2009 (11) TMI 554 - AT - Income Tax

Capital Gain - Assessee sold certain lands and it was claimed that since only an agreement to sell was entered in the year before us and the sale deeds were executed in piecemeal, therefore, capital gain tax arose from asst. yrs. 2002-03 to 2005-06 - The AO was of the view that the entire capital gain was taxable in asst. yr. 2002-03 - Above all, as per paras 6 and 8 of the sale agreement, the entire proceeds of Rs. 14 crores has to be paid to the assessee during the financial year relevant for the asst. yr. 2002-03 - Held that transfer took place within the accounting period relevant to the assessment year under consideration as contemplated under s. 2(47)(v). Therefore, capital gain is attracted in this year only and the AO has rightly taxed the same in this year and the learned CIT(A) is neither factually nor legally correct to hold that the entire capital gain is not taxable within the year under consideration. - in view of Hon ble Supreme Court in the case of ITO vs. Murlidhar Bhagwan Das (1964 -TMI - 49393)(SC) and on the same analogy, direction cannot be issued for subsequent years Deduction u/s 80HHC Exclusion of Excise Duty of Rs. 47013935 from total turnover for the purposes of computation of deduction - Supreme Court in the case of CIT vs. Lakshmi Machine Works (2007 -TMI - 6557 SC) Accordingly this issue was decided in the favour of assessee Since there was no difference of opinion on the point of taxability on capital gain in the year under consideration, the appeal of the Revenue on this point is accepted and the learned CIT(A) s order in this regard is reversed and that of the AO order is restored Appeal is partly allowed

Summary

Issues Involved:
1. Determination of the correct assessment year for taxing the long-term capital gains.
2. Exclusion of excise duty from the total turnover for the purpose of computation of deduction under Section 80HHC.

Issue-wise Detailed Analysis:

1. Determination of the Correct Assessment Year for Taxing the Long-Term Capital Gains:

The primary issue was whether the long-term capital gains should be assessed in the assessment year 2002-03 or spread over subsequent years. The assessee admitted long-term capital gains of Rs. 1,71,82,270 for the assessment year 2002-03, based on sales of undivided shares of land. The AO determined the entire capital gains of Rs. 13,20,29,940 should be assessed in the same year, arguing that possession of the land was handed over in May 2001, and the entire sale consideration was to be paid within the financial year.

The AO's decision was based on Section 53A of the Transfer of Property Act and Section 2(47)(v) of the IT Act, which consider the date of transfer as the date of handing over possession. The AO cited the decisions in D. Kasturi vs. CIT and Chaturbhuj Dwarkadas Kapadia vs. CIT to support this view.

The CIT(A) disagreed, directing the AO to accept the assessee's computation of long-term capital gains, arguing that possession was not fully handed over and the property was used as a storehouse until the end of the financial year. The CIT(A) also noted that the agreement was not registered with the Appropriate Authority, making it invalid, and thus, Section 53A was not applicable.

Upon appeal, the Tribunal sided with the AO, stating that the transfer took place within the accounting period relevant to the assessment year 2002-03, as the possession was handed over and construction began in June 2001. The Tribunal rejected the assessee's plea to spread the capital gains over subsequent years, emphasizing that tax should be levied in the relevant year.

2. Exclusion of Excise Duty from Total Turnover for Deduction under Section 80HHC:

The second issue involved whether excise duty should be excluded from the total turnover for the purpose of computing the deduction under Section 80HHC. The CIT(A) excluded the excise duty of Rs. 4,70,13,935 from the total turnover, which the Department contested.

The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in CIT vs. Lakshmi Machine Works, which stated that excise duty and sales tax do not form part of the "total turnover" as they do not emanate from the turnover and are not includible in it.

Separate Judgments by Judges:

The Tribunal had a difference of opinion on the alternative plea raised by the assessee regarding the credit for taxes paid in subsequent years. The learned JM rejected this plea, citing the Supreme Court's decision in ITO vs. Murlidhar Bhagwan Das, which limits the jurisdiction of appellate authorities to the assessment order of the particular year under appeal.

However, the learned AM accepted the alternative plea, arguing that the taxes already paid should be credited in the year under consideration to avoid double taxation, aligning with the fundamental principles of taxation. The Third Member sided with the AM, directing the AO to give credit for taxes paid in subsequent years in respect of this item.

Conclusion:

The Tribunal concluded by accepting the Department's appeal on the first issue, reversing the CIT(A)'s order and restoring the AO's order to tax the entire capital gain in the assessment year 2002-03. On the second issue, the Tribunal upheld the CIT(A)'s exclusion of excise duty from the total turnover for the purpose of deduction under Section 80HHC. The appeal of the Revenue was partly allowed.