2015 (6) TMI 920 - AT - Income Tax

Revision u/s 263 - directing the AO to determine the sale consideration at ₹ 10,93,55,600 - Held that - This issue is covered in case of Venkatappaiah Naidu, Vaddineni, Mahendra Vaddineni Versus DCIT, Circle 3(3), Hyderabad 2015 (1) TMI 732 - ITAT HYDERABAD wherein held that the stand of CIT cannot be supported. First of all, the agreement with VAPL is a GPA agreement without handing over possession. This stand gets support by the stamp duty paid and accepted by Registration authority. The agreement was registered as GPA agreement and not as a sale agreement. Thus on facts the agreement cannot be considered as sale agreement so as to bring entire capital gain tax in the impugned year. Moreover, there was a statement from Manager of VAPL recorded by A.O. during survey which indicate that there were lot of unsold plots and detailed statement was recorded about sale of various plots and how the monies are accounted. This indicates that the said VAPL is only acting as an agent in sale of property and it did not acquire the property. Therefore, stand of CIT that the land/property in question was sale cannot be accepted. Lastly, the CIT himself accepted that gains on sale of Medchal land has to be assessed under the head Long term capital gains . The gain is taxable at the rate of 20% only. Whether it is taxed in A.Y. 2007-08 or in later years, the tax rate is at 20% only. Thus, there is no prejudice caused to Revenue. Therefore, the twin conditions for invoking jurisdiction under section 263 have not been satisfied. For these reasons, we are of the opinion that the orders of CIT cannot be justified and so they are accordingly set aside. - Decided in favour of assessee.

Summary

Issues:
1. Whether the capital gains from the sale of land should be taxed as business income or long-term capital gains.
2. Whether the entire capital gain on the agreement with a specific company should be taxed in the year under consideration.

Analysis:
Issue 1: The Appellate Tribunal considered whether the capital gains from the sale of land should be taxed as business income or long-term capital gains. The case involved the promotion of a venture named 'Fabel County' by the assessee and others for developing land into plots. The Tribunal analyzed the intention behind the land purchase and development activities. It was observed that the land was initially held as a capital asset, and the mere application for land use conversion did not change its nature. The Tribunal emphasized that the land was intended to be held and not traded, as there was no evidence of significant improvements made by the assessee to indicate a change in the nature of the asset. The assessment order under section 143(3) was upheld concerning the sale of a specific portion of land. However, regarding another portion sold to a company for development, the Tribunal found that the transaction fell within the definition of transfer under the Income Tax Act. The Tribunal concluded that the entire sales consideration should be taxed in the year under consideration as the assessee had transferred the capital asset to the company.

Issue 2: The Tribunal also addressed whether the entire capital gain on the agreement with the specific company should be taxed in the year under consideration. The Tribunal reviewed the nature of the agreement between the assessee and the company, emphasizing that possession had been handed over to the company and a significant amount had been received as advance consideration. The Tribunal noted discrepancies in the assessee's computation of capital gains and held that the Assessing Officer's order was erroneous and prejudicial to the revenue's interests. Therefore, the Tribunal set aside the assessment order and directed the computation of capital gains on the entire parcel of land in the year under consideration. The Tribunal allowed the appeal filed by the assessee based on previous decisions and the lack of satisfaction of conditions for invoking jurisdiction under section 263.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the capital gains from the land sale should be taxed as long-term capital gains and that the entire capital gain on the agreement with the company should be taxed in the year under consideration.