Composite property sale gains may be apportioned between short-term and long-term capital gains, with relief for the long-term portion.

A composite sale of land with factory sheds can give rise to both long-term and short-term capital gains where the land was acquired earlier and the sheds were constructed later. On the facts stated, the gains were not taxable wholly as short-term gains; a proportionate apportionment between the two components was by reference to their relative value and cost. The long-term capital gains component was held eligible for relief under section 80T, and the appeal was partly allowed.

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Issues: Whether the capital gains arising from the sale of land with factory sheds were to be apportioned between long-term and short-term capital gains on a proportionate basis, and whether the amount treated as long-term capital gains was eligible for relief under section 80T.

Analysis: The property consisted of land acquired earlier and sheds constructed subsequently, and the consideration realised on sale was composite. In view of the relative cost of construction and the price of land, and following the approach accepted in the earlier year on an identical point, the capital gains could not be treated wholly as short-term. A reasonable apportionment was warranted on proportionate basis between the two components of gain.

Conclusion: The capital gains were to be split into short-term capital gains of Rs. 7,500 and long-term capital gains of Rs. 36,933. The long-term capital gains portion was eligible for relief under section 80T, and the appeal was partly allowed.

Ratio Decidendi: Where a composite property sold comprises elements giving rise to both short-term and long-term gains, the gains may be apportioned on a proportionate basis having regard to the relative value of the components, and the long-term portion is entitled to the applicable statutory relief.

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