2021 (3) TMI 819 - AT - Income Tax

Long Term Capital Gain OR business income - value of 35% land area transferred to developer - HELD THAT - In the present case, there is nothing to show that the land was purchased with the intention to sell at a profit or with requisite intention to bring it within the para meters of stock-in-trade . As not shown that the assessee is a regular dealer in real estate. Rather, it appears that the land was not purchased by the assessee, but was inherited by him from his father and the development agreement was entered into even after lapse of around 12 years thereafter. As per the Development Agreement, the developer had all the obligation of execution of work. Even the assessee was debarred from interfering in the working of the developer. On the contrary, no funds of the assessee were deployed rather he received security deposit from the developer. Therefore, after considering the terms and conditions as contained in Development Agreement and following the decisions referred above, we are also of the view that the gains in the present case is to be chargeable to tax under the head capital gains . In the present case, it has no where been shown that the land was purchased by the assessee with the intention to sell at a profit or with requisite intention to bring it within the parameters of stock-in-trade . Therefore, after considering the factual position as enumerated hereinabove, we found that the ld. CIT(A) has rightly concluded that the gains are to be charged to tax under the head capital gains . No new facts or circumstances have been brought before us by the ld. DR in order to controvert or rebut the findings so recorded by the ld. CIT(A), therefore, we find no reason to interfere into or deviate from the findings of the ld. CIT(A). Accordingly, we uphold the same. Whether provisions of section 50C are applicable? - HELD THAT - Cost of acquisition shall be allowed in the proportion of built up area sold/surrendered to builder as bears to total built up area acquired by assessee from developer in lieu of 35% land. CIT(A) has further held that in 3rd issue, the assessee is whether deemed sale value of land transferred and value of constructed area transferred is to be taxed or not as such constructed area was received in exchange of 35% land only. On perusal of the order it is seen that the Assessing Officer considered only the area transferred to the builder i.e. 4129.37 Sq. ft. and not the total area. Since, the assessee transferred these constructed areas to the builder the same is liable to be taxed. On such sale, income is to be computed under the head capital gain comprising of long term capital gain on property land area and short term capital gain on constructed area. Against this, the Assessing officer only took the estimated sale value as per DLC rate at ₹ 3,27,25,257/- without any deduction of cost which is wrong. Considering the totality of facts and circumstances, we found that the ld. CIT(A) has passed a speaking and reasoned order discussing all the details of the case of the assesse, therefore, we do not find any reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) and we uphold the same. CIT(A) in holding that the land to the extent of 35% only is transferred whereas entire land has been transferred to the developers for which the assessee has received consideration of 65% of constructed area - we found that the revenue is raising a new issue at this stage. It is undisputed fact that the AO had admitted the transfer of the land to the extent of 35%, as has been declared by the assessee in his return of income and not to the extent of 100%. Considering the totality of facts and circumstances, we hold that now raising a ground for treating the transfer to the extent of 100% is neither justified on merits nor the same can be raised by the revenue at this stage. Accordingly, we dismiss this ground of appeal raised by the revenue. Cost of deduction - as submitted that there is no provision under the law to work out that deduction on the basis of valuation adopted by the Stamp Duty Authority as the capital gain has to be calculated by allowing deduction for cost of acquisition/indexed cost of acquisition as per provisions of law whereas the ld. CIT(A) has erred in directing to allow deduction for cost on the basis of floor wise valuation accordingly the Stamp Valuation Authorities - HELD THAT - CIT(A) while holding that the gains to be chargeable to tax under the head capital gains be directed to allow deduction for cost on the basis of floor wise valuation whereas there is no provision under the law to work out that deduction on the basis of valuation adopted by the Stamp Duty Authorities. Therefore, we modify the order of the ld. CIT(A) to the extent that the A.O. is directed to consider the sale value under the capital gains and worked out proportionate long term capital gain in respect of land and short term capital gain in respect of construction by allowing the deduction for cost of acquisition/indexed cost of acquisition as per provisions of law. Therefore, with this modification, we uphold the other operative portion of the ld. CIT(A) and restore this issue back to the file of the A.O. for deciding the issue as per directions given

Summary

Issues Involved:

1. Classification of income from the transfer of 35% land area to the developer as Long Term Capital Gain or business income.
2. Allowance of deduction under section 54EC from the business income of the assessee.
3. Computation of capital gains on the sale consideration pertaining to 65% of the constructed area.
4. Determination of indexed cost of acquisition for computing Long Term Capital Gain and Short Term Capital Gain.

Issue-wise Detailed Analysis:

1. Classification of Income from the Transfer of 35% Land Area:
The primary issue was whether the value of 35% land area transferred to the developer should be considered as Long Term Capital Gain or business income. The CIT(A) held that the gains should be taxed under the head "Capital Gains" because the land was inherited and not purchased with the intention of resale for profit. The assessee entered into only one transaction of property and did not engage in any development activity. The developer was responsible for all construction work, and the assessee did not deploy any funds but received a security deposit from the developer. The Tribunal upheld this decision, noting that the facts did not support the classification of the transaction as business income.

2. Allowance of Deduction Under Section 54EC:
The CIT(A) allowed the deduction under section 54EC from the business income of the assessee. The Tribunal agreed with the CIT(A) that since the income was classified under "Capital Gains," the provisions of section 54EC were applicable. The deduction for the cost of acquisition was to be allowed as per the indexed cost of acquisition, which was ?14,40,380/- as claimed by the assessee, instead of ?1,98,776/- allowed by the Assessing Officer.

3. Computation of Capital Gains on 65% Constructed Area:
The Tribunal examined whether the entire land was transferred to the developers for which the assessee received 65% of the constructed area. The CIT(A) determined that the transfer of 35% land area should be taxed under "Capital Gains." The Tribunal agreed with this finding, stating that the Assessing Officer's estimation of sale value without deduction of cost was incorrect. The Tribunal directed the Assessing Officer to compute the capital gains by considering the sale value under the head "Capital Gains" and allowing proportionate long term capital gain on the land and short term capital gain on the constructed area.

4. Determination of Indexed Cost of Acquisition:
The assessee challenged the CIT(A)'s decision to compute the deduction of cost on the basis of floor-wise valuation according to stamp/revenue authorities. The Tribunal modified the CIT(A)'s order, directing the Assessing Officer to consider the sale value under "Capital Gains" and compute the proportionate long term capital gain and short term capital gain by allowing the deduction for the cost of acquisition/indexed cost of acquisition as per the provisions of law.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection for statistical purposes. The gains from the transfer of 35% land area were to be taxed under "Capital Gains," and the deduction under section 54EC was applicable. The computation of capital gains should consider the indexed cost of acquisition as per the law. The Tribunal upheld the CIT(A)'s findings with modifications regarding the computation of the indexed cost of acquisition.