May 2008
S. 2(14) r.w. S. 45 : Receipt on sale of immovable property is capital gain, irrespective of imperfect title
By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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15 (2007) 110 TTJ 460 (Pune)
ITO v. Rina B. Parwani
ITA No.1426 (Pune) of 2004
A.Y. 2001-02. Dated : 31-5-2007
S. 2(14) read with S. 45 of the Income-tax Act, 1961 —
Receipt from sale of immovable property is capital gains, irrespective of
imperfect title.
For the relevant assessment year, the Assessing Officer held
that the receipt from sale of immovable property was to be taxed as mesne profit
to be included under ‘Income from Other Sources’ and also denied exemption
u/s.54F, on the ground that there were vital defects in the assessee’s legal
title to the immovable property and that there were certain Court disputes in
connection with this property and there were decisions against the assessee. The
CIT(A), however, allowed the assessee’s claim for long-term capital gain and
exemption u/s.54F.
The Tribunal, relying on the decision in the case of
Ashoka Marketing Ltd. v. CIT, (1986) 53 CTR 152 (Cal.)/(1987) 164 ITR 664
(Cal.), held that receipt from sale of immovable property, with howsoever
imperfect title, is chargeable as capital gains.
The Tribunal noted as under :
(a) All that the assessee is required to have, in order
that gains on sale of which can be taxed as ‘capital gains’, is a capital
asset and rights to a property, howsoever imperfect, constitute a capital
asset.
(b) There is no dispute that the assessee acquired these
rights in 1980 and the same were duly reflected in her tax returns. There is
also no dispute that these rights were sold in the relevant previous year. The
objections are only to the imperfections in the rights, but then that aspect
of the matter is not really relevant for the present purposes.
(c) As the CIT(A) has rightly observed that in case the
sale proceeds of these rights cannot be taxed as capital gains, it cannot be
taxed at all. The definition of income includes only such capital receipts as
are chargeable to tax u/s.45. In other words, capital receipts, not chargeable
to tax u/s.45, are outside the ambit of ‘income’.
(d) The receipt in question being referable to a capital
asset, i.e., the rights have been acquired by the assessee in
connection with the bungalow, the receipt can only be treated as capital
receipt. A receipt which is neither a capital gain nor a revenue receipt will
be outside the ambit of income chargeable to tax. One can also safely infer
that merely because a receipt is not a capital gain chargeable to tax, it
would not mean that such a receipt is revenue receipt in nature.
