2022 (12) TMI 689 - AT - Income Tax

LTCG OR STCG - Period of holding of asset - subsequent cancellation deed annulled or cancelled revoked the original registered sale deed - Whether cancellation deed were to be treated as a fresh sale/transfer deed by the daughter in favour of the assessee? - AO held that the gain earned by appellant on sale of alleged property is short term capital gain and not long term capital gain since property was reacquired by the appellant on the date when sale deed with daughter was cancelled i.e. 30.07.2015 - HELD THAT - With respect to the first argument that the sale deed between the assessee and her daughter dated 16-03-2006 was cancelled subsequently after nine years by way of cancellation deed dated 30-07-2015, the Ld. CIT(A) has dealt with this aspect in great detail and has also produced a large number of judicial precedents directly on the subject, which have held that duly registered sale deed cannot be cancelled/annulled/ revoked by way of a subsequent deed. No specific case law or statutory provision has been produced by the counsel for the assessee to controvert the findings of Ld. CIT(A) in the appellate order. There is no prescribed provision of law or any procedure which has been brought to our notice in support of the argument that the subsequent deal has effectively cancelled the original registered sale deed after nine years from when it was entered. There is no legal capacity for two parties to a transaction entered by way of registered deed to cancel the same except with the permission of the Court as prescribed in section 31 of the Specific Relief Act. Another notable aspect is that on cancellation of the sale deed, the assessee has paid stamp duty. This also clearly indicates of the fact that the subsequent cancellation deed is only a fresh transfer by the daughter in favour of the assessee by way of a fresh transfer/sale deed upon the payment of full stamp duty. Accordingly, in our view, the subsequent cancellation deed has not annulled or cancelled revoked the original registered sale deed, but it is effectively a fresh transfer/sale deed by the daughter of the assessee in favour of the assessee. A perusal of the document indicates that they are an identical reproduction of schedule A of the conveyance deed dated to 05-08-1986 and reading of the provisions does not seem to indicate that only a specific part relating only to the superstructure was sought to be transferred by the assessee to her daughter by the deed dated 16-03-2006, while the remaining land was to be retained by the assessee. Here, it would be pertinent to also analyse the submissions filed by the assessee before Ld. CIT(A) wherein the assessee has mentioned that upon knowledge of this fact, your appellant has approached the Gujarat Housing Board to clarify the ownership of such open land area of 235.94 m in favour of my daughter . Accordingly, the above submission of the assessee clearly indicates that by way of sale deed dated 16-03-2006, all rights in the property was sought to be transferred including that of the open land area and the sale deed was verbatim reproduction of the original conveyance deed dated 05-08-1986 in favour of the assessee. Another notable aspect is that it was only when the Gujarat Housing Board clarified that the correction in respect of open land area can be made in the name of the assessee only and not in the name of the daughter, that the said property was transferred back to the assessee for carrying out the necessary rectification in the property records. We find no infirmity in the order of Ld. CIT(A) when he has held that the entire transaction, looking into the instant set of facts, would qualify as short-term capital gains in the hands of assessee. Appeal of the assessee is dismissed.

Issues Involved:
1. Classification of the property as a short-term or long-term capital asset.
2. Validity of the cancellation deed executed on 30-07-2015.
3. Determination of the actual property area transferred.
4. Alleged willful tax evasion by the appellant.
5. Additional grounds raised by the appellant during the appeal.

Detailed Analysis:

1. Classification of the Property as Short-term or Long-term Capital Asset:
The primary issue was whether the property should be considered a short-term or long-term capital asset. The appellant argued that the property, held since 1986, should be treated as a long-term capital asset. However, the Assessing Officer and CIT(A) determined that the property was reacquired on 30-07-2015, the date of the cancellation deed. Consequently, since the property was sold within three months of reacquisition, it was deemed a short-term capital asset.

2. Validity of the Cancellation Deed Executed on 30-07-2015:
The CIT(A) and the Tribunal both held that a registered sale deed cannot be annulled by a subsequent cancellation deed without a court order, as per Section 31 of the Specific Relief Act. The Tribunal referred to multiple judicial precedents, including the Supreme Court's ruling in Satya Pal Anand vs. State of M.P, which stated that once a document is registered, it cannot be canceled by any authority under the Registration Act, 1908. The Tribunal concluded that the cancellation deed executed on 30-07-2015 was effectively a fresh transfer by the daughter in favor of the appellant, and not a mere annulment of the original sale deed.

3. Determination of the Actual Property Area Transferred:
The appellant contended that only the superstructure measuring 66.92 sq. mtrs was transferred to her daughter, and the remaining land area of 235.94 sq. mtrs was never transferred. However, the Tribunal found that the sale deed dated 16-03-2006 between the appellant and her daughter transferred all rights, title, interest, and possession of the entire property, including the land area. The Tribunal noted that the appellant herself had acknowledged that the land area was erroneously mentioned in the sale deeds. Therefore, the entire property area was considered transferred to the daughter in 2006.

4. Alleged Willful Tax Evasion by the Appellant:
The CIT(A) observed that the payment of stamp duty of Rs. 1,35,300/- for the cancellation deed indicated the intention to repurchase the property, thus substantiating the view that the transaction was a fresh purchase. The Tribunal upheld this observation, rejecting the appellant's claim of a mistaken payment of stamp duty and finding no malafide intention on the part of the appellant.

5. Additional Grounds Raised by the Appellant:
The appellant raised several additional grounds, including the argument that the property was not transferred to the daughter due to the absence of her name in revenue records and that municipal taxes were paid by the appellant. The Tribunal rejected these arguments, stating that the registered sale deed clearly transferred all rights to the daughter, and the payment of municipal taxes by the appellant did not alter the ownership status.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, classifying the property as a short-term capital asset and confirming the addition of Rs. 2,26,85,000/- as short-term capital gain. The appeal of the assessee was dismissed. The Tribunal emphasized that the cancellation deed executed on 30-07-2015 was effectively a fresh transfer, and the original sale deed from 2006 could not be annulled without a court order. The Tribunal also confirmed that the entire property area was transferred to the daughter in 2006, and the appellant's arguments regarding the property area and payment of municipal taxes were rejected.

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