By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
fiogf49gjkf0d
New Page 1
25 (2007) 112 TTJ 593 (Kol)
The Statesman Ltd. v. ACIT
ITA No. 1692 (Kol.) of 2006
A.Y. 2003-04. Dated : 31-1-2007
S. 2(29B), S. 2(42A) and S. 48 of the Income-tax Act, 1961 —
When ownership rights were transferred partly and later some floors of the newly
constructed building were sold along with proportionate undivided share in land,
the sale consideration has to be apportioned between the land and the
superstructure to determine long-term/short-term capital gains.
The assessee-company owned and held a plot of land on
perpetual lease. It transferred 56.8% of the land to a developer under a
development agreement, retaining 43.2% ownership. Pursuant to the agreement, the
developer constructed two superstructures on the land and handed over one
building to the assessee-company. The assessee sold 4 floors of this building
during this year. The assessee computed long-term capital gain arising on
transfer of proportionate undivided portion of the land attributable to the 4
floors sold by it. It also computed short-term capital gains arising on transfer
of the built-up superstructure area of the 4 floors sold by it. The Assessing
Officer treated the entire amount as short-term capital gains, ignoring the
bifurcation done by the assessee. This was upheld by the CIT(A).
The Tribunal, relying on the decisions in the following
cases, allowed the claim of the assessee :
(a) ITC Ltd. v. Dy. CIT, (2003) 80 TTJ 15 (Kol.)
(TM)/86 ITD 135
(b) CIT v. Estate of Omprakash Jhunjhunwala, (2002)
172 CTR 325 (Cal.)/254 ITR 152
The Tribunal noted as under :
(1) The first objection by the Assessing Officer while
treating the sale of 4 floors as income from short-term capital gains is based
on the observation that the rights of the assessee-company in the land and
building forming part of the property were extinguished as soon as the same
were handed over to the developer for development through construction of new
multistoreyed buildings. As evident from the plain reading of terms of
agreement between the assessee-company and the developer, the fact that
emerges is that the assessee at no point of time has relinquished or
transferred the right of ownership on such land to the extent of 43.2% and the
assessee always held the ownership of 43.2% of the land. Therefore, the first
objection by the Revenue, while denying the computation of capital gain by the
assessee, does not hold any merit.
(2) The second objection by the Revenue basically disputing
apportionment of sales consideration by the assessee-company between the value
of land and superstructure is without any concrete and sound reasoning.
(3) Since the assessee is the owner of the building and
43.2% of the land on which such building had been constructed, the assessee
has rightly apportioned the sale consideration in its books of accounts on the
sale of the 4 floors.
(4) For the purpose of apportionment, the assessee has
rightly taken the market value of land as on 1st April 1981, since the land
was acquired before 1981 and the gain arising on disposal of the land was
long-term capital gain and the gain on disposal of the above 4 floors of the
building has rightly been treated as short-term capital gain.
(5) Even otherwise, when there is some difficulty in
bifurcation/apportionment, the same cannot be a ground for rejecting the claim
of the assessee. The Tribunal relied on decisions in the following cases :
(a) ITC Ltd. v. Dy. CIT, (2003) 80 TTJ (Kol.) (TM)
15; (2003) 86 ITD 135 (Kol.) (TM)
(b) CIT v. Estate of Omprakash Jhunjhunwala, (2002)
172 CTR (Cal.) 325; (2002) 254 ITR 152 (Cal.)
The Tribunal also relied on the decisions in the following
cases :
(a) CIT v. Dr. D. L. Ramchandran Rao, (1998) 147 CTR
(Mad.) 314; (1999) 236 ITR 51 (Mad.)
(b) CIT v. Vimal Chand Golecha, (1993) 110 CTR
(Raj.) 216; (1993) 201 ITR 442 (Raj.)
(c) CIT v. C. R. Subramanian, (2000) 159 CTR (Kar.)
218; (2000) 242 ITR 342 (Kar.)
(d) CIT v. Best & Co. (P) Ltd., (1966) 60 ITR 11
(SC)
