2017 (12) TMI 873 - AT - Income Tax

ITAT remands case for fresh assessment directing separate consideration of holding period, apportionment of sale proceeds, and indexation benefits.

ACIT-19 (1), Mumbai Versus Shri Dinesh Chimanlal Shah

The Income Tax Appellate Tribunal (ITAT) set aside the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision and remanded the case to the Assessing ... Period of holding of asset - Whether the period of holding the asset i.e., the property, should be reckoned from the date of completion of the construction of the property or from the date of acquisition of the land? - attribution of value of land - claim of indexation on cost of demolished property - Held that:- The correct position is that the asset consists of two components: (1) Land and (2) Building. When the property is sold, the period of holding has to be reckoned separately for the land and the building. The consideration received can also be split into two parts relating to each component. The above aspects, pertinent to the instant appeal, were not examined either by the AO or the Ld. CIT(A). Therefore, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a fresh assessment in the light of our observation hereinbefore and after giving reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Determination of the nature of capital gains (Long Term Capital Gain vs. Short Term Capital Gain) on the sale of property.2. Consideration of the date of acquisition for the purpose of indexation benefits.3. Apportionment of sale proceeds between land and building for capital gains calculation.Issue-wise Detailed Analysis:1. Determination of the Nature of Capital Gains:The primary issue was whether the gains on the sale of flats should be taxed as Long Term Capital Gains (LTCG) or Short Term Capital Gains (STCG). The Assessing Officer (AO) treated the newly constructed Raj Rahul Building as a separate new asset, thus considering the gains as STCG. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the land and building are inalienable, and thus, the gains should be taxed as LTCG. The Income Tax Appellate Tribunal (ITAT) referred to various judgments, including CIT vs. Vimal Chand Golecha, which differentiated the gains attributable to land (LTCG) and building (STCG). It concluded that the period of holding should be reckoned separately for land and building.2. Consideration of the Date of Acquisition for Indexation Benefits:The AO disallowed the claim of indexation on the cost of the demolished property and newly constructed building, treating the Raj Rahul Building as a new asset. The CIT(A) allowed indexation benefits on the proportionate cost of acquisition of land and tenancy rights from FY 1991-92, FY 2004-05, and FY 2005-06 but only allowed the cost of construction without indexation for FYs 2008-09, 2009-10, and 2010-11. The ITAT directed the AO to reassess the matter, considering the period of holding separately for land and building, and to allow the indexation benefits accordingly.3. Apportionment of Sale Proceeds Between Land and Building:The CIT(A) held that the entire gains on the cost of land and building should be taxed as LTCG. The AO had not doubted the purchase of leasehold rights and allowed proportionate costs for acquiring tenancy and construction. However, the ITAT emphasized that the consideration received from the sale should be apportioned between land and building, with the period of holding and gains calculated separately for each component. The ITAT directed the AO to reassess the apportionment of sale proceeds in light of the correct legal position and relevant judgments.Conclusion:The ITAT set aside the order of the CIT(A) and restored the matter to the AO for fresh assessment. The AO was directed to consider the period of holding separately for land and building, apportion the sale proceeds accordingly, and allow the indexation benefits based on the revised assessment. The appeal was allowed for statistical purposes, and the assessee was directed to provide relevant documents and evidence to the AO.