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TMI Blog2017 (8) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 7(4) of the Wealth Tax Act could not be adopted as market value of the asset as on 1.4.1981 for purposes of computing taxable gain under theIncome Tax Act?" 3. While admitting the Assessee's appeals ITA Nos. 786/2005 and 806/2005 by orders dated 5th September 2005 and 13th September 2005 respectively this Court framed the following questions of law: "(i) Whether in the facts and circumstances of the case, the ITAT has committed any error in rejecting the appellant's plea that the taxable capital gain arising from the sale of the land in question was to be computed with reference to the cost of acquisition of 100% value of the asset transferred by the appellant and co-owners in terms of the agreement dated 2.5.1984, executed with the builder and not by reference to the market value of 44% of the said asset? (ii) Whether the ITAT committed an error in rejecting the contention of the appellant that the market value of the land in question had to be determined by reference to 10.11.1984, and not 1.4.1981? (iii) Whether the ITAT committed any error in law by not reducing the land and development charges from the sale consideration received by the assessee while working ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was agreed by the builders that the owners of the land would be entitled to 56% of built area on the final construction of the dwelling units. 7. The co-owners entered into agreements with various flat buyers and ultimately sold constructed flats during the AYs 1993-94 to 1995-96. During the AY in question, i.e. 1995-96, the three co-owners sold 18,636 sq. ft. of built up area for a total consideration of Rs. 4,72,98,075/-. Each co-owner disclosed a loss of Rs. 31,30,663/- under the head "capital gains" in their individual returns. 8. Initially, both the Assessing Officer ('AO') and the Commissioner of Income Tax (Appeals) ['CIT (A)'] treated the flats as stock-in-trade and the land as converted stock-in-trade. They then concluded that the transaction was an adventure in the nature of trade and the income therefrom had to be taxed as business income. However, the ITAT, by its order dated 5th June 2000, disagreed with the above conclusion and held that neither the flats nor the land could be considered stock-in-trade. They were capital assets. Therefore, in the view of the ITAT, the profit on sale of the capital assets was taxable under the head "Capital Gains". Having held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 80L of the WTA was worked out as Rs. 2,13,54,652/-. Proceedings before the CIT (A) 12. By its order dated 24th October 2002, the CIT (A) held that the cost of acquisition of the 56% built up area, which fell to the share of the three coowners, should be taken at Rs. 3.01 per sq. ft. and nothing more. This was even less than the value computed by the AO. Accordingly, the AO was directed to re-compute the enhanced long-term capital gains after deducting cost of acquisition worked out on the aforesaid basis, albeit after indexing the same for inflation from the date of collaboration agreement to the present accounting period when the transfer took place. Assessees' contentions before the ITAT 13. The matter then travelled at the instance of the Assessee to the ITAT. The Assessee contended as under: (i) Since what was sold by the Assessees were the flats and not the land, the cost of acquisition of flat should have been determined. (ii) The land had already been sold when the Assessees entered into collaboration with the builders on 2nd May 1984. Hence, the cost of acquisition of flats was equal to the value of the entire land as the Assessees had surrendered all their r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or to the cooperative society or in other status of the flat owners." 16. It was held by the ITAT that "what was transferred under the collaboration agreement by the assessee to the builder was only 44% of the land owned by them in consideration of 56% of the built up area and not the entire land as contended by the learned counsel for the assessee." Consequently, the ITAT held that the Assessees not only transferred the flats but also the proportionate land. 17. As regards the costs of acquisition as 56% of built up area, the ITAT noted, "Admittedly, no conveyance deed has been executed by the assessee. From the nature of the agreement, it is clear that assessee was bound to transfer the land after the possession of built up flats was given by the builder to the Assessees." It further held that, "there was simultaneous transfer of possession of 44% of land by the assessee to the builders and possession of 56% of built up by area the builder to the Assessees in Financial Year 1991-92 in terms of Section 2 (47) of the Income-Tax Act, 1961 read with Section 53A of Transfer of Property Act. Hence, the contention of the Assessee's counsel that land was transferred on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that the AO, as well as the CIT (A), had grossly erred in adopting such valuation as market value as on 1st April 1981. 22. The ITAT further held that whether the possession of the flats was taken by the Assessee in FY 1991-92, as contended by the Assessee's counsel, was required to be verified by the AO who would also have to determine the period of holding. The ITAT held: "If it is found that it is long term capital asset then indexed cost would also be determined otherwise no indexation would be allowed." The impugned orders of the CIT (A) were modified and the matter was restored to the file of the AO for determination of costs of acquisition/ index cost of acquisition for the purposes of computing the capital gain assessable to tax. Revenue's Appeals 23. As far as the question framed in the Revenue's appeals, there may be no quarrel with the proposition that the figure indicated in the wealth tax return filed by the Assessee cannot possibly be taken to be the basis for determining capital gains. 24. At this juncture, it is necessary to refer to the decision of this in Siddharth Pratap Chand v. CWT (2014) 360 ITR 30 (Del). In the said decision, reference was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, the question framed in ITA Nos. 159 and 205 of 2005 is answered in favour of the Assessee and against the Revenue and the appeals are accordingly dismissed. Assessees' Appeals 28. Turning now to the Assessees' appeals, it is seen that the impugned order of the ITAT correctly understood the nature of transaction. There was no transfer of the title to the land by the Assessees in favour of Ansals. Indeed, what was transferred under the collaboration agreement was only 44% of the land owned by them in exchange for 56% of the built up area and not the entire land as contended even before the ITAT by learned counsel for the Assessees. 29. Further, the Assessees not only transferred the flats to buyers but the proportionate right in the appurtenant land as well. The contention of the Assessees that the land was transferred on the date of the collaboration agreement was also rightly rejected. There was a transfer of possession of 44% of the land by the Assessees to the builder and possession of 56% of the built up area by the builder to the Assessees in terms of Section 2 (47) of the Act read with Section 53A of the Transfer of Property Act. The consideration for the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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