TaxTMI 
TaxTMI 
2011 (5) TMI 576
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....ong with the computation of income, reading as under:- "The assessee's father owned a plot of agricultural land which was acquired by the Government of Maharashtra in February, 1970 for CIDCO. The assessee was allotted a plot of land under the 12.5% Gaothan Expansion Scheme by CIDCO at Village Kamothe-II, Distt. Raigad. The same has been assigned for Rs.2,50,00,000/-. The said original agricultural land was not a capital asset u/s. 2(14)(iii) of the I.T. Act. The said plot from CIDCO also does not become capital asset u/s.2(14)(iii) and hence the section 45 does not apply to assignment of said plot." 3. The facts leading to the above referred transaction are that certain lands belonging to the assessee's father, Late Shri Gangadhar Vishnu Puranik, were acquired by the Govt. of Maharashtra vide Notification dated 03-02-1970 and subsequent Notification dated 28-12-1972 issued u/s. 6 of the Land Acquisition Act, 1884. Compensation was paid to Shri Gangadhar Vishnu Puranik in the period between 1973 to 1975 by the Special Land Acquisition Officer at the rate of Rs. 5 per square meter. The assessee's father expired in the year 1980. A further claim for addition compensat....
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....cted and the cost of acquisition was to be taken as the cost at which the land was acquired by the previous owner. In this regard, he noted that the value of the original lands acquired by the Special Land Acquisition Officer was fixed at Rs.10,69,006/-, by valuing it at Rs.6 per sq. mtr. or Rs.4/- per sq. mtr or Rs.3.50 per sq. mtr. depending on the survey numbers. By order of Addl. Judge dated 25-04-2000, the market value of land was revised at Rs.16/- per sq. mtr. For the sake of convenience, the average rate of Rs.5/- per sq. mtr. was taken by him for original compensation of Rs.10,69,006/- and accordingly revised compensation was worked out at Rs.11/- per sq. mtr. at Rs.23,51,813/-. Deducing 1/5th as assessee's share, the AO determined the cost of acquisition of the Plot at Rs.4,70,362/- (i.e. Rs.23,51,813/- divided by Rs.5). As the assessee got possession of the Plot from CIDCO vide agreement dated 08-08-2005 and sold the same to M/s. Pathik Construction for a consideration of Rs.2.50 crores, the AO held that capital gain was to be charged as short-term capital gain. It was noticed by him that since the assessee had submitted market rates prevailing for lands at Kamothe-II pu....
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..... CIT(A). It has been mentioned in Para 1.3 of the Statement of facts before the ld. first appellate authority that the assessee furnished several documents to the AO vide his letter dated 19.11.2008, inter alia:- '(vi) CIDCO's letter dated 18.08.2004 allotting plot of land on lease basis admeasuring arund 7300 sq.mts. at Village Kamothe, Taluka Panvel, Distt. Raigadh.' Further Ground no. 1.4(iii) taken before the ld. CIT(A) states the date of allotment as 16.08.2004. These facts were available both before the AO as well as the CIT(A). None of the authorities below have chosen to controvert them. Now we will decide the controversy before us in the light of correct and complete facts as afore noted. 7. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee's father late Shri Gangadhar Vishni Puranik was owner of certain lands which were acquired by the Govt. of Maharashtra by Notification dated 03-02-1970 and subsequent Notification dated 28-12-1972. The possession of the lands was taken over by the Govt. in March 1973 by awarding original compensation @ Rs. 5/- per sq. mtr. some wher....
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....hus evident that out of the above referred two transactions, we are concerned in the present appeal only with the second transaction, which took place in the year under consideration. 8. Now, we will take up the arguments raised by the ld. A.R., one by one. I. The Plot would retain Character of Agricultural Land:- 9. The ld. A.R. contended that the Govt. acquired original lands of assessee's father in 1972 which were agricultural in nature. He submitted that the lease rights in the Plot would retain the same character as that of the original lands acquired by the Land Acquisition Officer, being the agricultural land. Developing this argument, it was put forth that since the assessee transferred agricultural lands (being rights in the Plot assuming to have the character of original agricultural lands acquired by the Government), in this year, there will not arise any liability to pay tax under the head Capital gain' because the agricultural land is excluded from the definition of Capital assets' given in section sec. 2(14) of the Act. In the opposition, the ld. DR relied on the impugned order in this regard. 9.1 The assessee acquired lease rights in t....
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....argeable to tax under the head 'Capital gains'. Only the nature of the capital asset so transferred in the previous year is to be viewed de hors the source from which it was acquired. If a Capital asset' as per sec. 2(14) is purchased out of agricultural income, that would not lose its character of capital asset notwithstanding the fact that the income exempt from tax was employed for purchasing such capital asset. Whenever such resulting capital asset is transferred leading to any profit or gain, such amount shall be charged to tax u/s.45 of the Act. The sole criteria for considering whether the asset transferred is capital asset u/s.2(14) or not is to consider the nature of the asset so transferred in the previous year and not the origin or the source from which such asset came to be acquired. 9.4 Adverting to the facts of the instant case, once the assessee acquired rights in the Plot, which in itself is admittedly not an agricultural land, there is no question of considering it to be an agricultural land on the premise that it was allotted to the assessee against acquisition of agricultural land. Further the question whether the lands acquired by the Govt. in the years ....
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....as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (vicb) of section 47; (iv) such assessee being a Hindu undivided family, by the mode referred to in sub (2) of section 64 at any time after the 31st day of December, 1969, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be." 10.2 A bare perusal of the provision indicates that where the capital asset became the property of the assessee in any of the situations contemplated in clauses (i) to (iv), the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of improvements, etc. The Explanation below sub-section (1) defines the expression "previous owner of the property" to mean the last previous owner who acquired it by a mode of acquisition other than those referred to in clauses (i) to (iv) of this sub-section. The sum and substance of sec. 49(....
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.... the assessee in the modes given in clauses (i) to (iv). But once such capital asset is transferred and another capital asset is acquired, there is no applicability of sec. 49(1) to such converted asset. 10.4 Coming back to the facts of the instant case, the viewpoint of the AO that the cost of acquisition in this case on the assigning of rights in the Plot to M/s Pathik Construction should be considered as the amount of compensation originally awarded on the acquisition of lands from assessee's father, relying on sec. 49(1), does not appear to be sound. This provision can not have any application at the stage when the assessee transferred the rights in the Plot to a third party in the year in question, because what has been transferred in this year is the right in the Plot, which was not inherited by the assessee from his father. The assessee only received the capital asset in the shape of right to receive compensation from the Government on the death of his father. Cost to the previous owner u/s 49(1) would be relevant at the time of computing the capital gain in the preceding year, when compensation was received in the shape of right in the Plot. Once the first transacti....
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....lands by it in the years 1970/72, the market value of such right is to be considered as full value of consideration at the time of computing capital gain on the first transaction in the preceding year. Once a particular amount is considered as full value of consideration at the time of its purchase, the same shall automatically become the cost of acquisition at the time when such capital asset is subsequently transferred. Thus, the full value of consideration should mean the market value of the lease rights in the Plot for sixty years at the time of the first transaction which was completed on 16-08- 2004, and the same amount shall become the cost of acquisition when such rights in the Plot became subject matter of transfer in the current year on 25-08- 2004. We, therefore, set aside the view taken by the ld. CIT(A) on this issue and hold that the market value of such lease rights for sixty years in the Plot as on 16-08-2004 shall constitute the cost of acquisition for the purpose of computing capital gain when it was assigned for a consideration of Rs.2.50 cores on 25- 08-2005. The AO is directed to determine the cost of acquisition in terms indicated above after allowing a reason....
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....at actually received. From the language of sub-sec. (1), it is clear that the value of land or building or both adopted or assessed or assessable by the stamp valuation authority shall, for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such a transfer. Two things are noticeable from this provision. Firstly, it is a deeming provision and secondly, it extends only to land or building or both. It is manifest that a deeming provision has been incorporated to substitute the value adopted or assessed or assessable by stamp valuation authority in place of consideration received or accruing as a result of transfer, in case the latter is lower than the former. It is further relevant to note that the mandate of sec. 50C extends only to a capital asset which is "land or building or both". It, therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction under sub-sec. (1) shall be activated to substitute such adop....
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....t on which depreciation was allowed. 11.4 In view of the aforenoted judgments rendered by the Hon'ble Apex Court and that of the Hon'ble jurisdictional High Court, it is clear that a deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Turning to sec. 50C, it is seen that the deeming fiction of substituting adopted or assessed or assessable value by the stamp valuation authority as full value of consideration is applicable only in respect of "land or building or both. If the capital asset under transfer cannot be described as land or building or both', then sec. 50C will cease to apply. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the Plot for a period of sixty years, which right was further assigned to M/s. Pathik Construction in the year in question. It is axiomatic that the lease right in a plot of land are neither land or building or both' as such nor can be included within the scope of land or building or both'. The distinction between a capital asset being land or building or both' and any right in land or building or ....