2023 (1) TMI 1157 - AT - Income Tax

Reopening of assessment u/s 147 - chargeability of capital gains arising out of sale of property - HELD THAT CIT(Appeals) has passed a non-speaking order without considering the facts in right perspective. The assessing authority computed capital gain purely on the basis of conjectures. AO has recorded that assessee vide letter dated 8.11.2016 intimated that he had not sold any property. He was having power of attorney of his mother in respect of land admeasuring 1288 sq. yards in Shaheed Malkhan Singh Colony, Gharaunda. However, the AO made addition on the basis that the entire sale proceeds had been credited in the account of the assessee, therefore, being the actual beneficiary, addition was made in his hand. We are unable to affirm the view of the Assessing Officer as the law is clear regarding taxability of capital gain arising out of transfer of immovable property. Whether capital gain can be charged from the person who sold property as attorney of the owner ? - In our considered view, there is no ambiguity under the law for chargeability of capital gain in respect of transfer of any capital asset. It is the owner of capital asset who would be liable for capital gain. In case the sale consideration is credited into the account of third party or the attorney of such owner, in that event also the money which has been credited in the account of the third party or the power of attorney cannot be subjected to tax under the head capital gains . Therefore, the action of the authorities below is contrary to the statutory provisions. The money credited to the account of the assessee could not have been subjected to tax as a capital gain earned by the assessee. Addition made by AO under the head of capital gain is not justified. Hence, the Assessing Officer is directed to delete the addition. However, it is clarified that the Assessing Officer would be at liberty to tax the capital gains/business receipts in correct hands - Grounds of appeal raised in this appeal are allowed.

Summary

Issues Involved:
1. Classification of Business Income as Capital Gains
2. Treatment of Income in the Hands of the Assessee
3. Chargeability of Capital Gains in Case of Sale of Property by an Attorney

Analysis:

Issue 1: Classification of Business Income as Capital Gains
The appeal was against the order of the Commissioner of Income-tax (Appeals) regarding the treatment of declared Business Income from Sale & Purchase of Land & Plots as Income under the head Capital Gains. The Assessing Officer computed capital gain at Rs. 32,67,930 and assessed the income at Rs. 35,52,980. The assessee contended that the authorities erred in computing the capital gain. The learned CIT(Appeals) upheld the addition, leading to the appeal before the Tribunal.

Issue 2: Treatment of Income in the Hands of the Assessee
The assessment was reopened under section 147 of the Income-tax Act, 1961, based on the chargeability of capital gains arising from the sale of property. The Assessing Officer framed the assessment, and the learned CIT(Appeals) sustained the addition. The assessee challenged the assessment, arguing that the authorities had not appreciated the facts correctly and erred in computing the capital gain. The Tribunal reviewed the contentions of both parties and the material on record to reach a decision.

Issue 3: Chargeability of Capital Gains in Case of Sale of Property by an Attorney
The Assessing Officer made additions based on the belief that the entire sale proceeds from the sale of plots belonged to the assessee, even though the property was in the name of the mother, and the assessee held a power of attorney. The Tribunal noted that under section 45 of the Act, capital gains arise from the transfer of a capital asset and are chargeable to income tax. It clarified that the owner of the capital asset is liable for capital gains, and in cases where sale proceeds are credited to a third party or attorney, the money cannot be taxed as capital gains of the person holding the power of attorney. The Tribunal directed the Assessing Officer to delete the addition and tax the capital gains in the correct hands.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the addition made by the Assessing Officer under the head of capital gain was not justified, and directed the deletion of the addition while clarifying the correct taxation of capital gains or business receipts.