2015 (8) TMI 355 - AT - Income Tax

Computation of capital gain - whether consideration received by the appellant be treated as capital gain and there is charge on the property by Mr. Laxman Pagare before the consideration is received from the sale of property and only actual income received be taxed as capital gain? - whether the assessee could only be charged to tax, on the income that has accrued to her? - Held that - One basic fact that has been completely ignored by the Revenue authorities, while framing the assessment of the assessee was to ascertain the status of the return and assessments in the case of Mr. Geeta Choksi and Mr. Laxman A. Pagare. We find that the address of Laxman A. Pagare has been mentioned by the Commissioner of Income-tax (Appeals) in his order and which was also supplied to the Assessing Officer, but the Revenue authorities ignored to ascertain his assessment status. We cannot accept the submissions of the Departmental representative that the case be restored to the Assessing Officer to find out the details of assessment in the case of Mr. Laxman A. Pagare and/or Ms. Geeta Choksi. According to us, the Revenue authorities missed the bus long back. We also find from the APB, the assessment status of Ms. Geeta Choksi, recipient of the other 50 per cent. of 60 per cent., whose return of income was accepted by the Assessing Officer and in the subsequent year, on the same facts, assessment was framed under section 143(3) accepting the returned income. Under these factual circumstances, we are of the opinion that the Revenue authorities erred in adding back remaining 20 per cent. to equate the figure of 50 per cent. of gross sale proceeds. Not only, this was factually incorrect, because, the quantum had been the result of a legal document executed between the ladies and Laxman A. Pagare and more than that the other parties declared their share, which was accepted by the Department We, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the addition, as made by him and compute the long-term capital gains as declared by the assessee. - Decided in favour of assessee.

Summary

Issues:
Calculation of capital gains based on gross figures rather than actual income received by the assessee.

Analysis:
The appeal was filed against the Commissioner of Income-tax (Appeals) decision to confirm the order of the Income-tax Officer regarding the computation of capital gains. The appellant argued that the power of attorney executed in favor of Mr. Laxman Pagare, retaining 40% of the sale proceeds, should be considered as expenditure incurred wholly and exclusively in connection with the transfer. The appellant contended that the payment to Mr. Laxman Pagare was for obtaining marketable title for the sale of property, as the property was unsaleable due to encroachment. The Assessing Officer computed capital gains based on gross figures of sale proceeds, while the appellant declared capital gains based on the actual income received. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's view, leading to the appeal before the Income-tax Appellate Tribunal.

The facts revealed that the appellant, a widow, and her daughter owned land parcels encroached by residents. They gave power of attorney to Mr. Laxman Pagare, agreeing to split sale proceeds with him. The appellant declared capital gains based on the income actually received, while the authorities computed it on gross figures. The authorized representative argued that the appellant should only be taxed on the income accrued to her, as Mr. Laxman Pagare received 40% of the sale proceeds. The Tribunal noted that the Revenue authorities failed to consider the assessment status of Mr. Laxman Pagare and the appellant's daughter. As the daughter's income was accepted based on the actual share received, adding back the remaining 20% to equate to 50% of gross proceeds was deemed incorrect. The Tribunal directed the Assessing Officer to delete the addition made and compute the capital gains as declared by the appellant.

In conclusion, the Tribunal set aside the Commissioner of Income-tax (Appeals) order, allowing the appeal filed by the appellant. The decision was based on the incorrect computation of capital gains by the Revenue authorities, who failed to consider the actual income received by the appellant and the legal agreement with Mr. Laxman Pagare. The Tribunal emphasized that the appellant should only be taxed on the income accrued to her, as per the legal arrangement, and not on the gross figures of the sale proceeds.