2018 (7) TMI 1547 - AT - Income Tax

Capital gain computation - Held that - Oikos Apartments Pvt. Limited (OAPL) is the absolute owner of lands bearing S.No.68/2A,71/1 and 70/1 totally measuring 5 acres and 24 guntas located at Allalasandra village, Yelahanka, (the aforesaid land was originally granted to the father of one Krupa Shankar, who on becoming the owner of the lands on the death of his father, became partner in the firm and brought the land into the hotch pot of the partner firm) having acquired it on dissolution of a partnership in which the OAPL was a partner. OAPL was incorporated on 10.03.1995. The land is recorded in the books of account at ₹ 39,31,635/-. Capital gains therefore, has been computed based on the above cost and also the year of purchase as claimed by the appellant. The working of the capital gain is an under - The cost of acquisition to be taken for 30 feet width and 66 feet length proportionately and after allowing indexed cost on such piece of land and taking the entire amount received of ₹ 3.5 crores as consideration and compute the LTCGs in the A.Y 2012-13. AO is directed to consider the above amount and collect the taxes on the same. In view of the above, the appellant s appeal is dismissed. As the entire consideration received has been brought to tax in the A.Y 2012-13 under the head LTCGs, the appeal filed for A.Y. 2014-15 is treated as allowed in respect of the grounds raised on the taxation of the balance consideration received in lieu of granting of perpetual easementary right of way and license to ingress and egress land measuring 30 feet wide for reaching the licensee landlocked property by entering into an agreement with M/s. Skyline Construction & Housing Pvt. Ltd.

Summary

Issues Involved:
1. Taxability of the receipt from granting easement rights.
2. Nature of the easement rights as a capital asset.
3. Timing of taxation based on accrual versus actual receipt of consideration.
4. Enhancement of assessment by the CIT(A).

Detailed Analysis:

1. Taxability of the Receipt from Granting Easement Rights:
The primary issue is whether the receipt of money from granting easement rights is taxable. The assessee contended that the amount received for granting ingress and egress rights to M/s. Skyline Construction & Housing Pvt. Ltd. is a capital receipt and not chargeable to tax as it involves an intangible asset with no cost. The Assessing Officer (AO) and the CIT(A) rejected this contention, holding that the easement constitutes a capital asset and the receipt is taxable as capital gains.

2. Nature of the Easement Rights as a Capital Asset:
The CIT(A) considered the provisions of section 2(14) of the Income Tax Act, 1961, which defines "capital asset" to include property of any kind, whether tangible or intangible. The CIT(A) concluded that easement rights fall under this definition. The decision was supported by the case of CIT v. Vijay Flexible Containers, where the right to obtain a conveyance of immovable property was held to be a capital asset. The CIT(A) further referred to section 4 of the Indian Easement Act, 1882, which defines easement as a right for beneficial enjoyment of land, thus classifying it as a property right.

3. Timing of Taxation Based on Accrual Versus Actual Receipt of Consideration:
The assessee argued that since the entire consideration was not received during the financial year 2011-12, the amount should not be taxed in that year. However, the CIT(A) held that capital gains are taxable on accrual basis irrespective of actual receipt. The agreement dated 06/06/2011 granted perpetual easement rights, and the appellant was fully secured for the remaining consideration. The CIT(A) issued an enhancement notice and directed the AO to tax the entire sum of ?3.5 crores as capital gains for the assessment year 2012-13.

4. Enhancement of Assessment by the CIT(A):
The CIT(A) enhanced the assessment by including the additional ?2 crores received in the financial year 2013-14. The CIT(A) reasoned that the appellant had transferred valuable easement rights for consideration and that the entire consideration should be taxed in the year the rights were granted. The appellant's argument that the full payment was not received was dismissed, as the appellant was secured for the remaining amount through an agreement for office space.

Conclusion:
The ITAT upheld the order of the CIT(A), stating that the decision was well-reasoned and in line with the settled proposition of law. The appeal filed by the assessee for the assessment year 2012-13 was dismissed, and the appeal for the assessment year 2014-15 was allowed in respect of the grounds raised on the taxation of the balance consideration. The ITAT found no reason to interfere with the CIT(A)'s order, confirming the taxability of the entire ?3.5 crores as capital gains in the assessment year 2012-13.