2010 (7) TMI 508 - HC - Income Tax

Capital gain vs. Other sources - Lease or transfer - sale through auction - sale consideration received in installments - whether the amount received by the seller forms part of the sale consideration or it was under a different transaction where interest for a fixed amount was calculated and received by him - the amount in question, received by the Official Liquidator as per the orders of the Company Court, though repeatedly referred to as interest, for the purpose of assessment of income tax, it is part of sale consideration and therefore, the same cannot be treated as income from other sources as defined in Section 56 of the Income Tax Act - The said amount is treated as Capital gain - Decided in the favour of the petitioner

Summary

Issues Involved:
1. Classification of the amount received by the Official Liquidator as part of the sale consideration or as interest for income tax purposes.
2. Maintainability of the Company Application filed by the Official Liquidator.
3. Interpretation of relevant provisions of the Income Tax Act and Transfer of Property Act.

Detailed Analysis:

1. Classification of the Amount Received:
The primary issue is whether the amount received by the Official Liquidator should be classified as part of the sale consideration under "Capital Gains" or as interest under "income from other sources" for income tax purposes. The petitioner argued that the amount, although referred to as interest in the Company Court's orders, should be considered part of the sale consideration because the transfer of title and possession was not immediate and did not occur under Section 53-A of the Transfer of Property Act. The court examined various provisions of the Income Tax Act, including Sections 45(1), 48, and 2(47), and concluded that the amount in question, despite being labeled as interest, represents the amount accrued on account of the transfer of the capital asset. Therefore, it should be treated as part of the sale consideration and fall under "Capital Gains."

2. Maintainability of the Company Application:
The Company Court initially dismissed the Company Application filed by the Official Liquidator on the grounds of maintainability, suggesting that the petitioner should file a Writ Petition instead. The court directed the Income Tax Department not to raise the plea of alternative remedy or delay in challenging the order of assessment. Consequently, the petitioner filed the present Writ Petition.

3. Interpretation of Relevant Provisions:
The court analyzed the definition of "interest" under Section 2(28A) of the Income Tax Act, which requires the amount to be due on account of money borrowed or debt incurred. Since the amount in question was not due to borrowed money or debt but was part of the sale transaction, it could not be classified as interest. Additionally, the court referred to Section 2(47)(v) of the Income Tax Act, which creates a notional transfer when possession is transferred under Section 53-A of the Transfer of Property Act. However, in this case, the possession was transferred by way of lease, not under Section 53-A, and the actual transfer of title occurred only after full payment and issuance of the Sale Certificate.

Conclusion:
The court held that the amount received by the Official Liquidator, although termed as interest, should be treated as part of the sale consideration for the purpose of income tax assessment. Therefore, it should be classified under "Capital Gains" and not as "income from other sources." The Writ Petition was allowed, and the impugned order was set aside, directing the 1st respondent to issue an appropriate assessment order treating the amount as Capital Gain.