1993 (4) TMI 94 - AT - Income Tax

Assessing Officer, Bona Fide, Capital Gains, Cost Of Acquisition, Penalty For Concealment, S. 10

Summary

Issues Involved:
1. Assessment of capital gains tax on the assignment of beneficial interest in a trust.
2. Imposition of penalty u/s 271(1)(c) for concealment of income.

Summary:

Issue 1: Assessment of Capital Gains Tax

Facts and Background:
The assessee, a 10% beneficiary in "Lokhandwala Developers" trust, assigned its beneficial interest for Rs. 15 lakhs to M/s. Lokhandwala Builders (P.) Ltd. The Assessing Officer (AO) treated the amount as capital gain, allowing a cost of acquisition of Rs. 100. The AO concluded that the transaction was stage-managed to avoid tax on capital gains, relying on the Supreme Court decision in McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148.

CIT(A) Decision:
The CIT(A) upheld the AO's assessment, confirming:
- The beneficial interest is a capital asset u/s 2(14) of the IT Act, 1961.
- The assignment constituted a transfer of a capital asset.
- The transfer took place within the relevant assessment year.
- The consideration of Rs. 15 lakhs was valid.

Tribunal's Analysis:
The Tribunal examined sections 45 and 48 of the Act, noting that the dispute centered on the cost of acquisition. It referred to section 49(1)(iii)(d), which deems the cost of acquisition to be the cost incurred by the previous owner. The Tribunal agreed with the revenue that the settlor's cost of Rs. 100 was the cost of acquisition for the assessee. The Tribunal distinguished the case from B.C. Srinivasa Setty [1981] 128 ITR 294, finding it inapplicable. The Tribunal upheld the assessment of capital gains tax on the consideration received.

Issue 2: Imposition of Penalty u/s 271(1)(c)

CIT(A) Decision:
The CIT(A) upheld the penalty imposed by the AO, asserting that the transaction was designed to evade tax. The CIT(A) observed that although the explanation provided by the assessee was not false, it was not bona fide.

Tribunal's Analysis:
The Tribunal found that the assessee made a bona fide claim and disclosed all relevant facts. It disagreed with the CIT(A)'s view that the transaction was a make-believe designed to evade tax. The Tribunal noted that the trust was legally created and regularly assessed, and the department could not disregard it. Citing the Supreme Court decision in CWT v. Arvind Narottam [1988] 173 ITR 479, the Tribunal concluded that the penalty was not justified, as the claim was bona fide and not a case of concealment.

Conclusion:
- The quantum appeal regarding the assessment of capital gains tax is dismissed.
- The penalty appeal is allowed, and the penalty u/s 271(1)(c) is deleted.