LACHMANDAS & SONS,COCHIN-35 vs. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/344/2010HC KeralaKLHC01027036201003 January 2014Author: HONOURABLE MR.JUSTICE A.M.SHAFFIQUE,HONOURABLE THE CHIEF JUSTICE DR. MANJULA CHELLUR13 pages
AI SummaryDismissed

What were the facts?

The assessee, Lachmandas & Sons, a partnership firm, filed its return for Assessment Year 2005-2006, declaring an income of ₹36,75,130/- and claiming a long-term capital loss of ₹45,51,944/-. The assessee had entered into a Memorandum of Understanding (MOU) on June 22, 2001, with M/s. Damodar Sons & Co. and its partners for the acquisition of a property. The sale consideration was agreed at ₹3 crores, but the sale deed executed on February 25, 2005, showed it as ₹4,25,00,000/-. The Assessing Officer treated the gain as short-term capital gain, a view confirmed by the CIT(Appeals) and the Income Tax Appellate Tribunal (ITAT). The assessee appealed this decision.

What did the High Court hold?

The High Court held that the date of acquisition of the right to obtain conveyance of immovable property was not 2001, as claimed by the assessee. The MOU clearly stipulated that possession was not handed over and that the property would not be transferred until the entire agreed amount was paid. A significant portion of the payment, ₹3 crores, was made only in February 2004. The Court found that the right accrued to the assessee only upon the complete fulfillment of the MOU's terms and conditions in 2004. Mere execution of an MOU does not confer a right to transfer the property to third parties. The assessee could not have transferred any right, even a limited one, without the owner's concurrence or a formal conveyance in their favour. Since the right accrued in 2004 and the sale deed was executed in 2005, the transaction was correctly treated as a short-term capital gain. The Court dismissed the appeal, answering the substantial questions of law against the assessee.

What were the issues?

1. Whether the definition of capital assets under Section 2(14) can be given a restrictive meaning concerning property owned by the assessee, in light of the judgment in (1990) 186 ITR 693? 2. Whether the Tribunal was correct in holding that the date of transfer of funds, February 2004, is the date of acquisition, instead of the date the right to obtain conveyance was acquired in 2001 via MOU? 3. Whether the Tribunal was correct in holding the transaction as short-term capital gain rather than long-term capital gain as claimed by the assessee? Assessee's contentions: The assessee argued that by virtue of the MOU in 2001, it acquired a right which should be treated as an asset, and since it was a party to the sale deed in 2005, the transaction should be considered long-term capital gain. Reliance was placed on J.K. Kashyap v. Assistant Commissioner of Income Tax [(2008) 302 ITR (Delhi)] and Commissioner of Income Tax v. Vijay Flexible Containers [(1990) 186 ITR 693]. Revenue's contentions: The revenue contended that the right to acquire the property was not fully vested until the terms of the MOU were fulfilled, which occurred in 2004, making the subsequent transfer in 2005 a short-term capital gain.

Which sections of the Income-tax Act were involved?

Section 2(14),Section 2(47),Section 143(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE FRIDAY, THE 3RD DAY OF JANUARY 2014/13TH POUSHA, 1935 ------------------------ AGAINST THE ORDER IN ITA 953/COCH/2008 OF INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHIN (ASSESSMENT YEAR 2005-2006) ----------------- APPELLANT/APPELLANT IN ITA : ------------------------------------------------ LACHMANDAS & SONS, COCHIN-35. BY ADV. SRI.K.SRIKUMAR RESPONDENT/RESPONDENT IN ITA : ------------------------------------------------------ THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2 (2) ERNAKULAM. BY SENIOR STANDING COUNSEL SRI. P.K.R. MENON BY ADV. SRI.JOSE JOSEPH, SC, INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 03-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn ...2/- APPENDIX PETITIONERS' ANNEXURES : ANNEXURE 1 : COPY OF ASSESSMENT ORDER DATED 27-12-2007. ANNEXURE 2 COPY OF THE APPELLATE ORDER DATED 15-10-2008. ANNEXURE 3 COPY OF ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 12-5-2010. AN

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