2018 (11) TMI 199 - AT - Income Tax

Computation of long term capital gain - Sale of ancestral property - Exclusion of the amount paid to the unauthorized occupants directly by the purchase of the property - valuation taking into account the stamp duty value U/s 50-C as deemed full value of consideration - said property was sold by virtue of a tripartite agreement entered into by the assessee, three co-owners of the property and the persons who had pre-occupied the property, known as, unauthorised occupants illegally with the developer - allegation of AO is that nothing found in the deed of sale that payment of ₹ 41 lacs to the unauthorized occupants, were agreed upon by the assessee. Held that - We note that the sale deed was entered into among three parties, the first party being the assessee and other family members, the second party being the purchaser and the third party being the unauthorized occupants. The entire sale consideration was received by the assessee and other family members and the unauthorized occupants, and as such the allegation has no leg to stand and hence we do not agree with the assessing officer. The second allegation of the AO is that the vendor has no role in determining the quantum of payment to the unauthorized occupants (confirming parties). We note that since it was a tripartite agreement entered into among the assessee, purchaser and the unauthorized occupants(confirming parties), the quantum of the compensation was agreed upon jointly. The compensation was agreed upon by the parties and the same was directly paid by the purchaser to the unauthorized occupants (confirming parties). The assessing officer has failed to bring any cogent evidence on record to show that amount of ₹ 41,00,000/- has not been paid by purchaser to these unauthorized occupants. We do not find any force in the stand taken by the assessing officer as well as CIT(A), therefore, we delete the addition made by the assessing officer to the tune of ₹ 21,35,057/-. No infirmity in the computation of long term capital gain made by the assessee hence we accept the long term capital gain computed by the assessee to the tune of ₹ 1,82,577/-, and we direct the assessing officer to consider ₹ 1,82,577/- as long term capital gain declared by the assessee. - Decided in favour of assessee.

Issues Involved:

1. Adoption of deemed full value of consideration (FVC) under Section 50C of the Income Tax Act, 1961.
2. Deduction of INR 41,00,000 paid to unauthorized occupants from the total sales consideration.
3. Proportionate share of deemed FVC for computing long-term capital gains.

Detailed Analysis:

Issue 1: Adoption of Deemed Full Value of Consideration (FVC) under Section 50C

The primary issue raised by the assessee was the adoption of deemed FVC under Section 50C of the Income Tax Act, 1961, in proportion to the actual sale price received. The assessee argued that the deemed FVC should be proportionate to the actual sale price received, considering the payment made to unauthorized occupants. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] did not accept this argument, leading to the appeal.

Issue 2: Deduction of INR 41,00,000 Paid to Unauthorized Occupants

The AO disallowed the deduction of INR 41,00,000 from the total sales consideration, which was paid by the purchaser directly to unauthorized occupants for surrendering their leasehold rights. The AO contended that this expenditure was not incurred by the assessee and, therefore, could not be deducted under Section 48 of the Act. The CIT(A) upheld this view, stating that the payment to unauthorized occupants was for obtaining vacant possession and not related to any share in the asset transferred.

Issue 3: Proportionate Share of Deemed FVC for Computing Long-Term Capital Gains

The assessee argued that the proportionate deemed FVC should be considered for computing long-term capital gains, deducting the amount paid to unauthorized occupants from the total stamp duty value. The CIT(A) rejected this contention, stating that Section 50C does not provide for such deductions, and the deemed value of consideration should not be reduced by the amount paid to unauthorized occupants.

Judgment Analysis:

1. Adoption of Deemed FVC:

The Tribunal noted that the sale deed was a tripartite agreement involving the assessee, co-owners, purchaser, and unauthorized occupants. The total sale consideration of INR 2,41,00,000 included INR 41,00,000 paid to unauthorized occupants. The Tribunal found that the payment to unauthorized occupants was agreed upon by all parties and was essential for obtaining vacant possession of the property.

2. Deduction of INR 41,00,000:

The Tribunal observed that the AO's contention that the assessee did not incur the expenditure was incorrect. The payment was part of the sale agreement and essential for transferring the property. The Tribunal held that the AO and CIT(A) erred in disallowing the deduction of INR 41,00,000 from the total sales consideration.

3. Proportionate Share of Deemed FVC:

The Tribunal accepted the assessee's computation of long-term capital gains, considering the proportionate share of deemed FVC. The Tribunal directed the AO to accept the long-term capital gain computed by the assessee, which included deducting the payment to unauthorized occupants from the total stamp duty value.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the AO to consider INR 1,82,577 as the long-term capital gain declared by the assessee. The Tribunal found no infirmity in the assessee's computation and upheld the deduction of INR 41,00,000 paid to unauthorized occupants from the total sales consideration. The judgment emphasized the importance of considering the actual transaction details and agreements among the parties involved in property sales.

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