2003 (5) TMI 197 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 3,00,00,000 made by the Assessing Officer as short-term capital gains.
2. Determination of whether the amount received for the transfer of rights and permissions constitutes a capital receipt or a capital gain.
3. Evaluation of the cost of acquisition for the transferred rights and permissions.
4. Assessment of whether the capital gains should be treated as short-term or long-term.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 3,00,00,000 as Short-Term Capital Gains:
The Revenue's appeal contested the CIT(A)'s action in deleting the addition of Rs. 3,00,00,000 made by the Assessing Officer as short-term capital gains. The CIT(A) had observed that the transferred assets were intangible and lacked a determinable cost of acquisition, thus falling outside the scope of capital gains taxation as per the judgment in CIT v. B.C. Srinivasa Setty. The Tribunal, however, found that the assessee had incurred identifiable costs for acquiring these rights and permissions, which were recorded in the books as capital work-in-progress. Therefore, the Tribunal did not find merit in the CIT(A)'s order and held that the consideration received should be treated as capital gains.

2. Determination of Whether the Amount Received Constitutes a Capital Receipt or Capital Gain:
The assessee argued that the Rs. 3 crores received was a capital receipt and not a consideration for the transfer of a capital asset. The Tribunal noted that the rights and permissions transferred were capital assets within the meaning of section 2(14) of the Income Tax Act. The Tribunal emphasized that the bundle of rights, permissions, and tangible and intangible assets acquired by the assessee for setting up the Cement Plant constituted a capital asset, and the consideration received for their transfer should be treated as capital gains.

3. Evaluation of the Cost of Acquisition for the Transferred Rights and Permissions:
The CIT(A) had held that the intangible assets transferred had no determinable cost of acquisition. However, the Tribunal found that the assessee had incurred specific expenditures for acquiring various rights and permissions, which were recorded in the books as capital work-in-progress. The Tribunal emphasized that the cost of acquisition was identifiable and had been properly recorded, thus rejecting the CIT(A)'s view that the cost of acquisition could not be envisaged.

4. Assessment of Whether the Capital Gains Should Be Treated as Short-Term or Long-Term:
The Tribunal remanded the matter back to the Assessing Officer to determine whether the capital gains should be treated as short-term or long-term. The Tribunal instructed the Assessing Officer to consider the actual expenditure incurred by the assessee and the period to which it relates, specifically whether the expenses were incurred more than 36 months before the date of transfer. The Tribunal also noted that the benefit of indexation could only be given for expenses incurred more than 36 months prior to the date of sale of rights.

Conclusion:
The Tribunal held that the consideration received for the transfer of rights and permissions should be treated as capital gains. The cost of acquisition for these rights was identifiable and recorded in the books. The matter was remanded to the Assessing Officer to determine the nature of the capital gains (short-term or long-term) based on the period of expenditure. The Tribunal's decision emphasized the importance of accurately recording and determining the cost of acquisition for capital assets.