9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (2) TMI 1706 - AT - Income TaxDisallowance of various administrative expenses on the ground that no business activity was carried on by assessee - expenses incurred in connection with the rental income - Held that - In the absence of the information provided we are of the view that all the expenses incurred by the assessee cannot be treated as business expenses. Justice shall be served if the disallowance made by the AO is restricted to the reasonable extent. We restrict the disallowance to the extent of 10% of the expenditure as discussed above. Thus the ground of appeal of assessee is partly allowed. Addition on account of capital gains - applicability of provision of Sec. 2(47) r.w.s. Sec. 53A of Transfer of Property Act - selection of assessment year - Held that - Any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property amounts to transfer under section 2(47) of the Act. Accordingly capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete by way of registration under the general law. Under section 2(47)(v ) any transaction involving allowing of possession to be taken over or retained in part performance of a contract of the nature referred to in section 53A of the 1882 Act would come within the ambit of section 2(47)(v). In order to attract section 53A, therefore, there should be an agreement for consideration; it should be in writing; it should be signed by the transferor, it should pertain to transfer of immovable property; the transferee should have taken possession of the property and the transferee should be ready and willing to perform his part of contract. Therefore, capital gains would be taxable in the year in which such transactions were entered into, even if the transfer of the immovable property was not effective or complete for want of registration under the general law. Therefore, the taxability of capital gains at the hands of the assessee did not fall in the assessment year 2012-2013. Thus the ground of appeal raised by the assessee is allowed.
Issues Involved:
1. Disallowance of administrative expenses claimed by the assessee. 2. Taxation of capital gains in the year under consideration. 3. Applicability of Section 50C of the Income Tax Act. 4. Adoption of stamp duty valuation as of the agreement date versus the registration date. Detailed Analysis: 1. Disallowance of Administrative Expenses: The first issue concerns the disallowance of various administrative expenses claimed by the assessee. The assessee, a private limited company engaged in the business of letting out immovable property, claimed certain expenses under "business and profession" despite showing no business activity. The Assessing Officer (AO) disallowed these expenses, arguing that no business activity was carried out. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance. The assessee argued that the expenses were necessary to maintain the company's status, citing the judgment of the Hon'ble jurisdictional High Court in CIT vs. Ganga Properties Ltd., which held that a company must incur certain expenses to comply with statutory obligations even if it does not carry on business. The Income Tax Appellate Tribunal (ITAT) acknowledged that while some expenses are necessary for the company's existence, the assessee failed to demonstrate that all claimed expenses were exclusively for business purposes and not related to rental income, which already enjoys a statutory deduction under Section 24(a) of the Act. The ITAT decided that not all expenses could be treated as business expenses and restricted the disallowance to 10% of the expenses claimed, thus partly allowing the assessee's appeal. 2. Taxation of Capital Gains: The second issue pertains to the taxation of capital gains. The AO observed that the assessee transferred an immovable property on 21.07.2011 but did not declare this in its income tax return. The assessee argued that the transfer occurred in the financial year 1991-92 under an agreement dated 22.03.1992, and hence, the capital gains should be taxed in that year. The AO, however, treated the transfer as occurring in the financial year 2011-12, applying Section 50C of the Act and determining the capital gains based on the stamp duty valuation of ?1,90,83,227. The CIT(A) upheld this view, noting that the assessee did not declare any capital gains in the assessment year 1992-93, despite claiming the transfer occurred then. The ITAT, however, found that the transfer indeed took place in the financial year 1991-92 as per Section 2(47) r.w.s. 53A of the Transfer of Property Act, supported by the possession and part payment received. The ITAT relied on precedents like Chaturbhuj Dwarkads Kapadia vs. CIT and Ms. Rubab M. Kazerani vs. JCIT, which held that capital gains are taxable in the year the transfer is executed, even if registration occurs later. Thus, the ITAT ruled that the capital gains should be taxed in the assessment year 1992-93, not 2012-13, allowing the assessee's appeal on this ground. 3. Applicability of Section 50C: The third issue involved the applicability of Section 50C, which the AO invoked to determine the capital gains based on the stamp duty valuation. The assessee contended that Section 50C, introduced on 01.04.2003, could not apply to a transfer that occurred in 1991-92. The CIT(A) dismissed this argument, supporting the AO's application of Section 50C. The ITAT, however, clarified that since the transfer occurred in the financial year 1991-92, Section 50C, effective from 01.04.2003, could not be applied retrospectively. The ITAT emphasized that the legislative intent was clear that Section 50C applies only to transfers occurring after its introduction. Consequently, the ITAT ruled in favor of the assessee, stating that Section 50C was not applicable. 4. Adoption of Stamp Duty Valuation: The fourth issue was whether the stamp duty valuation should be adopted as of the agreement date or the registration date. The AO adopted the valuation as of the registration date, leading to a higher capital gains computation. The ITAT, aligning with its ruling on the second issue, held that since the transfer occurred in the financial year 1991-92, the valuation at that time should be considered, not the later registration date. This position further supported the assessee's argument against the AO's higher valuation based on the registration date. Conclusion: The ITAT partly allowed the appeal concerning administrative expenses, restricting the disallowance to 10%. It fully allowed the appeal regarding the taxation of capital gains, ruling that the transfer occurred in 1991-92 and thus, should be taxed in that year, not 2012-13. The ITAT also concluded that Section 50C was not applicable and the valuation should be based on the agreement date, not the registration date.
|
