2014 (6) TMI 369 - AT - Income Tax

Revision u/s 263 of the Act Claim of exemption u/s 54F of the Act Capital gain towards investment in purchase of residential house Held that - Relinquishing or extinguishing one s right over a capital asset also amounts to transfer - assessee has not only entered into an agreement of sale for purchase of plot but has also paid an amount of Rs. 25 lakhs to the vendor - the assessee acquired right, though may be to a limited extent, over the property - when the assessee, as per terms of the MoU, gave up his claim over the property against consideration received, certainly it can be interpreted that the assessee has relinquished or extinguished his right over the property. The vendor would have agreed to settle the dispute by paying a huge amount of Rs. 1.5 crores for a pittance unless the assessee had acquired some right over the property. Considered in the aforesaid perspective, a view can be taken that there is a transfer of capital asset within the purview of section 2(47) attracting capital gain and which view has been taken by the AO - when the AO has enquired into the matter, applied his mind to the materials on record and the view taken by him on the assessability of the receipt is one of the possible views, the assessment order passed by him cannot be considered to be erroneous and prejudicial to the interests of revenue - Only because the CIT considers the receipts as windfall gain and in his opinion such receipt has to be assessed as income from other sources, the assessment order cannot be held to be erroneous and prejudicial to the interests of revenue so as to empower the CIT to revise it u/s 263 of the Act - the exercise of power u/s 263 of the Act is not justified Decided in favour of Assessee.

Summary

Issues involved:
1. Whether the amount received by the assessee from the landowner should be assessed as long-term capital gain or income from other sources.
2. Whether the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue, justifying revision under section 263 of the Act.

Analysis:

Issue 1: Assessment of amount received by the assessee
The assessee, a film director, entered into an agreement of sale for a plot but later settled the dispute amicably through a Memorandum of Understanding (MoU) with the landowner. The Assessing Officer assessed the amount received by the assessee as long-term capital gain. However, the CIT contended that the amount should be treated as income from other sources, not capital gain. The CIT argued that as the assessee was not the owner of the asset, there was no extinguishment of rights as per section 2(47) of the Act. The CIT directed the Assessing Officer to assess the amount as income from other sources. The assessee challenged this decision, asserting that the Assessing Officer had conducted a thorough enquiry and applied the law correctly. The court analyzed the definition of 'transfer' under section 2(47) and concluded that the assessee had acquired some rights over the property, making the receipt eligible for capital gain treatment. The court cited relevant legal precedents to support this interpretation.

Issue 2: Erroneous assessment order and revision under section 263
The court emphasized that for revision under section 263, the order must be both erroneous and prejudicial to revenue interests. It noted that the Assessing Officer had properly examined the transaction and made a reasonable decision to assess the receipt as capital gain. The court highlighted that the CIT did not allege lack of enquiry or non-application of mind by the Assessing Officer. Referring to legal principles, the court held that the CIT's view that the receipt should be treated as income from other sources did not render the assessment order erroneous or prejudicial to revenue interests. Citing relevant case law, the court concluded that the exercise of power under section 263 was not justified in this case and quashed the CIT's order.

In summary, the court allowed the assessee's appeal, ruling in favor of treating the amount received from the landowner as long-term capital gain rather than income from other sources. The court found that the assessment order passed by the Assessing Officer was not erroneous or prejudicial to revenue interests, thereby rejecting the CIT's revision under section 263 of the Act.