ITAT Fastens Capital Gain Liability On Owner selling property through GPA Holder

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has fastened capital gain liability on owners executing General Power of Attorney (GPA) and selling property through GPA holders.

The two-member bench headed by Mahavir Singh (Vice President) and G. Manjunatha (Accountant Member) has observed that the GPA has nowhere given possession to the GPA holder, and he has only executed the sale deed. As per the clear terms of the Power of Attorney (PoA), the principal has to receive monetary consideration from the agent after the execution of the sale deed.

During the assessment proceedings, the AO noticed from the assessee's computation of income that the assessee had disclosed long-term capital gain on the sale of land.

The AO noted that the assessee, as per the sale deed, received sale consideration. From the perusal of the sale deed, it transpired that the assessee, along with his grandmother, executed a power of attorney in favor of the agent with respect to the property. The POA was executed as of the date of execution of the sale deed for a total consideration of Rs. The assessee explained that he only received Rs. 30 lakhs and thus disclosed long-term capital gain.

The assessee requested the AO allow a proportionate deduction on account of expenses incurred for the removal of encroachment, eviction, illegal squatters, etc. The AO did not accept the assessee's reasoning or explanation, and he also did not allow a proportionate claim. He assessed long-term capital gain on the entire sale consideration and computed total income by taking the assessee's share of 2/3 of the total income.

The assessee preferred the appeal before the CIT (A). The CIT(A) determined that the assessee was the legal owner of the property, whereas the agent or POA holder was never a legal holder and had no right to any consideration in the property. Accordingly, he treated the entire amount received by the assessee as long-term capital gain, and out of his proportionate share of 2/3 of it, the AO correctly assessed it.

The ITAT noted that the assessee executed both the sale deed and the POA on the same day, February 19, 2015, as did the GPA.It means the POA holder has no legal right or interest in the property, and the entire consideration belongs to the assessee or other co-owner. The POA holder has not accounted for the consideration in his return of income, and no capital gain is declared, either short-term or long-term.

The tribunal upheld the conclusion of the CIT(A) in holding that the receipt of 93% of the sale consideration and the sale of land without any encumbrance on the date when GPA was executed, including GPA, clearly proves that the assessee has no intention of declaring the capital gain in his return of income.

Case Title: Dr. Sabesan Parameswaran Versus ACIT

Citation: ITA No.: 2060/CHNY/2019

Date: 16.11.2022

Counsel For Appellant: C.A. P.R. Venkatachalam

Counsel For Respondent: JCIT P. Sajit Kumar

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