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2016 (5) TMI 429 - ITAT MUMBAI

2016 (5) TMI 429 - ITAT MUMBAI - TMI - Disallowance of exemption u/s 54EC - Treatment to capital gains - LTCG or STCG - Held that:- As per agreement of sale deed executed on 7.3.1973 which has been duly registered with the Sub-registrar of Assurance, Mumbai under S-2489/82 in the name of the assessee, the assessee has acquired right in the property from the date of agreement to sale dt. 7.3.1973. We also find that on 24.1.1983 assessee obtained an order and injunction against the vendor preventi .....

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973 was valid. Accordingly, we do not find any infirmity in the action of CIT(A) for treating capital gains as long term capital gains.

Accordingly, we do not find any infirmity in the action of CIT(A) for treating capital gains as long term capital gains.

Indexation - deduction paid to partner to remove encumbrance disallowed - Held that:- CIT(A) has allowed indexation from 19.7.1981 in place of date of acquisition of property in the year 1973. Since the property was acq .....

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not conveyed in the name of the assessee it will not affect the holding period of asset.

As per Sec. 48 if the expenditure is incurred wholly and exclusively in connection with transfer of capital asset, in that situation expenditure is allowable. The above condition is satisfied in present case because one can sell the property only when the property is free from encumbrance. In the instant case, in a firm, if any partner disagrees to sell the property, the firm cannot sell the prop .....

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ssee been able to file the consent term before the Hon'ble High Court on same day i.e. 21.12.2005. otherwise neither consent term will be filed nor assessee before court gets the property conveyance. Hence, it is paid wholly and exclusively for the purpose of sale of capital asset. In view of the above, there is no justification in the order of lower authorities for enhancing capital gains by not allowing deduction paid to partner to remove encumbrance. - ITA No. 3866/MUM/2011, ITA Nos. 3084/MUM .....

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rder passed u/s 143(3) of the Income Tax Act, 1961. 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee was owner of the plot located at survey No. 895, Turner Road, Bandra, Mumbai (impugned property) which was converted from capital asset to stock in trade on 18-2-2006. The said property was sold during the year under consideration giving rise to capital gains as well business profits. The impugned property was originally owned by one Mr.Percy Maurice P .....

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consideration of ₹ 2.5 Iakhs and an amount of ₹ 10000 thereof was paid to the vendor on the date of agreement itself. The title deeds were examined by the purchaser/assessee and apparently due to the suit pending before the High court the property could not be conveyed to the purchaser/assessee. Nevertheless both parties continued to hold the impugned agreement and vide the vendor's letter dated 14-5-1976, the vendor confirmed that the time for completion of the sale was extended .....

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that the vendor was contemplating to settle the suit in a manner that will prejudice the rights of the purchaser/assessee, called upon the vendor to perform the contract within seven days from the receipt of the notice vide their letter dated 10-4-1980. Having not received any reply from the vendor in this regard, the assessee, i.e., the purchaser filed Suit no.889 of 1980 before the High court stating that there is a valid and subsisting agreement in respect of the impugned property in favour .....

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eement and to do all acts to convey the impugned property in favour of the assessee. In the meanwhile, Suit No. 376 between the vendor and his brother was settled vide consent terms dated 29-7-1981 and it was agreed therein that vendor was absolute owner of the impugned property and the vendor's brother has no right in it. The assessee having come to know about the said settlement during first week of February 1982 only, immediately moved the High court vide their petition dated 10-2-1982 to .....

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6 by presenting it before the Sub Registrar. Thereafter the Suit was pending for adjudication before the High court for a long time which was finally decided by the consent terms of the Suit parties dated 21-12-2005 filed before the High court. Finally the High court passed decree in favour of the assessee holding that there is a valid and subsistent agreement and the vendor was directed to do all acts so as to effectively convey the property to the assessee. Further the assessee was also direct .....

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mpletion of the sale, the assessee computed capital gains up to February 2006 and business profits for the period thereafter. The capital gains were offered to tax for the A.Y. under consideration following the provisions of Sec. 45(2) of the Act. In computing the capital gains, the assessee adopted the FMV of the impugned property on 1-4-81 as it's cost of acquisition on the ground that the right title in the property was available to them since 1973 owing to the subsistence of the above di .....

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fer of the impugned property and it would go to reduce the taxable capital gains arising on sale of the impugned property. As against the above claim of the assessee, the A.O. held that the rights in the impugned property passed on to the assessee only on account of the consent terms filed before the High court and the consequent decree passed by the High court directing the vendor to convey the property. In this regard the A.O. observed that even though there was a valid and subsisting agreemen .....

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h the rights of the assessee in the impugned property. Further the A.O. also stated that the\fact of registering the sale agreement with the Sub Registrar is also not indicative of establishing the appellant's rights therein by observing that the title of the property is transferred on execution/performance of the contract and not by mere registration of sale deed. In essence, the A.O. held that the assessee owned the property only in F.Y. relevant to A.Y.2006-07 and therefore the asset was .....

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disallowed the assessee s claim to deduct the same from taxable capital gains. 3. By the impugned order, CIT(A) allowed assessee s claim of long term capital gains, however, he declined payment of ₹ 54 lakhs made to remove the encumbrance. 4. Against the above order of the CIT(A), both assessee and revenue are in appeal before us and assessee has also filed cross-objection. 5. We have considered the rival contentions carefully and gone through the orders of the authorities below and find f .....

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claimed by the assessee. Therefore, fair market value of 1.4.1981 will not be allowed, but confirmed the addition of ₹ 54,00,000/-. We find that as per agreement of sale deed executed on 7.3.1973 which has been duly registered with the Sub-registrar of Assurance, Mumbai under S-2489/82 in the name of the assessee, the assessee has acquired right in the property from the date of agreement to sale dt. 7.3.1973. We also find that on 24.1.1983 assessee obtained an order and injunction against .....

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also clarifies that agreement of 1973 was valid. 7. Accordingly, we do not find any infirmity in the action of CIT(A) for treating capital gains as long term capital gains. However, he has allowed indexation from 19.7.1981 in place of date of acquisition of property in the year 1973. Since the property was acquired vide agreement of sale deed executed on 7.3.1973 which was duly registered with the Sub-registrar, we direct the AO to allow indexation by taking fair market value as on 1.4.1981. As .....

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the case of Madhukaul (43 taxmann.com 417) and Vinod Kumar Jain (344 ITR 501). As the property was acquired before 1.4.1981, we direct the AO to take fair market value of property as on 1.4.1981 as per provisions of Sec. 55(2) of Income Tax Act for the purpose of indexation while computing long term capital gains. 8. With regard to declining assessee s claim of payment for removal of encumbrances amounting to ₹ 54 lakhs, we find that one Partner, Smt. Sushila Devi created problems for the .....

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with transfer of capital asset, in that situation expenditure is allowable. The above condition is satisfied in present case because one can sell the property only when the property is free from encumbrance. In the instant case, in a firm, if any partner disagrees to sell the property, the firm cannot sell the property which it is intending to sell. In other words, if any partner does not agree to sell for any reasons, then, there is an encumbrance for selling the property. To sort out such a p .....

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