2020 (6) TMI 403 - AT - Income Tax

Long term capital gain - year of assessment - double taxation - HELD THAT - Assessee had already paid the taxes on long term capital gain(LTCG) in preceding years viz 2004-05, 2005-06, and 2006-07, and therefore the assessee need not to pay the taxes on the same income again in assessment year 2012-13. The taxes should not be imposed except by authority of law, that is the Department does not have power to impose tax twice on the same income and therefore, based on the factual position narrated above, the addition made by the assessing officer under the head business income needs to be deleted, accordingly we delete the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Perversity of observations and findings in the appellate order.
3. Classification of income as business income versus capital gains.
4. Entitlement to exemption under Section 54 of the Income Tax Act.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The assessee contended that the appellate order was passed in violation of the principles of natural justice, making it bad in law and subject to being quashed. This argument was raised as a ground of appeal but was not elaborated upon in the detailed analysis of the judgment.

2. Perversity of Observations and Findings:
The assessee argued that the observations and findings in the appellate order were perverse and should be quashed. This ground was also raised but not specifically detailed in the judgment analysis.

3. Classification of Income as Business Income versus Capital Gains:
The primary issue was whether the income of ?37,99,873/- should be classified as business income or capital gains. The Assessing Officer (AO) classified it as business income, while the assessee declared it as capital gains from the inception of a joint development agreement (JDA).

The AO observed that the assessee's activities involved investment in land, construction of buildings through contractors, and selling flats, which indicated business activity rather than capital gains. The AO disallowed the exemption under Section 54, stating that the assessee was not entitled to it due to the nature of activities and the timing of the capital gains declaration.

4. Entitlement to Exemption under Section 54:
The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's addition, stating that the appellant did not declare capital gains in the year of the transfer of land under the JDA (2001-02) but only in 2012-13 upon the sale of flats. The CIT(A) held that the appellant failed to adhere to the timelines for claiming exemption under Section 54.

The assessee argued that they had already paid capital gains tax in the assessment years 2005-06, 2006-07, and 2007-08 on the portions handed over by the developer. The Income Tax Returns for these years, processed under Section 143(1), showed declared capital gains, which were accepted by the Department.

The Tribunal noted that the CIT(A) did not address the assessee's contention that taxes on long-term capital gains (LTCG) were already paid in preceding years. The Tribunal found that taxing the same income again in 2012-13 would result in double taxation, which is not permissible.

The Tribunal also noted that the assessee sold a part of the self-occupied portion in 2012-13 and claimed exemption under Section 54 for purchasing/booked other residential properties. The Tribunal held that the AO should allow the exemption under Section 54, provided the conditions are met.

Conclusion:
The Tribunal concluded that the assessee had already paid taxes on LTCG in preceding years and should not be taxed again on the same income in 2012-13. The addition of ?37,99,873/- as business income was deleted. The Tribunal emphasized that taxes should not be imposed twice on the same income, adhering to the principle of no double taxation.

Final Judgment:
The appeal of the assessee was allowed, and the addition made by the AO was deleted. The order was pronounced on 12.06.2020, considering the extraordinary situation due to the Covid-19 pandemic and lockdown.

Order Pronounced:
Order pronounced in the Court on 12.06.2020.