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September 6, 2022

Capital Gain cannot be taxed to the owner for transfer by Power of attorney holder

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Capital Gain cannot be taxed to the owner for transfer by Power of attorney holder

Facts and Issue of the Case

The assessee raised ground Nos. 2 to 5 amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in confirming the addition of Rs.1,26,80,413/- on account of long term capital gain in the hands of the assessee instead of Jayantilal Oswal in the facts and circumstances of the case.

We note that the assessee is an individual and derives income from cooking, mehandi classes and rental income. The assessee filed return of income declaring a total income at Rs.3,22,471/-. The AO issued notices u/s. 143(2) and 142(1) of the Act for verification of “capital gains consideration in ITR is less than sale of property basing on the report in AIR and for low capital gain with respect to sales consideration”. In response to the said notices, the assessee submitted documents as called for from time to time and the AO determined the total income of the assessee at Rs.1,25,44,810/- inter alia making addition on account of long term capital gain vide its order dated 28-03-2016 passed u/s. 143(3) of the Act. The CIT(A) confirmed the said addition by recording its reasoning vide Para No. 5.6.2 of impugned order. Having aggrieved by the order of CIT(A), the assessee is before us.

Observation by the Court

The court had heard both the parties and perused the material available on record. The court note that the assessee purchased a plot of land for a consideration of Rs.50,00,000/- from one Ashok H. Oswal. Thereafter, in the year 2009, the assessee sold the said plot to Jayantilal Oswal, a relative, for a total consideration of Rs.51,00,000/- by way of Transfer Deed. On the same day, the said Jayantilal Oswal obtained Power of Attorney from the assessee which was duly registered . According to the ld. AR, Shri Mihir Naniwadekar that the said Jayantilal Oswal is empowered to sell the sad plot of land and in pursuance of the said registered Power of Attorney, the said Jayantilal Oswal entered into an agreement for sell with Mrs. Saroj Mahendrakumar Nibjia and Another for a consideration of Rs.2,00,00,000/- and received Rs.11,00,000/- vide payment schedule.

On perusal of the said agreement the assessee being shown as seller and the said Jayantilal Tarachand Oswal as consenting party. The payment of Rs.11,00,000/- made to consenting party vide two cheques of common dated by the purchasers.The court also note that the assessee stated that she sold the property to consenting party for a consideration of Rs.5,00,000/- and she was under liability to transfer all rights and permissions to consenting party or his names which clearly shows that the assessee sold that property to Jayantilal Oswal and she has no right or whatsoever on the said property. The court find at Clause 5A that the assessee acknowledged the receipt of Rs.51,00,000/- from the consenting party. Further by Clause 5C of the said agreement clearly shows that Jayantilal Oswal received Rs.11,00,000/- and it was agreed to pay Rs.1,89,00,000/- to said Jayantilal Oswal as consenting party within 90 days from 31-12-2012 by the purchasers. Further, the court find Assignment Deed wherein the assessee and the consenting party registered the said property in favour of the Mrs. Saroj Mahendrakumar Nibjiya and Another. The payment schedule which is clearly shows that the purchaser Mrs. Saroj Mahendrakumar Nibjiya and Another paid the remaining amount of Rs.1,89,00,000/- vide three cheques drawn on Rupee Co-op. Bank Ltd., Bhawani Peth Branch, Pune in the name of consenting party i.e. Jayantilal Oswal.

The ld. AR, Shri Mihir Naniwadekar raised a proposition that the transfer of right of assessee on the subject property to Jayantilal Oswal is to be considered as transfer u/s. 2(47) of the Act. Further, he raised second proposition to the effect that the sale consideration in pursuance of Assignment Deed dated 13-01-2013 is neither received by the assessee nor deemed to be received by her. He argued when the assessee received no consideration she cannot be taxed for the same for the reason then the said sale consideration is neither accrued to her nor was deemed to be accrued to her. In support, he drew our attention to the copy of return of income filed by the said Jayantilal Oswal disclosing the entire consideration as his income for A.Y. 2013-14 on account of capital gain which is at pages 145 to 157 of the paper book. Therefore, the point for consideration before us is as to whether the assessee can be taxed on account of capital gain in the absence of receipt of sale consideration. As discussed above, the assessee vide deed of transfer sold the subject property to Jayantilal Oswal and received total sale consideration of Rs.51,00,000/- and also delivered possession to the said Jayantilal Oswal. Therefore, it clearly shows that the assessee transferred her right on the said property by receiving sale consideration of Rs.51,00,000/- in favour of Jayantilal Oswal on 12-06-2009 and registered a Power of Attorney in favour of the said Jayantilal Oswal to sell that property as Power of Attorney holder by Clause E Further, copy of return of income of Jayantilal Oswal for A.Y. 2013-14 is at page 145 of the paper book wherein, we note that the said Jayantilal Oswal disclosed sale consideration at Rs.2,00,00,000/- and by availing indexed cost offered capital gain at Rs.1,31,23,659/- in schedule.

Therefore, the court find force in the arguments of ld. AR that it is not correct to be taxed in the hands of assessee when the same was taxed in the hands of Jayantilal Oswal. Therefore, when the assessee not received the said sale consideration of Rs.2,00,00,000/- vide registered Deed of Assignment dated 13-01-2013 and the same was received by the said Jayantilal Oswal as a consenting party which was disclosed by him under the head capital gain by Schedule 18 of his return of income, again, taxing the same in the hands of assessee is not justified. Thus, the order of CIT(A) in confirming the order of AO in taxing the assessee on account of capital gain of Rs.1,26,80,413/- is not justified and it is set aside.


The appeal of assessee is allowed by the court.


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