2023 (10) TMI 1531 - AT - Income Tax

Capital gain OR income from other sources - receipt as confirming party in respect of the purchase of immovable property - HELD THAT - It is pertinent to note that the assessee is joint owner of the property which was sold as per the Sale Deed. Though the nomenclature is describing her as Confirming Party yet she received the consideration of Rs. 5, 40, 000/- after selling the agricultural land and her share in the said land. Thus the said amount to Capital Gain only. Therefore the treatment given by the assessing Officer to the income as income from other sources is not justifiable. Hence the AO and the CIT(A) were not right in treating the said income as income from other sources and making addition. Appeal of the assessee is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the reopening of assessment for the Assessment Year 2012-13 under Section 147 of the Income Tax Act was valid, considering the timing and issuance of notice under Section 148, and the validity and sufficiency of the reasons recorded for reopening;

(b) Whether the amount of Rs. 5,40,000/- received by the assessee as a "Confirming party" to the sale deed of immovable property constitutes capital gains or income from other sources;

(c) Whether the charging of interest under Sections 234A and 234B of the Income Tax Act was justified, given the circumstances of the case and the manner in which interest was imposed by the Assessing Officer;

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Reopening of Assessment under Section 147 and Notice under Section 148

The legal framework governing reopening of assessments under Section 147 requires that the Assessing Officer must have "reason to believe" that income chargeable to tax has escaped assessment. Further, the notice under Section 148 must be issued within the prescribed time limits and must be validly served. The reasons recorded for reopening must be valid, complete, and antecedent to the issuance of notice.

The assessee challenged the reopening on grounds that the notice under Section 148 was issued on 30.03.2019, which was time-barred and issued on a Saturday (a government holiday), rendering it invalid. Further, the reasons recorded were dated 27.11.2019, which post-dated the notice, making the reopening procedurally defective. The reasons recorded were also incomplete, notably para 4 was left blank, and the basis for escapement related to capital gains but the addition was made under income from other sources, which was inconsistent.

The Tribunal noted that these grounds were general and not adjudicated in detail. However, the record shows that the notice under Section 148 was issued and served, and reasons for reopening were provided to the assessee prior to issuance of notice under Section 143(2). The Tribunal did not find sufficient merit in the procedural objections to invalidate the reopening. The issue was thus not decided against the revenue based on the procedural grounds raised.

Issue (b): Nature of Rs. 5,40,000/- Received by the Assessee - Capital Gain or Income from Other Sources

The relevant legal principles include the definitions and tax treatment of capital gains under the Income Tax Act, particularly relating to sale of immovable property and the concept of "confirming party" or "Samdi Apnay" (consent giver) in property transactions. Capital gains arise on transfer of capital assets, and the receipt of consideration by a joint owner or a person having a proprietary interest in the property is taxable as capital gains.

The Assessing Officer held that the assessee, being a "confirming party" rather than a seller, was not entitled to claim cost of acquisition or exemptions and treated the Rs. 5,40,000/- received as income from other sources. The CIT(A) upheld this view.

The assessee contended that the amount was capital gains because the sale deed would have remained incomplete without the signature of the confirming party, and that she was a joint owner inheriting the share in land from her late husband. Thus, the amount received was her rightful share of capital gains on sale of the property.

The Tribunal examined the facts and found that notwithstanding the nomenclature of "confirming party," the assessee was a joint owner of the property and received consideration for her share in the sale of agricultural land. The Tribunal held that the amount received was capital gains and not income from other sources. The treatment by the Assessing Officer and CIT(A) was therefore unjustifiable and incorrect.

The Tribunal observed that the addition as income from other sources was not legally sustainable, and the amount should be treated as capital gains. This conclusion was based on the factual matrix of ownership and receipt of sale consideration, overriding the technical label of "confirming party."

Issue (c): Charging of Interest under Sections 234A and 234B

Sections 234A and 234B impose interest for delay in filing return and for default in payment of advance tax respectively. The Assessing Officer charged interest under these provisions, which the assessee challenged on grounds that the interest was not specifically quantified in the assessment order, and that the assessee had a bona fide belief of non-liability to tax, thus negating applicability of these provisions.

The assessee further argued that she was not liable to pay advance tax under Section 208, hence interest under Section 234B was not applicable.

The Tribunal considered these submissions but held that the issue was consequential and did not adjudicate on the merits of interest liability at this stage. The Tribunal did not find it necessary to interfere with the interest demands in the present appeal.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Though the nomenclature is describing her as Confirming Party, yet she received the consideration of Rs. 5,40,000/- after selling the agricultural land and her share in the said land. Thus, the said amount to Capital Gain only. Therefore, the treatment given by the assessing Officer to the income as income from other sources is not justifiable."

This establishes the principle that the substance of the transaction and the proprietary interest of the party in the property take precedence over the formal designation as a confirming party in determining the nature of income.

The Tribunal did not uphold the procedural objections to reopening but limited its interference to the substantive issue of classification of income.

On the issue of interest under Sections 234A and 234B, the Tribunal refrained from adjudication, treating it as consequential.

Accordingly, the appeal was partly allowed with respect to the nature of income, directing that the amount be treated as capital gains and not income from other sources, while other grounds were not allowed or adjudicated.