2025 (6) TMI 324 - AT - Income Tax

Receipts from relinquishment of land title rights taxed as income from other sources under section 56(2)(vii)(b), not capital gains

Hiren Rameshbhai Patel, Miral Bunglows, Dhwani Tenament, Isanpur, Ahmedabad Versus The Dy. CIT, Circle-3 (2), Ahmedabad

Hiren Rameshbhai Patel, Miral Bunglows, Dhwani Tenament, Isanpur, Ahmedabad Versus The Dy. CIT, Circle-3 (2), Ahmedabad - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal (AT) in this appeal are:(a) Whether the amount of Rs. 90,00,000/- received by the assessee for relinquishing rights over a plot of land, which was not supported by a registered sale deed but involved prior payment and purported symbolic possession, should be treated as long-term capital gain or as income from other sources under section 56(2)(vii)(b) of the Income Tax Act, 1961.(b) Whether the Assessing Officer and the CIT(A) erred in disallowing the cost incurred by the assessee for the purchase of the said land (Rs. 8,16,458/-) in computing capital gains.(c) Whether the amount of Rs. 4,97,543/- received as a refund on surrender of a Life Insurance Policy should be treated as exempt income or added as unexplained income under section 68 of the Income Tax Act.(d) Whether the Assessing Officer and CIT(A) were justified in their respective treatments of these amounts, and the correctness of the legal and factual conclusions drawn.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Treatment of Rs. 90,00,000/- received for relinquishment of rights over landRelevant legal framework and precedents: The provisions relevant to this issue are section 2(14) defining capital asset, section 45 dealing with capital gains, and section 56(2)(vii)(b) which covers receipt of money without consideration or inadequate consideration and treats it as income from other sources. The question of whether rights over land without registered sale deed can be treated as capital asset was central. The appellant relied on a Gujarat High Court decision upholding the validity of 'banakhat' (a non-registered document) for title purposes.Court's interpretation and reasoning: The Tribunal observed that the assessee had entered into an agreement to sell the land in 1992-93 and made payment, but no registered sale deed was executed due to objections in title clearance by the cooperative society. The assessee claimed symbolic possession and prior payment to establish ownership rights. However, the Tribunal noted that no registered deed or formal relinquishment deed was produced before any authority, including the Tribunal. The possession of the property remained with the cooperative society, and the society itself was in the process of selling the land to a third party. The Tribunal emphasized that the right transferred was not ownership but merely a right to relinquish title, which did not amount to a capital asset under section 2(14).Key evidence and findings: The assessee failed to produce a registered sale deed or a formal deed of relinquishment. The only evidence was the payment made decades earlier and the receipt of Rs. 90,00,000/- as consideration for relinquishing rights. The cooperative society's possession of the property and lack of clear title documents undermined the assessee's claim of ownership.Application of law to facts: Since the assessee did not have ownership or a capital asset as per the statutory definition, the amount received for relinquishing rights could not be treated as capital gains. Instead, it was rightly treated as income from other sources under section 56(2)(vii)(b).Treatment of competing arguments: The appellant argued that the payment and symbolic possession sufficed to treat the amount as capital gains and relied on case law validating non-registered documents like banakhat. The Tribunal rejected this, emphasizing the statutory requirement of ownership and registered documents for capital asset status and noting the absence of possession or title. The Tribunal also noted that the society's inability to provide title clearance prevented registration and ownership transfer.Conclusion: The Tribunal upheld the Assessing Officer and CIT(A) in treating the Rs. 90,00,000/- as income from other sources and not as capital gains. Grounds 2 and 2.1 were dismissed.Issue 2: Allowance of cost incurred for purchase of land (Rs. 8,16,458/-)This issue was closely linked to Issue 1. Since the Tribunal held that the amount received was not capital gains but income from other sources, the question of allowing cost incurred for purchase did not arise. The Tribunal did not allow the cost as it did not recognize the asset as capital asset.Issue 3: Treatment of Rs. 4,97,543/- received on surrender of Life Insurance PolicyRelevant legal framework and precedents: Section 68 deals with unexplained cash credits and additions thereto. Section 10(10D) exempts certain insurance policy maturity proceeds, and section 80CCC(2)(a) deals with taxation of amounts received on surrender of insurance policies.Court's interpretation and reasoning: The Assessing Officer made addition of Rs. 4,97,543/- under section 68, treating it as unexplained income because the assessee did not produce the surrendered policy document. However, the assessee submitted proof of premium payments and receipt of refund through banking channels, explaining the amount as refund on surrender of the policy.Key evidence and findings: The assessee produced documentary evidence of payments made to the insurer and bank statements showing receipt of refund amount. The surrendered policy was not in possession, but the amount received was accounted for and explained.Application of law to facts: Since the amount was explained and supported by documentary evidence, it could not be treated as unexplained income under section 68. The Tribunal noted that the amount should be taxed under the head income from other sources as per section 80CCC(2)(a) if not exempt under section 10(10D).Treatment of competing arguments: The Revenue contended that absence of policy document justified addition under section 68. The assessee argued that documentary evidence and banking records sufficed to explain the receipt. The Tribunal accepted the assessee's explanation.Conclusion: The Tribunal allowed Grounds 3 and 3.1 and deleted the addition under section 68.3. SIGNIFICANT HOLDINGS'The Assessing Officer and the CIT(A) has rightly treated it as income from other sources as it is the right which was transferred by the assessee and not ownership per se.''Since the amount of Rs. 4,97,543/- was received by the assessee as refund for surrender of Life Insurance Policy ... the said amount received was duly accounted and that cannot be the criteria for making addition u/s. 68 of the Act.'Core principles established include:(a) For an amount received on relinquishment of rights over land to qualify as capital gains, the assessee must have ownership of a capital asset as defined under section 2(14), supported by registered sale deed or equivalent title documents. Mere payment or symbolic possession without registered title does not suffice.(b) Amounts received for relinquishing rights without ownership are to be treated as income from other sources under section 56(2)(vii)(b).(c) Additions under section 68 require unexplained cash credits. If the assessee explains the source of receipt with documentary evidence, even if original policy documents are not available, addition cannot be made.Final determinations:- The addition of Rs. 90,00,000/- under section 56(2)(vii)(b) as income from other sources was upheld.- The claim for deduction of Rs. 8,16,458/- cost incurred on land purchase was rejected.- The addition of Rs. 4,97,543/- under section 68 was deleted and the amount was accepted as explained.The appeal was thus partly allowed in favor of the assessee.