Receipts on Sale of Immovable Property Taxable as Capital Gains: ITAT [Read Order]

The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that consideration received on the sale of ancestral immovable property is taxable under the head capital gains under the Income Tax Act, 1961.

The assessee, Milind Anand Karkhanis, had acquired a one-third share in an ancestral property during the relevant assessment year. Subsequently, the property was sold for a total consideration of Rs. 34.50 lakhs, out of which the assessee received Rs. 11.50 lakhs representing his one-third share. Admittedly, the assessee did not disclose any capital gains arising from the sale of the property in the return of income.

During reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, the assessee furnished documentary evidence before the Assessing Officer (AO) to establish that the property sold was ancestral in nature and that he was entitled to a one-third share therein.

However, the AO treated the entire amount of ₹11.50 lakh received by the assessee as ‘Income from Other Sources’ and made an addition without granting any benefit towards indexed cost of acquisition.

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner ofIncome Tax (Appeals) [CIT(A)]. The CIT(A) acknowledged that income arising from the sale of immovable property was chargeable under Section 45(1) under the head capital gains and that the computation thereof was required to be made in accordance with Sections 48, 49 and 55 of the Income Tax Act. Nevertheless, the CIT(A) dismissed the appeal and upheld the addition made by the AO.

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The assessee contended before the Tribunal that the amount received on sale of the ancestral property ought to be assessed under the head capital gains and that the benefit of indexation should also be allowed in accordance with law. The Revenue, on the other hand, supported the orders of the lower authorities.

The Tribunal of Vikas Awasthy, Judicial Member observed that “It is undisputed that the receipts received by the assessee are from the sale of immovable property. Therefore, the aforesaid receipts are taxable under the head capital gains.”

Holding that the reasons assigned by the CIT(A) for sustaining the addition and rejecting the valuation report were unsustainable, the Tribunal ruled that the nature of the receipt could not be altered merely because the assessee failed to establish the cost of acquisition or improvement.

The Tribunal held that the receipts from the sale of ancestral immovable property were taxable under the head capital gains, and the capital gains were required to be computed in accordance with the provisions of the Income Tax Act, including the benefit of indexation, wherever admissible.

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