Smt. J. Mahishree, Bangalore V. ACIT, Bangalore

ITA 1081/BANG/2010

• Counselvise Citation: 108121114 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Cost of acquisition

Judgement Text

ITA.1081/BANG/2010 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE BEFORE SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A NO.1081/BANG/2010 (ASSESSMENT YEAR : 2007-08) SMT. J. MAHISHREE, NO.1-401, PARK SQUARE APARTMENT, 2ND CROSS, C. R. LAYOUT, SARAKKI, J.P. NAGAR I PHAS E, BANGALORE 560 078 .. APPELLANT PAN : AFCPM 1444E V. ASST.COMMISSIONER OF INCOME-TAX, CIRCLE -4(1), BANGALORE .. RESPONDENT APPELLANT BY : SMT. KAVITHA P, CA RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT HEARD ON : 11.06.2012 PRONOUNCED ON : O R D E R PER N. V. VASUDEVAN, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED.30.06.2010 OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, BANGALORE, RELATING TO AY 2007-08. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS : I) THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFF ICER AND THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX ITA.1081/BANG/2010 PAGE - 2 (APPEALS) ENHANCING THE INCOME COMPUTED BY THE ASSE SSING OFFICER ARE OPPOSED TO LAW AND FACTS OF THE CASE. II) THE ASSESSING OFFICER ERRED IN HOLDING THAT THE APP ELLANT HAD RECEIVED FROM THE DEVELOPER 5 FLATS IN ADDITION TO CONSIDERATION FOR TRANSFERRING THE RIGHTS IN THE LA ND BY THE APPELLANT. III) THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN H OLDING THAT THE APPELLANT HAD EARNED SHORT TERM CAPITAL GA INS ON SALE OF FLATS IN ADDITION TO THE LONG TERM CAPITAL GAINS DECLARED BY THE APPELLANT. IV) THE COMMISSIONER OF INCOME-TAX (APPEALS) FURTHER ER RED IN DETERMINING THE SHORT TERM CAPITAL GAINS FROM SALE OF FLATS SINCE THE PROFIT, IF ANY, ARISING FROM SALE OF FLAT S ACCRUED TO THE DEVELOPER AS BUSINESS PROFIT AND NOT TO THE APP ELLANT AND THE APPELLANT HAD OFFERED HER SHARE OF THE SALE CON SIDERATION RECEIVED BY WAY OF 5 FLATS IN WORKING OUT THE LONG TERM CAPITAL GAINS. 02. AT THE TIME OF HEARING OF THE APPEAL, THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISPUTE RAISED BY THE A SSESSEE BEFORE THE TRIBUNAL MAY BE RESTRICTED TO THE COST OF CONSTRUCT ION OF FOUR FLATS WHICH WERE TRANSFERRED BY THE ASSESSEE DURING THE P REVIOUS YEAR AND WHICH RESULTED IN SHORT-TERM CAPITAL GAIN. THE ABO VE COST OF CONSTRUCTION WAS DEDUCTIBLE U/S.48 OF THE ACT FROM THE FULL VALUE OF CONSIDERATION AS COST OF ACQUISITION OF THE CAPITAL ASSET WHICH WAS TRANSFERRED, RESULTING IN SHORT-TERM CAPITAL GAIN. ITA.1081/BANG/2010 PAGE - 3 03. THE MATERIAL FACTS WHICH ARE RELEVANT FOR A DEC ISION ON THE ABOVE ISSUE ARE AS FOLLOWS. THE ASSESSEE AND ONE S HRI. J. ADITYA, WERE CO-OWNERS OF A PROPERTY AT SARAKKI, JP NAGAR, BANGA LORE, MEASURING 13,515 SFT. THE AFORESAID PROPERTY WAS GIVEN FOR J OINT DEVELOPMENT BY THE ASSESSEE AND SHRI. J. ADITYA TO ONE M/S. B. S. R DEVELOPERS P. LTD., CHENNAI. AS PER THE JOINT DEVELOPMENT AGREEM ENT, THE TOTAL NUMBER OF FLATS THAT WERE TO BE BUILT ON THE LAND W AS 16 NUMBERS. OUT OF THE 16 FLATS, FIVE FLATS WERE TO BE GIVEN TO THE ASSESSEE AND SHRI. J. ADITYA AND THE REMAINING ELEVEN FLATS WERE TO BE RE TAINED BY THE DEVELOPER. ON THE ABOVE TRANSACTION OF JOINT DEVEL OPMENT, LONG-TERM CAPITAL GAINS ACCRUED TO THE ASSESSEE. THE BUILT-U P AREA OF 5 NUMBERS OF FLATS WHICH WERE GIVEN TO THE SHARE OF THE OWNER S WAS 6020 SFT, OUT OF WHICH THE ASSESSEE'S SHARE WAS 3013 SFT. THE TO TAL AREA OF THE LAND GIVEN FOR JOINT DEVELOPMENT WAS 10,855 SFT AND THE ASSESSEE'S SHARE OUT OF THE ABOVE WAS RS.5,427 SFT. THE ASSESSING O FFICER COMPUTED LONG-TERM CAPITAL GAIN ON THE TRANSFER BY WAY OF JO INT DEVELOPMENT, AS FOLLOWS : ITA.1081/BANG/2010 PAGE - 4 BUILT UP AREA RECEIVED BY THE ASSESSEE IN LIEU OF SURRENDERING UNDIVIDED SHARE OF 5,427 SQ.FT 3,013 X 1,300 = RS.39 ,18,900/- BUILDERS UNDIVIDED SHARE OF LAND IS 5,427 SQ.FT WHICH IS VALUED AT RS.80/- TO ARRIVE AT THE COST OF LAND AND INDEXATION 5,427 X 80 = 4,34,160 X 519 = RS.22,53,290/- 100 LONG TERM CAPITAL GAIN CHARGEABLE TO TAX IN RESPECT OF ASSESSEE'S SHARE RS.16,63,610 /- LONG TERM CAPITAL GAINS RS.16,63,610/- LESS : LONG TERM CAPITAL GAIN OFFERED BY THE ASSESSEE IN THE RETURN RS.20,16,110/- DIFFERENCE RS. 3,52,500/- 04. OUT OF THE FIVE FLATS WHICH THE ASSESSEE RECEIV ED UNDER THE JOINT DEVELOPMENT AGREEMENT, THE ASSESSEE SOLD FOUR FLATS . ON SUCH SALE, THERE ACCRUED SHORT-TERM CAPITAL GAIN CHARGEABLE TO TAX. THE ASSESSEE HAD NOT DECLARED SHORT-TERM CAPITAL GAINS IN THE RE TURN OF INCOME. THE ASSESSING OFFICER DETERMINED THE SHORT-TERM CAPITAL GAIN AS FOLLOWS : SHORT-TERM CAPITAL GAINS : THE SHORT TERM CAPITAL GAINS PAYABLE BY THE ASSESSE E CONSEQUENT ON SALE OF FLATS RECEIVED DURING THE SAME YEAR IS WORK ED OUT AS UNDER : SALE CONSIDERATION RECEIVED ON SALE OF FLATS .. RS .49,33,700 LESS : COST OF FLATS SOLD AND THE VALUE OF THE FLAT S RECEIVED FROM BUILDERS ADOPTED FOR ARRIVING THE LON G TERM CAPITAL GAIN IS TAKEN AS COST FOR ARRIVING SHO RT TERM CAPITAL GAIN AS ABOVE .. RS.39,16, 900 SHORT TERM CAPITAL GAINS CHARGEABLE TO TAX .. RS.10,16,800 THE ASSESSEE WAS AGGRIEVED BY THE AFORESAID COMPUTA TION OF SHORT TERM CAPITAL GAIN. ITA.1081/BANG/2010 PAGE - 5 05. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) DETAILS OF THE BUILT-UP AREA OF THE FLATS AND UNDIVIDED SHARE OF T HE LAND SOLD BY THE ASSESSEE WERE GIVEN AND THE SAME WAS AS FOLLOWS : FLAT NO. BUILT-UP AREA UNDIVIDED SHARE IN LAND FLAT NO.C GROUND FLOOR 1060 SFT 470 SFT FLAT NO.A1 FIRST FLOOR 1423 SFT 625 SFT FLAT NO.B2 SECOND FLOOR 1423 SFT 625 SFT FLAT NO.C2 SECOND FLOOR 1060 SFT 470 SFT FLAT NO.C3 THIRD FLOOR 1060 SFT 470 SFT TOTAL 6026 SFT 2660 SFT 06 THE ASSESSEE POINTED OUT THAT OUT OF 5 FLATS 4 F LATS WERE SOLD DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2007-08 , THE DETAILS OF WHICH ARE GIVEN BELOW NAME OF THE PURCHASER DATE OF AGREEMENT FOR SALE DESCRIPTION OF FLATS SOLD SALE CONSIDERATION (50% APPELLANT'S SHARE) SANJIV CHUG 18/5/2005 FLAT NO.C-2 II FLOOR RS.10,50,000 RAJESH PATEL - FLAT NO.C GR.FLOOR RS.10,80,000 SUMASH VISHWARAJ 28/3/2007 FLAT NO.A1 II FLOOR RS.14,01,850 ASHOK DANDIN 27/10/2007 FLAT NO.B; I FLOOR RS.14,01 ,850 TOTAL RS.49,33,700 ITA.1081/BANG/2010 PAGE - 6 IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD COM PUTED SHORT-TERM CAPITAL GAIN AS IF ALL THE 5 FLATS HAD BEEN SOLD. THE ASSESSEE THEREFORE CHALLENGED THE COMPUTATION OF STCG BY THE ASSESSING OFFICER. 07. ON PERUSAL OF THE ABOVE DETAILS, THE COMMISSIO NER OF INCOME- TAX (APPEALS) WAS OF THE VIEW THAT COMPUTATION OF S HORT TERM CAPITAL GAIN HAD TO BE MADE BY BIFURCATING THE CONSIDERATIO N RECEIVED INTO TWO PARTS VIZ., ONE LAND AND THE OTHER PART ATTRIBUTABL E TO BUILDING. SINCE DOING SO MIGHT RESULT IN ENHANCING OF INCOME, THE C OMMISSIONER OF INCOME-TAX (APPEALS) ISSUED NOTICE OF ENHANCEMENT T O THE ASSESSEE AND HELD THAT IN ACCORDANCE WITH THE PRINCIPLES LAI D DOWN IN SEVERAL JUDICIAL PRONOUNCEMENTS, WHEN A CAPITAL ASSET COMPR ISING OF LAND AND BUILDING IS SOLD, CAPITAL GAINS ARISING OUT OF SUCH TRANSFER HAS TO BE BIFURCATED BY ATTRIBUTING SALE CONSIDERATION AS WEL L AS COST OF ACQUISITION TO THE LAND COMPONENT AND THE BUILDING COMPONENT SEPARATELY. THEREAFTER THE COMMISSIONER OF INCOME- TAX (APPEALS) PROCEEDED TO WORK OUT THE LONG TERM CAPITAL GAIN AN D THE SHORT TERM CAPITAL GAIN ON SALE OF THE 4 FLATS BY BIFURCATING THE UNDIVIDED SHARE OF LAND SOLD AND THE FLAT SOLD SEPARATELY. THE UNDIVI DED SHARE OF LAND ATTRIBUTABLE TO THE 4 FLATS SOLD WAS CONSIDERED AS LTCG BY THE ASSESSING OFFICER AS THE LAND WAS HELD BY THE ASSES SEE FOR A PERIOD OF MORE THAN 36 MONTHS PRIOR TO THE TRANSFER. ITA.1081/BANG/2010 PAGE - 7 08. TTHE LONG TERM CAPITAL GAINS ARISING ON SALE OF LAND IS WORKED AS UNDER : PARTICULARS AMOUNT (RS.) SALE CONSIDERATION IN RESPECT OF 2190 SFT UNDIVIDED SALE OF LAND AS PER JDA 50% THEREOF 8, 20,555 LESS : INDEXED COST OF LAND 2190 X 80 = 1,75,200 50% OF 1,75,200 X 519 = 9,09,298 100 4,54,644 LONG TERM CAPITAL GAINS CHARGEABLE TO TAX IN RESPEC T OF 50% SHARE OF LAND I.E. 50% OF RS.7,31,822/- 3,65, 911 09. THE SHORT TERM CAPITAL GAIN ON SALE OF 4 FLATS WAS TREATED AS STCG, SINCE ALL THESE FLATS WERE RECEIVED FROM THE BUILDER DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2007-08 AND SOLD D URING THE SAME YEAR ITSELF. THE SHORT TERM CAPITAL GAINS WASS WO RKED OUT AS BELOW : SALE CONSIDERATION OF 4 FLATS RS.49,33,700 LESS : SALE CONSIDERATION OF 1095 SFT OF LAND RS. 8,20,550 BALANCE RS.41,13,150 LESS : COST OF CONSTRUCTION OF 4 FLATS [2483 SFT X RS.900)- 2,48,388 X 900 RS.22,34,700 BALANCE CHARGEABLE TO SHORT TERM CAPITAL GAINS TAX SINCE NO COST OF IMPROVEMENT OR OTHER EXPENSES HAS BEEN FURNISHED RS.18,78,450 10. PUT IN A NUTSHELL, THE ASSESSING OFFICER HAS CO MPUTED THE LONG TERM CAPITAL GAINS AT RS.16,63,610/-, WHICH WAS INC REASED BY RS.3,65,911/- AS WORKED OUT IN PARA 08 ABOVE. THUS THERE WAS ENHANCEMENT OF INCOME BY RS.3,65,911/- UNDER THE HE AD 'LONG TERM CAPITAL GAINS'. ITA.1081/BANG/2010 PAGE - 8 SIMILARLY, UNDER THE HEAD 'SHORT TERM CAPITAL GAINS ' THE ASSESSING OFFICER HAD CALCULATED IT AT RS.10,16,800/-; HOWEVE R, AS COMPUTED IN PARA 09 ABOVE, IT WAS DETERMINED AT RS.18,78,450/-. AS SUCH, THERE WAS ENHANCEMENT OF INCOME UNDER THE HEAD 'SHORT TER M CAPITAL GAINS' BY RS.8,61,650/-. 11. THE SHORT CONTROVERSY WHICH THE LEARNED REPRESE NTATIVE FOR THE ASSESSEE HAS PRESSED FOR ADJUDICATION BEFORE THE TR IBUNAL IS WITH REGARD TO ADOPTION OF COST OF CONSTRUCTION AT RS.90 0/- BY THE COMMISSIONER OF INCOME-TAX (APPEALS) WHILE DETERMIN ING SHORT TERM CAPITAL GAIN ON SALE OF FOUR FLATS. IN THIS REGARD , OUR ATTENTION WAS DRAWN BY THE LEARNED COUNSEL FOR THE ASSESSEE TO TH E DETERMINATION OF LONG-TERM CAPITAL GAIN BY THE COMMISSIONER OF INCOM E-TAX (APPEALS) IN PARA 3.10 OF HIS ORDER WHICH IS AS FOLLOWS : '3.10. IT IS TO BE NOTED THAT THE APPELLANT WITH SH RI. ADITHYA TRANSFERRED 10,855 SQ FT UNDIVIDED SHARE OF LAND AN D IN TURN THEY HAVE RECEIVED 5 FLATS CONSISTING OF 6026 SQ FT SUPER BUI LT UP AREA. THUS THE LONG TERM CAPITAL GAINS IS WORKED AS UNDER : BUILT-UP AREA RECEIVED BY THE APPELLANT IN LIEU OF SURRENDERING UNDIVIDED SHARE 3013 X 1300 RS.39,16,900 BUILDER'S UNDIVIDED SHARE OF LAND IS 5427 SQ FT WHICH IS VALUED AT RS.80 AND INDEXED COST RS.22,53 ,290 LONG TERM CAPITAL GAIN CHARGEABLE TO TAX RS.16,63, 610' THE LEARNED REPRESENTATIVE DREW OUR ATTENTION TO TH E FACT THAT THE COST OF CONSTRUCTION WHILE DETERMINING LONG TERM CAPITAL GAIN WAS ACCEPTED ITA.1081/BANG/2010 PAGE - 9 BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AT RS.1 ,300/-. WHEN THE VERY SAME ASSET IS SOLD, THERE IS NO REASON TO ADOPT THE COST OF CONSTRUCTION AT RS.900/-. SHE ACCORDINGLY PRAYED T HAT THE COST OF CONSTRUCTION OF THE FOUR FLATS BE ADOPTED AT RS.1,3 00/- WHICH WILL RESULT IN SHORT TERM CAPITAL GAIN DETERMINED AT A LESSER FIGURE THAN WHAT WAS DETERMINED BY THE COMMISSIONER OF INCOME-TAX (APPEA LS). 12. THE LEARNED DR COULD NOT CONTROVERT OR COULD NO T GIVE ANY EXPLANATION AS TO WHY THE COMMISSIONER OF INCOME-TA X (APPEALS) ADOPTED THE COST OF CONSTRUCTION AT RS.900/-. THE LEARNED DR SUBMITTED THAT THE MATTER SHOULD BE REMANDED TO THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR FRESH EXAMINATION. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS GIVEN NO R EASON AS TO WHY THE COST OF CONSTRUCTION OF THE FLATS WHILE COMPUTI NG SHORT TERM CAPITAL GAIN IS ADOPTED AT RS.900/-. IN THIS REGARD WE FIN D THAT THE LONG TERM CAPITAL GAIN FOR THE VERY SAME FLATS HAVE BEEN ACCE PTED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) TO HAVE A COST OF CONSTRUCTION AT RS.1,300/-. THERE CANNOT BE APPARENTLY ANY VALI D REASON FOR THE COMMISSIONER OF INCOME-TAX (APPEALS) TO ADOPT COST OF CONSTRUCTION AT RS.900/- WHILE COMPUTING SHORT TERM CAPITAL GAIN . WE, THEREFORE, ITA.1081/BANG/2010 PAGE - 10 HOLD THE COST OF CONSTRUCTION BE ADOPTED AT RS.1,30 0/- WHILE DETERMINING SHORT TERM CAPITAL GAIN. ACCORDINGLY, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 14. ORDER PRONOUNCED IN THE OPEN COURT ON 29.06.201 2. SD/- SD/- (JASON P BOAZ) (N. V. VASUDE VAN) ACCOUNTANT MEMBER JUDICIAL MEMBER