2021 (9) TMI 544 - AT - Income Tax

Capital gain assessed in the hands of the HUF or individual member/in the hands of the assessee in his individual capacity - property in question was a joint family property - Long term capital gain (LTCG) addition on a protective basis in the hands of the assessee - deemed sale consideration received or receivable by the assessee - transaction involved results in capital gain in the hands of the assessee as one of the co-owner or his father Sri. P.S. Vishwanathappa as the kartha of HUF - assessee submitted that the Assessing Officer erred in adopting market value of constructed area, to be received by the landlord in view of Joint Development Agreement, instead of fair market value of the said asset on the dated of transfer - HELD THAT - We are of the view that the issue of computation of capital gain has to be remanded to the AO for consideration de novo, in the light of the conclusion that the AO might arrive at in the case of assessment of the HUF on substantive basis. Without a substantive assessment, protective assessment will have no meaning. We make it clear that all the issues with regard to computation of capital gain viz., computation of full value of consideration received on transfer and deduction under section 54F of the Act will also be considered de novo by the AO depending on the outcome of proceedings in the case of the HUF. With these observations, we set aside the order of the AO and direct the issue to be examined afresh by the AO - Appeal by the assessee is treated as allowed for statistical purpose.

Summary

Issues:
1. Whether Revenue authorities were justified in bringing to tax long term capital gain (LTCG) on a protective basis in the hands of the assessee.

Analysis:
The judgment involves an appeal by the assessee against the Order of CIT(A)-5, Bengaluru, concerning the Assessment Year 2015-16. The primary issue is whether the Revenue authorities were correct in taxing LTCG on a protective basis in the hands of the assessee. The assessee, an individual, was part of a joint property ownership along with his father and brother. The property was later subject to a Joint Development Agreement with a developer, resulting in the amalgamation of the land. Subsequently, the assessee received two flats as per a Sharing Agreement. The assessee filed a revised computation of LTCG, which was disputed by the Assessing Officer (AO).

The AO identified three key issues for consideration: whether the capital gain should be assessed in the hands of the HUF or the individual assessee, the determination of the sale consideration, and the eligibility for deduction under section 54F of the Income Tax Act, 1961. The AO concluded that the property was joint family property, assessed the sale consideration at a higher rate than claimed by the assessee, and denied the deduction under section 54F. The AO protectively assessed the capital gain in the hands of the assessee and reserved the right to tax it in the HUF's hands substantively.

Upon appeal, the CIT(A) upheld the AO's order, leading to the appeal before the Tribunal. The Tribunal observed that without a substantive assessment in the HUF's case, the protective assessment in the individual's hands lacked meaning. Therefore, the Tribunal remanded the issue of capital gain computation back to the AO for a fresh assessment, considering the outcome of proceedings in the HUF's case. The Tribunal directed the AO to reexamine the computation of full value of consideration and the deduction under section 54F. The appeal by the assessee was treated as allowed for statistical purposes.

In conclusion, the judgment highlights the importance of substantive assessments in determining tax liabilities and deductions, emphasizing the need for accurate computation of capital gains based on legal provisions and agreements. The decision underscores the significance of thorough assessments to ensure fair and accurate taxation in such complex property transactions.