2016 (11) TMI 1656 - AT - Income Tax

Addition on account of long-term capital gain - Sale of a residential house - Interest in property - Section 50C applicability - assessee had transferred the land and building, which was under his possession as mentioned in the sale deed HELD THAT - Since the assessee has transferred his interest in the land and building under consideration, therefore, consideration arising out of such transfer is definitely chargeable under the provisions of Income-tax Act, 1961. In the aforesaid case, by declaring sale as null and void, the land remained in the possession of the owner, who had transferred the said land in defiance of the statutory provisions, whereas in the case of the assessee, he has transferred his ownership and by virtue of Court s order dated 01.03.2013, the assessee has not remained the owner of the land and building, but already received consideration in respect of the property. Since the underlined asset transferred is being land and building, therefore, provision of Section 50C are very much applicable. In view of these facts, we are of the considered opinion that the AO and ld. CIT(A) have justified in their action, hence, no interference on our part is required. Taking cost of the market value of the property as on 01.04.1981 in place of cost of acquisition while computing the capital gain - HELD THAT - AO has considered the indexation cost of acquisition at ₹ 40,920/- as against actual cost of ₹ 6,000/- while computing the capital gains. Therefore, we are of the view that the benefit of indexation has already been allowed by the AO. Hence, this ground of appeal is rejected.

Summary

Issues Involved:
1. Confirmation of addition of ?50,19,080/- as long-term capital gain from the sale of a residential house.
2. Status of the property as part of a Hindu Undivided Family (HUF).
3. Ownership and possession of the property before the sale.
4. Receipt of consideration from the sale and lawful possession.
5. Applicability of Section 50C of the Income Tax Act.
6. Substitution of market value as of 01.04.1981 for cost of acquisition.

Issue-wise Analysis:

1. Confirmation of Addition of ?50,19,080/- as Long-term Capital Gain:
The assessee contested the addition of ?50,19,080/- as long-term capital gain from the sale of a residential house. The property was purchased in 1971 for ?6,000/- and claimed to be in possession of another individual. The assessee entered into an agreement to sell the property in 2007 for ?5 lakhs but eventually sold it in 2010 for ?12 lakhs. The AO calculated the long-term capital gain based on the stamp duty valuation of ?50,60,000/- minus the indexed cost of ?40,920/-, resulting in a gain of ?50,19,080/-. The CIT(A) upheld this addition, noting that the property was a capital asset held by the assessee and the sale was valid under Section 2(14) and Section 50C of the Act.

2. Status of the Property as Part of a Hindu Undivided Family (HUF):
The assessee claimed that the property was acquired on behalf of a joint Hindu Undivided Family (HUF). However, this ground was not pressed during the hearing and was treated as withdrawn and dismissed.

3. Ownership and Possession of the Property Before the Sale:
The assessee argued that they never lawfully owned or possessed the property before the sale. The CIT(A) referred to Section 2(14) of the Act, which defines capital assets as property of any kind held by the assessee. The CIT(A) concluded that the property was a capital asset in the hands of the assessee, as they had a registered sale deed and the property was transferred by a registered sale deed in 2010.

4. Receipt of Consideration from the Sale and Lawful Possession:
The assessee contended that no consideration was received during the previous year under consideration and that no lawful possession was handed over. However, the CIT(A) observed that the sale deed executed in 2010 showed that the assessee received ?12 lakhs in cash and had possession of the property. The CIT(A) held that the assessee was liable for tax on the capital gains arising from the transfer of the property.

5. Applicability of Section 50C of the Income Tax Act:
The assessee argued that Section 50C, which applies to the transfer of land or building, should not be invoked. The CIT(A) held that Section 50C was applicable as the property was transferred by a registered sale deed, and the AO was justified in adopting the stamp duty valuation of ?50,60,000/- for computing the long-term capital gains.

6. Substitution of Market Value as of 01.04.1981 for Cost of Acquisition:
The assessee claimed that the property was acquired before 01.04.1981 and that the market value as of that date should be substituted for the cost of acquisition. The AO had already considered the indexed cost of acquisition at ?40,920/- based on the actual cost of ?6,000/-. The Tribunal found that the benefit of indexation had already been allowed and rejected this ground of appeal.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decision to confirm the addition of ?50,19,080/- as long-term capital gain, the applicability of Section 50C, and the indexed cost of acquisition. The Tribunal found no merit in the assessee's arguments regarding ownership, possession, and the status of the property as part of a HUF.