ITO, Hyderabad V. Ms. Irene Adams, Secunderabad

ITA 97/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66116 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-06-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 19-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Keywords: Fair market value
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 96 AND 97/HYD/2011 ASSESSMENT YEARS : 2003-04 INCOME-TAX OFFICER,, WARD-10(4), HYDERABAD. .... APPELLANT VS. 1.MS. DOREEN ADAMS, WEST MARREDPALLY SECBAD. 2.MS. IRENE ADAMS, WEST MARRDPALLY,SECBAD. RESPONDENTS APPELLANT BY : SHRI B.V. PRASAD REDDY RESPONDENT BY : NONE DATE OF HEARING : 06-06-2012 DATE OF PRONOUNCEMENT : 03-08-2012 ORDER PER SAKTIJIT DEY, J.M.: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT (A)-VI, HYDERABAD AN D THEY PERTAIN TO THE ASSESSMENT YEARS 2003-04 IN THE CASE S OF TWO DIFFERENT ASSESSEE-RESPONDENTS. SINCE COMMON ISSUE S ARE INVOLVED IN THESE APPEALS, THESE ARE CLUBBED TOGETH ER AND DISPOSED OF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2 . THE REVENUE HAS RAISED FOLLOWING COMMON EFFECTIVE G ROUNDS WHICH ARE EXTRACTED HEREUNDER:- 2 ITA NOS. 96 AND 97 OF 2011 MS. DOREEN AADAMS AND OTHERS. 1. THE CIT (A) ERRED IN ALLOWING DEDUCTION OF FAIR MAR KET VALUE OF BUILDING AS ON 1-4-1981 IN THE COMPUTATION OF CAPITAL GAINS. THE YEAR OF TRANSFER WAS THE YEAR I N WHICH THE ASSESSEE RECEIVED BUILT UP AREA AND THERE WAS NO BUILDING IN EXISTENCE ON THE DATE OF TRANSFE R. SINCE WHAT WAS TRANSFERRED WAS ONLY LAND, DEDUCTION IN RESPECT OF THE COST OF BUILDING IS NOT ALLOWABLE . 2. THE CIT (A) ERRED IN ALLOWING DEDUCTION TOWARDS COST OF IMPROVEMENT OF BUILDING. SINCE THE ASSET TRANSFERRED WAS ONLY LAND AND NOT BUILDING QUESTION OF CONSIDERING THE COST OF ALTERATIONS AND REPAIRS TO BUILDING FOR COMPUTING CAPITAL GAINS DOES NOT ARISE . 3. THE CIT (A) ERRED IN ALLOWING EXEMPTION UNDER SE CTION 54 OF THE ACT. SINCE THE ASSET TRANSFERRED WAS ONL Y LAND AND NOT BUILDING, THE PROVISIONS OF SECTION 54 F ARE APPLICABLE. THE CIT (A) ALSO ERRED IN HOLDING THAT EXEMPTION U/S 54F WOULD ALSO BE ADMISSIBLE AS THE ASSESSEE HAD INVESTED IN A RESIDENTIAL HOUSE SINCE THE ASSESSEE WAS HOLDING MORE THAN 2 FLATS ON THE DATE OF TRANSFER AND THEREBY DID NOT QUALIFY FOR TH E EXEMPTION U/S 54F OF THE ACT. 4. ANY OTHER GROUND THAT MAY BE URGED AT TAHE TIME OF HEARING OF THE APPEAL. 3. DESPITE NOTICE, THERE WAS NO APPEARANCE ON BEHAL F OF THE ASSESSEE-RESPONDENTS DURING THE COURSE OF HEARING O F THESE APPEALS. HENCE, WE PROCEED TO DISPOSE OF THE APPEAL S EX PARTE ON MERITS AFTER HEARING THE LEARNED DR. 4. SINCE FACTS ARE IDENTICAL IN THESE TWO APPEALS, FOR THE SAKE OF BREVITY, WE DEAL WITH THE FACTS AS MENTIONED IN ITA NO.96/HYD/2011. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE ALONG 3 ITA NOS. 96 AND 97 OF 2011 MS. DOREEN AADAMS AND OTHERS. WITH HER SISTER IRENE ADAMS ARE THE CO-OWNERS OF TH E PROPERTY AT PLOT NO.223, H.NO.1-2-406 & 407, WEST MARRDPALLY, B Y A CONVEYANCE DEED DATED 6-8-1997. THE AFORESAID PROPE RTY WAS A LEASE HOLD LAND ALLOTTED TO THE FATHER OF THE ASSES SEE-RESPONDENTS IN THE YEAR 1933. THIS LEASE-HOLD PROPERTY WAS CON VERTED INTO FREEHOLD PROPERTY IN THE YEAR 1997. THE ASSESSEE EN TERED INTO DEVELOPMENT AGREEMENT WITH M/S SAI KRUPA VENTURES O N 20-5- 2000. IN EXCHANGE OF THE PROPERTY TRANSFERRED TO TH E DEVELOPER, THE ASSESSEE ALONG WITH HER SISTER RECEIVED 8000 SQ .FT BUILT-UP AREA FROM THE DEVELOPER CONSISTING OF SEVEN FLATS D URING THE FINANCIAL YEAR 2002-03 SINCE THE ASSESSEE DID NOT F ILE ANY RETURN , A NOTICE WAS ISSUED U/S 148. IN RESPONSE TO THE NOT ICE, THE ASSESSEE SENT A LETTER TO THE AO INTIMATING THAT SH E IS A SENIOR CITIZEN AND HER GROSS TOTAL INCOME IS BELOW TAXABLE LIMIT. THEREAFTER, NOTICE U/S 143(2) WAS ISSUED TO THE ASS ESSEE. IN COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED INDEXATION OF LAND SINCE 1981. THE AO CAME TO A CONCLUSION THAT SINCE THE LEASE HOLD LAND WAS CONVERTED INTO FREEHOLD LAND ON 6-8-1997, THE LESSORS RIGHT EXERCISED BY THE ASSESSEE OVER THE LAND MERGED INTO LARGER RIGH T IN THE YEAR 1997 ONLY. HENCE, THE ASSESSEE WOULD NOT BE ENTIT LED TO INDEX THE COST OF LAND FROM 1-4-1981. THE AO ACCORDINGL Y TOOK THE INDEXATION FOR COST OF LAND FOR THE YEAR 1997 BY A DOPTING THE RATE THAT THE ASSESSEE INCURRED FOR CONVEYANCE DEED. THE AO FURTHER CAME TO THE CONCLUSION THAT SINCE AS PER THE DEVELO PMENT AGREEMENT ONLY LAND WAS TRANSFERRED TO THE DEVELOPE R NO COST INDEXATION OF BUILDING IS TO BE ALLOWED. ON THE AF ORESAID CONCLUSION, THE AO COMPUTED THE TOTAL CAPITAL GAINS CHARGEABLE TO TAX AT RS.28,50,110/- AND 50% OUT OF WHICH IT WAS TAKEN AS ASSESSEES SHARE. THE ASSESSEE BEING AGGRIEVED FILE D AN APPEAL BEFORE THE CIT (A). THE CIT (A) AFTER CONSIDERING THE 4 ITA NOS. 96 AND 97 OF 2011 MS. DOREEN AADAMS AND OTHERS. CONTENTIONS RAISED BY THE ASSESSEE CAME TO A CONCLU SION THAT THE AREA LEASED OUT BY THE GOVERNMENT OF A.P TO THE ASS ESSEES FATHER WAS ON PERPETUAL LEASE. THE ALLOTTEES AFTER TAKING THE PROPERTIES ON LEASE, CONSTRUCTED BUILDINGS AND STARTED LIVING THEREON. SOME OF THE ORIGINAL ALLOTTEES SOLD THOSE PROPERTIES AND THE PROPERTIES PASSED THROUGH SEVERAL HANDS ON SUCCESSIVE SALE TRA NSACTIONS AND CONSEQUENT TRANSFERS. THERE WAS NO RESTRICTION TO ALIENATE THE PROPERTY IN THE ALLOTMENT LETTERS. THE CIT (A) CAM E A CONCLUSION THAT FOR ALL PRACTICAL PURPOSES, THE LEASE-HOLDERS ENJOYED ALL RIGHTS WHICH THE OWNERS ENJOY. THE CIT (A) FURTHER HELD TH AT SUCH LEASEHOLD RIGHT WITH THE ASSESSEE WAS HAVING SOME V ALUE FOR WHICH THE ASSESSEE DESERVES TO GET DEDUCTION IN RES PECT OF FAIR MARKET VALUE OF SUCH LEASE HOLD RIGHTS AS ON 1-4-19 81. ON THE AFORESAID CONCLUSION, THE CIT (A) HELD THAT THE ASS ESSEE WOULD BE ENTITLED TO DEDUCTION OF INDEXED FAIR MARKET VALUE AS ON 1-4-1981 AT THE RATE OF RS.100 PER SQ. YARD IN RESPECT OF 60 0 SQ. YARDS TRANSFERRED TO THE DEVELOPER. SO FAR AS THE CLAI M OF COST INDEXATION OF BUILDING AS ON 1-4-1981 IS CONCERNED, THE CIT (A) CAME TO A CONCLUSION THAT AT THE TIME OF TRANSFER O F PROPERTY TO THE DEVELOPER UNDER THE DEVELOPMENT AGREEMENT A BUI LDING WAS STANDING ON THE LAND AND THEREFORE HE DIRECTED THE AO TO ALLOW DEDUCTION OF INDEXED SHARE MARKET VALUE IN RESPECT OF THE BUILDING AS DETERMINED BY THE REGISTERED VALUER OF THE ASSESSEE. THE CIT (A) FURTHER DIRECTED THE AO TO ALLOW EXEMPT ION U/S 54 OF THE ACT IN RESPECT OF ONE FLAT ONLY. 5. THE LEARNED DR SUBMITTED BEFORE US THAT THE CIT (A) DID NOT APPRECIATE THE FACT THAT THE PROPERTY WAS CONVERTED INTO FREEHOLD PROPERTY IN 1997 AND AS SUCH FAIR MARKET VALUE CANN OT BE TAKEN INTO CONSIDERATION AS ON 1-4-1981 WHEN THE ASSESSEE WAS ONLY HAVING A LEASE HOLD RIGHTS. THE LEARNED DR FURTHER SUBMITTED THAT 5 ITA NOS. 96 AND 97 OF 2011 MS. DOREEN AADAMS AND OTHERS. THE DEVELOPMENT AGREEMENT CLEARLY STATES THAT ONLY LAND WAS TRANSFERRED BY THE ASSESSEE, THEREFORE, THE CIT (A) WAS NOT JUSTIFIED IN ALLOWING THE COST OF INDEXATION OF THE BUILDING ALSO. THE LD. DR SUBMITTED THAT THE ISSUE IS TO BE SET AS IDE TO THE FILE OF THE CIT (A) FOR VERIFYING THE FACT WHETHER AT THE T IME WHEN THE PROPERTY WAS TRANSFERRED TO THE DEVELOPER ANY BUILD ING WAS STANDING THEREON OR NOT. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN FROM THE ASSESSM ENT ORDER THAT THE AO HAS CLEARLY MENTIONED IN PARA-2 OF THE ORDER THAT UNDER THE DEVELOPMENT AGREEMENT, THE SCHEDULE OF PROPERTY IS MENTIONED AS PIECE AND PARCEL OF LAND AND PLOT NO .223 PREMISES NO.10-2-406 & 407 ADMEASURING 600 SQ. YARDS AND THE RE WAS NO MENTION OF ANY BUILDING. THE CIT (A) HOWEVER HAS A CCEPTED THE ASSESSEES CONTENTION THAT AT THE TIME OF TRANSFER OF THE PROPERTY UNDER THE DEVELOPMENT AGREEMENT, A BUILDING WAS STA NDING OVER THE LAND. IT IS SEEN FROM THE ORDER OF THE CIT (A ) THAT HE HAS NOT MADE ANY ENQUIRY TO FIND OUT WHETHER IN REALITY A B UILDING WAS EXISTING ON THE LAND TRANSFERRED TO THE DEVELOPER U NDER THE DEVELOPMENT AGREEMENT. THE CIT (A) HAS SIMPLY ACCE PTED THE VERSION OF ASSESSEE WITHOUT MAKING VERIFICATION. O N T HE AFORESAID VIEW OF THE MATTER, WE CONSIDER IT PROPE R TO SET ASIDE THE ORDER PASSED BY THE CIT (A) AND RESTORE THE MAT TER BACK TO HIM FOR VERIFYING THE FACT AS TO WHETHER A BUILDING EXISTED OVER THE LAND WHEN IT WAS TRANSFERRED TO THE DEVELOPER U NDER THE DEVELOPMENT AGREEMENT. SINCE THE CLAIM OF DEDUCTIO N U/S 54 OF THE ACT IS DEPENDENT UPON THE FACT AS TO WHETHER BO TH THE BUILDING AND LAND HAVE BEEN TRANSFERRED OR NOT, WE ALSO REMIT THIS MATTER BACK TO THE FILE OF THE CIT (A) FOR ADJUDICA TING THE SAME 6 ITA NOS. 96 AND 97 OF 2011 MS. DOREEN AADAMS AND OTHERS. AFRESH. THE CIT (A) SHALL AFFORD A REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE COMPLETING THE PROCEED INGS. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON - 8-2012. SD/- SD /- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 3 RD AUGUST, 2012. COPY TO:- 1) ITO, WARD-10(4), IT TOWERS, AC GUARDS, HYDERABAD . 2) MS. DOREEEN ADAMS, 1 ST FLOOR, ADAMS ARCADSE APARTMENTS, PLOT NO.129, ROAD NO.9, WEST MAREEDPALL Y, SECUNDERABAD. 3) MS. IRENE ADAMS, 1 ST FLOOR, ADAMS ARCADSE APARTMENTS, PLOT NO.129, ROAD NO.9, WEST MAREEDPALLY, SECUNDERA BAD. 4) THE CIT (A)-VI, HYDERABAD 5) THE CIT CONCERNED, HYDERABAD 6THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERAB AD. JMR* 7 ITA NOS. 96 AND 97 OF 2011 MS. DOREEN AADAMS AND OTHERS.