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TMI Blog2010 (10) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... el. The respondent thereafter obtained a building licence for the construction of a hotel building from the local authority as also the necessary permission from the Department of Tourism and commenced the construction of a hotel building in the year 1990. The contract for the construction of the building was given to M/s Likproof India Private Limited. During the period 1990 to 1995 the respondent spent a sum of Rs.2,78,68,664/- towards the construction cost. The money was spent in instalments as the work progressed. The construction of the building however could not be completed for the lack of sufficient funds and inability of the respondent to tie up and secure necessary funds for completing the construction. The respondent therefore desired to sell the incomplete hotel project. In June, 1995 the respondent sold the hotel project consisting of land as also partly constructed building for a consideration of Rs.11 crores. The respondent filed return of its income for the Assessment Year 1996 -1997 (ending on 31st March, 1996) in which it is declared the sale transaction. The respondent claimed the profit earned by it by sale of the hotel project was in the nature of a capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als before the Tribunal. Before the Tribunal the respondent contended that the land was a different asset than the building (under construction). Though the sale deed mentioned a composite consideration for the land and building it would have to be bifurcated into two viz. the consideration attributable for the land and the consideration attributable for the building on sound legal principles. Since the land was held for more than three years the entire profit attributable to and arising out of the sale of the land should be treated as a long term capital gain. The revenue which is the appellant before us contended before the Tribunal that the lease of the land was surrendered by the assessee to EDC and thereafter the lease was granted by EDC in favour of the purchaser - Peerless by entering into a tripartite agreement. What was sold by the respondent was the building under construction. The building being incomplete, it could not be said to have been held by the assessee for more than 36 months and therefore the entire profit arising out of the sale of the building should be treated as a short term capital gain. The revenue contended that no part of the profit would be attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired the lease hold land and commenced the construction of the hotel building thereon. The building was incomplete and even before the completion of the hotel project the respondent sold the entire hotel project. The consideration paid by the purchaser was a composite consideration paid for the hotel project and there was no bifurcation between the consideration for the land and consideration for the incomplete building. It was the case of the respondent before the Assessing Officer that the incomplete hotel project itself was sold. As such, the Tribunal ought not to have treated the land as a separate asset and the building under construction as a distinct asset. Only one asset namely the incomplete hotel project was sold by the respondent. The hotel project constituted a single and indivisible asset. The asset, namely the incomplete hotel project, was not held for more than 36 months, as the project was still under implementation. The entire profit was therefore liable to tax as a short term capital gain. 7. Per contra, Mr. Pardiwalla, the learned Senior Counsel appearing for the respondent submitted that the Tribunal had rightly held that the land to be distinct and separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Rao (supra) a plot of land was allotted by a housing society to the assessee in March, 1978. The assessee commenced the construction of the building on the plot in the March, 1985 and completed the construction in 1987. He sold the property on 23rd September, 1987 for a total consideration of Rs. 3,50,000/-. The assessee claimed that the building was newly constructed and as it was sold immediately and the entire capital gain that accrued to him was solely attributable to the sale of the land in question. The Assessing Officer rejected the claim of the assessee on the ground that both the land and house were inseparable. He held that since the house was held for a period of less than 36 months, it was a short term capital gain. The Tribunal held that the assessee was entitled to treat the capital gain that arose or attributable to the sale of land as long term capital gain. Affirming the decision of the Tribunal, the High Court held that it was not possible to say that by construction of a building, the land which was a long term capital asset had ceased to be a long term capital asset. The land was an independent and an identifiable capital asset and it continued to remain an id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gain arising out of the sale the lease hold interest in the land in incomplete building will have required to be bifurcated into the gain arising out of a sale of lease hold interest in the land and the sale of the incomplete building. Question (A) is therefore answered in favour of the assessee and against the revenue. 12. The Tribunal has bifurcated the consideration of Rs.11 crores received by the assessee into two parts. It held that the consideration for the building was Rs.2.15 crores while remaining consideration was for the land. It is matter of a common knowledge that with the passage of time the value of the building may not appreciate much and in fact may depreciate with the passage of time. The land does not require repairs or maintenance while the building require repairs and maintenance. If not maintained properly the value of the building can depreciate which is not the case in respect of a land. The rate of rise in the prices for land far exceeds the rate of increase in cost of construction and/or value of a superstructure. Therefore, even if there may be some appreciation in the value of a building due to rise in the cost of the construction, deducting there fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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