2014 (11) TMI 320 - HC - Income Tax

Transfer u/s 2(47)(vi) Assessment of capital gains - Whether capital gains should be assessed at the hands of the assessee, who is a power of attorney holder Held that - The tribunal was rightly of the view that the recital contained in the registered power of attorney dated 01.09.2006 does not show that any consideration was paid to the actual owner and the assessee had acted merely as an agent - the assessee could not be treated as owner of the property sold on 23.10.2008 and therefore there was no question of computing capital gains in the hands of the assessee - There is no transfer to or enabling enjoyment of property in favour of the assessee in any manner and therefore, sub-clause (vi) of Section 2(47) of the Income Tax Act does not get attracted - Clause 21 of the power of attorney clearly reveals that no consideration was received from the power agent for appointing him as power of attorney - It also emphasised that the property right has not been handed over to the power agent - the plea of the Revenue cannot be accepted that there was an element of transfer or enabling enjoyment in favour of the assessee - The letter of the land owner subsequently issued does not come to the aid of the Department - It is the duty of the power of attorney holder to deliver the amount received for the purpose of transfer of property - no fault could be found on the part of the assessee. The circular No.495 dated 22.9.1987 also states that the legal ownership would continue with the transferor, but the property rights if it is transferred by way of power of attorney would come within the ambit of sub-clause (vi) of Section 2(47) - the terms of the power of attorney clearly show that property rights has not been transferred to the power of attorney holder and there is also no provision for enabling enjoyment thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Whether the assessee could be treated as the owner of the property sold while computing capital gains.
2. Whether the Tribunal should have considered the letter of the property seller regarding the payment received for executing a power of attorney.
3. Whether the Tribunal's finding aligns with Section 2(47)(vi) of the Income Tax Act regarding the transfer of property rights through power of attorney agreements.

Issue 1:
The case involves the assessment of capital gains for the assessment year 2009-10, where the assessee acted as a power agent for the actual owner of the property. The Tribunal examined the clauses of the power of attorney agreement and the subsequent sale of the property to the assessee's wife. The Assessing Officer believed the assessee sold the property to his wife, leading to a tax demand. However, the Tribunal found that the power of attorney holder did not receive consideration and emphasized the absence of evidence to disbelieve the assessee's claim. The Tribunal concluded that the assessee could not be considered the owner of the property sold, thereby allowing the appeal.

Issue 2:
The Revenue argued that the transaction falls under Section 2(47)(vi) of the Income Tax Act, which includes arrangements like power of attorney within the definition of transfer. Referring to circular No.495, the Revenue contended that power of attorney arrangements could attract capital gains liability. However, the Court disagreed, stating that there was no transfer or enabling enjoyment of property in favor of the assessee. The Court analyzed the circular and found that the power of attorney terms did not indicate a transfer of property rights to the assessee, leading to the dismissal of the appeal.

Issue 3:
The Court delved into the interpretation of circular No.495 and the provisions of Section 2(47)(vi) of the Income Tax Act. It noted that for a transaction to qualify as a transfer, there must be a transfer or enabling of property enjoyment. The Court found no such provision in the power of attorney agreement, emphasizing that property rights were not transferred to the power agent. As the Department did not challenge the validity of the power of attorney, the Court concluded that the plea of capital gains against the assessee lacked merit, ultimately dismissing the appeal.

In conclusion, the High Court of Madras dismissed the Tax Case (Appeal) filed by the Revenue, ruling in favor of the assessee based on the lack of evidence supporting the transfer of property rights to the power agent. The judgment highlighted the importance of legal ownership and property rights in determining capital gains liability, ultimately upholding the Tribunal's decision in favor of the assessee.