2013 (9) TMI 527 - AT - Income Tax

Determination of Capital Gains - Determination of Fair Market Value - Deduction from FMV - cost of improvement - Held that - The number of lifts is only toward adequate lift capacity , which would rather depend on the number of people residing in the building who would be ordinarily requiring that facility and, besides, the number of lifts would also stand to be determined by the carrying capacity of the lifts themselves. The same (number of lifts), thus, would not assume any significance of its own, and the increase, if any, in valuation of the house property on account of a higher number of such units would be marginal, and not in any case in linear proportion to the number of lifts. - no infirmity in the valuation adopted by the A.O. - Decided against the assessee. Deductibility of the sum of Rs. 35 lakhs claimed from the sale consideration of Rs. 175 lakhs of the residential flat under reference in computing the capital gains arising on its transfer during the year - Basis of deduction being that the same represents a condition precedent subject to which only the said property stands bequeathed to, among others, is of assessee - Held that - the assessee has not been able to show of the impugned sum as representing a condition precedent, with the succession of rights being given effect to without the said payment having been made, with even the transfer deed not recognizing the interest of any party other than the legatees in the subject property. - Decided against the assessee. Under section 48, only sums specified for being adjusted against the consideration accruing or arising on the transfer of a capital asset in computing the capital gains are, (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of improvement thereto - Assessee s case as not maintainable both in law as well as on facts Decided against the Assessee.

Summary

Issues Involved:
1. Adoption of fair market value (FMV) as on 01.04.1981 of a long-term capital asset.
2. Deduction of Rs. 35 lakhs from the sale consideration in computing capital gains.
3. General ground with no specific issue for adjudication.

Issue-wise Detailed Analysis:

1. Adoption of Fair Market Value (FMV) as on 01.04.1981:

The first ground of appeal concerns the adoption of the FMV of Flat No. 83A in the building 'Jal Darshan' at 51, Nepean Sea Road, Mumbai, as on 01.04.1981. The Assessing Officer (A.O.) valued it at Rs. 18,22,464/-, while the assessee returned it at Rs. 20,05,750/-. The difference arose due to the different valuation rates applied by the parties. The assessee used the carpet area, whereas the A.O. used the built-up area. Additionally, the A.O. discounted the base rate by 20% and added Rs. 80/- per sq. ft. for one lift, though there were two lifts. The tribunal found that the built-up area should be considered and that the number of lifts was not materially significant. The depreciation rate of 20% applied by the A.O. was deemed reasonable, considering the building's age. Consequently, the tribunal found no infirmity in the valuation adopted by the A.O., confirming the CIT(A)'s order and deciding the ground in favor of the Revenue.

2. Deduction of Rs. 35 Lakhs from Sale Consideration:

The second ground involves the deduction of Rs. 35 lakhs claimed from the sale consideration of Rs. 175 lakhs in computing capital gains. The assessee argued that this amount represented a condition precedent for the property bequeathed to her. The A.O. did not accept this claim, stating it did not fall under section 48 clauses (i) or (ii) of the Income Tax Act, 1961. The CIT(A) upheld this view, noting the absence of a specified amount in the Will and that the payment was neither in connection with the sale nor an improvement to the asset. The tribunal reviewed the law and case precedents, noting that section 48 allows deductions only for expenditure incurred wholly and exclusively in connection with the transfer or the cost of acquisition and improvement. The tribunal found that the obligation to pay Rs. 35 lakhs did not qualify for deduction under these provisions. The tribunal also examined the principle of diversion of income by overriding title, concluding that the facts of the case did not support this principle. The tribunal noted that the transfer deed did not recognize any interest of the payees, and the payment was not shown to have been made. Therefore, the tribunal dismissed the assessee's claim, finding it not maintainable both in law and on facts.

3. General Ground:

Ground C was general in nature, raising no specific issue for adjudication and thus warranted no adjudication.

Conclusion:

The assessee's appeal was dismissed, with the tribunal upholding the A.O.'s valuation of the FMV and rejecting the claim for deduction of Rs. 35 lakhs from the sale consideration.