INCOME TAX ACT, 1961

Section 54EC Section 45

Capital gains - LTCG - Exemption under section 54EC - Assessee relinquished life interest in property as per WILL

Assessee along with 2 nephews were legatees to the WILL dt. 8-9-1999 of assessee's husband registered with Sub-Registrar, Basavanagudi Bengaluru, Bearing Registration No. 181/99-2000. Subsequently, assessee in her return of income for year under consideration, declared her share, and claimed exemption under section 54EC to the extent of Rs. 50 Lacs as per law. It had been submitted that, similar was the position with 2 nephews, who were parties to the sale deed. The income chargeable to tax was thus, escaped assessment, as entire sale consideration should have been taxed in the hands of assessee only, and therefore, there was a reason to believe that income to extent of Rs. 1 Crore, claimed exempt under section 54EC, by her nephews, escaped assessment, within the meaning of section 147. As on the date of transfer of the property nephews were not the owner of the property and Mrs. P.K. Vijayalakshmi (assessee) was the only owner, the entire sale consideration needs to be taxed in the hands of Mrs. P.K. Vijayalakshmi. AO, upon going through submissions advanced by assessee, was of the opinion that, as on the date of transfer of property nephews were not the owner but, assessee was the only owner and hence the entire sale consideration of Rs. 2,45,02,500 was to be taxed in the hands of assessee. He also held that as regards exemption under section 54EC Rs. 50 lacs was available only to assessee and not to her nephews. Accordingly, addition of Rs. 1,83,41,082 was made in the hands of assessee towards long-term capital gains. CIT(A) upheld the view of AO.Held: What needs to be determined was whether 'right to life interest' in a property would constitute 'capital asset' or not. In the present facts of case assessee relinquished her 'right to life interest' in the immovable property while the two nephews transferred the right to title, they possessed by virtue of WILL of their deceased uncle in the property. Each of them possessed a kind of right in the property which was transferred by virtue of sale deed dt. 2-8-2010, which constitutes capital asset within the definition of section 2(14). Assessee owns 'right to life interest', and two nephews possess right to transfer the title in the property, as per last WILL. Assessee and two nephew posses different kinds of rights in the property sold. In order to transfer clear title, free from all encumbrances to the buyer, assessee also had to relinquish her “right to life interest” in the property for which the two nephews have given a share of sale proceeds. This had to be seen as an understanding between assessee and two nephews assessee thus rightly, claimed exemption under section 54EC against her share of sale proceeds on sale of 'right to life interest' in the property, which she declared as LTCG. There cannot be any dispute that each of the three vendors have received their respective shares for sale of rights possessed by each one of them to the buyers against which each one of them can claim exemption under section 54EC independently from declared LTCG.

REFERRED : Karmi v. Amru & Ors. dt. 5-1-1971, CGT v. Anusuya Sarabhai dt. 13-3-1997 and CWT v. K. A. G. Aratoon (1994) 210 ITR 346 (Cal) : 1994 TaxPub(DT) 1057 (Cal-HC).

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

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