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2003 (11) TMI 606 - AT - Income TaxDetermination of the cost of acquisition/indexed cost of acquisition for the purpose of computing the capital gain - transfer of land - cost of acquisition of the land - point of time and consideration for the transfer of land - Indexed cost of acquisition for long-term capital assets - HELD THAT - The combined reading of collaboration agreement clauses in our opinion clearly shows that 56 per cent of the built-up area including land will be retained by the assessee and 44 per cent shall be retained by the builder. As per clause 21 the ultimate effect of the transfer of land would be that each flat owner would own his respective right in the land whether it is transferred to each flat owner or to the cooperative society or in other status of the flat owners. The lawn could not have been transferred without the ownership of the land. Therefore considering the entire facts it cannot be said by any logic that the entire land was transferred by the assessee. In our considered opinion what was transferred under the collaboration agreement by the assessee to the builder was only 44 per cent of land owned by them in consideration of 56 per cent of the built-up area and not entire land as contended by the learned counsel for the assessee. Consequently it has also to be held that in year under consideration the assessees not only transferred the flats but also the proportionate land. Point of time and consideration for the transfer of land - We have been informed that possession of flats was given in financial year 1991-92 though no material is placed before us. Assuming the same to be correct it is held that there was simultaneous transfer of possession of 44 per cent of land by the assessees to the builders and possession of 56 per cent of built-up area by the builder to the assessees in financial year 1991-92 in terms of section 2(47) of the Income-tax Act 1961 read with section 53A of Transfer of Property Act. Hence the contention of the assessee s counsel that land was transferred on the date of collaboration agreement is rejected. As far as consideration part is concerned we are of the considered opinion that consideration for the transfer of 44 per cent land was the cost of construction of 56 per cent built-up area which was to be incurred by the builder. This very sum would also amount to investment by assessee in the construction of flats and therefore the cost of construction of the flats by the builder would also amount to the cost of acquisition of the flats by assessees. Thus it is clear that in the year under consideration there was transfer of not only the flats as superstructure but also the proportionate land inasmuch as 56 per cent of the land was retained by the assessee under the collaboration agreement. So we are in agreement with the alternate contention of the assessee s counsel that it was a sale of improved asset and consequently cost of acquisition would include the cost of flats as well as cost of land. As far as cost of flat is concerned we have already observed that it would be equal to the cost of construction of 56 per cent of the built up area. The reason is obvious. The sale consideration of 44 per cent land was in kind and therefore it also amounted to investment in the construction of built-up area. Hence the same will be taken as cost of acquisition of flats after examining the record of the builder. As far as cost of acquisition of land is concerned Admittedly this property was purchased by the ancestors of the co-owners in 1947 and the co-owners inherited the same. Therefore the value of land has to be taken as on 1-4-1981. No exercise has been made for determining the cost of acquisition of land as on 1-4-1981. While computing such value the provisions of ULCA would also had to be taken into consideration as such provisions were in force on that date. However on this aspect we are not in agreement with the finding of the CIT(A) that the value of the land as declared u/s 7(4) of the Wealth-tax Act should be adopted since in our opinion such value is a frozen value for the purpose of section 7(4) and does not represent the market value as on 1-4-1981. The Assessing Officer as well as CIT(A) had therefore grossly erred in adopting such valuation as market value as on 1-4-1981. Indexed cost of acquisition we may point out that indexing is allowed only with reference to long-term capital assets. We are concerned with the property comprising of two different capital assets acquired at different point of time. As far as land is concerned admittedly it is long term capital asset and consequently cost of acquisition which may be determined by the Assessing Officer as per our direction would further be enhanced as per the rule of indexation. However there is some confusion regarding the date of acquisition of 56 per cent built up area. As pointed out earlier we are informed by the learned counsel for the assessee that possession of flats were taken in financial year 1991-92 but there is no material before us in support of the same. This will be verified by the Assessing Officer and then determining the period of holding. If it is found that it is long-term capital asset then indexed cost would also be determined otherwise no indexation would be allowed. Thus the orders of the CIT(A) are modified and the matter is restored to the file of Assessing Officer for determination of the cost of acquisition/indexed cost of acquisition and also the capital gain assessable to tax in accordance with the directions given by us. In the result both the appeals are partly allowed.
Issues Involved:
1. Determination of the cost of acquisition/indexed cost of acquisition for computing capital gain. 2. Whether the development of the plot, construction of flats, and sale thereof amounted to an adventure in the nature of trade. 3. The point of time and consideration for the transfer of land. 4. Determination of the cost of acquisition of the land as on 1-4-1981. 5. Indexed cost of acquisition for long-term capital assets. Summary: 1. Determination of the Cost of Acquisition/Indexed Cost of Acquisition for Computing Capital Gain: The main effective ground in the appeals relates to the determination of the cost of acquisition/indexed cost of acquisition for computing the capital gain. The Tribunal directed the Assessing Officer to compute the cost of acquisition and the income under the head "capital gains." The Assessing Officer rejected the cost of acquisition @ Rs. 1450 per sq.ft. adopted by the assessee and instead adopted the cost of acquisition of the entire property at Rs. 6,10,000 as per the wealth-tax record, working out the cost of acquisition for 18631 sq.ft. at Rs. 1,27,436 and consequently, the indexed cost of acquisition at Rs. 3,30,060. 2. Whether the Development of the Plot, Construction of Flats, and Sale Thereof Amounted to an Adventure in the Nature of Trade: The Assessing Officer initially held that the development of the plot, construction of flats, and sale thereof amounted to an adventure in the nature of trade and computed business income and capital gain accordingly. However, the Tribunal held that it was not an adventure in the nature of trade and directed the computation under the head "capital gains." 3. The Point of Time and Consideration for the Transfer of Land: The Tribunal held that the entire land was not transferred on 2-5-1984 under the collaboration agreement. Instead, 44% of the land was transferred in consideration of 56% of the built-up area. The transfer of possession of 44% of the land by the assessees to the builders and possession of 56% of the built-up area by the builder to the assessees occurred in the financial year 1991-92. 4. Determination of the Cost of Acquisition of the Land as on 1-4-1981: The Tribunal directed that the cost of acquisition of the land should be taken as the value of the land as on 1-4-1981. The value declared under section 7(4) of the Wealth-tax Act should not be adopted as it represents a frozen value and not the market value as on 1-4-1981. The Assessing Officer is directed to value the land based on the material gathered and furnished by the assessee. 5. Indexed Cost of Acquisition for Long-Term Capital Assets: Indexing is allowed only with reference to long-term capital assets. The Tribunal directed the Assessing Officer to verify the date of acquisition of 56% of the built-up area and determine the period of holding. If it is found to be a long-term capital asset, the indexed cost would be determined accordingly. Conclusion: The orders of the CIT(A) are modified, and the matter is restored to the file of the Assessing Officer for determination of the cost of acquisition/indexed cost of acquisition and the capital gain assessable to tax in accordance with the directions given by the Tribunal. Both appeals are partly allowed.
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