2007 (9) TMI 642 - HC - Income Tax

Summary

Issues Involved:
1. Whether there was a 'transfer' of the asset.
2. Whether any capital gains were assessable in the hands of the assessee.

Summary:

Issue 1: Transfer of Asset

The Tribunal examined whether there was a 'transfer' of the asset. The assessee, a Hindu Undivided Family (HUF), owned a part of the property at 21, Barakhamba Road, New Delhi. The Karta of the assessee-HUF, Mr. Ashok Kapur, declared on 6-11-1979 that he was converting the assessee's share in the property into stock-in-trade for a new venture named Ashok Kapur & Co. (HUF). An agreement was entered into with Ansal Properties on 19-11-1979 for constructing a multi-storeyed building, with 50% of the building to be retained by Ashok Kapur & Co. (HUF) and the remaining 50% by the Builders. The Income-tax Officer (ITO) initially held that the transfer occurred at two stages: first, when the property was converted into stock-in-trade, and second, when it was transferred to Ansal Properties. However, the Inspecting Assistant Commissioner (IAC) disagreed, stating the conversion occurred only at the stage of the agreement with the Builders. The Tribunal concluded that the conversion of the property into stock-in-trade did not result in a transfer within the meaning of the Income-tax Act for charging capital gains. The High Court concurred with the Tribunal's findings that no transfer took place at the first stage.

Issue 2: Capital Gains Assessment

The second issue was whether capital gains were assessable in the hands of the assessee. The Tribunal held that by entering into the agreement with Ansal Properties, the assessee did not enter into a partnership and continued to own the property. The High Court examined the agreement dated 6-11-1979, which indicated that the Owner Dealer (Ashok Kapur & Co. (HUF)) allocated 50% of its share to the Builder. Clauses 22 and 23 of the agreement allowed the Builder to sell its allocation to third parties, indicating a transfer of property. The High Court disagreed with the Tribunal's conclusion that there was no transfer and held that there was indeed a transfer of property from the assessee to the Builder. Consequently, the High Court found that capital gains were assessable in the hands of the assessee based on the valuation indicated in the assessee's accounts.

Conclusion:

Both questions were answered in the negative, in favor of the revenue and against the assessee. The computation of capital gains tax by the ITO, concurred with by the CIT(A), was affirmed. The reference was disposed of.