2015 (11) TMI 1010 - AT - Income Tax

Taxability of the income gained by the assessee from transfer of the assessee s right in 5 office premises - whether the same are to be assessed under the head Long Term Capital Gains or as Income from Other Sources ? - Held that - In the case in hand neither the property in question i.e. the so called office premises was in existence nor its building plan or specifications were approved from the Municipal Corporation and neither any construction activity or commencement of the project had started. There is no document on the file which may suggest that there was even very likelihood of the alleged property coming into existence in the near future giving any right to the seller to sale any interest in the same or any accrual of right in favour of the intending purchaser. Coming to the sale of the said rights. The excuse given by the assessee was that since he was not involved in any activity of information technology, hence the offices be sold to the another party. As observed above, the fact that the said office premises alleged to be allotted to the assessee could be used only for activity of information technology was very much in the knowledge of the assessee on the date of making the payment i.e. on 02.09.05 and even on 04.08.06 when the subsequent allotment letter was issued. The assessee did not revert back to the builder that since he was not in the activity of information technology, hence his principal amount be refunded. The facts itself speak that the assessee had advanced the money to the builder to make quick profits either by way of interest or by way of share in the profits which the builder may gain by selling the properties. The assessee neither executed any conveyance deed nor had been consenting party to any deed for conveyance executed between the builder and the actual purchaser of the property. The possession and ownership of the offices in question always remained with the builder. The assessee had been offered the amount of interest/profit on the finances provided by the assessee to the builder. Under such circumstances, the income accrued to the assessee relating to the above transaction has rightly been assessed by the lower authorities as income from other sources. We do not find any infirmity in the order of the Ld. CIT(A) in this respect and the same is therefore upheld. - Decided against assessee.

Issues Involved:
1. Taxability of income from the transfer of rights in '5 office premises'.
2. Classification of income as 'Long Term Capital Gains' or 'Income from Other Sources'.
3. Validity and enforceability of the allotment letters and related documents.
4. Assessment of the holding period of the rights.

Detailed Analysis:

1. Taxability of Income from Transfer of Rights in '5 Office Premises':
The primary issue was whether the income gained by the assessee from the transfer of rights in '5 office premises' should be taxed as 'Long Term Capital Gains' or 'Income from Other Sources'. The Assessing Officer (AO) noted that the assessee had shown long term capital gains of Rs. 38,26,076/- from the transfer of rights in office premises located in 'Platinum Techno Park'. The AO observed that the final allotment of the said office premises was on 04.08.06 and the rights were sold on 17.12.08, indicating a holding period of less than 36 months, thus suggesting the gains should be taxed as short term capital gains. However, the AO ultimately taxed the income under 'Income from Other Sources' due to the speculative nature of the transaction and the lack of enforceable rights in the asset.

2. Classification of Income as 'Long Term Capital Gains' or 'Income from Other Sources':
The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] both concluded that the income should be classified as 'Income from Other Sources'. The CIT(A) highlighted that the allotment letter dated 02.09.05 was backdated, as it mentioned a commencement certificate dated 03.08.06, which indicated that the letter was fabricated. The CIT(A) also noted the absence of a registered document or power of attorney, and that the assessee did not transfer any rights to the builder or the final purchaser. The CIT(A) concluded that the necessary elements of a valid agreement were missing, and thus, the surplus earned by the assessee was rightly assessed as 'Income from Other Sources'.

3. Validity and Enforceability of the Allotment Letters and Related Documents:
The CIT(A) and the Tribunal both questioned the validity of the allotment letters. The letter dated 02.09.05 was found to be fabricated as it mentioned approvals that were obtained only on 03.08.06. The Tribunal noted that the payment receipts were issued on 06.09.05, which contradicted the issuance of the allotment letter on 02.09.05. The Tribunal concluded that no vested right in the property had passed to the assessee on 02.09.05, as the property was not in existence, and no construction had commenced.

4. Assessment of the Holding Period of the Rights:
The Tribunal agreed with the AO's observation that the rights, if any, in the property accrued to the assessee only after the issuance of the commencement certificate on 04.08.06. Since the rights were transferred on 17.12.08, the holding period was less than 36 months, which would typically classify the gains as short term. However, due to the speculative nature and lack of enforceable rights, the income was assessed as 'Income from Other Sources'.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the income earned by the assessee from the transfer of rights in the office premises was rightly assessed as 'Income from Other Sources'. The appeal of the assessee was dismissed, and the order was pronounced in the open court on 06.11.2015.

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