2004 (3) TMI 34 - HC - Income Tax

Transfer of a residential house - Benefit u/s 53 - Whether, Tribunal was justified that the assessee-trust was not liable to the charge of capital gains tax? - The material thing is an assessment in the case of the assessee in hand, which is assessed by the Revenue. Undisputably, in the case in hand, the assessee is a trust and the trust has been assessed in the status of association of persons , and the association of persons is not entitled to the benefit of exemption under section 53 of the Act. Merely because the income ultimately goes into the hands of individual beneficiaries, is immaterial. - Therefore, Tribunal has committed an error to extend benefit of exemption under section 53 of the Act to the association of persons like the assessee-respondent.

Summary

Issues:
Interpretation of section 53 of the Income-tax Act, 1961 regarding exemption from capital gains tax for an assessee-trust categorized as an "association of persons."

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Income-tax Appellate Tribunal referred a question regarding the liability of an assessee-trust to capital gains tax. The relevant assessment year was 1986-87, and the assessee-trust had sold a residential property. The assessee claimed exemption from capital gains tax under section 53 of the Act, which deals with capital gains arising from the transfer of residential property. The Assessing Officer denied the exemption, stating it was only available to "individuals" or "Hindu undivided families," not to "associations of persons." The Tribunal considered the status of the beneficiaries, who were individuals, and concluded that they were entitled to the benefit of section 53.

The provisions of section 53 specify the treatment of capital gains from the transfer of a residential property for individuals. The section outlines conditions for exemption based on the consideration received and ownership of other residential properties. The interpretation of the section emphasized that the benefit is available to individuals, and the plain language of the provision indicated that only individuals are exempted from capital gains tax on the sale of a residential property when they do not own another such property. The definition of "person" under the Act includes various entities, but the exemption under section 53 is specifically for individuals.

The court highlighted that the assessee-trust was assessed as an "association of persons" and not as an individual. Despite the ultimate beneficiaries being individuals, the status of the assessee as a trust did not qualify for the exemption under section 53. The judgment concluded that the Tribunal erred in extending the exemption to the association of persons like the assessee-trust. Therefore, the court ruled in favor of the Revenue, holding that the association of persons was not entitled to the benefit of exemption under section 53 of the Act. Consequently, the reference was disposed of with a decision against the assessee-trust.