2016 (9) TMI 1183 - AT - Income Tax

Applicability of section 50 on transfer of building - non-depreciable asset - calculation of short term capital gain against long term capital gain claimed by the appellant - Held that - In the present case no asset is depreciable asset, hence provisions of section 50 are not applicable and since plot and construction being an investment, for earning rent therefore, for the purpose of calculating long term capital gain indexed cost is to be calculated for both plot as well as structure. - AO directed to calculate long term capital gain on transfer of building as it has been held for a period of more than 36 months - Decided in favour of assessee Scope of section 50C - transferred the asset through unregistered Deed of assignment prior to 1.10.2009 - Held that - Section 50C was not applicable to the case of the assessee during the relevant period as the sale agreement in question was unregistered document and was not assessed by the stamp valuation authorities. The word assessable has been incorporated only w.e.f. 1.10.2009 (Finance Act 2009), therefore, provision of section 50C will not apply on unregistered documents. Hence learned CIT(A) wrongly confirmed the action of the Assessing Officer regarding substitution of full value consideration from ₹ 1200/- per square meter to ₹ 1300/- square meter by applying provisions of section 50C of the Income Tax Act. Even otherwise no opportunity of being heard was granted before switching over from ₹ 1200/- per square meter to ₹ 1300/- per square meter which is even otherwise bad in law and against the principles of natural justice. - Decided in favour of assessee.

Summary

Issues:
1. Applicability of section 50 on transfer of building and calculation of capital gains.
2. Substitution of full value consideration without opportunity of being heard.

Issue 1: Applicability of Section 50 and Calculation of Capital Gains:

The case involved an appeal against the order of the CIT(A) for A.Y. 2006-07, where the Assessing Officer treated income from capital gain as short term instead of long term capital gain, invoking section 50. The appellant contested this decision, arguing that the building in question was not a depreciable asset and, therefore, section 50 did not apply. The appellant maintained that the building was used for rental income, not for business purposes, and no depreciation had been claimed on it. The ITAT analyzed section 32 of the Income Tax Act, determining that depreciation could only be claimed on buildings used for business or profession. As the building was not used for business and income was taxed as house property, the ITAT concluded that section 50 did not apply. Citing precedents, including Divine Construction Co. and CIT Vs. Santosh Structural & Alloys Ltd., the ITAT held that the long term capital gain should be calculated as claimed by the appellant.

Issue 2: Substitution of Full Value Consideration Without Opportunity of Being Heard:

The appellant also challenged the action of the Assessing Officer regarding the substitution of full value consideration without granting an opportunity to be heard. The ITAT observed that the asset was transferred through an unregistered document, making section 50C inapplicable as the word 'assessable' was introduced later. Relying on the case of Shri Harish B. Shah Vs. ITO, the ITAT held that section 50C did not apply to unregistered documents during the relevant period. Since no opportunity of being heard was provided before changing the value, the ITAT deemed this action against natural justice principles. Consequently, the ITAT allowed the grounds raised by the appellant on this issue.

In conclusion, the ITAT allowed the appeal filed by the assessee, overturning the decision of the CIT(A) on both issues and directing the calculation of long term capital gain on the transfer of the building accordingly.