2019 (8) TMI 440 - AT - Income Tax

Capital gain on land sold - absolute ownership or not - assessee purchased a property which was already given by seller to another concern on lease for 99 years and lease period lease still pending - rights acquired by the assessee must be understood to be subject to the leasehold rights - during the yeas same land was sold and assessee as well as lessee got consideration as per settlement - AO consider entire consideration taxable in hand of assessee - CIT-A deleted the addition HELD THAT - It is not for the AO to say that de hors the leasehold rights held by M/s ESS ESS Metals and Electricals for 99 years, the assessee had to receive the entire sale consideration to the exclusion of M/s ESS ESS Metals and Electricals or that the consideration paid to M/s ESS ESS Metals and Electricals was excessive. It is open for the Revenue to verify whether the sale consideration said to have been received by M/s ESS ESS Metals and Electricals was offered to tax or not in the scrutiny of the return of income of M/s ESS ESS Metals and Electricals. It is not open for the Revenue to contend that to the exclusion of M/s ESS ESS Metals and Electricals, assessee alone must receive the entire sale consideration ignoring the leasehold rights held by M/s ESS ESS Metals and Electricals for 99 years in respect of the very same property which was the subject matter of the sale. CIT(A) had reached a right conclusion on proper appreciation of the facts available on the record and the reasoning or conclusion of the Ld. CIT(A) in the impugned order is beyond the pale of challenge by the Revenue - Decided against revenue.

Summary

Issues:
1. Computation of capital gains based on ownership rights and sale consideration.
2. Dispute over apportionment of sale consideration between parties.
3. Challenge to deletion of addition under 'long-term capital gain' and 'short-term capital gain'.
4. Interpretation of ownership rights and leasehold rights in property sale.

Analysis:
1. The case involved a dispute regarding the computation of capital gains for the Assessment Year 2012-13 based on ownership rights and sale consideration. The Assessing Officer contended that the entire sale consideration of ?35 crores should have come to the assessee for tax computation, as the property was solely owned by the assessee through three sale deeds. This led to a disagreement on the proper calculation of tax liability.

2. The disagreement extended to the apportionment of the sale consideration between the assessee and another party holding leasehold rights. The Commissioner of Income Tax (Appeals) found that the Assessing Officer erred in treating the assessee as the sole owner, recognizing the leasehold rights held by the other party. The apportionment of ?18 crores to the assessee and ?17 crores to the other party was deemed appropriate, leading to relief granted to the assessee.

3. The Revenue challenged the deletion of the addition under 'long-term capital gain' and 'short-term capital gain', arguing that all ownership rights were vested in the assessee alone, making any payment to the other party excessive and unwarranted. The arguments presented focused on the proper interpretation of the sale consideration and the rights of the parties involved.

4. The Tribunal analyzed the ownership and leasehold rights in the property sale, emphasizing that both parties held rights in different capacities. The sale deed clearly outlined the apportionment of the sale consideration between the parties, reflecting the distinct rights they held. The Tribunal concluded that the Assessing Officer's view of the assessee as the sole owner was incorrect, as the rights were subject to the leasehold rights held by the other party for 99 years. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal, emphasizing the parties' autonomy in settling the sale consideration based on their respective rights.

In conclusion, the judgment clarified the ownership and leasehold rights in the property sale, highlighting the importance of recognizing distinct rights of parties involved in determining the apportionment of sale consideration for tax computation.