High Court Of Andhra Pradesh
CIT Vs. A. Vijay Kumar
Section 2(47), 263
Assessment Year 1995-96
L. Narasimha Reddy And Challa Kodanda Ram, JJ.
I.T.T.A. No. 5 Of 2003
August 26, 2014
L. Narasimha Reddy, J. – The respondent is an assessee. For the assessment year 1995-96, he declared the taxable income at Rs.1,33,770/-. He appended a note to the returns to the effect that he acquired rights vis-a-vis an item of immovable property being Ac.24.20 cents of agricultural land in a Village in Nellore District, for a consideration of Rs.10,60,000/- through a Memorandum Of Understanding (MOU), dated 25.12.1993 and he has transferred the same for a consideration of Rs.34,08,500/- in favour of M/s. Seamen Aqua Farms Limited, of which he is a Managing Director. It is stated that the profit earned by him in the process cannot be treated as taxable income, since it is in respect of an agricultural land. Similar claim was made in respect of Ac.5.71 cents of land dealt with by a HUF, of which the respondent is the Karta. The Assessing Officer accepted the claim of the respondent and passed an order of assessment.
2. The Commissioner of Income Tax exercised his powers under Section 263 of the Income Tax Act, 1961 (for short the Act) and issued notice to the respondent proposing to pass a revised order. According to him, the Assessing Officer did not take the contents of the MOU into account and erroneously failed to bring the income earned by the assessee under the purview of the tax. After hearing the respondent, the Commissioner passed an order, dated 06.03.2000 bringing the sums of Rs.23,48,500 and 7,49,780/- to tax. Aggrieved by that, the respondent filed I.T.A.No.417/Hyd/2000 before the Hyderabad Bench of the Income Tax Appellate Tribunal. Through its order, dated 27.03.2001, the Tribunal allowed the appeal and set aside the order passed by the Commissioner. Hence, this appeal by the Revenue under Section 260-A of the Act.
3. Sri S.R.Ashok, learned senior Standing Counsel for the Department submits that the Tribunal grossly erred in reversing the order of the Commissioner. He contends that the finding recorded by the Tribunal to the effect that the respondent became the owner of the agricultural land and thereby, he is not liable to pay any tax is contrary to law. He contends that in the given set of circumstances, the respondent cannot be said to have become owner of the property, much less can he sell it to third parties, so that he can claim the exemption from payment of capital gains tax by treating it as an agricultural land. He further submits that once the transaction cannot be treated as the one of transfer of an agricultural land, the income was liable to be treated as the one from a different transaction and thereby liable to be brought under the purview of tax.
4. No one had entered appearance for the respondent. On his part, the Assessing Officer accepted the facts and figures presented by the respondent and passed an order of assessment under Section 143(3) of the Act. At a later point of time, the Commissioner exercised his powers under Section 263 of the Act and sought to find fault with the order of assessment, with reference to the two items mentioned above. He prima facie took the view that the earning of income by the respondent through the said transaction cannot be said to be through the transfer of capital asset by itself but in relation to rights therein and thereby the theory of the property being agriculture land does not become relevant. In the appeal before the Tribunal, a semblance of objection was taken to the very initiation of proceedings under Section 263 of the Act. However, extensive discussion was undertaken on merits, particularly to ascertain the nature of transaction that has taken place, which in turn yielded the income to the respondent.
5. In the ordinary parlance, an assessee would be under obligation to pay the capital gains tax, if he has effected transfer of any capital asset held by him. The Act provides for an exemption in respect of agricultural land. The Transfer of property Act recognizes certain categories of transfers viz., sale, gift and exchange, which in turn confer absolute rights in the transferee. It is only when some transactions take place vis-a-vis the immovable property that the transferee would acquire certain rights. In short, the execution of deeds of sale, gift or exchange is mandatory to result in transfer of title. However, under certain enactments, the event of transfer is said to have taken place, even though the procedure prescribed under the Transfer of Property Act in this behalf, is not followed. For example, under the Registration Act, as amended by the A.P. State Legislature, transfer can be assumed, even where an agreement of sale is entered into and possession of the property is delivered. That can be treated for the limited purpose of requiring the payment of stamp duty and registration charges. Similarly, under the Act, the existence of an agreement of sale coupled with delivery of possession covered by Section 53-A of the Transfer of Property Act is treated as transfer. Section 2(47)(v) of the Act reads as under: any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.
6. In the instant case, the rights were acquired by the respondent through MOU, dated 25.12.1993 vis-a-vis the property. On a perusal of the MOU, the Tribunal found that the possession of the property was delivered in favour of the person, who joined the transaction. Those facts in turn brought about transfer within the meaning of Section 2(47)(v) of the Act. Therefore, the respondent has acquired a right to transfer the same atleast from the point of view of income tax. The sale proceeds to the extent of the share of the respondent would certainly answer the description of capital gains. However, the classification of the land as the one of agricultural in nature, exempts the assessee from the obligation to pay the capital gains tax.
7. In the assessment order, the Assessing Officer recorded a finding to the effect that the land was agricultural in nature. It is true that he did not undertake the required amount of discussion vis-a-vis the nature of rights, which the respondent had acquired through the MOU and parted with other documents. The fact however remains that notwithstanding the expressions used either by the assessee or by the officers and authorities under the Act, they are in relation to an item of immovable property and that property in turn is an agricultural land. Though the Tribunal expressed the view that there was no occasion for the Commissioner to exercise the power under Section 263 of the Act, we do not agree with that. However, on merits, we find that once the Commissioner did not dispute the classification of the land, there was no way that he could have traced the income of the respondent to any other event other than the one of transfer of the agricultural land. We do not see any grounds in the appeal.
8. The I.T.T.A. is accordingly dismissed.
9. The miscellaneous petition filed in this appeal shall also stand disposed of. There shall be no order as to costs.
[Citation : 369 ITR 185]