1998 (1) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of Rs. 5 lakhs received by the assessee.
2. Classification of the Rs. 5 lakhs as capital receipt or taxable income.
3. Validity of the sale agreement and its impact on the assessment.
4. Applicability of short-term capital gains tax.

Detailed Analysis:

1. Assessment of Rs. 5 Lakhs Received by the Assessee:
The primary issue revolves around the assessment of Rs. 5 lakhs received by the assessee from Travancore Rubber & Tea Company Ltd. The assessee claimed this amount as a capital receipt not liable to tax under the IT Act. However, the AO and CIT(A) treated it as taxable income, specifically as short-term capital gains.

2. Classification of the Rs. 5 Lakhs as Capital Receipt or Taxable Income:
The assessee argued that the Rs. 5 lakhs was part of the consideration for transferring an agricultural estate, thereby exempt from taxation. The counsel for the assessee cited precedents from the Calcutta High Court and the Supreme Court to support this claim. However, the Revenue contended that the amount was for the transfer of the right to enforce the deed of conveyance, which does not qualify as agricultural property and is therefore taxable. The Tribunal noted that the right to get a conveyance executed is considered property under Section 2(14) of the IT Act and is thus taxable.

3. Validity of the Sale Agreement and Its Impact on the Assessment:
The sale agreement dated 31st March 1984, between the assessee and Malayalam Plantations Ltd., was later set aside by the Kerala High Court. The High Court directed the Peninsular Plantations Ltd. and Travancore Rubber & Tea Co. Ltd. to hand over possession of Ambanad Estate back to Malayalam Plantations Ltd. The Tribunal observed that the setting aside of the sale agreement meant that there was no right available with the assessee to transfer, thus nullifying the basis for the Rs. 5 lakhs being considered as taxable income.

4. Applicability of Short-Term Capital Gains Tax:
The CIT(A) had confirmed the assessment as short-term capital gains, arguing that the right to get the conveyance executed was transferred within 36 months, making it taxable under Section 2(42A) of the IT Act. However, the Tribunal found that due to the High Court's judgment setting aside the sale agreement, there was no valid right that could be transferred, and therefore, the Rs. 5 lakhs could not be taxed as short-term capital gains.

Conclusion:
The Tribunal concluded that in light of the High Court's judgment, the Rs. 5 lakhs received by the assessee could not be brought to tax as short-term capital gains. The appeal by the assessee was thus allowed, and the addition of Rs. 5 lakhs as short-term capital gains was deleted from the assessment for the assessment year 1985-86.