2001 (1) TMI 215 - AT - Income Tax

Issues Involved:
1. Determination of the assessment year for capital gains tax liability.
2. Treatment of the Debenture Redemption Premium.

Detailed Analysis:

1. Determination of the Assessment Year for Capital Gains Tax Liability

Facts and Background:
The assessee, a leasehold owner of a property, entered into an agreement with a company (Reliance) on 9-9-1989 for the sale of the property for Rs. 27 crores. An advance of Rs. 18.9 crores was received, but the actual conveyance was pending due to incomplete formalities. On 3-8-1990, a Memorandum of Understanding (MoU) was signed, making the advance non-refundable and granting Reliance a license to use certain parts of the property. The assessee declared the Rs. 18.9 crores as consideration for the sale of the capital asset for the assessment year 1991-92, while the balance was shown for the assessment year 1992-93.

Assessing Officer's View:
The Assessing Officer held that the MoU merely granted a license to use the property and did not constitute actual possession transfer necessary for an outright sale. He argued that the property was to be considered as a whole and taxed in the assessment year 1992-93, including a protective addition of Rs. 12,01,41,997 for the assessment year 1991-92.

CIT(A) Decision:
The CIT(A) upheld the Assessing Officer's view, asserting that the property transfer should be considered as a single transaction in the assessment year 1992-93 and deleted the protective addition for the assessment year 1991-92.

Assessee's Argument:
The assessee contended that the capital gains should be assessed in the assessment year 1991-92 due to the part performance of the contract under section 53A of the Transfer of Property Act, 1882, and section 2(47)(v) of the Income-tax Act, 1961.

Tribunal's Analysis:
The Tribunal examined the provisions of section 2(47)(v) of the Income-tax Act, 1961, and section 53A of the Transfer of Property Act, 1882. It concluded that the MoU was an addendum to the original agreement and constituted part performance, thus bringing the transaction within the ambit of section 2(47)(v). The Tribunal held that the entire property transfer, including the Rs. 18.9 crores, should be assessed in the assessment year 1991-92. Consequently, the entire capital gains should be taxed in the assessment year 1991-92, and not in 1992-93.

Conclusion:
The Tribunal confirmed the inclusion of Rs. 18.9 crores as part of the income for the assessment year 1991-92 and directed the department to include the balance capital gains for the same year. For the assessment year 1992-93, the Tribunal allowed the appeal to the extent of deleting Rs. 12 crores from the total income, as no capital gains tax could be levied for that year.

2. Treatment of the Debenture Redemption Premium

Facts and Background:
The assessee paid Rs. 75 lakhs as Debenture Redemption Premium and claimed it as deferred revenue expenditure, initially claiming Rs. 10,05,384 but later sought deduction for the entire amount.

Assessing Officer's View:
The Assessing Officer disallowed the claim for Rs. 75 lakhs, allowing only the original claim of Rs. 10,05,384, in line with accounting norms.

Assessee's Argument:
The assessee relied on the judgment of the Calcutta High Court in the case of CIT v. Tungabhadra Industries Ltd. [1994] 207 ITR 553.

Tribunal's Analysis:
The Tribunal referred to the Supreme Court decision in Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802, which required spreading the discount over the entire period of debentures. The Tribunal directed that the premium should be proportionately allowed over the total period of the debentures.

Conclusion:
The Tribunal directed the Assessing Officer to recompute the allowance for the Debenture Redemption Premium proportionately over the period of the debentures.

Final Outcome:
The appeal for the assessment year 1991-92 was dismissed, confirming the inclusion of Rs. 18.9 crores in the income for that year. The appeal for the assessment year 1992-93 was partially allowed, deleting Rs. 12 crores from the total income and directing the reassessment of the Debenture Redemption Premium.

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