2014 (6) TMI 888 - AT - Income Tax

Computation of business income - Application of Section 50C - Transaction between husband and wife - Held that - Commissioner of Income-tax (Appeals) made mistake of holding the transaction as a transfer of assets giving rise to capital gains. The Commissioner of Income-tax (Appeals) cannot make a general proposition that there cannot be a business transaction between husband and wife. The Income-tax Act, for its own purpose does not accept the family relationship of husband and wife. They are always treated as separate individuals. The income earned by the assessee is his income and the income earned by his wife is her income. This principle of duality applies to all other transactions entered into between husband and wife, unless it is otherwise specified by the parties. Except a general proposition, the Commissioner of Income-tax (Appeals) has no material before him to hold that the sale of property made by the assessee was not in the nature of a business transaction. - order of the Commissioner of Income-tax (Appeals) is erroneous and liable to be set aside. Regarding the order of the Assessing Officer, we hold that he has erred in applying the provision of section 50C, while computing the business income. Therefore, it has become necessary for us to set aside the orders of the lower authorities, as far as this issue is concerned - Decided in favour of assessee.

Summary

Issues involved:
Assessment of business income involving a property transaction between husband and wife, application of section 50C for computing profits, interpretation of transactions between family members.

Analysis:
The appeal involved the assessment of business income for the assessment year 2009-10, where the assessee, engaged in real estate and flat promotion, had registered a property in the name of his wife and availed a loan from her. The Assessing Officer applied section 50C, adding the guideline value surplus to the business income. The Commissioner of Income-tax (Appeals) upheld the addition as capital gains, rejecting the business income treatment. The assessee contended that the transaction was part of regular business, challenging the application of section 50C and the characterization of profits as capital gains.

The Tribunal noted errors in both lower authorities' decisions. The Assessing Officer wrongly applied section 50C to compute business income, as it pertains to capital gains. The Commissioner of Income-tax (Appeals) erred in generalizing that no business transactions can occur between spouses. The Tribunal emphasized the separate legal identities of spouses under tax law, unless specified otherwise. Hence, the Tribunal set aside the lower authorities' orders, directing the Assessing Officer to accept the declared sale value for computing business income.

In conclusion, the Tribunal allowed the appeal, emphasizing the incorrect application of section 50C for business income assessment and rejecting the notion that business transactions cannot occur between spouses. The judgment clarified the distinct tax treatment of transactions between family members, instructing the correct computation of business income based on the declared sale value.