2019 (3) TMI 987 - AT - Income Tax

Computation of capital gain - Valuation of property as on 01.04.1981 - FMV determination - AO has simply followed the guideline value fixed by the Sub-Registrar for registration of property - HELD THAT - The property is located in prime location of Cuddalore. The property appears to have been located on the eastern side of link road to railway over bridge and Cuddalore main bus stand. The Departmental Valuation Officer has also noted that it is located on the rear side of busy Lawrence Road and even in the year 1981, the Departmental Valuation Officer found that there was high potential for development of property as commercial campus / cinema theatres / Kalyana Mandapam, etc. The frontage of the building is admittedly 178 ft. By considering the nature of building, future development and potential for establishing commercial campus / cinema theatres, this Tribunal is of the considered opinion that the value of the property could naturally be estimated at ₹ 100 per sq.ft. as estimated by the assessee. Even though the Valuation Officer has taken three instances, this Tribunal is of the considered opinion that by considering the location and potential for future development, it would easily fetch ₹ 100/- per sq.ft. as on 01.04.1981. Therefore, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, orders of both the authorities below are set aside and the Assessing Officer is directed to take the market value as on 01.04.1981 at ₹ 100/- per sq.ft. and thereafter recompute the capital gain. Claim of exemption u/s 54F - AO found that the assessee renovated the existing building - Assessee claim before this Tribunal that they have put up an additional construction - HELD THAT - There was a confusion whether it is renovation of existing building or additional construction as claimed by the assessee or it is improvement of existing building as claimed by the valuation officer. In those factual situation, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the issue of claim of exemption u/s 54F is remitted back to the file of the Assessing Officer. AO shall re-examine the matter and find out the nature of work that was carried on by the assessee by spending the capital gain and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. Disallowance of loan and interest paid to REPCO Bank in computataion of capital gain - Purpose of loan not known - HELD THAT - The assessees claim that this amount has to be allowed while deducting capital gain. Even though the Revenue claims that it was a commercial loan borrowed by the assessees and other co-owners by mortgaging the property, it is not known the purpose for which the loan was borrowed. Unless the purpose for which the loan borrowed was brought on record, this Tribunal is of the considered opinion that it is difficult to decide whether it is allowable deduction or not. This Tribunal is of the considered opinion that the matter needs to be reconsidered. Accordingly, orders of both the authorities below are set aside and the claim of deduction of repayment of loan and interest to REPCO Bank is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the matter on the basis of the material that may be filed by the assessee and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. Determination of date of sale for Long term capital gains - Transfer u/s 2(47) vs Transfer u/s 53A of TPA- date on possession given to power of attorney holder or execution of sale deed and handing over possession pursuant to sale deed - whether power of attorney in favour of third party for negotiating the sale cannot be considered to be sale of property within the meaning of Section 2(14) of the Act - HELD THAT - Tribunal is of the considered opinion that mere execution of power of attorney agent cannot be considered to be transfer of property. For transfer of property, the assessee has to enter into an agreement for sale either by himself or through power of attorney agent and also hand over the physical possession of the property as contemplated under Section 53A of Transfer of Property Act. Moreover, in case there was agreement between the assessee and purchaser, by which the purchaser was allowed to continue to enjoy the property, then also there may be transfer within the meaning of 2(14) of the Act. In the case before us, it not the case of the Revenue that the assessees entered into an agreement for sale or arrangement allowing the purchaser to continue to enjoy the property. In those circumstances, this Tribunal is of the considered opinion that the execution of sale deed and handing over possession pursuant to sale deed would be the date of sale. Therefore, the Assessing Officer shall verify the sale deed and find out when actually the possession of the property was handed over. Accordingly, orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer - Appeals filed by the assessees are allowed for statistical purposes.

Summary

Issues Involved:
1. Market value of property as on 01.04.1981 for computation of capital gain.
2. Claim of exemption under Section 54F of the Income-tax Act, 1961.
3. Disallowance of loan availed from REPCO Bank and interest paid thereof.
4. Long term capital gains arising from transaction of property.

Issue 1: Market value of property as on 01.04.1981 for computation of capital gain:
The case involved a dispute regarding the market value of a property as on 01.04.1981 for capital gain computation. The assessees contended that the property's fair market value should be considered at ?100 per sq.ft., emphasizing the prime location and potential for development. The Departmental Valuation Officer's report supported this valuation, indicating high potential for commercial development. The Tribunal agreed, setting aside lower authorities' decisions and directing the Assessing Officer to consider the market value at ?100 per sq.ft.

Issue 2: Claim of exemption under Section 54F of the Income-tax Act, 1961:
The assessees sought exemption under Section 54F for additional construction on the property, contrary to the Assessing Officer's view of it being a renovation. The Tribunal found a discrepancy between the nature of work claimed by the assessees and the valuation report, necessitating reconsideration. The matter was remitted back to the Assessing Officer for a fresh decision after assessing the nature of the work carried out by the assessees.

Issue 3: Disallowance of loan availed from REPCO Bank and interest paid thereof:
The dispute revolved around the deduction of loan repayment and interest to REPCO Bank while computing capital gain. The assessees argued that the loan was essential for property sale, hence deductible. However, the purpose of the loan was not clearly established, leading the Tribunal to remit the matter back to the Assessing Officer for a thorough reexamination based on additional evidence.

Issue 4: Long term capital gains arising from transaction of property:
Regarding long term capital gains, the assessees contended that the property possession was with a power of attorney agent for negotiation, not the purchaser, and no consideration was received. The Tribunal emphasized that the mere execution of a power of attorney does not constitute a property transfer. The matter was remitted to the Assessing Officer for a detailed review based on the sale deed and other relevant evidence to determine the actual date of sale.

In conclusion, the Tribunal allowed the appeals for statistical purposes, highlighting the importance of accurate valuation, proper documentation, and clear understanding of transactions in tax assessments.