9911796707
TMI Blog2007 (1) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... Sagari Secfin Pvt. Ltd. respectively. (2) That the learned Commissioner of Income-tax (Appeals)-VII, Kolkata erred in arbitrarily alleging and/or holding that it was impos sible to bifurcate the aggregate sale consideration of ₹ 16,99,85,636 received by the appellant-company in respect of the aggregate area of 1656.79 square metre of office space along with proportionate undivided indivisible share in the land underneath, as also the pro portionate share in all common areas and facilities etc. sold by the appellant-company to the said four buyer companies named in ground No. 1 hereinabove. (3) That the learned Commissioner of Income-tax (Appeals)-VII, Kolkata erred in arbitrarily alleging and/or holding that by virtue of the development agreement dated February 24, 1988, entered into between the appellant-company, the owners, and M/s. Ansal Pro perties and Industries Pvt. Ltd., the developers, the appellant-com pany's rights in the whole of the land measuring about 1.805 acres equivalent to 7307 square metres or 78,645 sq. feet, and in the two Wings ' A' and ' B' situate at premises No. B-148, Barakhamba Road, New Delhi got extinguished, and that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as to whether the capital gains arising on sale/transfer of the assessee-company' s rights, title and interests in the 4th, 5th, 6th, and 7th floors of the newly constructed multistoreyed building situated at B-148, Barakhamba Road, New Delhi, should be bifurcated, in between the proportionate undivided portion of land underneath the said building on the one hand, and the superstructure forming part of the said four floors on the other, so that the gains attributable to the transfer of proportionate undivided land, can be assessed to tax as long-term capital gains, and the gains attributable to the transfer of the superstructure forming part of the said four floors, can be assessed to tax as short-term capital gains. 3. The relevant facts relating to this case are that the assessee-company is engaged, inter alia, in the business of printing and publishing the renowned daily newspaper named The Statesman from both Kolkata and New Delhi for a very long time. The assessee-company owned and held on perpetual lease, an immovable property situated at B-148, Barakhamba Road, New Delhi measuring in all about 1.805 acres i.e. equivalent to 7307 sq. metres. The assessee got the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to ₹ 8,68,06,944 and estimated market value of newly built superstructure forming part of wing A as allotted to the assessee-company on August, 2001 came to ₹ 14,76,04,000. 6. Based upon the aforesaid two valuation reports, the assessee-company filed its return for the financial year ending March 31, 2002, corresponding to the assessment year 2002-03 declaring an assessable long-term capital loss of ₹ 28,99,11,595 arising on transfer of 56.8% of the said land to the developers, M/s. Ansal Properties and Industries Pvt. Ltd., which was transferred in terms of letter dated August 24, 2001. While claiming such capital loss, the assessee-company valued the fair market value of 56.8% of the land transferred to M/s. Ansal Properties as on April 1, 1981, at ₹ 11,41,35,056 on the basis of the valuation report by Shri G.C. Mahendirata and after claiming the benefit of indexation in terms of the second proviso to section 48 of the Income-tax Act computed the indexed cost of acquisition of such 56.8% land at ₹ 48,62,15,339 (Rs. 11,41,35,056 x 426/ 100). 7. The Assessing Officer processed the said return filed by the assessee- company for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 1. 10. The Assessing Officer while completing the assessment, after taking into consideration the submission of the assessee and the deed of agreement between the assessee and M/s. Ansal Properties and Industries Pvt. Ltd., observed that the assessee-company though previously owned land and structure thereon, the same was extinguished and a new property was constructed and in lieu of consideration of the old land and building the assessee owned wing A including space at 4th floor to 7th floor. The Assessing Officer further observed that as soon as the multistoreyed building was constructed and sold to different parties, the right of earlier assets was extinguished and the assessee was no more the owner of the land but was in fact owner of the space received in lieu of consideration of the old building structure vide development agreement with M/s. Ansal Properties and Industries Pvt. Ltd. The Assessing Officer further observed that the assessee was claiming depreciation on the said building. Based on the above observation the Assessing Officer rejected the contention of the assessee that as per the terms of agreement 43.20% of the share of entire land would remain with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, profit on sale of fixed assets as taken by the company in the profit and loss account amounting to ₹ 14,49,14,951 on account of sale of fixed assets, viz. office space at 4th to 7th floors at Delhi is assessed under the head short-term capital gain. The aforesaid detail of sale of building was submitted by A/R vide annexure 12 dated October 6, 2005, which clearly shows as under : Asset catgegory Building Description of asset 4th to 7th floor of Delhi High Rise and 18 garage spaces Cost ₹ 2,57,18,814 Depreciation ₹ 6,48,129 Sale proceeds ₹ 16,99,85,636 Profit on sale ₹ 14,49,14,951 From the said detail it is clearly established that the assessee sold office premises viz. depreciable business assets and thereby on sale earned short-term capital gain of ₹ 14,49,14,951. Therefore, the said income is taxable under the head short-term capital gain and accord ingly considered thereof. 13. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) after considering the order of the Assessing Officer, submission of the assessee and case law relied upon has upheld the order of the Assessing Officer by observing as under : The artificial manner of computation for tax calculation, in which efforts have been made to bifurcate the purchase and the sale con sideration, is not amenable for scrutiny and verification. The ratio of indicated value of land to the value of building is based purely on the hypocritical grounds, which cannot be accepted as a proper bifurca tion. Since the appellant had sold 1656.79 sq. mtrs. of building space at ₹ 16,99,85,636, the sale is to be treated as a composite sale. No separate agreement was entered into for the building and for the land. The appellant had claimed that it has received ₹ 12,31,42,645 for land and ₹ 4,68,42,991 for the building by bifurcating the sale consideration received purely on imaginary and hypothetical ratios. This is not admissible under the Income-tax Act. Obviously, the land in question is not capable of being sold for ₹ 12,31,42,645. In fact, if the appellant wants to sell the land independently, it may not get any value because undivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in the common areas and facilities and 18 car parking space in the basement in terms of four separate and distinct agreement for sale, all executed by the assessee-company vide agreement for sale dated October 22, 2001, in favour of M/s. Prity Portfolio Pvt. Ltd., M/s. Nahid Finlease Pvt. Ltd., M/s. Bist Hotels Pvt. Ltd. and M/s. Sagari Secfin Pvt. Ltd., all of New Delhi for an aggregate consideration of ₹ 16,99,85,636, a copy of which of the said four agreements was also placed by Shri Poddar claiming that the same were filed before the Assessing Officer in the course of impugned assessment proceedings. 18. Shri Poddar has thereafter contended that since the said four floors sold by the assessee came to 14.84% of the total area allotted to the assessee in wing A by way of owned shares, the assessee bifurcated such aggregate consideration of ₹ 16,99,85,636 into land and building in the ratio of 2.622 : 1 on the basis of the aforesaid valuation report by Shri G. S. Mendiratta as under : Rs. Land - 12,31,42,645 Building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals) has endorsed the view of the Assessing Officer on the basis of same analogy as observed by the Assessing Officer that the assessee only received such assets against sale of the old land and building to M/s. Ansal Properties and Industries Pvt. Ltd. 22. Shri Poddar has stated that both the Assessing Officer as well as the Commissioner of Income-tax (Appeals) erred in arbitrarily treating the said sum of ₹ 14,49,14,951 as short-term capital gain arising to the assessee on sale of 4th, 5th, 6th and 7th floor of the premises and has assailed their observation in holding that the assessee-company' s right in the whole of the said land got extinguished and in further holding that allocation of consideration between land and building was not proper as the same was impossible to bifurcate. 23. Learned senior counsel Shri N. K. Poddar has pleaded that the tax authorities has erred in treating the said sum of ₹ 14,49,14,951 as shortterm capital gain without appreciating the facts and the terms of agreement for developing superstructure of such building between the assessee- company and the developer M/s. Ansal Properties and Industries P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that in fact on reading of each of the said four agreements for sale dated October 22, 2001, which are available in the paper book from pages 147 to 239, it was clearly evident that what was sold to each of the said buyers, was not only the area forming part of the respective office floors but also the proportionate undivided individual shares in the land underneath with proportionate shares in all common areas and facilities as detailed in schedule C to the said agreement for sale as also in the equipment, plant and machinery, etc. as detailed in schedule D . 26. Learned senior counsel Shri N. K. Poddar has thereafter assailed the observation of the tax authorities in wrongly and arbitrarily alleging that these assets were treated by the assessee as business asset, on which the assessee was claiming depreciation. Shri Poddar has pointed out that the entirety of newly constructed wing A , on reading of the agreement by the assessee-company from the developer, was all along treated as its capital asset and no depreciation whatsoever was either claimed in the assessment year 2002-03 or in the assessment year 2003-04 when the said four floors were sold by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that in the matter of transfer of ownership apartments, the undivided proportionate portion of land attributable to the structure has to be necessarily transferred and it is common knowledge that the market value of the ownership apartment varies according to the situation of land over which the same is constructed. He has thereafter submitted that many case law fully support the case of the assessee which were also placed before the tax authorities and the same were distinguished by them without correctly appreciating them and has relied on the following judgments : (1) CIT v. Vimal Chand Golecha [1993] 201 ITR 442 (Raj) ; (2) CIT v. Dr. D. L. Ramachandra Rao [1999] 236 ITR 51 (Mad) ; (3) CIT v. C. R. Subramanian [2000] 242 ITR 342 (Karn) ; and (4) ITC Ltd. v. Deputy CIT reported in [2003] 86 ITD 135 (Kol) (TM). 29. Apart from the above case law, he has also relied on the following judgments contending that consideration received by the assessee should be bifurcated and the gains attributable to the transfer of undivided portion of the proportionate share in land should be separately assessed to tax as long-term capital gains : (1) CIT v. T. C. Itty Ipe [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share or interest in land is available in the conveyance instrument itself. Merely writing in the agreement ' undivided indivisible share' is not enough. Let us assume that the value of undivided indivisible share in land can be estimated only, still no bifurcation of the value of land and building is available in the sale agreement. (c) Once the assessee is unable to give consideration for sale of undivided share or interest in land or the fair market value for land as on the date of transfer the claim for bifurcation of consideration has no leg to stand on its own. 2. There appears to be a very long time gap between the date of the development agreement dated February 24, 1988, and that of the valuation reports of land and building dated August 12, 2002, and August 26, 2002, respectively. This is only indicative of the lack of perfection of the valuation report which shall be further elaborated in the forthcoming paragraphs. Secondly all sale agreements are of one single date i.e., October 22, 2001. Similarly, all receipts are dated September 30, 2002. 3. With reference to the valuation report of land page 114 of the paper book may kindly be perused. The basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the decision of the Kolkata Bench (Third Member) reported in [2003] 86 ITD 135 (Kolkata) (TM) in the case of ITC Ltd. v. DCIT, with special reference to the hon' ble Accountant Member' s observation made on page 166 (paragraph 27). (7) It is very important to mention that a report was called for from the Assessing Officer concerned who has submitted a report vide his letter No. ACIT/Cir.7/K/2006-07/767 dated November 8, 2006, (copy enclosed herewith). Kindly refer to the paragraphs (a) and (d) of the said report which reflects that pages 108 to 124 of the paper book volume I were not filed before the Assessing Officer during the course of assessment proceedings. In view of the facts and circumstances stated above, it is prayed that the Assessing Officer may be given opportunity of submitting a remand report in this connection. Alter natively the assessment may kindly be set aside to the file of the Assessing Officer. 32. In his rejoinder, Shri N. K. Poddar, learned senior counsel for the assessee has also filed written submission countering the submission filed by the Revenue and has submitted as under : 1. It is not correct on the part of the Revenue to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and the conveyance instru ments normally give the consideration in the aggregate terms only. The said four sale agreements read with the possession letters/ receipts make it quite clear that the aggregate consideration of ₹ 16,99,85,636 had been received by the appellant-assessee-com pany for the sale of transfer of the said four floors and also along with proportionate share in the land underneath as well as proportionate share in the common areas, facilities including in the plant, equip ment, machinery, etc. 3. It is not correct on the part of the Revenue to submit and/or allege that the appellant assessee company has not been able to give the bifurcated consideration for sale of undivided share or interest in land and/or the fair market value for the proportionate land attri butable to the said four floors, as on the date of transfer, as alleged in paragraph 1(c) of their written submissions/note, as alleged or otherwise or at all. 4. We say and submit that the aggregate sale consideration of ₹ 16,99,85,636, as evident from the said four sale agreements, is the correct market value of the said four floors including the proportio nate land underneath, as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed on October 22, 2001. At the relevant time, the buyer companies only paid certain amounts by way of advance. The balance consideration was paid by each of the said four buyers in 3 different instalments viz. May 7, 2002, May 28, 2002 and September 30, 2002, as noted on the respective receipts appearing at pages 163, 187, 211 and 235 of PB, Vol.-II. As such, the actual possession of the said four floors along with proportionate share in the land underneath with proportionate share in the common areas and facilities, etc. had been handed over by the appellant-assessee company to the respective buyers only on September 30, 2002, on receipt of final instalment of the aggregate consideration, as aforesaid. Since the appellant-assessee-company expected that the possession would be handed over to the respective buyers in or around September, 2002, the valuers had been engaged in or around July/ August, 2002, to give their valuation reports in respect of land as on April 1, 1981 and in respect of superstructures as in August, 2001, the time when the appellant-assessee-company received its allocated portion of the superstructure forming part of block A. 9. From the aforesaid fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the appellant assessee company, can neither be said to be unreason able, arbitrary and or without any basis whatsoever, as wrongly alleged by the Revenue in paragraph 3 of its said written submissions. 12. Moreover, in the computation of total income filed by the appellant-assessee-company for the assessment year 2002-03-page 127 of the paper book Vol.-I, the appellant-assessee-company had made specific references to the valuation report dated August 12, 2002, based upon which the total value of the land as on April 1, 1981, had been taken by it at ₹ 20,09,42,000 and the proportionate share (43.2%) of the appellant-assessee-company therein was taken at ₹ 11,41,35,056, which was then indexed to ₹ 48,62,15,339 based upon the then prevailing capital gain index of 426. 13. A copy of each of the said two valuation reports dated August 12, 2002 and August 26, 2002, made by Mr. G.S. Mendiratta, Govt. Approved Registered Valuer, was duly filed by the appellant-asses see-company before the learned Assessing Officer in the course of the assessment proceedings for the assessment year 2003-04, and again in the course of the appellate proceedings before the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the paper book filed by learned counsel for the assessee and the case law relied upon by both the parties. In this case, the Revenue has basically disputed the computation of capital gains by the assessee by apportioning the consideration received between the value of land and building on the basis of Registered Valuer' s report and the Assessing Officer has disputed such computation of capital gain by the assessee basically observing as under : (i) The rights of the assessee-company herein in the land and build ing forming part of the said property situate at B-148, Barakhamba Road, New Delhi were extinguished, as soon as the same were handed over to the developer for development through construction of new multistoreyed building, and the assessee company received new assets in the form of office space in the new multistoreyed building forming part of wing A . The assessee-company became the owner of newly constructed office space received by way of consideration from the developers under the development agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bifurcation of sale consideration between the land and superstructures was wholly hypothetical, imaginary and artificial. 35. The assessee has disputed such action of the Assessing Officer, as confirmed by the learned Commissioner of Income-tax (Appeals), contending that it is the absolute owner of 43.2% of the land on which the building is constructed and only 14.84% of the total area was sold in form of sale of 4th to 7th floors along with the right of superstructures and proportionate portion of land thereto. It has further been contended by the assessee that 14.2% of land was never sold by the assessee to the developer as alleged by the Revenue and the superstructure thereon was made available by the developer by virtue of an agreement and by transferring 56.8% of the land to them. It has further been contended by the learned counsel for the assessee that the assessee has rightly apportioned the sales consideration of these four floors on the basis of the Government Approved Valuer and by allocating the proportionate value of land and building sold to the respective purchasers on the basis of such report of valuer, which has not been doubted or contradicted by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be built by the developers. (b) When the development of the said land as contemplated by this agreement is completed, the right of the developers to obtain from the owners an assignment of the undivided 56.80% share in the said leasehold land described in the first schedule hereunder written in favour of the developers and/or in favour of such person or persons as may be selected by the developers, i.e., the person to whom the developers may sell, on what is known as ownership basis, the different units in the developers' allocation. 21. It is hereby expressly clarified, declared and confirmed that allowing the developers to enter upon the said land contemplated by clause 19 and/or 20 above is not intended to be and shall not be con strued to be nor claimed by the developers to imply that the owners have allowed the developers to enter into possession or given to the developers possession of the said land or allowed the developers to retain possession of the said land or of any part thereof in part per formance of the contract referred to in section 53A of the Transfer of Property Act, 1882, nor is it intended to be nor will it be construed to be ' transfer' as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the lands are held by the assessee for a period more than that prescribed under section 2(42A) of the Income- tax Act, 1961, namely, 36 months. It is not possible to say that by con struction of the building, the land which was a long-term capital asset, has ceased to be a long-term capital asset. The land is an inde pendent and an identifiable capital asset, and it continues to remain as an identifiable capital asset even after construction of the building. 40. Similar principle had also been reiterated by the hon' ble Karnataka High Court in the case of CIT v. C. R. Subramanian reported in [2000] 242 ITR 342 and also by the jurisdictional Tribunal in the case of ITC Ltd. v. DCIT reported in [2003] 86 ITD 135 [TM]. 41. Since in the present case also, the assessee is the owner of 43.2% of the building and the land on which such building had been constructed, the assessee has rightly apportioned the sale consideration in its books of accounts on the disposal of 4th to 7th floors as per the principle laid down by the various High Courts. We also find that for the purpose of apportionment, the assessee has rightly taken the market value of land as on April 1, 1981, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as a separate asset and the building raised subse quently constituted a different asset. The gains attributable to the interest in land were assessable as long-term capital gains. The gains attributable to the building were assessable as short-term capital gains. The burden was on the assessee to show how much of the sale proceeds should be apportioned for land and how much pertained to the structure. 43. We find that the facts of the present case are almost similar to the facts of the case disposed of by the hon' ble jurisdictional High Court, in the above case as in the present case also, the assessee has rightly divided the sales consideration between the value of land and the value of building and the assessee has also discharged its liability by apportioning the value between land and building as per the valuation determined by the Government approved valuer, which was placed before the Revenue even immediately preceding previous year and was not contradicted/rebutted by the Revenue at any stage of time. 44. Apart from the above decision of the hon' ble jurisdictional High Court, identical issue came before this Tribunal in the case of ITC Ltd. v. Deputy CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jhunjhunwala [2002] 254 ITR 152 (Cal) and the decision of the Third Member of this Tribunal in the case of ITC Ltd. [2003] 86 ITD 135 (Kol) (TM) and, therefore, in our considered opinion, the above second objection by the Revenue is devoid of any merit. 46. The third limb of objection by the Revenue while discarding the computation of capital gains by the assessee is based on the observation that the assessee-company had duly claimed depreciation thereon as part of building. However, the above observation of the Revenue is also without any merit as the assessee never claimed depreciation on such land and building comprising in wing A as was evident from the details of depreciation available at page 137 of the paper book, wherein the assessee has only claimed depreciation in respect of the old office building excluding depreciation on such newly constructed capital asset and, therefore, the above objection raised by the Revenue is also devoid of any merit. 47. The authorities below has also disputed the benefit of indexation by the assessee but such action of the Revenue is also not tenable in view of the fact that the assessee has made necessary entries in the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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