2016 (7) TMI 1003 - AT - Income Tax

Computation of long term capital gain on sale of inherited property - Held that - Un-paid and outstanding liabilities such as outstanding municipal taxes , transfer, registration and mutation charges and costs with respect to the said property Roshan Villa in favour of the assessee and co-owners , with which the property was saddled with on the date of sale on 16-01-2009, and which the buyer agreed to assume and discharge the same as his liabilities after acquisition of property Roshan Villa needs to be added to the sale consideration value of ₹ 25,00,000/- to arrive at full value of consideration to determine long term capital gains arising from the sale of the property. We would like to give an example to explain the same say for example , one property is worth ₹ 100 lacs and there is a loan outstanding of ₹ 40 lacs against the said property. The buyer agrees to pay ₹ 60 lacs to the seller for acquiring the said property and agrees to discharge loan against the said property directly after acquisition . Then, the full value of the consideration of the property will be ₹ 100 lacs being ₹ 60 lacs paid by the buyer to the seller and ₹ 40 lacs will be added being loan outstanding against the said property which the buyer agreed to discharge directly to the lender and not ₹ 60 lacs which the buyer agrees to pay to the seller as sale consideration as ₹ 40 lacs is an additional burden with which property was saddled with at the time of sale which the buyer has agreed to discharge on behalf of the seller and is infact part and parcel of full value of consideration as contemplated u/s 48 of the Act. Addition as such and in the manner made by the AO cannot be sustained under law and matter needs to be restored to the file of the AO for computing full value of consideration in the manner as outlined by us and then granting relief on account of deductions of indexed cost of acquisition of land and building/structure which in the instant case is not disputed by the AO as per assessee s valuer report and such other deductions/reliefs which the assessee is legally entitled to under the provisions of the Act on merits such as Section 54EC of the Act as claimed by the assessee , which shall be granted by the AO on merits after examination of the relevant claims/relief s. Thus, we set aside the orders of the learned CIT(A) and restore the issue back to the file of the AO for de-novo determination of the issue on merits in the manner as outlined by us as above. Needless to say proper and adequate opportunity of being heard shall be provided to the assessee in accordance with principles of natural justice in accordance with law. The assessee shall be allowed to produce relevant evidences , material and explanation in support of his contentions in his defense which shall be admitted by the AO and adjudicated on merits. This disposes of all the grounds raised by the assessee on solitary issue of computation of long term capital gains on sale of inherited property Roshan Villa . - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Taxation of Long Term Capital Gains without claiming indexation.
2. Computation of Long Term Capital Gains on the sale of inherited property.
3. Applicability of Section 50C of the Income Tax Act.
4. Rejection of exemption claim under Section 54EC.
5. Non-granting of set off for long-term and short-term capital losses.

Detailed Analysis:

1. Taxation of Long Term Capital Gains without claiming indexation:
The assessee initially raised the issue of taxing Long Term Capital Gains (LTCG) of ?16,44,413 computed without claiming indexation at 20% as against 10%. However, this ground was withdrawn by the assessee as the Assessing Officer (AO) provided relief in his order under section 154 of the Income Tax Act, 1961.

2. Computation of Long Term Capital Gains on the sale of inherited property:
The primary issue before the Tribunal was the computation of LTCG on the sale of the inherited property, 'Roshan Villa.' The AO observed that the property was sold for ?25 lakhs without a registered document and invoked Section 50C of the Act to compute the capital gains. The AO referred the matter to the stamp duty valuation authority, which valued the land at ?26,83,044, but could not value the building due to the lack of registration. The AO used the assessee's valuer's report to value the building and indexed it to arrive at a total value of ?72,22,644. The assessee contended that Section 50C was not applicable as the property was sold before the amendment effective from 1-10-2009, which included unregistered properties within its ambit. The Tribunal agreed with the assessee, noting that the amendment was prospective and not applicable to transactions before 1-10-2009.

3. Applicability of Section 50C of the Income Tax Act:
The Tribunal analyzed the applicability of Section 50C, which deals with the deemed valuation of property for capital gains computation. It was noted that the provision, as amended by the Finance Act, 2009, effective from 1-10-2009, included properties that were not registered but assessable for stamp duty. Since the sale of 'Roshan Villa' occurred on 16-01-2009, before the amendment, the Tribunal held that Section 50C was not applicable. The Tribunal cited the CBDT Circular No. 05/2010 and the decision of the Hon'ble Madras High Court in CIT v. R. Sugantha Ravindran, which supported their view.

4. Rejection of exemption claim under Section 54EC:
The assessee's claim for exemption under Section 54EC amounting to ?8,00,000 was initially rejected by the AO. However, this ground was also withdrawn by the assessee as the AO provided relief in his order under section 154.

5. Non-granting of set off for long-term and short-term capital losses:
The assessee claimed set off for long-term capital loss of ?40,138 on redemption of mutual funds and short-term capital loss of ?210 on the sale of shares. This ground was similarly withdrawn by the assessee as the AO provided relief in his order under section 154.

Conclusion:
The Tribunal set aside the orders of the learned CIT(A) and restored the issue back to the file of the AO for de-novo determination of the issue on merits. The AO was directed to compute the full value of consideration by adding unpaid and outstanding liabilities assumed by the buyer to the sale consideration of ?25,00,000. The AO was also instructed to grant relief on account of deductions of indexed cost of acquisition and other deductions/reliefs the assessee is entitled to under the Act. The Tribunal emphasized providing the assessee with a proper opportunity of being heard and allowing the submission of relevant evidence. The appeal was allowed for statistical purposes.

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