1986 (11) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Ownership of the property for tax purposes.
2. Assessment of income from the property.
3. Assessment of long-term capital gains on the transfer of property rights.

Detailed Analysis:

Ownership of the Property for Tax Purposes:
The primary issue was whether the assessee was the legal owner of the property for the purpose of tax assessment. The assessee argued that since the DDA had not executed a conveyance deed in his favor, he was not the legal owner. The ITO and AAC, however, held that for the purposes of Section 22 of the Income Tax Act, the owner is the person who can exercise the rights of the owner in his own right. The Tribunal upheld this view, referencing the Supreme Court decisions in R.B. Jodhamal Kuthiala vs. CIT and Addl. CIT vs. U.P. State Agro Indus. Corpn. Ltd., which established that the person who exercises ownership rights is considered the owner for tax purposes.

Assessment of Income from the Property:
The assessee had taken possession of the flat in 1969, paid all installments, and used it as a self-occupied property, declaring income from it until 1978-79. For the relevant year, the assessee claimed no income from the property, arguing that possession had been transferred to Usha Manuja under an agreement for sale. The ITO assessed the income in the assessee's hands, stating that ownership had not legally transferred due to the absence of a sale deed. The AAC upheld this assessment, noting that the assessee did not object to the income assessment but contested the capital gains assessment.

Assessment of Long-Term Capital Gains:
The assessee contended that no transfer of property had occurred in law, as there was only an agreement for sale and no legal ownership transfer. The AAC rejected this argument, referencing Section 2(47) of the Income Tax Act, which includes "extinguishment of any rights" in the definition of transfer. The AAC cited the Gujarat High Court decision in CIT vs. Vania Silk Mills (P) Ltd., which explained that extinguishment covers any transaction resulting in the termination of rights in a capital asset. The AAC concluded that the agreement for sale constituted a transfer of rights, title, and interest to Usha Manuja, thus generating capital gains.

Tribunal's Decision:
The Tribunal affirmed the AAC's decision, emphasizing the comprehensive definition of "transfer" in Section 2(47) of the Income Tax Act. The Tribunal referenced the Bombay High Court decision in CIT vs. Tata Services Ltd., which held that a right to obtain a conveyance is a capital asset and its transfer constitutes a taxable event. The Tribunal concluded that the assessee's transfer of rights to Usha Manuja under the agreement for sale was a transfer within the meaning of Section 2(47), thus subjecting the transaction to capital gains tax.

Conclusion:
The appeal was dismissed, with the Tribunal upholding the assessments made by the ITO and AAC, confirming that the assessee was liable for both income tax from the property and capital gains tax on the transfer of property rights.