2018 (12) TMI 1973 - AT - Income Tax

Capital gain computation - application of Section 50C by AO for the purpose of the valuation of the land assessee has got interest in the said property to the extent of 1/12th as been acquired as executor of will of her mother - assessee had not taken full value of consideration as per Section 50C resulting in to short disclosure of LTCG HELD - THAT - As conveyance deed as executed between the vendors and THPCL was inextricably linked with Sale Agreement dated 10/03/1971. The purchaser had acquired certain rights in the said property in the year 1971 when the possession was also handed over by the seller acting for himself as well for other owners. In other words, the seller had already transferred certain rights out of bundle of rights in the said property in favor of the purchaser in the year 1971 by entering into sale agreement as well as by handing over the possession of the property. Therefore, the assessee had inherited only the remaining rights in the aforesaid property and not an absolute owner of the property. The conveyance deed was one of the right attached to the property which has been transferred by the assessee in favor of the purchaser against certain consideration and therefore, the same could not be attributed towards sale of land as concluded by lower authorities. Assessee had received compensation against sale of residuary rights in the said property. This being the case, the provisions of Section 50C had no applicability to the facts of the case. Having reached aforesaid conclusion, we are of the considered opinion that the cost of acquisition of the said right in the hand of the assessee was to be taken as Nil since the property under question was acquired by the owner way back in 1966 and the same was sold by the owner in the year 1971 and it was that time when the benefit of cost of acquisition was available to the seller. We hold that the LTCG earned by the assessee during the year being net sale consideration received by the assessee upon conveyance. The benefit of cost of acquisition was not available to the assessee. The Ld. AO is directed to recompute the income of the assessee in terms of our above order.

Summary

Issues:
1. Applicability of Section 50C for valuation of land.
2. Determination of date for calculating long-term capital gains.

Analysis:

Issue 1: Applicability of Section 50C for valuation of land:
The appellant contested the application of Section 50C by the Assessing Officer for valuing the land at a higher amount than offered by the appellant. The appellant argued that there was no transfer of land or building as per Section 50C, as the property had been sold in 1971, and the conveyance deed in 2009 was merely a transfer of residuary rights. The lower authorities upheld the application of Section 50C, resulting in an addition to the appellant's income. The appellate tribunal analyzed the facts, including the sale agreement from 1971 and the conveyance deed from 2009, to determine that the appellant had inherited only the remaining rights in the property. The tribunal concluded that the provisions of Section 50C were not applicable in this case, as the appellant had received compensation for the residuary rights, not for the sale of land. Therefore, the tribunal directed the Assessing Officer to recompute the income without applying Section 50C, resulting in the appeal being partly allowed.

Issue 2: Determination of date for calculating long-term capital gains:
The second issue revolved around determining the date for calculating long-term capital gains in the hands of the appellant. The tribunal considered the inheritance chain leading to the appellant's ownership of the property and concluded that the cost of acquisition for the appellant should be taken as Nil. This decision was based on the fact that the property had been acquired by the original owner in 1966 and sold in 1971, making the benefit of cost of acquisition available to the seller at that time. Therefore, the tribunal determined the long-term capital gains earned by the appellant and directed the Assessing Officer to recompute the income accordingly. This aspect of the appeal was also partly allowed.

In summary, the appellate tribunal ruled in favor of the appellant on both issues, concluding that Section 50C was not applicable, and the cost of acquisition for the appellant should be considered as Nil for calculating long-term capital gains. The tribunal directed the Assessing Officer to recompute the income of the appellant based on these determinations.