2017 (4) TMI 516 - AT - Income Tax

Computation of taxable Long Term Capital Gain - selection of assessment year - CIT-A directing the AO to tax the taxable Long term capital gain in respective assessment years in which the properties received were sold by the legal representative/heirs of the deceased appellant in respective hands of such legal representative/heirs - Held that - As find that as per provisions of section 45 of the Income tax Act, capital gain is chargeable to tax in the year in which transaction of related capital asset takes place. In the instant case, the transfer which took place was 78% of undivided right of the land of A.0.450 dec on plot Nos.277 & 278/Khata No.1406. The issue before me is whether the said transaction took place in assessment year 2001-02 or not and consequently the capital gain is chargeable to tax in assessment year 2001-02 or not. Perusal of the provisions of section 2(47)(v) of the Act shows that transfer of a capital asset includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. In the instant case, it is not in dispute that under a written agreement dated 18.12.1996, the assessee handed over the possession of land to the builder M/s. Atrick Construction (P) Ltd., on a consideration of ₹ 3 lakhs and 22% of the constructed area to be built by the builder. Thus, the transfer of 78% of the undivided right of the land took place in the previous year relevant to assessment year 1997-98. Thus the related capital gain is not exigible to tax in the year under consideration i.e. 2001-02. Therefore, do not find any merit in this appeal of the revenue and hence, the same is dismissed. - Decided in favour of assessee

Issues Involved:
1. Justification of CIT(A)'s direction to delete the computation of taxable Long Term Capital Gain (LTCG) in the hands of the assessee.
2. Determination of the appropriate assessment year for taxing the LTCG.
3. Applicability of Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act.
4. Legal implications under the Dayabhaga system of inheritance.

Detailed Analysis:

1. Justification of CIT(A)'s Direction to Delete the Computation of Taxable Long Term Capital Gain:
The sole issue in the appeal was whether the CIT(A) was justified in directing the Assessing Officer (AO) to delete the computation of taxable LTCG made in the hands of the assessee and to tax the LTCG in the respective assessment years when the properties were sold by the legal representatives/heirs. The CIT(A) observed that since the assessee died on 21.2.2006, the LTCG should be taxed in the hands of his legal representatives when they sell the properties, rather than in the year 2001-02.

2. Determination of the Appropriate Assessment Year for Taxing the LTCG:
The CIT(A) concluded that the LTCG should be taxed in the financial year 1996-97 when the development agreement was signed and possession of the land was handed over to the developer. However, since the limitation period for reopening the assessment for the year 1997-98 had lapsed, the CIT(A) directed that the LTCG should be taxed in the hands of the legal representatives in the years when they sell the properties. The AO had computed the LTCG for the assessment year 2001-02 based on the sale consideration and indexed cost of acquisition.

3. Applicability of Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act:
The CIT(A) noted that the transfer of property occurred when the development agreement was signed on 18.12.1996, and possession was handed over to the developer, making it a transfer under Section 2(47)(v) of the Income Tax Act read with Section 53A of the Transfer of Property Act. The CIT(A) held that the LTCG should be computed based on the fair market value of the land handed over in 1996-97, but since the limitation period had expired, the tax should be levied when the legal representatives sell the properties.

4. Legal Implications Under the Dayabhaga System of Inheritance:
The CIT(A) emphasized that under the Dayabhaga system, the father is the absolute owner of his property, and the legal heirs inherit the property as tenants-in-common upon his death. The CIT(A) observed that the LTCG should be taxed in the hands of the legal representatives when they sell the inherited properties. The AO's action of assessing the LTCG in the name of the deceased was correct, but the tax should be levied in the appropriate years when the legal representatives sell the properties.

Conclusion:
The tribunal upheld the CIT(A)'s decision, concluding that the LTCG was not exigible to tax in the assessment year 2001-02. The transfer of property occurred in 1996-97, and the LTCG should be taxed in the hands of the legal representatives in the years when they sell the properties. The appeal filed by the revenue was dismissed. The order was pronounced in the open court on 7/04/2017.

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