Separate treatment of land and built-up area required in capital gains computation; revisional order failed for ignoring apportionment.

In a composite property transfer involving an undivided share of land and a constructed flat, capital gains must be computed by separately examining the distinct assets and their respective holding periods. A revisional order under section 263 could not stand where the authority treated the flat as a short-term capital asset without addressing bifurcation of land and building, or the resulting apportionment of consideration and cost. The proper approach is to recognise that possession and later sale under a development arrangement do not justify a mechanical single-asset characterization. The revisional order was set aside and the matter was directed to be re-examined in accordance with law.

---

---

Issues: Whether the revisional order under section 263 could be sustained when the assessee's residential flat, acquired pursuant to a joint development arrangement and sold within a short period of possession, was treated as a short-term capital asset without considering bifurcation between undivided share of land and built-up area.

Analysis: The dispute turned on the nature of the asset transferred and the correct method of computing capital gains in a transaction involving both land and a subsequently constructed flat. The governing framework recognised transfer in relation to capital assets under section 2(47), including transactions involving possession of immovable property, and also acknowledged that land and building are distinct and identifiable components for capital gains purposes. The record showed that the assessee's rights under the development arrangement, the subsequent possession of the flat, and the eventual sale could not be mechanically treated as one inseparable short-term transfer without examining the respective holding periods and the appropriate apportionment of consideration and cost between land and building. The revisional authority proceeded on the basis that the flat alone was short-term, but did not properly address the need to segregate the undivided share of land and the constructed portion or the consequences of such segregation for computation of capital gains and related deductions.

Conclusion: The revisional order could not be sustained on the reasoning adopted and was rightly set aside. The issue was decided in favour of the assessee.

Final Conclusion: The assessment was directed to be examined afresh in accordance with law, taking into account the separate treatment of land and built-up area for capital gains computation.

Ratio Decidendi: In a composite property transfer involving land and a constructed flat, capital gains must be computed by separately considering the distinct assets and their respective holding periods, and a revisional order cannot be sustained if it ignores that apportionment.

---