2016 (4) TMI 556 - AT - Income Tax

Addition on account of long term capital gain - taxability - Held that - Entire capital gain i.e. short term and long term capital gain has been taxed in the hands of two co-owners namely Harjibhai Parsottambhai Vastarpara and Becharbhai Jivrajbhai Vastarpara and by the four confirming parties by way of showing total sale consideration of ₹ 1,11,25,000/- bifurcated amongst their returns of income and after reducing the cost of acquisition which has been duly accepted by the revenue authorities, the remaining gain has been offered to tax. We further find that the co-owners who made agreement with the four confirming parties have shed their rights at the very moment they entered into the agreement and the value of sale consideration for these co-owners was fixed at ₹ 11,51,000/- and they were duty bound to sign the documents relating to sale deed irrespective of the fact that the sale deed which they were going to execute was in between the confirming parties and co-owners or with a third party. We find that four confirming parties further entered into an agreement for sale of land for ₹ 1,11,25,000/- of M/s Dhara Construction and Dhirajlal PopatlaiTejani and therefore, sale deed was registered by the signatures of two co-owners who received ₹ 11,51,000/- and the sale deed was further counter-signed by the confirming parties who received the balance amount of ₹ 99,74,000/-. In other words there was no loss to the revenue and also the capital gains have been rightly offered by the concerned parties in their returns of income. We therefore, find no reason to interfere with the findings of ld. CIT(A). - Decided against revenue

Summary

Issues Involved:

1. Validity of Satakhat and deletion of addition on account of long-term capital gain.
2. Whether the CIT(A) should have upheld the order of the Assessing Officer (AO).
3. Request for cancellation of the appellate order of the CIT(A) and upholding the AO's order.

Issue-wise Detailed Analysis:

1. Validity of Satakhat and Deletion of Addition on Account of Long-Term Capital Gain:

The case revolves around the sale of agricultural land by the assessee and his co-owner. The assessee did not declare any long-term capital gain on the sale of the land in their income tax return, prompting the AO to add Rs. 52,26,735/- as long-term capital gain. The CIT(A) deleted this addition, considering the Satakhat (agreement to sell) executed on 04.03.2005, which sold the land to four confirming parties. The CIT(A) observed that the assessee and co-owner had already shown the short-term capital gain in their returns for A.Y. 2007-08, which was accepted by the AO. The CIT(A) noted that the final sale deed executed in 2008 was merely a formality to avoid double stamp duty, and the actual capital gain had already been accounted for by the confirming parties in their respective returns.

2. Whether the CIT(A) Should Have Upheld the Order of the Assessing Officer (AO):

The CIT(A) found that the assessee and co-owner had rightly shown the short-term capital gain in A.Y. 2007-08 when the payment was made by the confirming parties, and this was accepted by the AO. The CIT(A) also noted that the confirming parties had shown the long-term capital gain in their returns for A.Y. 2008-09 and A.Y. 2009-10. The CIT(A) referenced Section 2(47)(v) of the Act, which considers the transfer of possession as a 'transfer' for capital gains purposes. Since the possession was given in A.Y. 2007-08, the CIT(A) concluded that the short-term capital gain was correctly shown by the assessee and co-owner for that year.

3. Request for Cancellation of the Appellate Order of the CIT(A) and Upholding the AO's Order:

The Revenue's appeal was dismissed by the Tribunal, which upheld the CIT(A)'s decision. The Tribunal found that the entire capital gain, both short-term and long-term, had been taxed appropriately in the hands of the two co-owners and the four confirming parties. The Tribunal noted that the sale consideration was bifurcated among their returns of income, and the remaining gain was offered to tax. The Tribunal agreed with the CIT(A) that the co-owners had shed their rights upon entering the agreement with the confirming parties and that the final sale deed execution was a formality. The Tribunal found no reason to interfere with the CIT(A)'s findings and upheld the deletion of the addition.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order that the capital gains had been correctly accounted for by the assessee, co-owner, and confirming parties in their respective returns. The Tribunal found no merit in the Revenue's grounds for appeal and upheld the CIT(A)'s deletion of the addition of Rs. 52,26,735/- on account of long-term capital gain. The order was pronounced in the open court on 4th March 2016.