2012 (6) TMI 405 - HC - Income Tax

Capital gain - transfer - Whether the Tribunal was correct in holding that there was no transfer during the current assessment year despite the assessee handing over the possession of the immoveable property to the builder who had in turn handed over the part of the consideration amount which would amount to transfer attracting capital gains tax Held that - as per the agreement, actual possession of the property was handed over on 30.5.1996 and affidavit is also filed to that effect by the assessee and despite the same, the Tribunal has held that assessment of capital gain cannot be done in the year 1997-98 and is liable to be taxed in the year 2003-04 when the entire construction was completed. - Therefore, finding of the Tribunal is erroneous and substantial questions of law answered in favour of the revenue. capital gain is to be taxed in the year 1997-98 and not in the year 2003-04 as contended by the assessee.

Summary

Issues Involved:
1. Assessment of capital gains tax despite the assessee declaring taxable income.
2. Opportunity afforded to the Assessing Officer before deciding on capital gains chargeability.
3. Determination of transfer for capital gains tax purposes.
4. Timing of levying capital gains tax based on completion of the transaction.

Issue 1: Assessment of Capital Gains Tax
The High Court considered whether the Tribunal was correct in holding that the assessee was not liable to pay capital gains tax despite declaring taxable income under this head by filing a return of income. The facts revealed that the assessee, a medical practitioner, entered into a joint venture agreement for property development. The Assessing Officer imposed tax on the capital gain as per the agreement terms. The Commissioner of Income Tax (Appeals) upheld the taxability of capital gains for the relevant year. The Income Tax Appellate Tribunal (Tribunal) later dismissed the appeal by the revenue and allowed the cross objection partly, stating that the capital gain was assessable for a different year. The High Court analyzed the material facts and agreements, ultimately holding that the capital gain should be taxed in the year it was received, i.e., 1997-98, based on possession handover to the developer.

Issue 2: Opportunity to Assessing Officer
The Court examined whether the Tribunal was correct in deciding on the chargeability of capital gains without affording the Assessing Officer an opportunity to rebut the contention or remitting the matter back for fresh consideration. It was noted that a rectification order had been passed by the Tribunal, modifying the issue regarding the chargeability of capital gain. As a result, this question of law was deemed resolved and did not require further consideration.

Issue 3: Determination of Transfer
The High Court addressed the question of whether there was a transfer during the assessment year, despite the possession of the immovable property being handed over to the builder. The Court analyzed the agreements and the affidavit filed by the assessee, concluding that the possession was indeed handed over on a specific date. The Court referred to legal principles and observed that the date of possession handover is crucial for determining capital gains tax liability, in line with the definition under Section 2(47) of the Income Tax Act.

Issue 4: Timing of Capital Gains Tax
Regarding the timing of levying capital gains tax, the Court considered whether the tax should be imposed only upon completion of the entire transaction when the super built-up area was handed over to the assessee. The Court referred to a Supreme Court judgment emphasizing the importance of possession handover in determining the year of chargeability for capital gains tax. Based on this legal principle and the factual findings, the High Court ruled that the capital gain should be taxed in the relevant assessment year, i.e., 1997-98.

In conclusion, the High Court allowed ITA No.3209/2005 filed by the revenue and dismissed ITA No.3165/2005 filed by the assessee, resolving the substantial questions of law in favor of the revenue and against the assessee.