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DATE: October 18, 2016 (Date of pronouncement)
DATE: October 20, 2016 (Date of publication)
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CITATION:
S. 50B: Important law explained on what constitutes a "slump sale" and whether capital gains on liquidation of a firm are chargeable to tax

The assessees, however, are attempting the wriggle out from payment of capital gain tax on the ground that it was a “slump sale” within the meaning of Section 2(42C) of the Act and there was no mechanism at that time as to how the capital gain is to be computed in such circumstances, which was provided for the first time by Section 50B of the Act with effect from April 01, 2000. However, this argument fails in view of the fact that the assets were put to sale after their valuation. There was a specific and separate valuation for land as well as building and also machinery. Such valuation has to be treated as that of a partnership firm which had already stood dissolved

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DATE: September 28, 2016 (Date of pronouncement)
DATE: October 15, 2016 (Date of publication)
AY: 2008-09
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CITATION:
S. 2(47)(v): Entire law on whether entering into a "joint development agreement" with the builder and handing over possession/ power of attorney amounts to a "transfer" and gives rise to capital gains explained. Chaturbuj Dwarkadas Kapadia 260 ITR 491(Bom) explained/ distinguished

It is generally seen that there may be several stages or events arising in a joint development arrangement made between owner of the land and the developer. For the purpose of determining the actual date of transfer of the land by the land owner, all these stages / events needs to be collectively analsysed and after evaluating overall effect of the same we can determine the actual date of transfer. These stages / events may be described as date of entering into JDA, date of executing power of attorney authorising the developer for taking various approvals / permissions etc., handing over the possession of the land to the developer for various purposes, receipt of part / full sale consideration from the developer, date of execution of power of attorney in favour of developer authorising him for the sale of developed units to the customers at his absolute discretion; and transfer of developed units to the customers etc. There may be few more stages / events to complete the transaction. Though, one single event may trigger the process of transfer but may not necessarily complete it also. Whether the transfer has, in substance, taken place, can be determined by analysing the inter-play and effect of all these stages / events combined and put together. For example, possession may be given for various purposes, viz. possession given to a contractor, or to a tenant also, but such an event in itself cannot be regarded as “transfer” of land. Possession of land may also be handed over as licensee only for the purpose of development of real estate on land. Here again, it shall not give rise to “transfer”. Thus, when the possession is given along with other legal rights to the developer resulting into entitlement of the developer for full use and enjoyment of the property as well as its further sale after converting it into developed units at its full, own and sole discretion, then it may result into ‘transfer’ provided other conditions also suggest so. Thus, handing over of the possession has to be necessarily coupled with the intention of transferring the rights of ownership and enjoyment of the property to the developer. Handing over of the possession for the limited purpose of developing the land while still retaining the ownership and control of various legal rights upon the property by the land owner would not fall in clause (v) of section 2(47)

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DATE: August 9, 2016 (Date of pronouncement)
DATE: September 21, 2016 (Date of publication)
AY: 1996-97
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CITATION:
Refundable deposits received by a housing company for allotment of flats and future maintenance is business income. However, share capital received for allotment of flats is a capital receipt and not income. The principles of mutuality does not apply to such transactions

The Karnataka High Court held, following Shree Nirmal Commercial vs. CIT 193 ITR 694 (Bom) and 213 ITR 361 (FB), that share capital and refundable deposits received by a housing company from its shareholders in consideration of allotting area to them is assessable as business profits. It was also held that the principles of mutuality are not applicable. It was also held that deposits received from the shareholders for future maintenance is assessable as business income. On appeal to the Supreme Court HELD

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DATE: August 26, 2016 (Date of pronouncement)
DATE: September 20, 2016 (Date of publication)
AY: 2002-03
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CITATION:
Entire law on whether consideration for alienation of rights under a "Call Option agreement" for shares is taxable as "capital gains" or as "income from other sources" in the context of the India-Singapore DTAA explained

In common parlance, a call option is reckoned as a contract in which the holder (buyer) has the right (but not an obligation) to buy a specified quantity of a security/shares at a specified price (strike price) within a fixed period of time. For the writer (seller) of a call option, it represents an obligation to sell the underlying security at the strike price if the option is exercised. The call option writer is paid a premium for taking on the risk associated with the obligation. Here in the present case, there is very peculiar agreement/ arrangement, where the strike price has been mentioned as US $ 1 and the fixed period of time for exercising the call option has been fixed for 150 years. This factum itself means that the call option in the shares have been given for perpetuity. Not only that, an irrevocable power of attorney has also been executed in favour of the ING Bank in respect of all the shares in PHIL confirming that, assessee will not at any time purport to revoke the same, which inter-alia shows that assessee has alienated a substantive and valuable rights as an owner of the shares in perpetuity, albeit without dejure alienating the shares itself

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DATE: August 10, 2016 (Date of pronouncement)
DATE: September 5, 2016 (Date of publication)
AY: 2009-10
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CITATION:
Capital Gains: Mere fact that the assessee is shown as a co-owner of the property does not mean that the capital gains are partly assessable in her hands if the facts show that the other co-owner bought the property from his own funds and showed it as his sole property in the balance sheet

Revenue has also not been able to controvert the factual finding rendered by the learned CIT(A), after examining documents and copies of bank statements, etc. placed before him, that even though the assessee is shown as the co-owner of the said property, the source of funds for investment in purchase of the said property is by the assessee’s husband and that the property was reflected in his Balance Sheet from the period relevant to A.Y. 2005-06 (i.e. 31.03.2005) till its sale, after which the STCG arising thereon was admittedly disclosed by the assessee’s husband in his return of income

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DATE: July 27, 2016 (Date of pronouncement)
DATE: August 10, 2016 (Date of publication)
AY: 2007-08
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CITATION:
S. 50C: Land purchased by a builder with the knowledge that there are encumbrances on it and development is not feasible is a “capital asset” and not “stock-in-trade”. The gains on transfer of such land is assessable as capital gains and not as business profits. S. 50C applies to development agreements if the effect of the development agreement read with the conveyance deed is that the entire land with ownership rights are transferred

Section 50C of the Act is clearly applicable even to the sale of development rights in the land as was held in the decisions relied upon by the learned DR as detailed above , more-so we have already held that in-fact the assessee has not only sold development rights in the land but the assessee sold the entire land with ownership rights in the land if the development agreement are read in conjunction with deed of confirmation / conveyance executed by the assessee which are placed in paper book filed with the Tribunal. Thus, the land which was sold during the previous year by the assessee, thus keeping in view our above discussions in the light of facts and circumstances of the case, was a capital asset within the provisions of Section 2(14) of the Act and the valuation of the land as per stamp duty valuation authorities as per section 50C of the Act was rightly adopted by the AO as full value of consideration

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DATE: June 29, 2016 (Date of pronouncement)
DATE: July 12, 2016 (Date of publication)
AY: 1989-90
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CITATION:
S. 2(42A)/ 45: An agreement to purchase property merely creates a right to seek specific performance. The asset cannot be considered to be "held" from the date of the agreement so as to constitute long-term capital gains

Consequent to the vendor not honouring the agreement dated 18th May, 1980, all that the appellant had was a right to seek specific performance which he sought to enforce by filing the suit. The appellant did not have possession of the said land. It is only on the Consent Terms being filed in Court that the appellant got ownership and possession

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DATE: May 27, 2016 (Date of pronouncement)
DATE: June 16, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 68: Long-term capital gains arising from transfer of penny stocks cannot be treated as bogus merely because SEBI has initiating an inquiry with regard to the Company & the broker if the shares are purchased from the exchange, payment is by cheque and delivery of shares is taken & given

Assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same

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DATE: April 28, 2016 (Date of pronouncement)
DATE: June 4, 2016 (Date of publication)
AY: 1993-94, 1994-95
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CITATION:
Entire law on concept of "revenue receipt", "capital receipt" and "casual income" explained in the context of taxability of compensation received for cancellation of a sale deed of immovable property. If the AO claims that the receipt is a capital gain, he cannot change his stand to contend that it is a revenue receipt

The sum of Rs.20 lakhs received by the Assessees was in the context of the cancellation of the sale certificate and the sale deed executed in their favour in relation to an immovable property and neither Assessee was dealing in immovable property as part of his business. While it could if at all be said to be in the nature of a capital receipt, what is relevant for the present case is that the Revenue has been unable to make out a case for treating the said receipt as of a casual and non-recurring nature that could be brought to tax under Section 10(3) read with Section 56 of the Act. Following the decision in Cadell Weaving Mill (supra), there can be no manner of doubt that what is in the nature of capital receipt, cannot be sought to be brought to tax by resorting to Section 10(3) read with Section 56 of the Act

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DATE: February 22, 2016 (Date of pronouncement)
DATE: April 20, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Mere non-introduction of interest-bearing funds is not sufficient to conclude that gains from sale of shares are not business income

There are various factors such as frequency, volume, entry in the books of accounts, nature of funds used, holding period etc. which are relevant in deciding the true nature of transactions and no single factor is conclusive. Thus, mere non-introduction of interest bearing funds will not alone determine the nature of the transactions. The impugned order, after analyzing the statement of capital gains which were available before it, came to the conclusion that most of the shares have been sold within 30 days of its purchase and upheld the order of the CIT(A)

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