2013 (1) TMI 546 - HC - Income Tax

Relinquished of ownership rights in Plot sold - Memorandum of Understanding (MoU) with two developers for the purchase of 500 sq mtrs. of land or a residential flat not exceeding 300 sq mtrs paying a sum of Rs. 68,00,000 when MOU entered and the balance in two installments - supplementary MoU by which plot no. A-1 measuring 500 sq mtrs was allotted to the Petitioner - reopening of assessment - Long term capital gain v/s Short term capital gain - Held that - It is clear from the record that by way of first agreement which was entered in the year 1990, the assessee had acquired right in the property and this right he has relinquished in favour of new vendee in 1995. Thus, in considered opinion that the assessee is liable to long-term capital gain and not to short term capital gain. Under these circumstances, no infirmity in the impugned order passed by the Tribunal and since it is a finding of fact given by the Tribunal that the assessee acquired right in the property at the time of execution of first agreement in the year 1990 and had relinquished his rights in favour of new vendee in 1995, no substantial question of law arises for our consideration. This Court is in agreement with the above reasoning as in the present case, the Petitioner had acquired right to a specific plot, furthermore, the interest was in the nature of an actionable claim, which could be asserted in a legal proceeding. The tax authorities had issued a no objection certificate in respect of the transaction. In these circumstances, the reporting of the amount received as capital gains was correct. Moreover, Calcutta Discount Ltd. vs. ITO, (1960 (11) TMI 8 - SUPREME COURT) is an authority for the proposition that as long as the assessee makes a full and true disclosure of the income, the fact that it might claim that as falling under one head which is ultimately not accepted, would not make it a wrong disclosure, or suppression. The question as to the proper assessability of any amount, to income tax falls within the domain of the tax adjudicator - writ petition is entitled to succeed & the reassessment proceedings are hereby quashed - in favour of assessee.

Issues Involved:

1. Legality of proceedings initiated under Section 148 of the Income Tax Act.
2. Classification of income as "income from other sources" versus "long term capital gains."
3. Validity of the Assessing Officer's order dated 14.12.2010.
4. Rejection of the petitioner's application under Section 264 by the Commissioner.

Issue-wise Detailed Analysis:

1. Legality of proceedings initiated under Section 148 of the Income Tax Act:

The petitioner argued that the proceedings initiated under Section 148 of the Income Tax Act were illegal and void. It was contended that the petitioner had fully disclosed all material facts in the original assessment and declared the long-term capital gain of Rs. 3,94,19,345/- on account of receipt of Rs. 5,05,00,000/-. The petitioner further submitted that the Assessing Officer had no reason to believe that any income of the petitioner escaped assessment. The court, referencing the case of Calcutta Discount Ltd. vs. ITO, 1961 (41) ITR 191 (SC), emphasized that as long as the assessee makes a full and true disclosure of the income, the fact that it might claim that as falling under one head which is ultimately not accepted, would not make it a wrong disclosure or suppression.

2. Classification of income as "income from other sources" versus "long term capital gains":

The core issue was whether the amount received and declared by the petitioner was a capital gain or income from other sources, warranting reassessment proceedings under Section 148. The petitioner argued that the income earned fell under "long term capital gains" as per the definitions of "Capital Asset" and "Transfer" under the Act. The petitioner had relinquished all its rights in the immovable property acquired through the MoU, which amounted to the transfer of capital assets. The court referenced J.K. Kashyap vs. Asst. CIT (2008) 302 ITR 255 (Delhi), which held that if the assessee relinquishes his rights in the property for a consideration, it amounts to transfer under Section 2(47) of the Act, making the assessee liable to capital gain tax under Section 45 of the Act.

3. Validity of the Assessing Officer's order dated 14.12.2010:

The Assessing Officer held that the sum of Rs. 5,05,00,000/- reported by the petitioner was "income from other sources" and not "long term capital gains." The AO's premise was that since there was no sale deed, the petitioner never owned the property, and therefore, the question of capital gains arising from the said property does not arise. The court found this reasoning flawed, stating that the petitioner had acquired rights to a specific plot and that the interest was in the nature of an actionable claim. The tax authorities had issued a no objection certificate in respect of the transaction, and thus, the reporting of the amount received as capital gains was correct.

4. Rejection of the petitioner's application under Section 264 by the Commissioner:

The petitioner's application under Section 264 of the Act, seeking revision of the Assessing Officer's order, was rejected by the Commissioner on 29.03.2012. The court found that the Commissioner's refusal to interfere with the Assessing Officer's order was not justified. The court held that the petitioner's rights in the immovable property, acquired through the MoU and supplementary agreements, were valid and that the income should be classified as "long term capital gains" rather than "income from other sources."

Conclusion:

In view of the above analysis, the writ petition was entitled to succeed. The reassessment proceedings were quashed, and the petition and accompanying application were allowed without any order as to costs.

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