2014 (5) TMI 315 - AT - Income Tax

Reevaluation of Property Value for Capital Gains: Importance of Market Value at Possession

Mrs. Tauqeer Fatema Rizvi Versus Income Tax Officer

The Tribunal partially allowed the appellant's appeal, directing the Assessing Officer to reconsider the cost of acquisition by factoring in the value of ... Computation of LTCG – Whether the value of surrender of tenancy right is to be considered as cost of acquisition of house property - Cost of the property at the time of acquisition not considered – Held that:- The assessee is an old tenant in a building, where she was residing with her son in the flat - Once the cost of acquisition is determinable, the benefit of such acquisition has to be given while computing the tax on capital gain - the tenancy right got converted into acquisition of a flat, when the assessee must have got the possession of new flat constructed by the builder - Thus, the market value of the flat as on the date of its possession would be the cost of its acquisition – the cost is to be deductible while computing income by way of capital gains, whether long term capital gain - This is as the holding period of the capital assets, being the residential flat, would only commence from the date the assessee is put in possession after its completion – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication – AO was directed to take the value of the flat for the purpose of cost of acquisition from the year in which the assessee got the actual possession of the flat and then only he shall compute the capital gain – Decided partly in favour of Assessee. Issues:Challenge to the confirmation of long term capital gain without considering the cost of property at acquisition.Analysis:The appellant, an individual, appealed against the order of the Commissioner (Appeals)-XXX, Mumbai, regarding the assessment year 2005-06 under section 143(3) of the Income Tax Act, 1961. The dispute revolved around the justification of charging long term capital gain at Rs. 27,44,173 without factoring in the cost of the property at the time of acquisition. The appellant had sold a flat for Rs. 38,78,375, claiming the cost of acquisition at Rs. 3,64,000. However, the Assessing Officer rejected this claim, considering only the amount actually paid, which was Rs. 2,000, towards society deposit. The Assessing Officer relied on legal precedents to support this decision, leading to the calculation of long term capital gain at Rs. 27,44,173.The Commissioner (Appeals) upheld the Assessing Officer's decision to adopt the cost of acquisition at Rs. 2,000 instead of Rs. 3,64,000, resulting in the confirmed long term capital gain amount. The appellant argued that the property was acquired in exchange for tenancy rights, emphasizing the valuation of these rights at the time of agreement with the builder in 1982. Legal cases were cited to support this claim. The Departmental Representative supported the authorities' findings, stating that the appellant did not incur any additional cost for acquiring the flat.Upon review, it was established that the appellant, an old tenant in a building, received ownership rights for surrendering tenancy rights, leading to the allocation of a flat by the builder. The appellant sold the property in 2004, with its value considered for tax purposes at Rs. 38,78,375. The Revenue contended that no cost of acquisition was incurred by the appellant, while the appellant argued that the market value at the time of possession in 1982 should be considered. The Tribunal noted the significance of tenancy rights in determining the cost of acquisition, as evidenced by relevant tax provisions. It was concluded that the cost of acquisition should reflect the value of the flat at the time of possession, directing the Assessing Officer to reevaluate the cost before computing capital gains. Consequently, the appellant's appeal was partially allowed for statistical purposes.In conclusion, the Tribunal's decision highlighted the importance of considering the value of tenancy rights in determining the cost of acquisition for calculating capital gains, emphasizing the need to assess the property's market value at the time of possession.