2015 (4) TMI 723 - AT - Income Tax

Capital gain computation - Assessing Officer was directed by the CIT(A) to compute the capital gains chargeable to tax in the hands of the assessee by taking her share at 60% of the total sale consideration of ₹ 25 lakhs - Held that - It is no doubt true that other documentary evidence produced by the assessee was sufficient to indicate that the property was encumbered and the assessee could not be said to be the absolute owner of the said property. At the same time, it is also true that the said documentary evidence read with the agreement entered into by the assessee with M/s. Sri Vinayaka Constructions is sufficient to show that the assessee was holding certain rights in the property and the same constituting capital asset were transferred by the assessee by agreement dated 3rd April, 2008 to M/s. Sri Vinayaka Constructions for consideration giving rise to capital gains chargeable to tax in her hands to the extent of 60%, as rightly held by the learned CIT(A). We therefore, find no infirmity in the impugned order of the learned CIT(A) holding the assessee to be the owner of certain rights in the property to the extent of 60% and accordingly directing the Assessing Officer to compute the capital gains arising from transfer of the said rights in the hands of the assessee. Accordingly, the impugned order of the learned CIT(A) on this issue is upheld, and the appeal of the assessee is dismissed. Applicability of the provisions of S.50C - Held that - It is observed that the market value of the property for stamp duty purpose was determined by the concerned authority at ₹ 3,99,55,000 and accordingly the stamp duty thereon was also duly paid, while registering the relevant agreement. The value adopted for the purpose of payment of stamp duty thus was not disputed by the relevant parties, including the assessee. The learned CIT(A), however, held that the assessee was not the owner of the property and since she had only limited rights over the property, which was also encumbered, the market value of the property as taken for the purpose of payment of stamp duty could not be adopted as the sale consideration by applying the provisions of S.50C. We have already concurred with the learned CIT(A) while deciding the issue involved in the appeal of the assessee that the assessee was not the absolute owner of the property, and what the assessee held was only certain limited rights over the said property. It, therefore, follows that the capital asset held by the assessee itself was neither the land nor the building as envisaged in sub-section (1) of S.50C, and while computing the capital gains arising from transfer of such asset, the value adopted by any authority of State Government for the purpose of payment of stamp duty cannot be taken as full value of consideration by applying the provisions of S.50C, as rightly held by the learned CIT(A). We, therefore, uphold the impugned order of the learned CIT(A) on this issue as well, and dismiss the appeal filed by the Revenue.

Summary

Issues Involved:
1. Ownership and Rights Over the Property
2. Applicability of Section 50C of the Income Tax Act

Detailed Analysis:

1. Ownership and Rights Over the Property:

The primary issue revolves around whether the assessee was the owner of the property in question and if the capital gains arising from the transaction should be taxed in her hands. The Assessing Officer (AO) initiated proceedings under Section 148 after discovering that the assessee had entered into a sale agreement for land valued at Rs. 3,99,65,000 for stamp duty purposes but declared a sale consideration of only Rs. 25 lakhs. The AO taxed the long-term capital gain of Rs. 3,88,11,476, reducing the indexed cost of acquisition from the sale consideration adopted under Section 50C.

The assessee contended before the CIT(A) that the sale transaction was bogus and induced by her sister. She claimed she was not the owner of the property and did not receive any consideration from the transaction. The CIT(A) forwarded the documentary evidence to the AO for verification, who confirmed that the assessee held rights over the property to the extent of 60%. The CIT(A) concluded that the assessee was not the absolute owner but held certain rights, constituting a capital asset within the meaning of Section 2(14) of the Act. Consequently, the CIT(A) directed the AO to compute the capital gains chargeable to tax in the hands of the assessee by taking her share at 60% of the total sale consideration of Rs. 25 lakhs.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had signed the sale agreement and presented herself before the authority for registration, establishing her identity. The Tribunal found that the assessee held certain rights in the property, giving rise to capital gains chargeable to tax in her hands to the extent of 60%.

2. Applicability of Section 50C of the Income Tax Act:

The second issue pertains to whether the provisions of Section 50C, which deem the value adopted for stamp duty purposes as the full value of consideration, apply in this case. The AO had adopted the market value of Rs. 3,99,65,000 for stamp duty purposes as the sale consideration. However, the CIT(A) held that since the assessee had only limited rights over the property, which was encumbered, the market value for stamp duty purposes could not be adopted as the sale consideration under Section 50C.

The Tribunal concurred with the CIT(A), stating that the capital asset held by the assessee was not the land or building envisaged in Section 50C(1). Therefore, the value adopted by the State Government authority for stamp duty purposes could not be taken as the full value of consideration for computing capital gains. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed both the assessee's and the Revenue's appeals, upholding the CIT(A)'s decision that the assessee held rights over the property to the extent of 60%, and the provisions of Section 50C were not applicable in this case. The capital gains chargeable to tax were to be computed based on the assessee's share of the sale consideration of Rs. 25 lakhs.