2017 (11) TMI 1005 - AT - Income Tax

Capital gain computation - Adoption of sale value of land transfer - Held that - As far as the value of sale consideration is concerned, the AO made a mistake in adopting the guide line value as at the time of sale of Flat No. 202, which was subsequent to the date of agreement i.e., 19-06-2001 which happens to be in AY. 2002-03 and not in the impugned year. Assessee offered capital gains on completion of super structure during the year and obtained 8 flats. Therefore, there is nothing wrong in adopting the cost of super structure as full value of consideration. AO is directed accordingly. Cost of acquisition - Held that - The value of transferred land and cost of building demolished. As far as the cost of land is concerned, the value as on 01-04-1981 has to be adopted. However, as the guidelines values are not revised upto 1995, the AO adopted ₹ 70/- after allowing 5% increase in the value as fixed in 1975. This is not correct. The value of ₹ 1,000/- claimed by assessee is also without basis. Moreover, the cost of building demolished would also become cost, as the building would reduce the freehold land value. Demolition of existing building could result in developing the land. Therefore, the cost of building will be allowable as cost of improvement. The AO s hyper technical view that assessee transferred only land is not correct as the demolition of existing building for developing a new structure is part of the transfer and the cost has to be allowed while computing capital gains . The AO is therefore directed to consider the cost of building demolished at ₹ 100/- per sq. ft., as claimed. The value of land can be determined approximately at ₹ 300/- keeping in mind the claim of assessee and AO s determination on guideline values. AO is directed to adopt cost of acquisition accordingly. Benefit of Section 54/54F - Held that - AO s contention that assessee owns more than two residences was not correct. Assessee got eight apartments subsequently, on transfer of one residential house property, by way of development agreement. Nowhere the AO contends that assessee had more than one building as on the date of transfer i.e., on 19-06-2001. Subsequent acquisition of any number of houses will not prevent assessee claiming the deduction for transfer as on 19-06-2001. Therefore, the AO s view can not be upheld. Assessee is entitled for deduction u/s. 54/54F. The decision in Suseela M.Jhaveri s case 2007 (4) TMI 289 - ITAT BOMBAY-I holding that only one residential house should be given the relief under Section 54 does not appear to be correct and we disapprove of it. Assessee is entitled for claim u/s. 54/54F on all the flats. AO is directed to allow the deduction as claimed. Compensation received for vacating the building - This is a capital receipt. AO has to adopt the same as part of the transfer. ₹ 1 Lakh cannot be brought to tax as income from other sources . AO is directed to include the same as cost of sale consideration. However, the facts indicate that assessee has offered capital gain in the return of income. The assessment has been reopened u/s. 147 on the reason of escapement of income. Assessee also filed the same return in response to the notice u/s. 148. Consequently, the claims settled cannot be reagitated and only that part of the income which has escaped assessment has to be considered. Following the principles laid down by the Hon ble Supreme Court in the case of CIT Vs. Sun Engineering Works (P) Ltd., 1992 (9) TMI 1 - SUPREME Court , direct the AO to compute the capital gains as directed above and in case the same falls below the returned income, accept the returned income as such.

Summary

Issues Involved:
1. Adoption of sale value of land transfer.
2. Cost of acquisition.
3. Benefit of Section 54/54F.
4. Compensation received at ?1 Lakh.

Detailed Analysis:

1. Adoption of Sale Value of Land Transfer:
The Assessing Officer (AO) adopted the market value of the land transferred as the sale consideration instead of the cost of construction of the area allotted to the appellant. The Tribunal found this approach erroneous, noting that the AO made a mistake by using the guideline value at the time of sale of Flat No. 202, which was subsequent to the date of the agreement (19-06-2001). The Tribunal directed the AO to adopt the cost of the superstructure as the full value of consideration, aligning with the completion of the superstructure during the year.

2. Cost of Acquisition:
The AO adopted the market value of the land as on 01-04-1981 at ?7 per sq. yard, which the assessee contested. The Tribunal found the AO's adoption of ?70/- per sq. yard (after a 5% increase from 1975 values) incorrect and also found the assessee's claim of ?1,000/- per sq. yard without basis. The Tribunal directed the AO to adopt an approximate value of ?300/- per sq. yard and to consider the cost of the demolished building at ?100/- per sq. ft. as part of the cost of improvement, recognizing the demolition as part of the transfer process.

3. Benefit of Section 54/54F:
The AO denied the assessee's claim for exemption under Section 54/54F, arguing that the assessee owned more than two residences. The Tribunal disagreed, noting that the assessee acquired eight apartments subsequently through the development agreement and did not own more than one building as of the transfer date (19-06-2001). The Tribunal upheld the assessee's entitlement to the deduction under Section 54/54F, referencing the High Court of Andhra Pradesh's decision in CIT Vs. Syed Ali Adil, which supports the interpretation that multiple contiguous flats can be considered a single residential unit for the purposes of Section 54.

4. Compensation Received at ?1 Lakh:
The AO treated the ?1 Lakh received from the developer as income from other sources, rejecting the assessee's claim of it being a capital receipt. The Tribunal found this treatment incorrect, directing the AO to include the ?1 Lakh as part of the sale consideration, recognizing it as a capital receipt related to the transfer.

Additional Considerations:
The Tribunal acknowledged the assessee's advanced age and condoned a five-day delay in filing the appeal. It also noted the AO's difficulty in calculating the correct long-term capital gain due to conflicting judgments on the computation method for capital gains arising from development agreements. The Tribunal directed the AO to compute the capital gains as per the Tribunal's instructions and to accept the returned income if the recomputed capital gains fall below the returned income, following the principles laid down by the Supreme Court in CIT Vs. Sun Engineering Works (P) Ltd.

Conclusion:
The appeal was partly allowed with specific directions to the AO regarding the adoption of the cost of the superstructure, the cost of acquisition, the benefit of Section 54/54F, and the treatment of the ?1 Lakh compensation. The Tribunal emphasized the need for a realistic and practical approach in determining the quantum of capital gains.