2011 (6) TMI 461 - AT - Income Tax

Sec. 53A of the Transfer of Property Act - business of manufacture and sale of steel - sale of land - As there was delay in making the payment of the balance sale consideration the assessee had filed criminal complaint against M/s. Vijay Shanthi Builders Ltd - agreed to be paid in 8 instalments supported by post-dated cheques - Hon ble High Court has recognized that as on 2001 substantial structures are present on the property which is the subject matter of levy of capital gains tax - Held that sale agreement was not complied with and had consequently led to the filing of the criminal complaint shows that the provisions of sec. 53A of the Transfer of Property Act 1882 were not complied with - clearly shows that the power of attorney granted was also a subject matter of revocation - expenses are recorded in the books then obviously the assessee is entitled to the claim of expenses along with the indexation - Appeal dismissed

Summary

Issues:
1. Determination of the assessment year for capital gains tax on the sale of property.
2. Consideration of land development expenses for deduction in computing capital gains.

Analysis:

1. Determination of Assessment Year for Capital Gains Tax:
The case involved an appeal by the assessee against the order of the CIT(Appeals) regarding the assessment year for capital gains tax on the sale of land. The assessee argued that the transfer of property occurred during the assessment year 1999-2000 based on the sale agreement dated 15.5.1998 and the power of attorney given to the buyer on 27.11.1998. However, the Revenue contended that the transfer took place in the assessment year 2004-05, following a compromise deed dated 19.07.2003. The Tribunal analyzed the agreement terms, the compromise deed, and relevant legal provisions. It noted that the conditions of the sale agreement were not fully complied with, leading to a criminal complaint by the assessee. The compromise deed ratified the power of attorney granted in 1998, indicating a revival of the transfer process. The Tribunal observed that the transfer did not occur in 1998 as per section 53A of the Transfer of Property Act, and the compromise deed in 2003 reinstated the transfer process, culminating in the assessment year 2004-05. Referring to judicial precedents, the Tribunal upheld the assessment of capital gains tax for the year 2004-05.

2. Consideration of Land Development Expenses:
Regarding the deduction of land development expenses in computing capital gains, the Revenue appealed against the CIT(A)'s decision to allow deductions for such expenses. The Revenue argued that since the assessee did not claim these expenses, they should not be considered for deduction. However, the authorized representative contended that the expenses were debited in the company's books and should be factored into the capital gains computation. The Tribunal examined the arguments and emphasized that if the land development expenses were recorded in the books, the assessee was entitled to claim deductions along with indexation, if applicable. The Tribunal agreed with the CIT(A)'s approach, leaving the verification of expenses to the Assessing Officer. Consequently, the Tribunal dismissed both the Revenue's and the assessee's appeals, affirming the findings on the assessment year for capital gains tax and the treatment of land development expenses.

In conclusion, the Tribunal's judgment clarified the assessment year for capital gains tax on the property sale and addressed the deduction of land development expenses, ensuring a fair and legally sound resolution to the disputes raised in the case.