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2015 (12) TMI 1421 - KARNATAKA HIGH COURT

2015 (12) TMI 1421 - KARNATAKA HIGH COURT - TMI - Entitlement to the benefit of long term capital gains u/s 54 - Held that:- Providing for short term and long term capital gains is a beneficial piece of legislation, whereby certain benefit in taxation is given to the assessee on fulfillment of certain conditions. Every such legislation is to be construed liberally in favour of the assessee, as it is for the benefit of the assessee. When the purpose is to give a benefit, then technicalities in la .....

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ralgi, Adv JUDGMENT This appeal is filed by the assessee challenging the order of the Income Tax Appellate Tribunal (ITAT) relating to the assessment year 2006-07. 2. The brief facts are that by an agreement dated 1.4.1995 the appellant/assessee had agreed to purchase 3 acres 39 guntas of land from one H R Gurappa @ ₹ 310/- Sq. Ft. (according to which the total price of land came to approximately ₹ 4.80 crores) for which an advance of ₹ 40.00 lakhs was paid by the assessee to t .....

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o the High Court and ultimately, a compromise was entered into between the parties, and in terms of the said compromise, instead of 3 acres 39 guntas of land which was to be sold in favour of the appellant for approximately ₹ 4.80 crores, only 27 guntas of land was agreed to be sold to the assessee. 3. In terms of the said compromise, two sale deeds were executed in favour of the assessee for a sum of ₹ 41.00 lakhs, and after adjusting the advance of ₹ 40.00 lakhs already paid .....

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he assessee was processed under Section 143(1) of the Act but the Assessing Officer subsequently issued notice under Section 148 of the Act, and the assessment was finalized by an assessment order dated 31.12.2008 wherein the sale amount was treated as short term capital gains, instead of long term capital gains as had been claimed by the assessee. The appeal filed by the assessee was dismissed by CIT (A) vide order dated 13.5.2009. The further appeal filed by the assessee was also dismissed by .....

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apital gains when the assessee had entered into an agreement to sell on 1.4.1995 and had paid a substantial advance of ₹ 40.00 lakhs even though the sale deed may have been executed on 5.12.2002 on payment of further sum of ₹ 1.00 lakh?" 5. The submission of Sri Shankar, learned counsel for the appellant/assessee is that in the facts of the present case, the authorities ought to have considered the date of agreement to sell (i.e., 1.4.1995) for the purpose of determining the cap .....

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n favour of the assessee on 5.12.2002 on payment of a further sum of ₹ 1.00 lakh only, after adjusting ₹ 40.00 lakhs already been paid in terms of the agreement dated 01.04.1995. 6. It is further contended that the benefit of Section 2(42A) of the Act would be available to the assessee, as the land was held by the assessee ever since after the agreement dated 01.04.1995 and in terms of the aforesaid Section, it is not necessary that the land was to be owned by the assessee, as long a .....

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ted that the sale deed was executed in favour of the assessee on 05.12.2002, which property he sold on 20.05.2005, which was within 36 months from the date of its purchase, hence the assessee would not be entitled to the benefit of long term capital gains and the authorities have thus rightly given the benefit of short term capital gains, which is perfectly justified in law. It is further contended that the agreement entered into on 01.04.1995, on the basis of which advance of ₹ 40.00 lakh .....

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apital gains, as had been claimed by him. 9. In the case of Sanjeev lal (supra), the Apex Court was considering a case where an agreement to sell his property was entered into by the assessee therein on 27.12.2002 for a consideration of ₹ 1.32 crores, out of which only ₹ 15.00 lakhs had been paid to the assessee as earnest money. The assessee-therein then purchased another house on 30.04.2003. However, since there was litigation initiated with regard to the property after the assesse .....

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because of pending litigation, the Apex Court, in the facts of that case, held that the, "the authorities ought to have considered the date on which the agreement to sell had been effected by the appellants for transfer of property in question as the date of transfer of the house/original asset". 10. The benefit of Section 54 of the Act is to be given only when the assessee purchases a property one year prior to the sale of his property or two years after such sale. In the case before .....

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ourt is whether the agreement to sell which had been executed on December 27,2002, can be considered as a date on which the property, i.e., the residential house had been transferred. In normal circumstances by executing an agreement to sell in respect of an immovable property, a right in personam is created in favour of the transferee/vendee. When such a right is created in favour of the vendee, the vendor is restrained from selling the said property to someone else because the vendee, in whose .....

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at the provisions of section 2(47) of the Act, which defines the word "transfer" in relation to a capital asset, one can say that if a right in the property is extinguished by execution of an agreement to sell, the capital asset can be deemed to have been transferred. Relevant portion of section 2(47), defining the word "transfer" is as under: "2(47) 'transfer , in relation to a capital asset, includes,- (ii) the extinguishment of any rights therein; or …..&qu .....

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house/original asset in question and a sum of ₹ 15 lakhs had been received by way of earnest money. It is also not in dispute that the sale deed could not be executed because of pendency of the litigation between Shri Ranjeet Lal on the one hand and the appellants on the other as Shri Ranjeet Lal had challenged the validity of the will under which the property had devolved upon the appellants. By virtue of an order passed in the suit filed by Shri Ranjeet Lal, the appellants were restraine .....

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had been dismissed. In the "transfer", one can come to a conclusion that some right in respect of the capital asset in question had been transferred in favour of the vendee and, therefore, some right which the appellants had, in respect of the capital asset in question, had been extinguished because after execution of the agreement to sell it was not open to the appellants to sell the property to someone else in accordance with law. A right in personam had been created in favour of the .....

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ve sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immovable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and, therefore, without hesitat .....

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