Nil' value. The appeal was partly allowed, affirming the CIT(A)'s order on the computation of long term capital gains.