2012 (11) TMI 942 - AT - Income Tax

Evasion of Payment of Taxes Prorective Assessment Setting Aside Revision order of CIT(A) - Whether Capital gains should be taxed as a whole in one assessment year 2007-08 or the capital gains should be bifurcated and assessed to tax for two assessment years 2007-08 and 2008-09 on sale of Property through Sale of shares when sale is a comprehensive business deal - held that - Assets rights and privileges of the property ultimately being transferred through the sale of shares would be taking a final shape only in the previous year relevant to the assessment year 2009-10. It is in anticipation of the fulfillment of all these efforts that the assessees have entered into an agreement with WET as a business proposition. The agreement is not an agreement for sale simplicitor. It is a comprehensive business deal. Entire land and property was transferred by CHD to WET in the previous year relevant to the assessment year 2007-08. As already held by CIT(A) only 50% shares of CHD were sold by the assessees to WET. Capital gains arising out of the transfer of balance shares have also been offered by the assessees for the following assessment year 2008-09. Therefore in these circumstances it is not proper on the part of the Assessing Officer to treat that the entire transaction was complete in the previous year relevant to the assessment year 2007-08 itself. In the present case there is no attempt to evade payment of taxes as the assessee have already offered capital gains for taxation in two assessment years 2007-08 and 2008-09. - there is no necessity of making protective assessments on that ground for the assessment year 2008-09 - revision orders passed by the CIT(A) have become infructuous - orders are therefore set aside - In result appeals filed by Revenue are dismissed and appeals filed by assessee is allowed.

Issues Involved:
1. Taxation of capital gains arising from the transfer of shares.
2. Applicability of Section 2(47) and Section 53A of the Transfer of Property Act.
3. Validity of the revision orders passed by the Commissioner of Income-tax under Section 263.
4. Correct assessment year for taxing capital gains.

Detailed Analysis:

1. Taxation of Capital Gains Arising from the Transfer of Shares:
The primary issue revolves around the taxation of capital gains arising from the transfer of shares of M/s. Cyber Hills Developers (CHD) by the promoter shareholders (assessees). The assessees entered into an agreement with M/s. Winsome Entertainment and Tourism Pvt. Ltd. (WET) for the transfer of shares, with the consideration amounting to Rs. 32,99,31,547/-. The Assessing Officer held that the entire capital gains should be taxed in the assessment year 2007-08, as the transfer represented the sale and transfer of land situated in Hyderabad, which is an immovable property under Section 269UA. The Commissioner of Income-tax (Appeals) disagreed, stating that only 50% of the shares were transferred in the assessment year 2007-08, and the remaining shares were transferred in the subsequent assessment year. The Tribunal upheld this view, confirming that the capital gains should be proportionately taxed over two assessment years, 2007-08 and 2008-09.

2. Applicability of Section 2(47) and Section 53A of the Transfer of Property Act:
The Assessing Officer argued that the transaction should be considered under Section 2(47) of the Income-tax Act, which deals with the transfer of a capital asset, and Section 53A of the Transfer of Property Act, which pertains to part performance of a contract. The Commissioner of Income-tax (Appeals), however, found that the land and property were not transferred nor was possession given to WET in the relevant year, as CHD itself was not in possession of the land. The Tribunal agreed, noting that the comprehensive business deal and the sequence of events indicated that the final transfer of assets and rights would occur only in the assessment year 2009-10.

3. Validity of the Revision Orders Passed by the Commissioner of Income-tax under Section 263:
The Commissioner of Income-tax issued revision orders under Section 263, directing the Assessing Officer to make protective assessments for the assessment year 2008-09. The Tribunal found these revision orders to be infructuous, as it had already confirmed that the capital gains should be assessed over two assessment years. Therefore, the revision orders were set aside.

4. Correct Assessment Year for Taxing Capital Gains:
The Tribunal concluded that the capital gains should be bifurcated and taxed over two assessment years, 2007-08 and 2008-09, as only 50% of the shares were transferred in the assessment year 2007-08. The remaining shares, and thus the remaining capital gains, were to be taxed in the subsequent assessment year. This conclusion was based on the comprehensive business deal and the fact that the final transfer of assets and rights would only take place in the assessment year 2009-10.

Separate Judgments:
There were no separate judgments delivered by the judges in this case.

Conclusion:
The appeals filed by the Revenue were dismissed, and the appeals filed by the assessees were also dismissed after the corrigendum. The Tribunal upheld the orders of the Commissioner of Income-tax (Appeals), confirming that the capital gains should be taxed over two assessment years, 2007-08 and 2008-09. The revision orders passed by the Commissioner of Income-tax were set aside as infructuous.

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