2018 (5) TMI 1023 - AT - Income Tax

Computation of long term capital gain - CIT-A directed taking the sale consideration of non agricultural land at ₹ 65 lakh by holding that payments to M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd. is covered under section 48(i)- Held that - The assessee has sold the property for a consideration of ₹ 1,50,00,000/- ,which was purchased along with two other co-owners, entered into an agreement under which the beneficial ownership of M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd. was created in 1991. CIT(A) upheld that both these parties were having beneficial interest in the property and allowed the deduction of ₹ 85 lakhs paid to these companies under section 48(i) of the Act. These companies have paid consideration for acquiring beneficial interest in the said property which was also verified by the AO in the remand proceedings. We find that the Ld. CIT(A) has taken a very balanced and correct view of the whole matter and thus allowed the payments made to the said two companies aggregating to ₹ 85 lakhs under section 48(i) of the Act while computing the capital gain and there is no reason to interfere in the said order as the same does not suffer from any illegality. Accordingly, we affirm the order of Ld. CIT(A) by dismissing the appeal of the Revenue.

Issues Involved:
1. Direction by CIT(A) to compute long-term capital gain (LTCG) by taking the sale consideration of non-agricultural land at ?65 lakh.
2. Legitimacy of payments to M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd. under section 48(i) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Direction by CIT(A) to compute LTCG by taking the sale consideration of non-agricultural land at ?65 lakh:

The Revenue contested the CIT(A)'s direction to compute LTCG on the sale of non-agricultural land at Marve by considering the sale consideration at ?65,00,000. The Revenue argued that the assessee was the sole recipient of the entire sale consideration of ?1,50,00,000 and there was no sharing of the sale consideration with Mr. Pradeep Ravi Sood. The Assessing Officer (AO) had recomputed the LTCG without allowing deductions for payments made to M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd., considering these transactions as non-genuine.

2. Legitimacy of payments to M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd. under section 48(i) of the Income Tax Act:

The assessee claimed that payments of ?35,00,000 to M/s. Kwality Frozen Foods Pvt. Ltd. and ?50,00,000 to M/s. Magnum Holdings Pvt. Ltd. were necessary as these entities had partial interest in the land, created by an agreement dated 14.05.1991. The AO disputed the genuineness of these agreements, stating they were not registered and were created to circumvent tax on LTCG. However, the CIT(A) allowed the appeal, observing that the payments were necessary for the transfer of the property and thus covered under section 48(i) of the Income Tax Act.

Detailed Analysis:

Facts and Background:

The assessee, along with co-owners, purchased the property in 1972 and sold it in 2009 for ?1,50,00,000. The assessee received the entire consideration and paid ?35,00,000 to M/s. Kwality Frozen Foods Pvt. Ltd. and ?50,00,000 to M/s. Magnum Holdings Pvt. Ltd., claiming these payments were for their partial interest in the land. The AO recomputed LTCG without allowing these payments, considering the transactions non-genuine.

Appellate Proceedings:

The CIT(A) considered various contentions and documents, including the remand report, and concluded that the payments were necessary to effect the transfer of the property. The CIT(A) relied on judgments from the Bombay High Court in the cases of CIT vs. Shakuntala Kantilal and CIT vs. Abrar Alvi, which held that payments necessary to remove encumbrances for the transfer of property are deductible under section 48(i).

Judgment:

The Tribunal upheld the CIT(A)'s decision, affirming that the payments to M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd. were necessary for the transfer of the property and thus deductible under section 48(i). The Tribunal found no illegality in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The Tribunal affirmed the CIT(A)'s direction to compute LTCG by taking the sale consideration at ?65,00,000, allowing the payments made to M/s. Kwality Frozen Foods Pvt. Ltd. and M/s. Magnum Holdings Pvt. Ltd. under section 48(i) of the Income Tax Act. The appeal by the Revenue was dismissed.

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