Capital gain not taxable in the hands of person who sold property as attorney

Sidharth Chaudhary Vs ITO (ITAT Delhi)

ITAT Delhi held that capital gain cannot be taxed in the hands of the person who sold the property as attorney of the owner. The same is taxable only in the hands of the owner of the property.

Facts- The assessment of the assessee was reopened u/s 147 of the Income-tax Act, 1961 on the basis of chargeability of capital gains arising out of sale of property. Thereafter AO framed the assessment u/s 143(3) read with Section 147 of the Act, thereby computing capital gain at Rs. 32,67,930/-. Thus, assessing the income at Rs. 35,52,980/-. Aggrieved against this, the assessee preferred appeal before the learned CIT(Appeals), who also sustained the addition and dismissed the appeal of the assessee. Now the assessee is in appeal before this Tribunal.

Conclusion- Now the question arises whether capital gain can be charged from the person who sold property as attorney of the owner. In my 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. Under these facts, the addition made by the Assessing officer 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.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals), Karnal, dated 25.06.2018, pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:

1. That the Ld. A.O has erred in law and on facts in treating the declared Business Income from Sale & Purchase of Land & Plots as Income under the head Capital Gains and the Ld. CIT (Appeals) has further erred in confirming the same.

2. That the 1d. A. O has erred in treating Rs. 32,67,930/- as Income under the “Capital Gains” as Income of the assessee in respect of assets which were never owned by the assessee and the 1d. CIT(Appeals) has further erred in confirming the same.

3. That the appellant craves to add, amend or delete any ground(s) of appeal before or during the hearing of the Appeal.”

2. The facts giving rise to the present appeal are that in this case the assessment was reopened u/s 147 of the Income-tax Act, 1961 (in short “the Act”) on the basis of chargeability of capital gains arising out of sale of property. Thereafter the Assessing Officer framed the assessment u/s 143(3) read with Section 147 of the Act, thereby computing capital gain at Rs. 32,67,930/-. Thus, assessing the income at Rs. 35,52,980/-. Aggrieved against this, the assessee preferred appeal before the learned CIT(Appeals), who also sustained the addition and dismissed the appeal of the assessee. Now the assessee is in appeal before this Tribunal.

3.Apropos to the grounds of appeal, learned counsel for the assessee submitted that the authorities below have not appreciated the facts in right perspective and have grossly erred in computing the capital gain in the hands of the assessee. He submitted that the action of the Assessing officer is unjustified and patently illegal.

4. On the other hand, learned DR opposed the submissions and supported the orders of the authorities below.

5. I have heard the rival contentions and perused the material available on record. I find that the Assessing Officer had made addition by observing as under:

“Further, the assesses has given in writing vide letter dated 08.11.2016 that he has not sold any property during the year. In fact, he was having power of attorney of his mother in respect of land measuring 1288 Sq yards in Shaheed Melkhan Singh Colony, Gharaunda. As the entire sale proceeds of sale of plots have been credited in the Bank Accounts of the assessee maintained with HDFC Bank, Karnal. He is the ultimate beneficiary of the sale consideration of Biana received transaction which were got registered during the year under consideration. The assessee has failed to produce any proof of transfer of sale consideration to his mother’s account. Whereas the assesses has already furnished copy of Cash Book during the assessment proceedings which is placed on record. In view of these facts, the entire sale consideration amounting to Rs 55.76,000 /- for 11 regd, deeds of area, measuring 1806 Sq yards is to be considered in hands of the assesses.

As the land is situated within municipal limits, long term capital gain arises on transfer of capital asset u/s 45 of I. T, Act, 1961. The assessee has shown purchase rate of property @ Rs 247/- Sq yard but has failed to produce any documentary, proof in this regard. As the property is claimed to be purchased before 01.04.1981, the cost of acquisition is to be adopted of 01.04.1981 which is hereby adopted @ 150 Sq yard for want of documentary proof and in the interest of natural justice and the capital gain is computed as under.:-

Keeping in view the fact and circumstances of the case as narrated above income of the assesses is computed as under

6. The assessee had carried the matter before the learned CIT(Appeals), who sustained the aforesaid finding of the Assessing Officer by observing as under:

“I have examined the facts on ecod and the submissions made by the assessee. The assessee holds that sale receipts in consideration of the plots at Gharaunda do not relate to him wholly. Before the AO, no evidence in support of this claim was submitted. Even at this stage, the assessee has not been able to submit the details pertaining to the ownership of the said plots viz. eleven registered deeds which he states do not belong to him. In the absence of any corroborative evidence, I am of the opinion that the addition has been correctly made and I confirm the same.”

7. A bare reading of the finding of the learned CIT(Appeals) goes to prove that the learned 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. The Assessing officer 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 Assessing Officer made addition on the basis that the entire sale proceeds amounting to Rs. 55,76,000/- had been credited in the account of the assessee, therefore, being the actual beneficiary, addition was made in his hand. I am 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. As per section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in section 54, be chargeable to income-tax under the head “capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 of the Act speaks about computation of capital gain. Now the question arises whether capital gain can be charged from the person who sold property as attorney of the owner. In my 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. Under these facts, the addition made by the Assessing officer 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.

8. Appeal of the assessee is allowed.

Order pronounced in open court on 19^th January, 2023.