2019 (11) TMI 462 - AT - Income Tax

Gain on sale of land - business income or long term capital gain - HELD THAT - Special provision for full value of consideration for transfer of assets other than capital assets in certain cases as contained in section 43CA of the Act, which has been heavily relied by the AO. Sub-section (1) provides that Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer. It is manifest from the above provision that it is a deeming provision in so far as the full value of consideration received as a result of transfer of some property, which is held otherwise than a capital asset, is concerned. It is not a charging provision in itself nor does the deeming fiction extends to transfer . Unless the charge is created first under a specific provision, the deeming provision for computation is not activated. The ld. DR has not drawn our attention towards any provision of the Act, which in the given circumstances, deems transfer of land so as to attract chargeability. Section 43CA of the Act can be magnetized only when some building or land etc., held otherwise than as a capital asset, is transferred. In case the property itself is not transferred, the question of deeming the stamp value as the full value of consideration does not arise, which is only a stage posterior to the transfer of the property. Authorities below were not justified in making or confirming the addition in the hands of the assessee under the head Capital gains as well as Profits and gains from business or profession by treating it as a case of transfer of land to M/s Fulzan Properties in as much as the land itself was not transferred by the assessee during the year under consideration.

Summary

Issues:
Confirmation of addition of long term capital gain and business income on sale of land

Analysis:
The case involved the confirmation of addition of long term capital gain and business income on the sale of land by the assessee. The assessee had purchased a piece of land in 2003, converted it into stock in trade in 2010-11, and later a partnership firm was formed to undertake construction on the land. The Assessing Officer considered the transaction as a transfer covered under the definition of 'transfer' u/s. 2(47)(vi) of the Income-tax Act, leading to taxation of income. The AO added the capital gain and business income in the hands of the assessee, which was upheld by the CIT(A).

Upon examination, the Tribunal found that no registered sale deed was executed transferring ownership to the firm, and possession was not given as an owner. Citing the judgment in CIT Vs. Balbir Singh Maini, the Tribunal highlighted that an unregistered agreement does not amount to a transfer under Section 53A of the Transfer of Property Act. As the land was not legally transferred to the partnership firm, the authorities were deemed unjustified in treating it as a sale.

Additionally, the Tribunal discussed the provisions of section 43CA of the Act, emphasizing that it is a deeming provision for computing consideration received on transfer of non-capital assets. However, for the provision to apply, there must be an actual transfer of the property. Since the land was not transferred in this case, the deeming provision under section 43CA was not applicable.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee. The judgment clarified that the authorities were not justified in adding the capital gain and business income in the hands of the assessee, as there was no actual transfer of the land to the partnership firm during the relevant assessment year.