2023 (8) TMI 1277 - AT - Income Tax

Short term capital gain or long term capital gain of capital assets - sale of building with land - denying indexed cost of acquisition and indexed cost of improvement claimed by the assessee - different treatment in the hands of co-owner of the property - HELD THAT - We find valid point in the submission of assessee that once in the hands of one of the co-owner of the property the claim for long term capital gain has been accepted by the AO along with cost of acquisition and indexation thereon in our view claim has to be allowed in the hands of the assessee being the other co-owner. This view is supported by the decision in the case of Jaswant Rai 1996 (10) TMI 484 - PUNJAB AND HARYANA HIGH COURT Also in the case of CIT vs. Smt. Laxmi B Menon 2003 (4) TMI 38 - KERALA HIGH COURT agreeing with the judgments of Vimal Chand Golecha 1992 (12) TMI 33 - RAJASTHAN HIGH COURT and Dr. B.L. Ramachandran Rao 1997 (2) TMI 28 - MADRAS HIGH COURT held that the land has to be assessed as long term capital asset and the building has to be assessed as a short term capital asset for the purpose of levy of capital gains tax. Following the above decisions similar view has been taken in the case of JCIT vs. Ashok Kumar Arora. Therefore, even if we accept the alternative claim of the assessee that capital gain has to be computed on land and building separately the position in the assessee s case. Even if capital gain computed on the land and on the building separately as a long term capital asset and as a short term capital asset respectively still there is no liability arises on the assessee to pay additional tax on account of capital gains. We direct the AO to allow indexation on cost of acquisition and cost of improvement while computing the long term capital gain as was done in the case of the co-owner and the assessee s brother Shri Harsh Bansal. Appeal of assessee allowed.

Summary

Issues involved:
The issues involved in the judgment are the determination of total income, denial of indexed cost of acquisition and improvement for short term capital gain, computation of capital gain separately on land and building, and the levy of interest under section 234D of the Income Tax Act.

Determination of Total Income:
The appeal was filed against the assessment order dated 22.07.2022, challenging the determination of total income at Rs. 1,04,15,420/- as against the declared income of Rs. 60,24,620/-. The appellant contended that the Assessing Officer erred in both law and facts. The grounds of appeal raised various issues, including the denial of indexed cost of acquisition and improvement for short term capital gain.

Denial of Indexed Cost for Short Term Capital Gain:
The Assessing Officer denied the long term capital gain claimed by the assessee due to lack of supporting documents. The draft assessment order computed the long term capital gain at Rs. 1,13,39,599/-, and the DRP directed the Assessing Officer to recompute the capital gain. However, the DRP held that the transaction was of short term capital gain nature, disallowing indexation. The assessee argued that the floors constructed after demolition did not change the nature of capital gain.

Computation of Capital Gain on Land and Building:
The assessee contended that the land and building should be treated separately for computing capital gain. The DRP did not accept this claim, citing a judgment of the Hon'ble Supreme Court. The Assessing Officer, in the final assessment order, computed the short term capital gain on the sale of property without allowing indexation. The appellant argued that the land constituted a long term capital asset, while the building was a short term capital asset.

Levy of Interest under Section 234D:
The Assessing Officer levied interest of Rs. 3,29,247 under section 234D of the Act. The appellant contested this levy, stating it was not applicable in the circumstances of the case. The Ld. Counsel for the assessee presented arguments supported by legal precedents and case laws to justify the appellant's position.

Decision and Rationale:
The Tribunal found merit in the appellant's submission that the claim for long term capital gain should be allowed based on the acceptance of a similar claim by the co-owner in a related case. Citing relevant legal judgments, the Tribunal directed the Assessing Officer to compute the capital gain separately for land and building, allowing indexation on the cost of acquisition and improvement. The Tribunal's decision was in favor of the assessee, and the appeal was allowed.