2017 (9) TMI 842 - AT - Income Tax

Addition on account of capital gain - STCG OR LTCG - transfer u/s 2(47) - Held that - We are of the view from the intend and purpose of the agreement to sell deed 19-07-2004 and subsequent cancellation dated 03-12-2008 that the parties never acted on the agreement and sale was never completed. Accordingly, we are of the view that the subsequent transfer effected by the assessee vide agreement dated 03-12-2008 for a sum of ₹ 75 lacs is to be considered as long term capital gain. In view of the above, we direct the AO to assess the capital gain as long term capital gain instead of short term capital gain for the entire property which is under dispute. We direct the AO accordingly. The appeal of the assessee is allowed.

Issues Involved:
1. Whether the transaction of the sale of the half share of the undivided shop No. 6A, Khan Market, New Delhi, was complete or not.
2. Whether the addition on account of short-term capital gain amounting to ?32,18,000/- was justified.

Issue-wise Detailed Analysis:

1. Whether the transaction of the sale of the half share of the undivided shop No. 6A, Khan Market, New Delhi, was complete or not:

The core issue revolves around whether the sale agreement dated 19-07-2004, between the assessee and Mrs. Minu Chawla and Mrs. Meenakshi Chawla, was executed or not. The assessee contended that the agreement was never acted upon as the cheques amounting to ?4.50 lacs were never encashed, and the possession of the property was never handed over due to it being occupied by a tenant. The subsequent cancellation agreement dated 03-12-2008, which nullified the earlier agreement, supports this claim. The Tribunal noted that the original cheques were returned to the purchasers and no fresh cheques were issued, indicating that the sale was never completed. Thus, the Tribunal concluded that the transaction was not complete.

2. Whether the addition on account of short-term capital gain amounting to ?32,18,000/- was justified:

The Assessing Officer (AO) treated the transaction as a short-term capital gain, arguing that the property was sold on 19-07-2004 and repurchased on 03-12-2008, thus holding it for less than 36 months before the final sale on 03-12-2008. The AO assessed the short-term capital gain at ?32.18 lakhs, considering half of the property sold for ?37.50 lakhs with a cost of acquisition at ?5.32 lakhs. The CIT(A) confirmed the AO’s action, stating that the requirements of Section 53A of the Transfer of Property Act, 1882, were met, and the transaction should be deemed as a transfer in relation to a capital asset.

However, the Tribunal, after examining the facts and the cancellation agreement, concluded that the sale agreement dated 19-07-2004 was never acted upon and thus, the sale was never completed. Consequently, the subsequent transfer on 03-12-2008 for ?75 lakhs should be considered as a long-term capital gain. The Tribunal directed the AO to assess the capital gain as a long-term capital gain instead of a short-term capital gain for the entire property under dispute.

Conclusion:

The Tribunal allowed the appeal of the assessee, concluding that the transaction of the sale of the half share of the undivided shop was not complete as per the agreement dated 19-07-2004. Therefore, the addition on account of short-term capital gain was not justified, and the capital gain should be assessed as a long-term capital gain. The appeal of the assessee was allowed, and the AO was directed accordingly.

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