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TMI Blog2022 (12) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... ec.47(iii) - the provisions of Sec.45(2) of the Act, also cannot be invoked to compute business profits when the land has been converted into stock-in-trade, because, the assessee has not transferred the land for a consideration. We are of the considered view that when the assessee has relinquished her right in the land earmarked for common utility purpose in terms of regulatory requirements and also executed Gift Deed in favour of the Commissioner, Virudhachalam, without any consideration, then, the question of computing long term capital gains on such land and also business profit in terms of Sec.45(2) of the Act, does not arise. In this case, the assessee has executed a Gift Deed dated 22.03.2019 and handed over the land in favour of the Commissioner, Virudhachalam Municipality. In our considered view, said transaction neither attracts capital gains as per Sec.47(iii) of the Act, nor business profit as per Sec.45(2) - We are of the considered view that the AO is completely erred in taxing deemed long term capital gains and deemed book profit in respect of 40,386.81 sq.ft. land earmarked for public utility purpose and handed over to local municipal authorities. CIT(A) after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income from properties. The assessee had filed her return of income for the AY 2015-16 on 22.03.2016 declaring NIL total income. During the course of assessment proceedings, the AO noticed that the assessee has converted investment into stock-in-trade as per s.45(2) of the Act. The AO further noted that the assessee had earmarked 40,386.81 sq.ft. land for common amenities like road, parks, etc., in terms of municipal regulations. The assessee claimed that land earmarked for road and other common facilities is required to be handed over to local municipal authorities by executing a Settlement Deed or Lease Deed as and when the authorities demand for execution of such deed. The AO, however, was not convinced with the explanation of the assessee and according to the AO, the assessee has relinquished her right in land earmarked for road and other common facilities to the extent of 40,386.81 sq.ft. which comes under the definition of transfer as defined u/s.47(iii) of the Act, and thus, computed capital gains on transfer of land earmarked for public utility purpose and made addition of Rs.1,80,83,081/- under the head income from capital gains . The AO had also invoked provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2), it is clearly stated that liability for capital gains tax arises in the year in which the stock-in-trade is sold or otherwise transferred. However, section 47(iii) deals with certain transactions which are not regarded as transfer. As per this, any transfer of a capital asset under a gift or a will or an irrevocable trust is not regarded as transfer. Therefore, the above specific provision (47(iii) will prevail over Section 45 since it starts with the words nothing contained in section 45 shall apply.... . 5.5.2 In this case, the road portion was earmarked for the common use without any exclusive right to anybody including the assessee as per the extant law and guidelines related to layout approvals. In this case, though the formal registration settling or gifting the road portion to municipality is not completed, as per the decision of Madras High Court in the case of Mr. M Krishnasamy Vs Member Secretary of the Chennai Metropolitan Development Authority, the road portion was held to be common for the benefit of the society or public in general pending formal registration. Thus it is clear that, the assessee or the buyers have no ownership or exclusive right over the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above facts, the assessment of capital gains by adding Rs.1,80,83,081/- is incorrect and deleted. 5.5.4 Now, the next main issue is including the road portion (as discussed above) in the addition of Rs.1,81,74,264/- under business income by the Assessing officer. As discussed earlier, the road portion has not been transferred to the buyers. Hence Section 43CA cannot apply to the sale transaction with individual buyers. The applicability of provisions of Sec. 43CA to the transaction of settlement by an 'irrecoverable trust' or 'gift' to the Municipality / Village Panchayat is examined below. Sec. 43CA reads as under: 43CA. (1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accrui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Ld.Counsel for the assessee, on the other hand, referring to Gift Deed executed by the assessee in favour of Virudhachalam Municipality dated 22.03.2019 submitted that as per regulatory requirement, the assessee has executed a Gift Deed and relinquished her right in land admeasuring 40,386.81 sq.ft. in favour of the Municipality. The only basis for AO to compute capital gains on land earmarked for common utility purpose, including road was that the assessee did not execute Settlement Deed in favour of the Municipality. But, fact remains that the assessee has subsequently, as per the demand of the concerned authorities, has executed Gift Deed on 22.03.2019 in favour of the Commissioner, Virudhachalam Municipality and relinquished her right in the land. Therefore, the question of computing capital gains and also business profits in respect of land earmarked for public amenities purpose does not arise. The Ld.CIT(A) after considering relevant facts has rightly deleted the additions made by the AO and their order should be upheld. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The factual matrix ..... X X X X Extracts X X X X X X X X Extracts X X X X
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