2018 (2) TMI 257 - AT - Income Tax

Long term capital gain arising from sale of land was treated by the AO as short term capital gain - Held that - When agreement to sale in respect of immoveable property is executed a right in personae is created in favour of the vendee and thereby the vendor is restrain from selling the property to someone else because the vendee gets the legitimate right to enforce specific performance of the agreement. In view of the above facts and circumstances of the case as well as the decision Hon ble Supreme Court in case of Sanjay Lal vs. CIT 2014 (7) TMI 99 - SUPREME COURT we hold that the transfer of the land in question would be regarded as on the date of agreement to sale dated 11.04.2007. The order of the authorities below qua this issue are set aside. Fair market value adopted by the AO as per Section 50C - determination by DVO - Held that - It is pertinent to note that there are various factors which effect the fair market value of land in question including the land use, the restriction of built up area, subsequent circular issued by the Government prescribing the rates for the stamp duty authority in respect of the farm house as per the size of the farm house but have not been considered by DVO. Therefore, these aspects are required to be taken into consideration while determining the fair market value of the land in question. We find that the DVO has not given a due waitage to these factors while determining the valuation, therefore, the same is not sustainable. We set aside this issue to the record of the AO/DVO for determination of fair market value after considering all the relevant factors such as the land use, restriction of built up area, the circular dated 14.07.2014 specifying as per rates for the farm house land in accordance with the area of the land and acquisition by Government. The circular dated 14.07.2014 is a useful and relevant guidance for determining the fair market value. Disallowance of cost of improvement - Held that - Since, this issue of date of acquisition of the land in question has been decided by us by holding that the assessee has acquired the land vide agreement dated 11.04.2007 and therefore, the expenditure incurred for improvement of the land after the said date of acquisition is an allowable claim as per section 48 of the Income Tax Act. Even otherwise if an expenditure is incurred by the assessee for improvement of the land after the agreement to sale dated 11.04.2007 and prior to the sale deed dated 13.04.2010 the fact remains that the expenditure was incurred for improvement of land by the assessee and acquired by the assessee. Therefore we are of the considered view that the expenditure incurred cannot be disallowed when the purchase consideration paid by the assessee prior to the sale deed was accepted and therefore, the expenditure incurred by the assessee prior to the sale deed is also allowable claim. Accordingly, we decide this issue in favour of the assessee.

Issues Involved:
1. Date of purchase of land and classification of capital gain as short-term or long-term.
2. Adoption of deemed sale consideration under Section 50C.
3. Consideration of cost of purchase/improvement.
4. Classification of agricultural land as a capital asset.

Issue-wise Detailed Analysis:

1. Date of Purchase of Land and Classification of Capital Gain:
The primary issue was whether the gain on the sale of land should be classified as short-term or long-term capital gain. The assessee contended that the land was acquired on 11.04.2007 via an agreement to sale, with full consideration paid and possession taken on the same date, thus qualifying for long-term capital gain. The AO, however, considered the purchase date as 13.04.2010, the date of the sale deed, and treated the gain as short-term. The CIT(A) upheld the AO's decision, citing Section 42 of the Rajasthan Tenancy Act, which prohibits the transfer of agricultural land by Scheduled Caste members to non-Scheduled Caste members. The Tribunal, referencing Section 2(47) of the Income Tax Act and Section 53A of the Transfer of Property Act, held that the transfer was effective from the date of the agreement (11.04.2007), thus qualifying the gain as long-term.

2. Adoption of Deemed Sale Consideration Under Section 50C:
The AO adopted the deemed sale consideration based on the stamp duty valuation, which was upheld by the CIT(A) after referring the matter to the DVO. The DVO's valuation matched the stamp duty authority's valuation, which the assessee contested, arguing the land was meant for farm house use and under acquisition by the government, affecting its market value. The Tribunal found that the DVO did not adequately consider these factors and set aside the issue, directing the AO/DVO to reassess the fair market value considering the land use restrictions, acquisition status, and relevant circulars.

3. Consideration of Cost of Purchase/Improvement:
The AO allowed a cost of purchase/improvement of ?47,62,800/- against the assessee's claim of ?56,70,055/-, disallowing expenses incurred before the sale deed date (13.04.2010). The Tribunal, having established the acquisition date as 11.04.2007, ruled that expenses incurred after this date were allowable, thus favoring the assessee.

4. Classification of Agricultural Land as a Capital Asset:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

Separate Judgments:
The judgment for both assessment years (2011-12 and 2012-13) followed the same reasoning and conclusions. The Tribunal adjudicated in favor of the assessee on the issues of capital gain classification and cost of improvement, and set aside the issue of fair market value for reassessment. The classification of agricultural land as a capital asset was dismissed as not pressed.

Conclusion:
The appeals were partly allowed, with the Tribunal ruling in favor of the assessee on key issues and directing reassessment on the fair market value determination.

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