S. 2(14), 45 – For charging income under the head ‘capital gains’ it is not necessary for an assessee to be owner of the asset transferred.

4. Asian PPG Industries Ltd. v. DCIT

ITAT ‘A’ Bench, Mumbai

A.Y. : 2004-05. Decided on : 9-2-2010

Counsel for assessee/revenue : H. N. Shah/Daya Shankar

Under an agreement to lease entered into by the assessee with
MIDC on 27-1-1999 the assessee paid consideration of Rs.10 crores and took
possession of land. The agreement provided several conditions upon fulfilment of
which MIDC would execute a lease deed in favour of the assessee for a period of
95 years. The assessee could not comply with the conditions laid down in the
agreement dated 27-1-1999. Vide letter dated 22-1-2003, the assessee surrendered
the original documents, lease agreement and possession receipt dated 27-1-1999
to MIDC and also requested MIDC to sub-divide the plot into two parts. The
assessee received order dated 16-6-2003 from MIDC agreeing to refund a sum of
Rs.9,49,99,995 against a premium of Rs.10,00,00,000 paid towards acquisition of
leasehold land at Chakan. One part of the sub-divided plot was surrendered by
the assessee to MIDC and one part of the sub-divided plot was transferred by the
assessee to Lucas TVS by paying to MIDC transfer charges and balance
consideration payable on execution of supplemental agreement. Tripartite
agreement was entered into between the assessee, MIDC and Lucas Ltd. on
11-3-2004.

In the return of income the assessee claimed long-term
capital loss of Rs.3,69,08,837. The Assessing Officer was of the view that the
assessee had entered into a conditional MOU with MIDC, which entitled the
assessee to lease of land on long-term basis upon fulfilment of the conditions
mentioned in the MOU. Since the assessee did not fulfil the conditions, it never
got lease of land and consequently it never became owner of a capital asset, nor
did any right accrue in favour of the assessee. The AO held that since the
assessee never owned the capital asset which he could transfer there is no
capital gain/loss and the assessee was not entitled to carry forward the
long-term capital loss claimed by it.

Aggrieved the assessee preferred an appeal to the CIT(A) who
dismissed the appeal.

Aggrieved, the assessee preferred an appeal to the Tribunal.

The Tribunal held that S. 2(14) which defines the term
‘capital asset’ uses the words ‘property of any kind held by an assessee’, these
words do not necessarily mean that the property which the assessee holds must be
his own. Any kindly of property by the assessee would come within the
definition. It is not possible to read the definition of capital asset in a
restrictive manner to mean that the property which the assessee owned by himself
alone would come within the meaning of ‘capital asset’.

The Tribunal noted the agreement was executed, consideration
was paid and possession of the plot was taken by the assessee. The assessee was
having rights in the plot was evident from the fact that after sub-division of
the plot one portion of the plot was given to M/s. Lucas TVS Ltd. vide agreement
dated 11-3-2004 wherein the assessee was one party along with MIDC and consent
of the assessee was taken. The Tribunal held that the surrender of rights of the
assessee amounted to extinguishment of his rights in land/capital asset and
therefore it attracts capital gains/loss.

The Tribunal set aside the orders of the Revenue authorities and allowed the
claim of the assessee.