2005 (10) TMI 215 - AT - Income Tax

Computation of capital gains - Contractual right acquired of immovable property can became property? - Type of Capital assets - market value - cost of acquisition - Whether the capital asset, which became the property of previous owner i.e., HUF, was the house property, which was transferred for consideration in financial year 1992-93 or capital asset which became property of HUF was only the right to acquire that flat and not the flat itself ? - HELD THAT - In the present case, most important point is that building was not even in existence as on 1-4-1981 because admittedly, construction of the building was completed in about 1988 and hence, in our considered opinion till construction of the building was completed and possession was handed over to the previous owner i.e., HUF, capital asset, which was held by the previous owner i.e., HUF was the right to obtain title and possession of the flat and it cannot be said that the flat itself became property of the HUF prior to that date and hence, in our considered opinion, learned CIT(A) was not justified in holding that the assessee is entitled to adopt market value of the flat as on 1-4-1981. It can be seen that the capital asset i.e., flat in the present case should have become the property of the previous owner before 1-4-1981 to make the assessee entitled for this benefit i.e., adopting market value as on 1-4-1981 but since, in the present case, flat was not even in existence till 1988, the assessee cannot be given this benefit. In our considered opinion till 1988, the previous owner i.e., HUF was not owner of the flat but was owner of right to get possession and title of the flat. In view of the above, the first issue i.e., whether the assessee can be given benefit to adopt market value of the flat is decided against the assessee and order of learned CIT(A) is reversed and that of the Assessing Officer is restored to this extent. Regarding the second issue, i.e., from which year the assessee should be entitled for indexation, we find that the Assessing Officer has adopted the financial year 1991-92 i.e., year in which, partition of HUF took place. Admittedly, construction of the house was completed in 1988, the asset is a long-term capital asset in view of this Explanation to section 2(42A); but in view of the specific provisions of Explanation (iii) to section 48, indexing has to be allowed from financial year 1991-92, i.e., the year from which flat was held by the assessees on partition of HUF and hence, on this issue also, order of learned CIT(A) is reversed and that of the Assessing Officer is restored. In the result, both these appeals of the revenue arc allowed.

Summary

Issues:
- Dispute over the fair market value and indexation for computation of capital gains on a property purchased in 1981.

Analysis:

1. Fair Market Value Dispute:
- The appeals involved a common issue of the revenue disputing the adoption of fair market value at Rs. 33.73 lakhs as on 1-4-1981 for computing capital gains on a property purchased for Rs. 1,05,643 in 1981.
- The Assessing Officer calculated capital gains based on the actual cost of acquisition, not the claimed fair market value.
- The learned CIT(A) allowed the adoption of fair market value as on 1-4-1981 and indexation from the same date, which the revenue contested.
- The revenue argued that the property's construction was completed in 1988, challenging the feasibility of determining a market value in 1981.
- Legal references and judgments were cited to support the revenue's position, emphasizing that the property was not ready by 1-4-1981.
- The tribunal analyzed the agreement date, payment timeline, and completion of construction to determine whether the property or the right to acquire it was transferred, ultimately ruling against the assessee's claim for adopting the 1981 market value.

2. Indexation Dispute:
- The second issue revolved around the year from which indexation should be allowed for computing capital gains.
- The Assessing Officer granted indexation from the financial year 1991-92, the year of the HUF partition.
- The tribunal referred to relevant legal provisions and explanations to determine the correct starting point for indexation.
- It was established that the asset was held by the assessees only from the financial year 1991-92, as the property was completed in 1988.
- Despite the property being a long-term capital asset, the tribunal ruled that indexation should start from the year the property was held by the assessees, i.e., financial year 1991-92, upholding the Assessing Officer's decision.

3. Judicial Precedents and Legal Interpretations:
- Various judicial pronouncements and legal references were considered to interpret the applicability of relevant sections and explanations in determining fair market value and indexation.
- The tribunal analyzed the specifics of the case, including property completion date, ownership rights, and transfer nature, in alignment with legal provisions and court decisions.
- The tribunal's decision was based on a thorough examination of the facts, legal arguments, and precedents, leading to the reversal of the learned CIT(A)'s order in favor of the revenue.

In conclusion, the Appellate Tribunal allowed the revenue's appeals, rejecting the claims for adopting the 1981 market value and starting indexation from a later year, thereby upholding the Assessing Officer's calculations for capital gains on the property transactions in question.