2017 (1) TMI 1093 - AT - Income Tax

Capital gains - Nature of receipt - assessee was not the owner of the property but had the control over property - legal owners - allowing the cost indexation towards the value of acquisition cost - as per DR assessee is not a owner of the piece of land which he sold to M/s NCCl - assessee has stated that he has safeguarded the property from unlawful encroachment and he is in the absolute control over the property since 1986 and that he is aware of legal disputes on the property and he has spent lot of money on representing legal disputes on the property Held that - The assessee is not the owner of the property since the assessee has not purchased the property by proper deed, but, undisputedly has paid consideration of ₹ 15 lakhs to Shri Ali Asghar Ceizure and was having absolute control over the disputed property in his possession all these years, it shows that the assessee had absolute control over the property by which he is also a part of owner and also assessee had played the role of a owner in the agreement of sale between the disputed parties and M/s NCCL. Even though assessee s name in the sale agreements is not shown as an owner, but, it is shown as one of the consenting parties. Moreover, assessee has received a portion of the sale consideration from this transaction i.e. ₹ 85.05 lakhs out of ₹ 166.8 lakhs (about 51%) of the total consideration. It shows that assessee is one among the parties, who sold the property to M/s NCCL. In case, the assessee is not the main person in the deal, there is no way the assessee would have received more than 50% of the sale consideration. In our considered view, the assessee is one of the selling parties in the deal and the assessee is eligible to treat this transaction as income from capital gains. Accordingly, the grounds raised by the revenue in this regard are dismissed. Assessee eligibility to claim ₹ 30 lakhs as cost of purchase in stead of ₹ 15.3 lakhs as allowed by the CIT(A) - Held that - As per the agreement of sale submitted by the assessee, assessee has confirmed the payment of ₹ 15 lakhs to Shri Ali Asghar Ceizure, which was also confirmed by Shri Ali Asghar Ceizure in the same agreement, but, the assessee is supposed to pay ₹ 15 lakhs at the time of registration of sale deed. There is no proof or evidence placed on record to show that the agreement of sale is, in fact, completed. In the absence of any evidence to show that sale is complete by paying ₹ 15 lakhs to Shri Ali Asghar Ceizure, we are not in a position to grant any relief to the assessee with regard to the second installment of ₹ 15 lakhs. In our considered view, the assessee can claim ₹ 15 lakhs as cost of purchase with indexation benefit, not to the extent of ₹ 15.3 lakhs as allowed by CIT(A). Accordingly, this objection is rejected.

Summary

Issues Involved:
1. Nature of receipt from Nagarjuna Construction Company Ltd (NCCL) – whether it is capital gains or income from other sources.
2. Determination of the purchase price and its indexation for capital gains calculation.
3. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.

Detailed Analysis:

Nature of Receipt from NCCL
The primary issue was whether the receipt of ?85,05,000 from NCCL should be treated as capital gains or income from other sources. The CIT(A) initially treated the receipt as income from other sources, but on appeal, the ITAT Hyderabad held that the entire receipt should be assessed substantively in the hands of the assessee. The ITAT directed the Assessing Officer (AO) to re-examine the nature of the receipt and consider the assessee’s claim regarding payments made to Sri Ali Asghar Ceizure and litigation expenses.

Upon reassessment, the AO treated the receipt as income from other sources, arguing that the assessee did not provide material evidence to show that the receipt was for relinquishing rights over the property. The CIT(A), however, observed that the assessee had an interest in the property from 1986 and had negotiated its sale to NCCL, thus constituting long-term capital gains. The ITAT upheld the CIT(A)’s view, dismissing the Revenue's appeal and confirming that the receipt should be treated as capital gains.

Determination of Purchase Price and Indexation
The CIT(A) restricted the purchase price to 51% of ?30,00,000, amounting to ?15,30,000, and allowed indexation on ?15,00,000 only. The assessee contended that the entire ?30,00,000 should be considered for indexation. The ITAT examined the agreement of sale and found that only ?15,00,000 was confirmed as paid to Sri Ali Asghar Ceizure, with no evidence for the remaining ?15,00,000. Consequently, the ITAT allowed the assessee to claim ?15,00,000 as the cost of purchase with indexation benefit, rejecting the assessee’s claim for the additional ?15,00,000.

Levy of Interest under Sections 234A, 234B, and 234C
The CIT(A) held that the levy of interest under sections 234A, 234B, and 234C is mandatory and not appealable, but the assessee is entitled to consequential relief. The ITAT agreed, directing the AO to compute the interest based on the outcome of the order.

Conclusion
The ITAT dismissed both the Revenue’s appeal and the assessee’s cross-objections. The receipt from NCCL was confirmed as long-term capital gains, and the purchase price for indexation was restricted to ?15,00,000. The levy of interest under sections 234A, 234B, and 234C was deemed consequential and to be computed accordingly.