2014 (12) TMI 56 - AT - Income Tax

Transfer of capital asset u/s 2(47) or u/s 45(3) Addition under STCG Held that - The order of the CIT(A) on the issue of taxing capital gains are to be upheld - the property under consideration need not be immovable property - assessee is having certain rights and the bundle of rights are transferred - Even though assessee relied on provisions of section 2(47)(vi) of the I.T. Act the provision is very clear that any transaction which has the effect of transferring or enabling the enjoyment of any immovable property is covered by the definition of transfer even though assessee has argued that there is no immovable property what the provision entitles is that of a transaction which has the effect of transferring or enabling the enjoyment of any immovable property - The argument that assessee has no transferable right and the agreement with KIADB does not give rise to any transferable rights is not correct in the sense that assessee is enjoying the property by virtue of allotment letter granted by the Industrial Area Development Board on 10.01.2001 and assessee by way of consortium agreement passed on the bundle of rights to the consortium - assessee has permitted mortgage of the said property by way of equitable mortgage in favour of ING Vysya Bank Ltd. to an extent of 36 crores for advance made to Dynasty Developers P. Ltd. - it cannot be stated that assessee has no right on the property when it admits and enters into agreement and even permits the Bank for an equitable mortgage of the property - all the contentions raised by assessee that it does not hold any capital asset there are no transferable rights under the Transfer of Property Act and not transferred without registered document cannot be accepted. The extended definition as contained in section 2(47) even when a sale exchange or relinquishment or extinguishment of any right under a transaction assessee is to be in possession of any immovable property or retained the same in part performance of contract under section 53A of the Transfer of Property Act it amounts to transfer - since assessee has given all rights in immovable property of which consortium has taken approvals and constructed buildings the contention that there is no capital asset no transfer cannot be accepted. Whether the capital gains arising in the transaction is that of short capital gain or long term capital gain Held that - The gain has to be considered as long term capital gain - assessee was allotted the property on 10.01.2001 - Even though the lease deed was registered on 02.09.2003 assessee has held it for more than three years by the time he has entered into an agreement on 10.12.2004 Following the decision in Commissioner of Income-tax Versus A. Suresh Rao 2014 (1) TMI 1585 - KARNATAKA HIGH COURT and Circular No. 471 and 474 of CBDT - there is no dishonest or improper motive on the part of the assessee in claiming exemption - when capital gain is accrued in him instead of paying tax to the Government he has invested the money in the aforesaid manner which gives him the benefit of exemption from payment of capital gains - the capital asset has to be considered as long term asset and capital gains thereon has to be assessed only under the head Long Term Capital Gains and A.O. is directed to modify the computation accordingly Decided partly in favour of assessee.

Issues Involved:
1. Legality of the Commissioner (Appeals)'s order.
2. Confirmation of addition under short-term capital gains.
3. Existence of transfer of a capital asset under sections 2(47) and 45(3) of the Income Tax Act, 1961.
4. Validity of books of accounts and balance sheet relied upon by the Commissioner (Appeals).
5. Alleged violation of natural justice principles by the assessing officer.
6. Classification of capital gains as long-term or short-term.
7. Discrepancy in the assessment year mentioned in the assessment order and demand notice.

Detailed Analysis:

1. Legality of the Commissioner (Appeals)'s Order:
The assessee contended that the order of the learned Commissioner (Appeals) was bad in law and against the facts of the case. However, the tribunal upheld the Commissioner (Appeals)'s order, finding no merit in the assessee's arguments.

2. Confirmation of Addition Under Short-Term Capital Gains:
The Commissioner (Appeals) confirmed the addition of Rs. 7,98,69,745 under the head short-term capital gains. The tribunal upheld this confirmation, agreeing with the Commissioner (Appeals) that the transaction was indeed a transfer of capital assets, leading to capital gains.

3. Existence of Transfer of a Capital Asset:
The assessee argued that there was no transfer of a capital asset as per sections 2(47) and 45(3) of the Income Tax Act, 1961. The tribunal, however, found that the consortium agreement dated 10.12.2004 effectively transferred the rights in the property to the consortium, thus constituting a transfer of capital assets. The tribunal endorsed the view that the transaction fell within the purview of section 2(47)(vi), which includes transactions enabling the enjoyment of any immovable property.

4. Validity of Books of Accounts and Balance Sheet:
The assessee claimed that the balance sheet relied upon by the Commissioner (Appeals) was provisional and not audited. The tribunal rejected this argument, noting that the entries in the books of the consortium were consistent with the consortium agreement and were audited by a statutory auditor.

5. Alleged Violation of Natural Justice Principles:
The assessee contended that the assessing officer violated the principle of natural justice by not providing copies of the balance sheet relied upon and not allowing cross-examination of persons whose statements were relied upon. The tribunal did not find merit in this argument, stating that the documents and statements were part of the assessment proceedings and were adequately addressed.

6. Classification of Capital Gains:
The assessee argued that if any capital gains were to be recognized, they should be treated as long-term capital gains. The tribunal agreed with this contention, noting that the property was allotted to the assessee on 10.01.2001 and the lease deed was registered on 02.09.2003. Since the holding period exceeded three years, the gains were to be classified as long-term capital gains.

7. Discrepancy in Assessment Year:
The assessee pointed out a discrepancy where the assessment order mentioned the assessment year as 2007-08, while the demand notice pertained to the assessment year 2005-06. The tribunal directed the assessing officer to correct this curable defect, affirming that the proceedings were indeed for the assessment year 2005-06.

Conclusion:
The tribunal upheld the Commissioner (Appeals)'s decision on the transfer of capital assets and the resultant capital gains. However, it directed that the gains be classified as long-term capital gains. The tribunal also instructed the assessing officer to correct the assessment year discrepancy. The appeal was partly allowed, with the primary contentions of the assessee being rejected.

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