2015 (6) TMI 672 - AT - Income Tax

Addition on capital gain - invocation of provisions of section 50C - Held that - From a careful perusal of the joint venture agreement, we find that it is abundantly clear from this agreement that there is no absolute transfer of land by the first party i.e. Methodist Church in India in favour of M/s Ritam Charitable & Education Society. Basically, it is joint venture agreement executed between the Methodist Church in India and M/s Ritam Charitable & Education Society to expand the hospital facilities and also to set up a medical college in the field of medicine. Since the first party has provided the land and immovable property owned by it to the second party for the development of the project, one time payment of ₹ 10 crore was made to second party. This one time payment will be called to be the consideration for surrendering certain rights in the immovable property by the first party i.e. Methodist Church in India in favour of M/s Ritam Charitable & Education Society for which if any capital gain is to be accrued, it would be accrued only in the hands of Methodist Church in India. The assessee is nowhere a party to the joint venture agreement. It was simply a hospital managing the affairs of the hospital only. It did not own the property of the hospital including the land therein as per its constitution as it was owned by Methodist Church in India. Therefore, from any angle, if the joint venture agreement and constitution of Clara Swain Hospital is seen, it would be abundantly clear that assessee has not transferred any land or any right in the capital asset in favour of M/s Ritam Charitable & Education Society. Moreover, onetime payment of ₹ 10 crore was also not made to the assessee. The payment was made to Methodist Church in India through DD issued in favour of Executive Board of Methodist Church in India. Since the assessee has not received any consideration in lieu of any transfer of the capital asset, there is no question of any capital gain in the hands of the assessee. Whatever capital gain has arisen, it is only in the hands of Methodist Church in India and not in the hands of the assessee. Therefore, we are of the view that the Revenue has wrongly assessed the capital gain in the hands of the assessee on transfer of any right in movable or immovable property or land in favour of the M/s Ritam Charitable & Education Society. So far issue of invocation of section 50C is concerned, we find that since the capital gain cannot be taxed in the hands of the assessee, the issue remains academic only and we therefore, decline to adjudicate the same. Accordingly, we set aside the order of CIT(A) and delete the additions of capital gain made in the hands of the assessee. - Decided in favour of assessee

Issues Involved:
1. Confirmation of addition made on account of capital gain.
2. Invocation of provisions of section 50C of the Income Tax Act.
3. Ownership and transfer of land.
4. Assessment of capital gain in the hands of the assessee.

Detailed Analysis:

1. Confirmation of Addition Made on Account of Capital Gain:
The primary issue revolves around the confirmation of addition made by the Assessing Officer (AO) on account of capital gain, treating the assessee as the owner of the land. The AO computed the capital gain in the hands of the assessee, invoking the provisions of section 50C of the Income Tax Act, and calculated the capital gain at Rs. 8,86,12,637/-. The assessee challenged this addition before the CIT(A), arguing that Clara Swain Hospital is not the owner of the land, and the property belongs to the Methodist Church in India. The CIT(A) reexamined the issue but confirmed the assessment order.

2. Invocation of Provisions of Section 50C of the Income Tax Act:
During the hearing, the assessee moved an application for the admission of an additional ground regarding the invocation of section 50C. Since the AO invoked these provisions while computing the capital gain, and this aspect was examined by the CIT(A), the additional ground was admitted for consideration.

3. Ownership and Transfer of Land:
The facts reveal that Clara Swain Hospital is managed by the Methodist Church in India, which owns the movable and immovable property. A joint venture agreement was executed between the Executive Board of the Methodist Church in India and M/s Ritam Charitable & Education Society, under which the Methodist Church in India handed over the possession of the land to M/s Ritam Charitable & Education Society for Rs. 10 crore. The AO viewed this as a transfer of land by the assessee, Clara Swain Hospital, and computed the capital gain accordingly.

4. Assessment of Capital Gain in the Hands of the Assessee:
The assessee argued that the capital gain, if any, should be assessed in the hands of the Methodist Church in India, not Clara Swain Hospital. The Tribunal examined the constitution of Clara Swain Hospital and the joint venture agreement, concluding that the hospital is merely managed by the Methodist Church in India and does not own the land. The joint venture agreement was between the Methodist Church in India and M/s Ritam Charitable & Education Society, and the Rs. 10 crore payment was made to the Methodist Church in India, not the assessee. Thus, any capital gain arising from the transfer of land should be assessed in the hands of the Methodist Church in India.

Conclusion:
The Tribunal found that the assessee did not transfer any land or rights in the capital asset to M/s Ritam Charitable & Education Society and did not receive any consideration for such a transfer. Therefore, no capital gain accrued in the hands of the assessee. The Tribunal set aside the order of the CIT(A) and deleted the additions of capital gain made in the hands of the assessee. The issue of invocation of section 50C was deemed academic and not adjudicated.

Result:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 11/06/2015.

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