2022 (3) TMI 298 - AT - Income Tax

Exemption u/s 54F - in whose hands the capital gains is to be assessed - Whether in the hands of the company or in the hands of individual directors of the company? - HELD THAT - The company and the directors submit that income arising from capital gains is to be substantially assessed in the hands of the company and not in the hands of the directors. It is claimed that funds for acquisition of the impugned lands in the year 2004 was paid directly by the company to the sellers of the properties. The properties were purchased in the name of the directors only to circumvent the provisions of section 79A and 79B of the Karnataka Land Reforms Act (The said provision prohibited corporate entities from buying and owning agricultural land). Therefore, the contention is that the directors were only facilitator of the transactions and there is no direct or indirect benefit to them. In such a factual scenario, we have to determine who had the actual / de facto owner of the impugned properties. This fact can be determined only by examining who is actually funded the purchase of land and who is in receipt of the sale consideration when the land was sold during the assessment year 2008-2009 and 2009-2010. There is no material on record, except the Board s Resolution dated 13.12.2001, regarding the purchase of agricultural land (which has a reference at page 2 and 3 of the assessment order in the case of the company for assessment years 2008-2009 and 2009- 2010). The Board Resolution by itself cannot be the determinative factor to decide who is the de facto owner of the impugned lands. Therefore, we are not in a position to decide and is constrained to restore this issue to the files of the A.O. A.O. is directed to examine whether the company had paid the purchase price in the year 2004 (as claimed) and company was in receipt of sale consideration when the lands were sold in the year 2008-2009 and 2009-2010 and the directors of the company are only facilitators of the said transactions. If the answer to the above questions are in the affirmative, prima facie, the capital gains of sale of land is to be assessed substantially in the hands of the company. With these observations, we dispose of the four appeal preferred by the assessee. It is to be mentioned that in company s appeals, grounds are raised that sale of impugned land would not be exigible not give rise to capital gains, since it is agricultural land. However, during the course of hearing AR did not press this ground. Similarly, in directors appeal (Sri.P.Shyamaraju and Sri.Umesh S. Raju) grounds are raised with regard to the claim of deduction u/s 54F. Claim of deduction u/s 80IA(4)(iii) - HELD THAT - CIT(A) had directed the A.O. to verify the correctness of the claim and allow to the extent the claim is found to be correct. Pursuant to the CIT(A) s order, the A.O. on verification had passed the order giving effect allowing the claim in full after due verification.CIT(A) only directed the A.O. to obtain bifurcation of expenditure between owned and sold portion of the properties (since the A.O. had sought for these details in the course of assessment). We fully endorse the directions of the CIT(A) and confirm the order as regards the claim of deduction u/s 80IA(4)(iii). It is ordered accordingly.

Summary

Issues:
1. Assessment of capital gains in the hands of the company or individual directors.
2. Claim of deduction under section 80IA(4)(iii) of the Income Tax Act.

Issue 1: Assessment of Capital Gains:
The case involved a group of five appeals related to the assessment of capital gains arising from the sale of lands acquired by a company through its directors. The primary issue was whether the capital gains should be taxed in the hands of the company or the individual directors. The company contended that the lands were purchased and sold for and on behalf of the company, with the directors acting as facilitators and no direct benefit accruing to them. The Tribunal noted that the lands were acquired in the directors' names due to legal restrictions on corporate entities owning agricultural land. However, the Tribunal found insufficient evidence to conclusively determine the actual owner of the properties. Therefore, the issue was remanded to the Assessing Officer to ascertain whether the company funded the land purchase and received the sale consideration, indicating the company as the beneficial owner.

Issue 2: Claim of Deduction under Section 80IA(4)(iii):
In a separate appeal, the Assessing Officer had denied the assessee's claim for deduction under section 80IA(4)(iii) of the Income Tax Act due to lack of evidence regarding expenditure related to the industrial park. The CIT(A) directed the Assessing Officer to verify the claim and obtain the necessary bifurcation of expenditures. Upon verification, the Assessing Officer allowed the claim in full. The Tribunal upheld the CIT(A)'s direction and confirmed the allowance of the deduction under section 80IA(4)(iii) based on the verified expenditure details.

In conclusion, the Tribunal partially allowed the assessee's appeals for statistical purposes and dismissed the Revenue's appeal. The judgment highlighted the importance of determining the actual beneficial owner in cases of asset transactions and emphasized the need for proper documentation to support tax deductions under relevant provisions of the Income Tax Act.