2010 (8) TMI 820 - AT - Income Tax

Computation of capital gain - Addition on long-term capital gain - sale of the residential flat - expenditure incurred wholly and exclusively in connection with such transfer - Whether sale price of Rs. 90, 00, 000 realized by the assessee is to be adopted or Rs. 1, 26, 43, 800 as adopted by the AO ? HELD THAT - According to the scheme of capital gain as per s. 48 while computing the capital gain the assessee is entitled to get deduction from the sale value of the asset liable for capital gain the amount of cost of acquisition of asset and the cost of any improvement thereon. Without making the payment of the amounts to the builder the assessee could not have obtained the conveyance deed. Therefore we are of the opinion that the AO is wrong in taking the cost of acquisition only as stated in the conveyance deed. As against that the assessee has filed evidence on record to contend that what is shown by him as cost of acquisition are the payments made to the builder for getting the right over the property which is sold by him. In our considered opinion such claim of the assessee could not be denied unless proved otherwise. There is no material on record to suggest that the payments which are stated to be made by the assessee were not incurred by him as the cost of the said flat which has been subject-matter of sale during the year under consideration. It is so with respect to base price processing fee preference charges external development charges fire fighting charges generator charges etc. which all will form cost of acquisition incurred by the assessee for getting the ownership of the asset and therefore the assessee is entitled to get deduction thereof under the provisions of s. 48(ii). Computation of indexed cost of acquisition - date from which the indexed cost of acquisition is to be computed? - HELD THAT - The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word held used in s. 2(14) as well as Explanation to s. 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. By making the payment to the builder and having received allotment letter in lieu thereof the assessee will be holding capital asset and therefore the benefit of indexation has to be granted to the assessee on the basis of payments made by him for acquiring the said asset and the assessee has rightly claimed the indexation benefit from the dates when he has made the payments to the builder. Therefore we see force in the claim of the assessee. The AO is directed to provide the benefit of indexation to the assessee in the manner in which the assessee has claimed. In the result the appeal filed by the assessee is allowed.

Issues Involved:
1. Determination of the sale price of the property.
2. Calculation of the cost of acquisition.
3. Date from which the indexation benefit should be applied.
4. Inclusion of additional costs like interest, fire fighting charges, generator charges, and processing fees in the cost of acquisition.

Issue-wise Detailed Analysis:

1. Determination of the Sale Price:
The CIT(A) found that the sale consideration of Rs. 90,00,000, as shown in the sale deed and accepted by the stamp valuation authority, should be adopted. The AO's application of section 50C to compute the sale price at Rs. 1,26,43,800 was incorrect.

2. Calculation of the Cost of Acquisition:
The CIT(A) directed the AO to take the cost of acquisition at Rs. 45,51,720, which included Rs. 5,05,752 incurred on stamp duty. The AO had previously considered only Rs. 40,45,968. The CIT(A) rejected the inclusion of additional costs such as interest, fire fighting charges, generator charges, and processing fees, as they were not substantiated by evidence.

3. Date from which the Indexation Benefit should be Applied:
The CIT(A) held that the indexation benefit should be given from the financial year 2001-02, when the flat came into existence, and not from financial year 1995-96, as claimed by the assessee. The CIT(A) distinguished the cases cited by the assessee, stating that in those cases, the asset existed and possession had taken place at the time of the agreement.

4. Inclusion of Additional Costs in the Cost of Acquisition:
The CIT(A) denied the inclusion of interest and other charges as part of the cost of acquisition based on the decision in CIT vs. Maithreyi Pai. The CIT(A) observed that these costs were not substantiated by evidence and were not part of the cost of acquisition.

Final Judgment:
The Tribunal found that the assessee is entitled to deduct the expenditure incurred wholly and exclusively in connection with the transfer, including the cost of acquisition and any improvement thereto, as per section 48. The Tribunal accepted the assessee's claim that the total cost of acquisition, including additional costs, was Rs. 55,81,062. The Tribunal also held that the indexation benefit should be granted from the dates when the payments were made by the assessee to the builder, starting from the date of allotment. The AO was directed to provide the benefit of indexation as claimed by the assessee.

Conclusion:
The appeal filed by the assessee was allowed, and the AO was directed to recompute the capital gains by considering the total cost of acquisition as Rs. 55,81,062 and granting the indexation benefit from the date of allotment.

← Previous Next →