9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (7) TMI 1209 - AT - Income TaxCapital gain on sale of land - conversion of capital asset into stock-in-trade - development agreement was entered into by the assessee with the developer - the assessee provided his land measuring 44,000 sq. ft. - The assessee handed over the possession of the property to the developer for construction purpose - AO treated the transaction of handing over of the possession of the land and building to the developer as transfer u/s. 2(47) - assessment of income from the first transaction - According to assessee, income from this transaction arises only in the year in which the builder sells each flat from the portion allotted to the builder to the ultimate customers. HELD THAT - We may point out here that from the record it is apparent that apart from the development agreement and supplementary development agreement, there is no other document executed by the assessee. In our view, the lower authorities have not taken a correct view by analyzing the transaction by applying the provisions of s. 2(47) which is applicable only in case of capital asset. As per s. 2(14), capital asset does not include stock-in-trade. Therefore, once the capital asset is converted into stock-in-trade, the provision of s. 2(47) becomes irrelevant and does not apply. Delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of immovable property as held by the Hon'ble apex Court in the case of Alapati Venkataramiah 1965 (3) TMI 21 - SUPREME COURT Until and unless the title of the property is passed on to the purchaser, there cannot be a sale or transfer of immovable property, since in the present case the question is whether the handing over of the possession under the development agreement of the property which is stock-in-trade of the assessee can be treated as a transfer by applying the definition of transfer in s. 2(47) of the IT Act, 1961. As we have already stated earlier that in the case of stock-in-trade, the definition of transfer under s. 2(47) of the IT Act, 1961 is not applicable, therefore, the contextual or the ordinary meaning of the word transfer is applicable in the present case. The assessee has executed all the sale deeds for transfer of the constructed apartments in favour of the end-user/purchaser, therefore the transfer of the proportionate land took place only when the assessee transferred the construction property by way of sale deeds and offered the business income which was accepted by the Department. In any case, when the assessee has retained the portion of the land being proportionate to the constructed area to be retained by the assessee, then there is no question of transfer of the entire land to the developer. In view of the discussion, we hold that the orders of the lower authorities, qua this issue are not sustainable on the facts as well as on law. We set aside the orders of the lower authorities, qua this issue and direct the AO to tax the capital gain arising from the conversion of the land and building into stock-in-trade proportionately into the previous years in which the constructed property was sold by the assessee or retained for self-use and corresponding business income was offered. Fair market value of the property - assessee adopted the fair market value as on 1st April, 1981 @ ₹ 40,000 per cent - AO adopted the fair market value at ₹ 10,000 per cent - HELD THAT - This is not a case that the assessee has transferred the building separately but the building was to be demolished for development of the property. The AO has adopted the fair market value without any verification or taking into consideration the incidence of sale, etc. Since the estimation made by the AO is without any-basis or supporting material, then the substitution of the fair market value by the AO without any substantial material is not justified. On the other hand, the fair market value adopted by the assessee is duly confirmed by the sub-Registrar. Accordingly, the orders of the lower authorities, qua this issue are not sustainable and are set aside and the AO is directed to accept the fair market value as on 1st April, 1981 @ ₹ 14,000 per cent as adopted by the assessee. Deduction u/s. 54F - AO rejected the claim of the assessee on the ground that the assessee has neither purchased nor constructed a residential building as it was built by the developer under the agreement and also that the capital gain if any, assessable has been considered in the AY 2004-05 and not in the AY 2005-06 - CIT(A) has rejected the claim of the assessee on the ground that when the assessee has not admitted the capital gain on self-occupied portion in the asst. yr. 2004-05 of the property, there is no question of deduction under s. 54F - HELD THAT - Since, we have decided the issue of chargeability of the capital gain in favour of the assessee, then consequently the claim of exemption u/s. 54F is also allowable as per law. It is clear from the record that, the development of the property was for residential purpose and therefore when the property was constructed as a residential building. Accordingly, we allow the claim. Sale value of the built-up area - the assessee has sold 7,860 sq, ft. of built-up area with the land - adopted the sale value @ ₹ 2,079 per sq. ft. in the return of income - The AO found that as certified by the engineers, M/s Britto, Ilango Associates, the value of the built-up, area and the land was ₹ 2,200 per sq. ft. The AO accordingly adopted the sale value at ₹ 2,200 per sq. ft. On appeal, the CIT(A) confirmed the rate adopted by the AO - HELD THAT - When there is no dispute regarding the sale consideration adopted by the assessee as mentioned in the sale document, then the slight variation in the estimation made by the experts and the actual realization cannot be ruled out. In the case in hand, the variation is only ₹ 121 which is about 5 per cent of the estimated rates. we are of the considered opinion that no estimate can be taken as perfect and therefore the rate adopted by the assessee on the basis of consideration recorded in the sale deeds is just and proper. Accordingly, we set aside the orders of the lower authorities, qua this issue. Long-term capital loss on sale of shares - The assessee claimed the cost of acquisition of the shares at ₹ 380 per share and ₹ 3,500 per share for respective lots. The AO estimated the cost of acquisition at face value of ₹ 100 for one lot and at ₹ 150 per share for another - HELD THAT - It is an admitted fact that when the shares belong to a closely held company and the transactions of sale and purchase are out of stock exchange, then there could not be any either evidence except the transaction recorded in the books of account between the parties. Therefore, we hold that the rejection of the assessee's claim of the cost of acquisition is not justified. Accordingly, we set aside the orders of the lower authorities and allow the claim of the assessee.
Issues Involved:
1. Taxation of capital gains on conversion of capital asset into stock-in-trade. 2. Determination of fair market value of the property as on 1st April, 1981. 3. Entitlement to relief under Section 54F of the IT Act. 4. Estimation of sale value of stock-in-trade. 5. Computation of long-term capital loss on sale of shares. Issue-wise Detailed Analysis: Issue 1: Taxation of Capital Gains on Conversion of Capital Asset into Stock-in-Trade The primary issue revolves around the taxation of long-term capital gains arising from the conversion of a capital asset (land) into stock-in-trade. The assessee converted land measuring 44,000 sq. ft. into stock-in-trade and entered into a development agreement with a developer. The Assessing Officer (AO) taxed the entire capital gain in the assessment year 2004-05, arguing that the transfer occurred when the possession of the land was handed over to the developer. The assessee contended that the capital gain should be proportionately taxed in the years when the stock-in-trade (built-up area) was sold, as per Section 45(2) of the IT Act. The Tribunal held that the provisions of Section 2(47) relating to the transfer of capital assets do not apply once the asset is converted into stock-in-trade. Therefore, the capital gain should be taxed proportionately in the years when the stock-in-trade is sold, aligning with the assessee's contention. Issue 2: Determination of Fair Market Value as on 1st April, 1981 The assessee adopted a fair market value of Rs. 14,000 per cent as on 1st April, 1981, for computing capital gains. The AO reduced this value to Rs. 10,000 per cent, arguing that the higher value included a bungalow, which was to be demolished. The Tribunal noted that the Sub-Registrar had confirmed the assessee's valuation for part of the property. Given that the AO's estimation lacked substantial supporting material, the Tribunal directed the AO to accept the fair market value of Rs. 14,000 per cent as adopted by the assessee. Issue 3: Entitlement to Relief under Section 54F The assessee claimed relief under Section 54F for the assessment year 2005-06, which the AO denied on the grounds that the capital gain was assessed in 2004-05 and the property was developed by a third party. The Tribunal, however, ruled that since the capital gain was to be proportionately taxed in the years the built-up area was sold, the claim under Section 54F was valid. The Tribunal directed the AO to grant the relief as per law, recognizing the property as a residential building. Issue 4: Estimation of Sale Value of Stock-in-Trade The AO estimated the sale value of the built-up area at Rs. 2,200 per sq. ft., based on a certificate from M/s Britto, Ilango & Associates, while the assessee declared an average sale value of Rs. 2,079 per sq. ft. based on actual sale deeds. The Tribunal found that the AO did not present any evidence of on-money receipts and noted that the slight variation between the estimated and actual sale values was reasonable. Therefore, the Tribunal set aside the AO's estimation and accepted the sale value as declared by the assessee. Issue 5: Computation of Long-Term Capital Loss on Sale of Shares The assessee claimed a long-term capital loss on the sale of shares, which the AO reworked by estimating the cost of acquisition at face value. The Tribunal observed that the shares were of a closely held company, and the cost of acquisition was recorded in the assessee's books of account, which were not rejected by the Department. Given the lack of external evidence due to the nature of the transactions, the Tribunal held that the assessee's recorded cost of acquisition should be accepted and allowed the claim of capital loss. Conclusion: The Tribunal ruled in favor of the assessee on all issues, directing the AO to proportionately tax the capital gains in the relevant years, accept the fair market value as declared, grant relief under Section 54F, accept the declared sale value of the stock-in-trade, and allow the claim of long-term capital loss on the sale of shares.
|
