31. Section 2(47) – Capital gain – Computation – Transfer – A. Y. 1995-96 – Transfer of land to developer – 44% of land transferred in exchange for 56% of built-up area – Consideration for transfer of land was cost of construction of 56% of built up area – Cost of acquisition of land was its market value on 01/04/1981 – Land and development charges deductible from sale consideration

CIT vs. Vasavi Pratap Chand; 398 ITR 316 (Del):

A piece of land
was owned by co-owners. They entered into an agreement with A on 02/05/1984. In
terms of the agreement, the building on the land was to be demolished and an
apartment complex was to be constructed thereon. It was agreed that the
co-owners would get built up area of 89,136 sq. ft. which constituted 56% of
the total built up area. 44% of the built-up area would belong to A. The entire
cost of construction was to be met by A. The co-owners entered into agreements
with various flat buyers and ultimately sold constructed flats during the
assessment years 1993-94 to 1995-96. In the A. Y. 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 his individual return. The Assessing Officer held that the
cost of acquisition of property (one-third share) would be only Rs. 2,03,334.
In other words, the Assessing Officer adopted the computation of cost of
acquisition in the manner indicated in section 49(1)(i) of the Wealth-tax Act,
1957. The Tribunal held that the figure indicated in the wealth-tax return
filed by the assessee could not be taken to be the basis for determining
capital gains. It held that the agreement of sale clearly showed that 56% of
the built-up area including the land would be retained by the assessee and 44%
by the builder. There was simultaneous transfer of possession of 44% of land by
the assessee to the builders and possession of 56% of the built-up area by the
builder to the assesses in the financial year 1991-92 in terms of section 2(47)
of the Income-tax Act, 1961 read with section 53A of the Transfer of Property
Act. The Tribunal further held that the cost of acquisition of land had to be
its market value as on 01/04/1981. It did not reduce the land and development
charges from the sale consideration.

On appeal, the Delhi High Court held as under:

“i)   There was transfer of
title to the land by the assessee in favour of A. 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. Further, the assesee not
only transferred the flats to the buyers but the proportionate right in the
appurtenant land as well. There was transfer of possession of 44% of the land
by the assesee to the builder and possession of 56% of the built-up area by the
builder to the assessee in terms of section 2(47) of the 1961 Act read with
section 53A of the Transfer of Property Act.

ii)   The consideration for the
transfer of 44% land was the cost of construction of the 56% built-up area. The
land and development charges had to be reduced from the sale consideration.

iii)   The value declared in
the tax return filed by the assessee under the Wealth-tax Act could not be
taken to be the cost of acquisition in the hands of the assessee. The cost of
acquisition of land had to be the market value of land as on 01/04/1981.”