2018 (4) TMI 994 - AT - Income Tax

Calculation of capital gain - cost of acquisition - indexed cost of acquisition - Held that - Since the property sold is in the vicinity, direct the AO to adopt ₹ 900/- per Sq. Yd as cost of land as on 01-04-1981 and deduct indexed cost of acquisition thereon to arrive at the Long Term Capital Gain on transfer of 50% of the land in Plot No. 67, admeasuring 327 Sq. Yds. Entitled for deduction u/s. 54F - Multiple units - whether a residential house would include multiple flats/residential units as well? - Held that - As decided in ITO Vs. Late K. Jaipal, L/R. of Smt. K. Manjula 2015 (11) TMI 1443 - ITAT HYDERABAD merely because a residential house consists of several independent residential units, deduction under S.54/S.54F could not disallowed. Assessee is entitled for deduction u/s. 54F on all the three flats. Therefore, AO is directed to allow the amount and rework out the capital gains accordingly. Grounds are considered allowed. Working of capital gain - Held that - Assessee became entitled to three flats, when the development agreement was entered, on which date capital gains on transfer of land was also brought to tax by the AO. Therefore, the rights under the agreement, having been crystalised, the sale of any flat would become Long Term Capital Gain. Not only that, as already discussed in the earlier appeal, for the cost of acquisition as on 01-04-1981, the land value as on 01-04-1981 has been directed to be taken at ₹ 900/- per Sq. Yd. Consequently, the sale of undivided share of land would be calculated taking ₹ 900/-per Sq. Yd., as the value as on 01-04-1981 and giving cost of indexation benefit as per the rules. Even the cost of apartment would be 1/3rd of the cost adopted for transfer of 50% of the land. The value adopted in AY. 2006-07 should be adopted as cost of value and that should be considered while computing the capital gain on the sale of one flat in the impugned year. AO is directed accordingly and assessee s grounds on this are considered allowed.

Summary

Issues Involved:
1. Capital gains taxation for AY 2006-07.
2. Entitlement to deduction under Section 54F for AY 2006-07.
3. Calculation of capital gains for AY 2010-11.

Issue-wise Detailed Analysis:

1. Capital Gains Taxation for AY 2006-07:
The legal heir of Late Shri A. Viplava Kumar contested the ex-parte order by the Assessing Officer (AO) regarding capital gains for AY 2006-07. The AO initiated proceedings under Section 148 and calculated the capital gains on the transfer of 327 Sq. Yds. of land, taking the value at ?9,000 per Sq. Yd. The AO's assessment was challenged on the grounds of incorrect calculation and cost of acquisition. The Tribunal noted that the AO brought excess valuation on 30 Sq. Yds. and adopted an arbitrary cost of acquisition at ?200 per Sq. Yd. The Tribunal directed the AO to correct the capital gains calculation to reflect only 163.5 Sq. Yds. transferred and to adopt ?900 per Sq. Yd. as the cost of land as of 01-04-1981, following the precedent set by the Co-ordinate Bench in the case of ACIT Vs. Shri O.V. Ramana Reddy HUF.

2. Entitlement to Deduction Under Section 54F for AY 2006-07:
The assessee claimed entitlement to deduction under Section 54F for three residential apartments received under the development agreement. The AO did not consider any deduction under Section 54F in the ex-parte order. The Tribunal referenced jurisdictional High Court judgments and the Hon'ble High Court of Madras, which clarified that a 'residential house' could include multiple units. The Tribunal concluded that the assessee is entitled to deduction under Section 54F for all three flats, directing the AO to rework the capital gains accordingly.

3. Calculation of Capital Gains for AY 2010-11:
For AY 2010-11, the AO reopened the assessment due to the sale of two flats and calculated both Long Term and Short Term Capital Gains. The assessee contended that only one flat (Flat No. 103) was sold in AY 2010-11, and the capital gains should be calculated accordingly. The Tribunal agreed with the assessee, noting that the rights under the development agreement were crystallized in AY 2006-07, making the sale of any flat a Long Term Capital Gain. The Tribunal directed the AO to adopt ?900 per Sq. Yd. as the cost of land as of 01-04-1981 and to apply the indexed cost of acquisition for calculating the capital gains. The cost of the apartment was to be 1/3rd of the cost adopted for the transfer of 50% of the land.

Conclusion:
The Tribunal allowed both appeals of the assessee, directing corrections in the calculation of capital gains and granting the deduction under Section 54F for all three flats. The AO was instructed to adopt consistent values for the cost of acquisition and to rework the capital gains computations accordingly.