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Tribunal after examining the evidence upheld the order of CIT(A) and concluded that the respondent was an investor in shares and entitled to be taxed under the head capital gains in respect of purchase and sale of shares. The Tribunal after examining the facts found that the respondent had not borrowed any funds for its investments and that the long terms gains were attributable to only shares of 4 companies and 3 of them were held for a period of about 5 to 12 years. So far as short terms capital gains were concerned the Tribunal held that about 93% of the short terms gain/loss was attributable to shares of six companies and in any case all the shares were held for periods ranging in excess of 1 month.
Owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter if the transferee has taken any steps in relation to construction of the flats, then it is to be considered as transfer u/s. 2(47)(v) of the I.T. Act.
We know that investment in residential property or Flats is one of the common investment avenue for individuals. Here we are trying to summarise the tax implication on sale of residential property and tax planning to save tax on the Capital Gain arising on the sale of such property.
Currently, long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors is taxed at the rate of 10% while other non-resident investors, including Private Equity investors are taxed at the rate of 20%. In order to give parity to such investors, I propose to reduce the rate in their case from 20% to 10% on the same lines as applicable to FIIs.
Whether conversion of tenancy rights into ownership right falls under the realm of ‘transfer’ as envisaged in section 2(47) of the Act. The assessee was accepted as a tenant by the co-owners and as per the well settled law on this issue the tenancy cannot be equated with the ownership. The ownership is the bundle of rights but rights of the tenants are limited. Admittedly, the assessee’s tenancy was converted into ownership and that can be the subject matter of the capital gain as it is a ‘transfer’ within the meaning of section 2(47) r.w.s. 45 of the I.T. Act.
The existing restriction in exemption u/s. 54EC is clearly an attempt to prevent home owners from fully enjoying the benefits. The treatment of long-term capital gains (LTCG) has been a contentious issue in recent years. Section 54EC of the Income-tax Act, 1961, exempts from taxation capital gains arising from transfer of a long term capital asset, provided the assessee invests the whole or part of the capital gains in long term specified assets for three years.
In this case, there is no dispute that no dividend had been paid to any of the shareholders after 1.4.2003 on which date Section 115-O of the Act was introduced in its present form. The accumulation in the reserves was allowed to be increased considerably. It may be noted that the major shares are held by the ‘A’ group and only 1.76% of shares are outstanding with the general public. The payment of dividend in the normal course by a company making profits, would have meant that the applicant would have been obliged to pay tax on distribution of profits to its shareholders.
Since in this case, the land is acquired compulsorily and no amount of compensation has been received by the assessee and further, the matter is still pending before the Hon’ble Allahabad High Court and has not attained finality, therefore, the provisions of section 2(47) (iii) and (v) section 45(5) would not apply in the case of the assessee.
Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Miss Jagriti (supra) has held that sub-section (4) of section 139 provides the extension period of limitation as an exception to sub-sec. (1) of sec. 139 of the Act. Sub-sec. (4) was in relation to the time allowed to an assessee under sub-sec. (1) to file the return. Therefore, such provision was not an independent provision, but relates to the time contemplated under sub-sec.(1) of sec. 139. Therefore, subsec.(4) has to be read along with sub-sec.(1).
Where in the case of a transfer, consideration for the transfer of a capital asset(s) is not attributable or determinable then for purpose of computing income chargeable to tax as gains, the fair market value of the asset shall be taken to be the full market value of consideration. Accordingly, it is proposed to insert a new provision (section 50D) in the Income-tax Act to provide that fair market value of the asset shall be deemed to be the full value of consideration if actual consideration is not attributable or determinable.
