2015 (1) TMI 783 - AT - Income Tax

Long Term Capital Gain - assessee executed a release deed of property - whether release is regarded as a transfer for the purpose of capital gains, when cost of acquisition to appellant is nil and when there is no cost of acquisition, whether capital gain arises - Held that - When there is a case to which computation provision cannot apply at all, it is evident that such a case was not intended to fall within the charging section. On a reading of computation provision as contained u/s 48 of the Act, it is clear that while computing capital gain, the cost of acquisition has to be reduced. The cost of acquisition to assessee in the present case cannot be arrived at u/s 49 of the Act as the transaction entered into by assessee does not fall within any of the categories mentioned therein. Even the cost of acquisition cannot be taken to be nil in terms with section 55(2) of the Act, as it is not coming within the category of transaction mentioned therein. In the aforesaid facts and circumstances, when undisputedly, there is no cost of acquisition to assessee, the computation provision fails, accordingly, capital gain cannot be computed. In the aforesaid view of the matter, assessee, in the peculiar facts and circumstances of the case, cannot be charged to LTCG on the value of consideration deemed to have been received on execution of release deed. Accordingly, we do not find any infirmity in the order of ld. CIT(A), which is upheld. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made by AO on account of Long Term Capital Gain (LTCG).
2. Validity of the release deed as a transfer under section 2(47) of the IT Act, 1961.
3. Applicability of section 50C of the IT Act.
4. Determination of cost of acquisition for the purpose of computing capital gains.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by AO on Account of Long Term Capital Gain (LTCG):
The department's appeal is primarily concerned with the deletion of an addition of Rs. 70,45,443 made by the Assessing Officer (AO) on account of LTCG. The AO had concluded that the assessee executed a release deed transferring his half share in a property to another individual and deemed the sale consideration to be the value determined by the stamp duty authority, invoking section 50C of the IT Act. However, the CIT(A) deleted this addition, stating that the assessee had no cost of acquisition for the property, as the entire purchase consideration was paid by the other individual involved.

2. Validity of the Release Deed as a Transfer under Section 2(47) of the IT Act, 1961:
The CIT(A) examined whether the release deed executed by the assessee constituted a transfer under section 2(47) of the IT Act. The CIT(A) noted that the assessee's name was included in the original purchase transaction for security purposes only and that the entire investment was made by the other individual. The CIT(A) concluded that there was no transfer for the purpose of capital gains since the assessee had no cost of acquisition in the property.

3. Applicability of Section 50C of the IT Act:
The AO had invoked section 50C, which considers the value assessed by the stamp duty authority as the deemed sale consideration. The CIT(A) and the ITAT found that since the assessee did not have a cost of acquisition, the provisions of section 50C could not be applied to compute capital gains. The ITAT upheld the CIT(A)'s decision, stating that the entire investment in the property was made by the other individual, and the assessee merely executed the release deed to regularize the ownership.

4. Determination of Cost of Acquisition for the Purpose of Computing Capital Gains:
The CIT(A) and the ITAT relied on the Supreme Court's decision in CIT Vs. B.C. Srinivasa Shetty, which held that if the computation provisions cannot be applied, the charging provisions also fail. Since the assessee had no cost of acquisition for the property, the computation provisions for capital gains could not be applied. Consequently, the ITAT concluded that the assessee could not be charged to LTCG on the deemed consideration received from the release deed.

Conclusion:
The ITAT dismissed the department's appeal, upholding the CIT(A)'s order that deleted the addition of Rs. 70,45,443 on account of LTCG. The ITAT agreed that the assessee had no cost of acquisition in the property, and therefore, the computation provisions for capital gains could not be applied, following the Supreme Court's decision in CIT Vs. B.C. Srinivasa Shetty. The ITAT also found that the provisions of section 50C were not applicable in this case.