2015 (10) TMI 731 - AT - Income Tax

Capital gain - exchange of flats - Held that - We have heard the parties on this issue. Admittedly, the assessee, along with the other flat owners, has given the land and building for development purposes. There should not be any doubt that the builder has come with the proposal of development, only because he could make the profit by constructing additional flats by using the TDR available and selling those additional flats. In this process, the assessee has actually sold his share of right in the TDR and has also parted with his old flat and the said transactions, in our view also, would give rise to capital gain. Further, as observed the Ld CIT(A), the assessee has exchanged the existing flat with a new flat plus compensation amount. Under sec. 2(47) of the Act, the expression transfer includes exchange also. Hence, in our view, the Ld CIT(A) was justified in holding that the impugned transaction would give rise to Capital Gains. - Decided against assessee. Compensation received towards hardship and other inconveniences treated as part of consideration - Held that - The assessee was entitled to receive a flat of 441 Sq. ft. and ₹ 2,50,000/- in cash towards hardship compensation. Since the above said amount has been given as consideration for handing over the old flat, in our view, the tax authorities are justified in taking as part of consideration. Amount received by the Assessee from the developer as rent compensation - According to the assessee, the AO has assessed the same as part of capital gains - Held that - We notice that the first appellate authority has rejected the identical ground urged before him on the reasoning that there is no discussion in the assessment order about the assessability of the amount of ₹ 2,20,000/-, referred above. At the time of hearing, the ld A.R admitted that the AO did not discuss about the taxability of ₹ 2.20,000/- referred above. Hence, we are of the view that the ld. CIT(A) was justified in rejecting this claim, as the same is not an issue arising out of the assessment order. Taking cost of the of flat as NIL - computation of capital gain - Held that - The mother of the assessee becomes the previous owner of the property. Since she has acquired the property prior to 1.4.1981, the assessee is entitled to adopt the market value as on 1.4.1981 as the cost of acquisition of the property. Accordingly we set aside the order of Ld CIT(A) and direct the AO to adopt the market value as on 1.4.1981 as cost of the property for the purpose of computing the Capital gain. We have given this direction on the impression that the assessee herein has inherited the old flat from his father. We notice that the manner of acquisition of the old flat by the assessee is not clearly brought out in the orders. Hence, the AO may also verify the manner of acquisition of flat and if it is found that the manner of acquisition is not in the methods listed out in sec.49 of the Act, the AO may then decide the issue in accordance with the law. - Decided in favour of assessee for statistical purposes. Rejection of deduction claimed by the assessee u/s 54 - Held that - CIT(A) did not adjudicate this issue. We notice that the AO rejected the above said claim on the reasoning that the allotment of new flat cannot be considered as either purchase or consideration. We are unable to agree with the same, since we have already held that the handing over of the possession of the old flat is a transfer within the meaning of Sec. 2(47) of the Act. In consideration of the transfer, the assessee has obtained a new flat and certain sum by way of money. When the value of new flat is taken as part of sale consideration, then the said value should also be considered as investment made by the assessee eligible for deduction u/s 54 of the Act. However, the assessing officer is required to examine whether the new flat was constructed within the prescribed period. From the assessment order, the relevant facts are emanating. Hence, we set aside this matter also to the file of the AO with the direction to re-examine the issue of deduction claimed u/s 54 of the Act. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Assessment of amount received by the Assessee from the developer as rent compensation.
2. Determination of capital gains related to the transaction.
3. Assessment of compensation towards hardship and inconveniences.
4. Decision on the cost of the flat for computing capital gains.
5. Rejection of deduction claimed under section 54 of the Income Tax Act.

Issue 1: Assessment of Rent Compensation
The Assessee received Rs. 2,20,000 from the developer as rent compensation. The AO assessed this amount as part of capital gains, but the first appellate authority rejected this claim due to lack of discussion in the assessment order regarding its taxability. The Assessee admitted that the AO did not address the taxability of this amount, leading to the rejection of the claim by the CIT(A).

Issue 2: Determination of Capital Gains
The Assessee exchanged the existing flat for a new flat and compensation amounts. The AO computed capital gains considering the cost of acquisition as NIL and rejected the claim under section 54 of the Act. The CIT(A) upheld the capital gains assessment, stating that the transaction gave rise to capital gains as per Section 2(47) of the Act, which includes exchange. The CIT(A) did not address the deduction claim under section 54, leading to the appeal.

Issue 3: Assessment of Compensation for Hardship
The Assessee received Rs. 2,50,000 as compensation for hardship. This amount was considered part of the consideration for handing over the old flat, justifying its assessment by the tax authorities.

Issue 4: Cost of Flat for Capital Gains
The tax authorities considered the cost of the flat as NIL since the Assessee inherited it. However, the Assessee's mother acquired the property before 1.4.1981, entitling the Assessee to adopt the market value as the cost of acquisition. The order directed the AO to adopt the market value for computing capital gains, emphasizing verification of the manner of acquisition.

Issue 5: Rejection of Deduction under Section 54
The CIT(A) did not address the deduction claimed under section 54, which the AO rejected on the grounds that the new flat's allotment did not constitute a purchase or consideration. The order set aside this matter for the AO to re-examine the deduction claim under section 54, considering the transfer of the old flat and the new flat's value as part of the sale consideration.

In conclusion, the appeal was partly allowed for statistical purposes, addressing various issues related to the assessment of capital gains and deductions under the Income Tax Act. The judgment provided detailed analysis and directions for the assessment authorities to consider the transaction specifics and relevant provisions of the Act for accurate computation of tax liabilities.