2016 (5) TMI 767 - AT - Income Tax

Sale consideration received - Income from Other Sources instead of Income from Long Term Capital Gains - deductions claimed u/s. 54EC and 54F denied - Held that - Assessee being the 4th plaintiff, did not claim any ownership of the property. Therefore, we are of the opinion that both the authorities are correct in rejecting assessee as owner of the property. Even the rectification deed placed on record no where confers any ownership on assessee except indicating that assessee is also party to the transactions with M/s. Team One Builders. How assessee acquired the ownership was not established either before the CIT during the course of proceedings u/s. 263 or before the other authorities in the course of consequential assessment proceedings. Except the fact that assessee has received the so called 1/4th share out of the total consideration, there is no indication of any assessee s ownership on the property, either to full extent or to 1/4th extent. Therefore, since the ownership on the property is not established to be that of assessee, either at 1/4th or fully, we are of the opinion that the authorities are justified in treating the consideration received by assessee as income from other sources and denying the deductions claimed u/s. 54EC and 54F which are applicable only when there is capital gains. - Decided against assessee

Issues Involved:
1. Whether the sale consideration received should be classified as 'Income from Other Sources' or 'Income from Long Term Capital Gains'.
2. The applicability of deductions under Sections 54EC and 54F of the Income Tax Act.

Detailed Analysis:

Issue 1: Classification of Sale Consideration
The primary issue is whether the sale consideration received by the assessee should be classified as 'Income from Other Sources' or 'Income from Long Term Capital Gains'. The Commissioner of Income Tax (Appeals)-IV confirmed the classification of the sale consideration as 'Income from Other Sources'. The assessee argued that they had an agreement for the purchase of property in 1994, which was registered in the names of three other individuals in 1995. The assessee, along with these individuals, entered into a development agreement with M/s. Team One Builders and received a total consideration of ?1 crore. The assessee claimed this as capital gains and sought deductions under Sections 54EC and 54F.

The Commissioner of Income Tax (Appeals)-IV observed that the assessee was not the owner of the property as per the sale deed and thus, the amount received could not be considered as sale consideration for capital gains. The order stated, "Since the assessee is not the owner of the property as per the sale deed, the amount of ?1,00,00,000/- received by the assessee cannot be termed as a sale consideration and therefore the question of computation of Long Term Capital Gain does not arise in this case."

Issue 2: Applicability of Deductions under Sections 54EC and 54F
The second issue revolves around the applicability of deductions under Sections 54EC and 54F. The assessee claimed deductions for the capital gains received, but the authorities denied these deductions on the grounds that the income was not from capital gains but from other sources. The assessment order stated, "Under the facts and circumstances of the case, the amount of ?1 Crore received by the assessee has to be assessed as ‘Income from Other Sources’."

Assessee's Arguments:
The assessee contended that they had an oral agreement of sale and were considered a plaintiff in the proceedings before the Addl. District & Session Judge, indicating ownership of the property. The assessee argued that the capital gains should be recognized, and the corresponding deductions under Sections 54EC and 54F should be allowed.

Authorities' Findings:
The authorities found that the sale deed did not include the assessee's name, and there was no evidence that the assessee contributed to the purchase consideration. The Commissioner of Income Tax (Appeals)-IV noted, "The appellant, has not explained how it establishes the ownership of the appellant on the property as the sale deed was registered in favour of appellant's three brothers and the appellant is not a party to the sale deed."

Conclusion:
The Tribunal upheld the authorities' decision, stating that the ownership of the property was not established by the assessee. The Tribunal concluded, "since the ownership on the property is not established to be that of assessee, either at 1/4th or fully, we are of the opinion that the authorities are justified in treating the consideration received by assessee as ‘income from other sources’ and denying the deductions claimed u/s. 54EC and 54F which are applicable only when there is capital gains."

Final Judgment:
The appeal of the assessee was dismissed, and the order pronounced on 07th April 2016 confirmed the classification of the sale consideration as 'Income from Other Sources' and denied the deductions under Sections 54EC and 54F.

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