2018 (12) TMI 1080 - HC - Income Tax

Computation of capital gains - assessee had ownership of half of the 38% sold to the builder - valuation of the property - entitled to exemption under section 54 & 54F - Held that - The agreement specifically shows that the consideration to the assessee is 31% of the built up area. What benefit accrues to the assessee is of no consequence. The builder only promised construction of a super built up area in a multi-storeyed complex and handing over of 31% of the area. The consideration which passed from the builder to the assessee is only the cost of construction. This was the specific agreement between the parties. We do not think that an artificial exercise can be carried out, by which the market value of the constructed area can be determined and the same computed as the sale consideration which is not the specific terms of the agreement between the builder and the land owner. We need not look at whether the assessee kept the area assigned to him, for himself or sold it; which is irrelevant to determine the construction cost. In the context of the said question having been answered in favour of the assessee and the net result of the returns being a capital loss, the issue of exemption under Section 54 or Section 54F does not at all arise - decided against revenue

Summary

Issues:
1. Correct computation of capital gains by the Tribunal
2. Entitlement to exemption under section 54 & 54F of the Income Tax Act

Analysis:

Issue 1: Correct computation of capital gains by the Tribunal
The case involved a dispute over the computation of capital gains by the Tribunal. The assessment process under Sections 143 and 147 of the Income Tax Act was detailed, including rectification applications and orders under Section 154. The Assessing Officer (AO) had interfered with the property value and indexed cost for capital gains computation. The property in question was jointly owned, and an agreement was made with a builder for development. The Tribunal accepted the cost indexation based on the value declared by the assessee, rejecting lower valuations from wealth tax assessments. The Tribunal considered market values of similar properties and upheld the declared property value. The AO's interference with the consideration for the sale of 38% of the property was also disputed, with the AO valuing it higher than the cost of construction declared by the assessee.

Issue 2: Entitlement to exemption under section 54 & 54F of the Income Tax Act
The second issue revolved around the assessee's entitlement to exemption under Section 54 & 54F of the Income Tax Act. The Court noted that this question arose only if the computation issue was not resolved in favor of the assessee. As the computation favored the assessee, resulting in a capital loss, the Court declined to address the exemption issue. The Court emphasized that the consideration for the sale of the property was based on the cost of construction as per the agreement with the builder, rejecting the Revenue's argument that market value should determine the consideration. The Court ruled in favor of the assessee on the computation issue, dismissing the appeal and leaving the parties to bear their respective costs.

In conclusion, the High Court of Kerala addressed the issues of correct computation of capital gains and entitlement to exemption under the Income Tax Act. The judgment favored the assessee on the computation matter, emphasizing adherence to the terms of the agreement for determining consideration. The Court's decision resulted in the appeal being dismissed, with each party bearing their costs.