2006 (3) TMI 290 - AT - Income Tax

Tax Appeal Outcome: Short-term Capital Gains Taxable, Stamp Duty Deduction Allowed, No Interest Chargeable

Mrs. Mangala Dilip Sable. Versus Joint Commissioner Of Income-tax, Special Range Iii, Pune.

The capital gains were classified as short-term and taxable in the assessment year 1999-2000. The deduction for stamp duty of Rs. 69,010 was allowed after ... Capital Gains Issues Involved:1. Classification of capital gains as long-term or short-term.2. Deduction of stamp duty expenditure in computing capital gains.3. Taxability of capital gains in the assessment year 1997-98 or 1999-2000.4. Recalculation of interest under section 234B.Detailed Analysis:Issue 1: Classification of Capital GainsThe primary issue was whether the capital gains earned by the assessee were long-term or short-term. The assessee claimed the gains as long-term, arguing that the rights were acquired in the financial year 1990-91 and transferred in the financial year 1996-97. The Assessing Officer (AO) contended that the right of conveyance was only partially acquired in 1990, with subsequent payments being for the construction of the shops. The AO concluded that the cost of acquisition was limited to the initial 10% payment and indexed this amount from the financial year 1990-91, treating the subsequent payments without indexation. The CIT(A) upheld that the transfer was completed only on 12-5-1998, making the gains short-term. The Tribunal agreed with the CIT(A), holding that the transfer date was 12-5-1998, thus resulting in short-term capital gains taxable in the assessment year 1999-2000.Issue 2: Deduction of Stamp DutyThe assessee sought to deduct Rs. 69,010 paid as stamp duty on the agreement dated 16-11-1990. The AO allowed this deduction in computing the long-term capital gains, but the CIT(A) disallowed it, stating the transferee was liable for this duty. The Tribunal found that if the payment was made by the assessee, it should be considered as the cost of improvement and allowed the deduction after verification.Issue 3: Taxability in Assessment YearThe assessee argued that if the transfer date was upheld as 12-5-1998, the gains should be assessable in the assessment year 1999-2000, not 1997-98. The Tribunal concurred, holding that the capital gains were taxable in the assessment year 1999-2000.Issue 4: Interest under Section 234BThe assessee contended that interest under section 234B should be calculated as per the original assessment, as they could not have anticipated the gains being treated as short-term. The Tribunal ruled that since the gains were not taxable in the year under appeal, no interest under section 234B was chargeable for that year. The AO was directed to consider this issue in the assessment year 1999-2000.Conclusion:1. The capital gains were classified as short-term and taxable in the assessment year 1999-2000.2. The deduction for stamp duty of Rs. 69,010 was allowed after verification.3. The capital gains were assessable in the assessment year 1999-2000.4. No interest under section 234B was chargeable for the year under appeal, but the AO could consider it in the assessment year 1999-2000.The appeal was treated as allowed to the extent indicated above.