2007 (1) TMI 200 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion and assessment of Rs. 14,49,14,951 as short-term capital gains.
2. Bifurcation of aggregate sale consideration of Rs. 16,99,85,636.
3. Extinguishment of appellant-company's rights in the land and building.
4. Hypothetical, imaginary and artificial bifurcation of sale consideration.
5. Assessment of aggregate gains as long-term and short-term capital gains.
6. Levy of interest under sections 234B and 234D.
7. Validity and reasonableness of the appellate and assessment orders.

Detailed Analysis:

1. Inclusion and Assessment of Rs. 14,49,14,951 as Short-term Capital Gains:
The primary issue was whether the capital gains from the sale of the 4th to 7th floors of Wing 'A' should be bifurcated into long-term capital gains for the land and short-term capital gains for the superstructure. The assessee argued that the gains attributable to the land should be assessed as long-term capital gains, while the gains from the superstructure should be assessed as short-term capital gains. The Assessing Officer (AO) and CIT(A) treated the entire amount as short-term capital gains, asserting that the rights in the land were extinguished when handed over to the developer.

2. Bifurcation of Aggregate Sale Consideration:
The assessee bifurcated the sale consideration of Rs. 16,99,85,636 into Rs. 12,31,42,645 for land and Rs. 4,68,42,991 for the building, based on a valuation report. The AO and CIT(A) rejected this bifurcation, stating it was arbitrary and hypothetical. The Tribunal found that the bifurcation was done on a reasonable and scientific basis, supported by a Government Approved Registered Valuer's report, and upheld the assessee's method.

3. Extinguishment of Appellant-Company's Rights in the Land and Building:
The AO and CIT(A) held that the assessee's rights in the land and building were extinguished upon handing over to the developer, and the new assets were received in lieu of the old ones. The Tribunal disagreed, noting that the Development Agreement specified that only 56.8% of the land was transferred to the developer, while the assessee retained 43.2% ownership. Thus, the assessee's rights in the land were not entirely extinguished.

4. Hypothetical, Imaginary, and Artificial Bifurcation of Sale Consideration:
The tax authorities argued that the bifurcation of sale consideration was hypothetical and artificial. The Tribunal found this argument baseless, noting that the valuation report by the Government Approved Registered Valuer provided a reasonable basis for the bifurcation. The Tribunal emphasized that the tax authorities did not identify any defects in the valuation report.

5. Assessment of Aggregate Gains as Long-term and Short-term Capital Gains:
The assessee contended that the gains from the sale should be assessed as long-term capital gains for the land and short-term capital gains for the superstructure. The Tribunal agreed, citing various judicial precedents that supported the bifurcation of gains when selling composite assets. The Tribunal held that the assessee correctly computed the capital gains by apportioning the sale consideration based on the valuation report.

6. Levy of Interest under Sections 234B and 234D:
The assessee challenged the levy of interest under sections 234B and 234D. The Tribunal noted that this issue was consequential to the main issues and should be recomputed accordingly based on the revised assessment.

7. Validity and Reasonableness of the Appellate and Assessment Orders:
The assessee argued that the appellate and assessment orders were against the facts and evidence on record, illegal, invalid, unreasonable, and perverse. The Tribunal found merit in the assessee's arguments, noting that the tax authorities had not properly appreciated the facts and the terms of the Development Agreement. The Tribunal set aside the orders of the AO and CIT(A) and accepted the assessee's computation of capital gains.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the bifurcation of sale consideration between land and building was reasonable and supported by a valuation report. The gains attributable to the land were to be assessed as long-term capital gains, and the gains from the superstructure as short-term capital gains. The levy of interest under sections 234B and 234D was to be recomputed accordingly. The orders of the AO and CIT(A) were set aside.