2015 (2) TMI 68 - HC - Income Tax

Capital gain on transfer of beneficial interest in the trust - Held that - CIT(A) rightly held that taking 1/34 share will be improper as this is not the cost to the previous owner i.e. settler as far as appellant are concerned. Therefore, we are of the considered opinion that no capital gains can be levied on the assesees. The question of law involved in these appeals is answered in favour of the assessee and against the revenue. Therefore, we hold that the Tribunal was not right in holding that the capital gain is chargeable to tax on transfer of beneficial interest in the trust. - Decided in favour of assessee.

Summary

Issues involved:
- Challenge to common order of Income Tax Appellate Tribunal
- Taxability of capital gain on transfer of beneficial interest in trust
- Interpretation of cost of acquisition for capital gain calculation

Analysis:
1. The judgment pertains to appeals challenging a common order of the Income Tax Appellate Tribunal regarding the taxability of capital gain on the transfer of beneficial interest in a trust. The appellants sold their beneficiary interest in a family trust, and the Assessing Officer computed the capital gain accrued to the appellants based on the cost of acquisition. The Deputy Commissioner of Income Tax (Appeals) initially ruled in favor of the appellants, but the Tribunal allowed the revenue's appeal, holding the capital gain as chargeable to tax.

2. The primary issue before the Court was whether the Tribunal was justified in holding that the capital gain is chargeable to tax on the transfer of beneficial interest in the trust. The appellants argued that the settlement amount by the settlor cannot be considered as the cost of acquisition for the capital asset "Beneficial interest." They relied on various legal precedents to support their contention.

3. The Court analyzed the facts and legal principles involved, including the decisions of the Apex Court in Commissioner of Income Tax v. D.P. Sandu Bros. Chembur P. Ltd. and PNB Finance Ltd. v. Commissioner of Income Tax. These cases established that for an asset to be subject to capital gains tax, it must be capable of acquisition at a cost, and if the cost of acquisition cannot be determined, the consideration received may not be subjected to capital gains tax.

4. Considering the arguments and legal principles, the Court held that no capital gains could be levied on the appellants as the cost of acquisition based on the settlement amount was improper. The Court referred to the principles laid down in the aforementioned cases and concluded that the Tribunal erred in holding the capital gain as chargeable to tax. Therefore, the Court allowed the appeals, quashed the Tribunal's order, and restored the order of the CIT(A) in favor of the appellants.

5. In conclusion, the Court's decision was based on the interpretation of the cost of acquisition for calculating capital gains on the transfer of beneficial interest in a trust. By applying relevant legal principles and precedents, the Court ruled in favor of the appellants, emphasizing that the Tribunal's decision to tax the capital gain was not justified under the circumstances of the case.