2015 (6) TMI 92 - AT - Income Tax

Capital gain in respect of the development right of property - AO held that since the property was acquired from her late parents, therefore, the cost of acquisition would be taken at Nil - Held that - The consideration as stipulated in the development agreement was passed to the assessee only in the A.Y. 2006-07. The amount of ₹ 80,000/- was mainly to allow the developer to develop the said plot. As per the express terms of the agreement with the developer, the assessee in lieu of surrendering the rights to the developer was entitled for flat admeasuring 700 sq. ft free of cost . Thus, the consideration for the transfer of rights was handing over the flat. This transaction had taken place in the December 2005. Thus, we agree with the contention of the department that the long term capital gain will arise in the A.Y. 2006-07. Regarding cost of acquisition we agree with the contention of the learned counsel that the same cannot be taken at Nil , because the previous owner, that is, father of the assessee had acquired the property much before 01.04.1981. Thus the market value as on 01.04.1981 has to be adopted and accordingly the fair market value has to be adopted as on 01.04.1981. Since the department has not adopted any fair market value as on 01.04.1981, the fare market value as determined by the registered valuer as on 01.04.1981 appears to be correct. However, the AO shall examine the said value as determined by the registered valuer. Regarding the sale value for the purpose of determination of long term capital gain, the same also needs to be verified because the learned counsel before us has submitted that the stamp valuation authority has determined the stamp value of the flat at ₹ 4,43,500/-. Thus, the issue of determination of fair market value as on 01.04.1981 and the sale consideration in the A.Y. 2006-07 is set aside to the file to the AO who shall examine the contention of the assessee, then determine the long term capital gain. Claim of benefit u/s 54F has not been taken either before the AO or before the Ld. CIT(A). Therefore, being a legal claim, the additional ground raised by the assessee is admitted and the matter is restored back to the file of the AO, who shall examine the same and allow the claim of deduction/benefit in accordance with law - Decided partly in favour of assesse for statistical purpose.

Issues:
1. Capital gain arising from the development right of property.
2. Cost of acquisition of the subject property.
3. Assessment of capital gain despite cost of acquisition being considered as nil.
4. Determination of the full value of consideration.
5. Addition of capital gain amount.
6. Eligibility for exemption under section 54F of the Income Tax Act, 1961.

Issue 1: Capital gain arising from the development right of property:
The appellant contested that the transfer of rights occurred in A.Y. 2000-01 when the development agreement was executed, not in A.Y. 2006-07 when consideration was received. The assessing officer, however, determined that the capital gain was taxable in the latter year. The tribunal agreed with the department, stating that the consideration for the transfer of rights, i.e., the flat, was handed over to the appellant in 2005, thus making A.Y. 2006-07 the relevant assessment year.

Issue 2: Cost of acquisition of the subject property:
The appellant argued that the cost of acquisition should not be considered nil, as the property was acquired before 01.04.1981, necessitating the use of fair market value as of that date. The tribunal concurred, citing precedents and directed the assessing officer to determine the fair market value as of 01.04.1981 for accurate computation of the long term capital gain.

Issue 3: Assessment of capital gain despite cost of acquisition being considered as nil:
The assessing officer calculated the capital gain by taking the market value of the flat and determining the value at Rs. 22,22,720. The tribunal directed a reevaluation of the fair market value and sale consideration to ensure accurate determination of the long term capital gain.

Issue 4: Determination of the full value of consideration:
The appellant disputed the full value of consideration, contending that the stamp valuation authority had determined the value of the flat differently. The tribunal set aside this issue for the assessing officer to reexamine and verify the sale consideration for the determination of long term capital gain.

Issue 5: Addition of capital gain amount:
The appellant requested the deletion of the addition made in respect of capital gain. The tribunal partially allowed the appeal for statistical purposes, directing further examination by the assessing officer on the fair market value and sale consideration to determine the accurate long term capital gain.

Issue 6: Eligibility for exemption under section 54F:
The appellant sought the benefit under section 54F, asserting that the entire consideration was invested in a residential house. As this claim was not raised before the authorities, the tribunal admitted the additional ground and remanded the matter to the assessing officer for examination and appropriate allowance of the deduction or benefit as per the law.

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