Itta/335/2011 Of Kallam Veera Reddy v. Income Tax Officer

THE HON’BLE SRI JUSTICE GODA RAGHURAM&THE HON’BLE SRI JUSTICE N. RAVI SHANKAR I.T.T.A.No.335 OF 2011 JUDGMENT: (Per Sri NRS,J) The point raised in this assessee’s appeal under Section 260A ofthe Income Tax Act, 1961 (for short Act), is whether the appellant for theAssessment Year 2007-08 made any capital gain in the transactioncovered by the sale deed dated 11.10.2006 executed by him and isassessable to income tax on the amount of capital gain as held by theassessing officer and the Income Tax Appellate Tribunal. We haveheard the matter at length at the admission stage. 2 A copy of the sale deed dated 11.10.2006 executed by the appellantin favour of the third party is filed by him. It shows that the appellantearlier obtained a sale agreement-cum-General Power of Attorney (GPA)from the owner i.e. a firm called M/s.Shaw Eswarlal Vadilal for theproperty in question on 28.06.2005 and later on sold the same to a thirdparty i.e. M/s.Kanyaka Steels, Guntur under the present sale deed dated11.10.2006. The sale consideration in both the documents is mentionedas Rs.27 lakhs. The property in question is 3,432 sq. yards of land with agodown in it and is situate in the limits of Guntur Municipal Corporation.The assessing officer took all the incomes declared by the appellant andassessed the capital gain at Rs.67,70,050/- and determined the total taxat Rs.32,52,445/- and after deducting the prepaid taxes determined thebalance tax payable at Rs.31,95,585/-. In this appeal only the capitalgains calculation is disputed. 3. Appellant’s contention is that he merely acted as an agent andnever acquired ownership in the property in question and therefore didnot make or realize any capital gain. This contention has been rejectedby the assessing officer but was accepted by the appellate authority. However, the Income Tax Appellate Tribunal, Visakhapatnam (tribunal),in department’s appeal restored the order of the assessing authority. 4 We have gone through the order dated 14.07.2011 of the Tribunal. Itshows that several circumstances have been relied upon by it toconclude that the appellant did acquire ownership in the property andmade a capital gain. We are of the opinion that the tribunal’s order is inaccordance with law and does not call for any interference for thefollowing reasons. The first is, as observed by the tribunal, the appellanthimself for the Assessment Year 2007-08 i.e. the relevant year discloseda short term capital loss of Rs.14,150/- in respect of the transactionscovered by the sale agreement-cum-GPA and also the sale deed dated11.10.2006. It may be noted that if the appellant had not dealt with theproperty as its owner there was no need for him to show this loss. This isthe first minus point against the appellant. 5 The second is that the sale agreement-cum-GPA would show thatthe appellant paid the entire sale consideration of Rs.27 lakhs under itand the said GPA was executed by the above firm as an irrevocablepower of attorney in his favour. Further under the said document theappellant was also given the power to manage the property in questionby paying taxes, collect rents from the tenants and terminate the existingleases and execute fresh leases also. The said terms and conditionswould show that under the GPA the appellant has acquired for allpractical purposes all the incidents of ownership of the property inquestion as if it is an out and out sale. 5 The second is that the sale agreement-cum-GPA would show thatthe appellant paid the entire sale consideration of Rs.27 lakhs under itand the said GPA was executed by the above firm as an irrevocablepower of attorney in his favour. Further under the said document theappellant was also given the power to manage the property in questionby paying taxes, collect rents from the tenants and terminate the existingleases and execute fresh leases also. The said terms and conditionswould show that under the GPA the appellant has acquired for allpractical purposes all the incidents of ownership of the property inquestion as if it is an out and out sale. 6 The third reason is that the sale deed dated 11.10.2006 and its termswould show that the appellant had executed it not only as an agent of theabove firm M/s.Shaw Eswarlal Vadilal but also joined in it as a co-executant and the sale deed reads that the above firm gave possessionof the property with the permission of the assessee. Added to this, afterobtaining the GPA dated 28.06.2005 under which he paid the entire saleconsideration the assessee waited for 1 year 4 months in executing thesale transaction through the sale deed dated 11.10.2006 again only forRs.27 lakhs. The tribunal observed that it is highly improbable to believethat the appellant who is a money lender would have indulged in the above transactions and paid the entire sale consideration of Rs.27 lakhsunder the GPA without any profit motive. The tribunal relied upon theabove circumstances to conclude against the assessee and observedthat the assessing officer was right in obtaining the valuation certificatefrom its Engineer regarding the fair market value of the property andcalculating the capital gain. The tribunal also observed that the appellantdid not raise any objection regarding the transactions but only objected toobtaining the valuation report regarding the fair market value of theproperty basing on the basic value registers of the concerned sub-registrar fixed for the purpose of stamp duty. 7 Then coming to the contention of the appellant that his GPA and thesale deed cannot constitute a transfer within the meaning of Section 2(47of the Act, it may be noted that the terms and conditions of the GPA wouldshow that the said transaction would fall under clauses (i) and (ii) ofSection 2(47) of the Act as the recitals in the GPA have the effect of thefirm relinquishing its rights in the property or the extinguishments of itsrights in it in favour of the appellant. Alternatively the circumstances inthis case, as observed by the Tribunal, would show that the appellantbeing a money lender can be said to have treated the property inquestion as stock in trade for the purposes of his business ascontemplated under Section 2(47)(iv) of the Act. Thus the abovecontention of the appellant is rejected and it can also be said that Section50C of the Act which enables the assessing officer to obtain valuationreport in a case like this is also applicable to the assessee. 8 We accordingly find that the matter involves a pure question of factand the tribunal’s order does not suffer from any illegality or infirmity andthe matter does not raise any question of law. This appeal is thereforedismissed at the admission stage. No costs. ________________________ GODA RAGHURAM, J Date:10.10.2011Kvsn ________________________ N. RAVI SHANKAR, J