2020 (9) TMI 70 - AT - Income Tax

Exemption u/s.54B and 54F - new piece of land was purchased by the assessee in the names of his two sons - assessee contended that at the time of transfer of property, he had no right over the same except the amount received in the capacity of Approver - Family partition took place before effecting the transfer of property and the land in question was partitioned in favour of his sons - HELD THAT - From the findings recorded by the ld. CIT(A), it becomes apparent that he accepted the assessee s claim that he was not owner of the property at the time of sale inasmuch as the Partition deed, transferring interest in the property to his sons, was executed prior to the date of sale. Once the assessee was not the owner of the property, there could obviously have been no question of allowing exemption u/ss.54B or 54F - To that extent, the view taken by the ld. CIT(A) is correct. Once the assessee is not entitled to exemption because he was not the owner of the property transferred, there can be no question of computing any capital gain in his hands from the transfer of the same property. Assessee did compute capital gain in his return of income and thereafter claimed exemptions u/ss.54B and 54F of the Act. Simply because such a computation of capital gain was made on an ill-advice, cannot bind the assessee for the times to come, if, in fact, he was not liable for such capital gain. As the proceedings in the first appeal are continuation of the assessment proceedings, there can be no impediment on the assessee in making a lawful claim before the CIT(A) for the first time and the CIT(A) accepting the same, if it is otherwise sustainable. There can be no estoppel against the provisions of the Act. If an assessee is not legally chargeable to tax, he can validly make such a claim before the CIT(A) notwithstanding the fact that the amount was wrongly included in the return of income. The contention of the ld. DR objecting to raising a fresh claim before the ld. CIT(A) for the first time is, ergo, jettisoned. We thus hold that not only the assessee was justified in making a claim of Partition Deed in the first appeal, the ld. CIT(A) was also fully within his jurisdiction in entertaining such a claim. In the absence of the Revenue having filed any cross appeal assailing the acceptance of the genuineness of such a Partition Deed by the ld. CIT(A), such a finding attained finality and the same cannot be challenged before the Tribunal when the appeal of the assessee is under consideration. Direct the AO to consider the income chargeable under the head Capital gain in the hands of the assessee by taking full value of consideration towards extinguishment of his right in the property - Appeal is partly allowed.

Summary

Issues:
- Dispute over exemption u/ss. 54B and 54F of the Income-tax Act, 1961.
- Ownership of property during sale and entitlement to exemptions.
- Validity of Partition Deed and its impact on capital gain computation.
- Right of the assessee to raise fresh claims before the CIT(A).
- Chargeability of amount received for extinguishment of right in property.

Issue 1: Dispute over exemption u/ss. 54B and 54F of the Income-tax Act, 1961.

The case involved two connected assessees disputing the exemption claims under sections 54B and 54F of the Income-tax Act, 1961. The dispute arose from a survey action revealing a property transaction between the assessees and a builder. The Assessing Officer disallowed the exemptions due to ownership issues, leading to appeals before the CIT(A). The CIT(A) upheld the disallowance, stating that the assessees were not eligible for exemptions as ownership did not vest in them during the property transfer.

Issue 2: Ownership of property during sale and entitlement to exemptions.

The key contention revolved around the ownership status of the property at the time of sale. The CIT(A) accepted that the assessees did not own the property during the sale, as evidenced by a Partition Deed executed prior to the transaction. Consequently, the CIT(A) ruled out the eligibility for exemptions u/ss. 54B and 54F, emphasizing that without ownership, no capital gain could be computed or exemptions granted.

Issue 3: Validity of Partition Deed and its impact on capital gain computation.

The validity and impact of the Partition Deed were crucial in determining ownership rights and exemption eligibility. The CIT(A) found the Partition Deed authentic, transferring property interest to the assessees' sons before the sale. This finding led to the conclusion that the assessees lacked ownership during the sale, precluding any capital gain computation or exemption allowance.

Issue 4: Right of the assessee to raise fresh claims before the CIT(A).

The judgment clarified that an assessee could legitimately raise new claims before the CIT(A), even if initial computations were erroneous. The CIT(A) had the authority to consider valid claims, such as the Partition Deed's impact on ownership, without estoppel from earlier filings. This approach ensured that rightful claims could be made and accepted during appeal proceedings.

Issue 5: Chargeability of amount received for extinguishment of right in property.

Both assessees received sums for extinguishing their rights in the property during the sale. The judgment directed the Assessing Officer to consider these amounts as capital gains in the respective assessees' hands. This decision aligned with the overall findings that ownership absence negated capital gain computations and exemption entitlements.

In conclusion, the judgment addressed ownership intricacies, exemption disputes, the significance of valid documents like the Partition Deed, and the right of assessees to present lawful claims during appeal proceedings. The decision underscored the importance of ownership in determining tax liabilities and exemption eligibility, ensuring a fair and accurate assessment of capital gains in alignment with the Income-tax Act, 1961.