2009 (1) TMI 873 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of capital gains in the assessment year 2004-05.
2. Determination of the fair market value for capital gains computation.

Detailed Analysis:

1. Taxability of Capital Gains in the Assessment Year 2004-05:

The primary issue was whether the capital gains arising from the commercial development of the property at 23, Barakhamba Road, New Delhi, were taxable in the assessment year 2004-05 or earlier in the assessment year 1992-93. The assessee argued that the transaction should be taxed in 1992-93 when the possession was handed over to the builder, M/s. Som Dutt Builders (P.) Ltd., under a collaboration agreement dated 2-5-1987. The CIT(A) held that the capital gains were taxable in 2004-05 based on the apparent consideration of Rs. 6,76,45,500.

The Tribunal examined the sequence of events and relevant legal provisions, particularly section 2(47) of the Act, which defines "transfer" in an extended manner. The assessee contended that the transfer occurred when possession was handed over in 1992, but the Tribunal noted that the transfer of stock-in-trade, not capital assets, occurred in 2003 when an irrevocable power of attorney was issued to Som Dutt. Therefore, the Tribunal concluded that the transfer was taxable in the assessment year 2004-05, aligning with the CIT(A)'s decision.

2. Determination of the Fair Market Value for Capital Gains Computation:

The second issue revolved around the determination of the fair market value for computing capital gains. The assessee declared a consideration of Rs. 6,76,45,500 in Form No. 37-I, but the actual covered area was less than projected due to mandatory utility allocations. The Assessing Officer adopted the declared consideration for tax computation, which the assessee challenged, arguing for a discounted value based on the Land & Development Office (L&DO) rates.

The Tribunal held that the fair market value at the time of conversion of the capital asset into stock-in-trade on 2-5-1987 should be ascertained. Both parties were allowed to present evidence regarding this valuation. The Tribunal also directed the Assessing Officer to determine the value of the constructed area allotted to the assessee at the time of transfer to Som Dutt. The capital gains and business profits were to be computed afresh after hearing the assessee.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the decision that the capital gains were taxable in the assessment year 2004-05 but directed a fresh determination of the fair market value for accurate computation of capital gains and business profits. The Tribunal emphasized that the liability of the assessee should not exceed the amount computed by the CIT(A), as it lacked the power to enhance the assessment.