TaxTMI 
TaxTMI 
TaxTMI 
2007 (1) TMI 578
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....se Pvt. Ltd., Bist Hotels Pvt. Ltd. and Sagari Secfin Pvt. Ltd. respectively. (2) That the learned Commissioner of Income-tax (Appeals)-VII, Kolkata erred in arbitrarily alleging and/or holding that it was impos sible to bifurcate the aggregate sale consideration of ₹ 16,99,85,636 received by the appellant-company in respect of the aggregate area of 1656.79 square metre of office space along with proportionate undivided indivisible share in the land underneath, as also the pro portionate share in all common areas and facilities etc. sold by the appellant-company to the said four buyer companies named in ground No. 1 hereinabove. (3) That the learned Commissioner of Income-tax (Appeals)-VII, Kolkata erred in arbitrarily alleging and/or holding that by virtue of the development agreement dated February 24, 1988, entered into between the appellant-company, the owners, and M/s. Ansal Pro perties and Industries Pvt. Ltd., the developers, the appellant-com pany's rights in the whole of the land measuring about 1.805 acres equivalent to 7307 square metres or 78,645 sq. feet, and in the two Wings ' A' and ' B' situate at premises No. B-148, Barakhamba Road, New ....
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....ee-company relates to the question as to whether the capital gains arising on sale/transfer of the assessee-company' s rights, title and interests in the 4th, 5th, 6th, and 7th floors of the newly constructed multistoreyed building situated at B-148, Barakhamba Road, New Delhi, should be bifurcated, in between the proportionate undivided portion of land underneath the said building on the one hand, and the superstructure forming part of the said four floors on the other, so that the gains attributable to the transfer of proportionate undivided land, can be assessed to tax as long-term capital gains, and the gains attributable to the transfer of the superstructure forming part of the said four floors, can be assessed to tax as short-term capital gains. 3. The relevant facts relating to this case are that the assessee-company is engaged, inter alia, in the business of printing and publishing the renowned daily newspaper named The Statesman from both Kolkata and New Delhi for a very long time. The assessee-company owned and held on perpetual lease, an immovable property situated at B-148, Barakhamba Road, New Delhi measuring in all about 1.805 acres i.e. equivalent to 7307 sq. me....
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.... the assessee-company filed its return for the financial year ending March 31, 2002, corresponding to the assessment year 2002-03 declaring an assessable long-term capital loss of ₹ 28,99,11,595 arising on transfer of 56.8% of the said land to the developers, M/s. Ansal Properties and Industries Pvt. Ltd., which was transferred in terms of letter dated August 24, 2001. While claiming such capital loss, the assessee-company valued the fair market value of 56.8% of the land transferred to M/s. Ansal Properties as on April 1, 1981, at ₹ 11,41,35,056 on the basis of the valuation report by Shri G.C. Mahendirata and after claiming the benefit of indexation in terms of the second proviso to section 48 of the Income-tax Act computed the indexed cost of acquisition of such 56.8% land at ₹ 48,62,15,339 (Rs. 11,41,35,056 x 426/ 100). 7. The Assessing Officer processed the said return filed by the assessee- company for the assessment year 2002-03 in terms of the intimation under section 143(1) dated February 11, 2003, by accepting the return filed by the assessee. The assessee in the meantime capitalized the fair market value of 43.2% of the said land at ₹ 58,28,71,00....
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....rved that the assessee-company though previously owned land and structure thereon, the same was extinguished and a new property was constructed and in lieu of consideration of the old land and building the assessee owned wing " A" including space at 4th floor to 7th floor. The Assessing Officer further observed that as soon as the multistoreyed building was constructed and sold to different parties, the right of earlier assets was extinguished and the assessee was no more the owner of the land but was in fact owner of the space received in lieu of consideration of the old building structure vide development agreement with M/s. Ansal Properties and Industries Pvt. Ltd. The Assessing Officer further observed that the assessee was claiming depreciation on the said building. Based on the above observation the Assessing Officer rejected the contention of the assessee that as per the terms of agreement 43.20% of the share of entire land would remain with the company and the balance would be transferred to the developer and it was not claiming depreciation on such said building observing that from the perusal of statement of depreciation, it was evident that the depreciation was....
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....sed under the head short-term capital gain. The aforesaid detail of sale of building was submitted by A/R vide annexure 12 dated October 6, 2005, which clearly shows as under : Asset catgegory Building Description of asset 4th to 7th floor of Delhi High Rise and 18 garage spaces Cost ₹ 2,57,18,814 Depreciation ₹ 6,48,129 Sale proceeds ₹ 16,99,85,636 Profit on sale ₹ 14,49,14,951 From the said detail it is clearly established that the assessee sold office premises viz. depreciable business assets and thereby on sale earned short-term capital gain of ₹ 14,49,14,951. Therefore, the said income is taxable under the head short-term capital gain and accord ingly considered thereof." 13. Aggrieved with such order of the Assessing Officer the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals), wherein it has placed reliance on the agreement and valuation report as discussed the above and has contended that it had received a composite sum for the transfer/sale of office premises and while computing the capital gains, the said amount has been apportioned as consideration received towards the sale of the buil....
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.... computation. The cases cited by the appellant are not applicable in the appellant' s case, as discussed above. In view of the above, I do not find any infirmity in the order of the Assessing Officer in treating the whole capital gain as short-term capital gain. I do not find any merit in the appellant' s submission. Therefore, ground No. 1 is dismissed and Assessing Officer' s action in treating ₹ 14,49,14,951 as short-term capital gain is confirmed." 16. The assessee is aggrieved with such order of the learned Commissioner of Income-tax (Appeals) and has now come in appeal before us by taking the abovementioned grounds of appeal. 17. In appeal before us, the learned senior counsel Shri N. K. Poddar appearing for the assessee-company has assailed the order of the learned Commissioner of Income-tax (Appeals) and has first narrated the facts of the case before us, which has already been discussed in the abovementioned paragraph of this order. Shri Poddar has submitted that the entire order of the Assessing Officer and the Commissioner of Income-tax (Appeals) is based on misappropriation of the facts of the case and has submitted that it is important to note....
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.... and worked out such long-term capital gain attributable to the said four floors at ₹ 6,55,59,433 and short-term capital gain against the sale of superstructure on such land comprising of 4th to 7th floors at ₹ 2,49,38,557. 20. Shri Poddar has pointed out that the Assessing Officer, however, while completing the assessment has not appreciated the above computations of long-term and short-term capital gains by the assessee and has basically observed that the rights of the assessee company in the land and building forming part of the said property situated at B-148, Barakhamba Road, New Delhi were extinguished as soon as the same were handed over to the developer for development through construction of new multistoreyed building and the assessee-company received new assets in the form of its space forming part of wing " A" . Shri Poddar has submitted that the Assessing Officer has basically treated such agreement for development of such land and construction of new building thereon as sold by the assessee to M/s. Ansal Properties and Industries Pvt. Ltd., against which the assessee has got 43.2% share on the old land plus some payment by bank accounts and accor....
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.... has agreed to assign only 56.8% share in the entirety of the said plot of land and such transfer eventually took place in favour of the said developer in August, 2001, when the completion certificate in respect of the newly constructed multistoreyed building, which wing " A" and wing " B", had been obtained from the New Delhi Municipal Committee and thereupon allocation of the developer' s portion i.e., wing " B" and of the owner portion i.e., wing " A" was accordingly made in between the assessee-company and the said developer M/s. Ansal Properties. Shri Poddar continuing his argument has contended that on assignment of 56.8% shares in the said land by the assessee-company in favour of the said developer M/s. Ansal Properties in August, 2001, the assessee-company continued to hold 43.2% shares in the said plot of land and the right of the assessee-company in the said land stood extinguished only to the extent of 56.8% shares and no extinguishment whatsoever of the rights of the assessee-company in respect of 43.2% shares in the entirety of the said land took place in terms of the said development agreement. 24. Shri Poddar has submitte....
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....eciation on office space arising out of previous year and filed a copy thereof, which is available at page No. 137 of the paper book. Learned counsel has thereafter assailed the observation of tax authorities in disbelieving the valuation report by Shri G. S. Mendiratta and in further holding that it was not possible to bifurcate the aggregate sale consideration of ₹ 16,99,85,636 received by the assessee-company on sale of the said four floors between the structure and the proportionate area of land attributable to and/or underneath the same. Shri Poddar submitted that the Govt. Approved Registered Valuer Shri G. S. Mendiratta vide his valuation report dated August 26, 2002, has actually carried out such bifurcation on reasonable basis and neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) has found any defects whatsoever either in the said valuation report or the basis for bifurcation adopted by the valuer. It has, therefore, been urged by Shri Poddar that the observation of tax authorities in treating the valuation report as hypothetical, imaginary, artificial is wholly baseless, unreasonable and/or otherwise perverse. 27. Shri Poddar has thereafter....
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....ally been pleaded by Shri Poddar that even when there is some difficulty in bifurcation/apportionment that cannot be a ground for rejecting the claim of the assessee in view of the decision of the hon' ble Supreme Court in the case of CIT v. Best and Co. P. Ltd. [1966] 60 ITR 11. He has further placed reliance on the decision of the hon' ble jurisdictional High Court in the case of CIT v. Estate of Omprakash Jhunjhunwala reported in [2002] 254 ITR 152 (Cal) contending that the above decision of the hon' ble jurisdictional High Court is on all fours with the case of the assessee-company herein. He has submitted that it has been held by the hon' ble High Court while upholding the decision of the Tribunal that when the first floor of the newly constructed multistoreyed building was sold along with the proportionate interest in the land, the assessee had rightly claimed that the sale proceeds of the land should be assessed as long-term capital gain and the sale proceeds attributable to the building structure should be assessed as short-term capital gain. It has been submitted by Shri Poddar that the facts of the assessee' s case are almost identical to the facts in ....
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....valuer for not taking the value of ₹ 10,500 as on April 1, 1981. With reference to page 119 of the paper book, the prevailing market rate of the plot has been taken at ₹ 1,50,000, whereas the prevailing market rate was in the range of ₹ 1.25 lakhs and ₹ 2 lakhs. It may be reiterated that the estimate made by the valuer in regard to the valuation of land is without any basis and tinged with arbitrariness. 4. With reference to page 124 of the paper book, the fair market value of land has been taken at ₹ 58,28,41,000 but surprisingly this value has been ignored for the purpose of computation of capital gains. This is an admitted fact by the assessee [kindly refer to the written submission made by the appellant on November 3, 2006- page 4, paragraph (iii)]. 5. The facts and circumstances of the case of Estate of Omprakash Jhunjhunwala reported in [2002] 254 ITR 152 (Cal) are distinguish able on the following counts : (a) It appears that whereas in the case of Estate of O. P. Jhun jhunwala, the building was constructed on the vacant piece of land, in the instant case, the old building was demolished and the new build ing was constructed afresh. (b) Un....
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.... New Delhi, at the time of sale, is not available. (i) From the four sale agreements, all dated October 22, 2001, read with the four separate agreements dated September 30, 2002, relating to transfer of car parking space-copies whereof are already on the records of the tax authorities below-kindly see pages 147- 239 of the paper book, volume II filed on behalf of the appellant assessee-company before the learned Tribunal, it is clearly apparent that the appellant-assessee-company had received an aggregate con sideration of ₹ 16,99,85,636 for transfer of four floors viz. 4h, 5th, 6th and 7th floors together with 18 car parking garage space in the newly constructed multistoreyed building situate at B-148 Bara khamba Road, New Delhi. (ii) The appellant-assessee-company bifurcated the said aggre gate consideration in between land and superstructure forming part of the said four floors in the ratio of 2.6288 : 1 taking into consider ation the ratio in between the indexed value of the assessee' s share of 43.2% in the said land and the estimated fair market value of the entire super structure forming part of wing A received by it from M/s. Ansal Properties and Industries Lt....
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....al income at page 41 of the paper book, volume I has been done on a reasonable basis as clearly indicated therein. 5. In paragraph 2 of the written submissions filed on behalf of the Revenue, it has been, inter alia, alleged/ submitted that there is a long time gap between the date of the development agreement dated Feb ruary 24, 1988 (page 70 of PB- Vol. I) and that of the 2 valuation reports dated August 12, 2002, and August 26, 2002, respectively (pages 109-124 of PB Vol. I). The Revenue concludes that in view of the aforesaid fact the valuation report cannot be said to be perfect. It has been further stated that while all the four sale agreements are dated October 22, 2001, all possession letters and receipts are dated September 30, 2002. 6. It is not understood as to how an adverse inference is being drawn based upon the facts set out in paragraph 2 of the written sub missions of the Revenue, as aforesaid. 7. It may be appreciated that the development agreement was exe cuted on February 24, 1988, and the developers, M/s. Ansal Properties and Inds. Pvt. Ltd., a reputed builder and developer of New Delhi had started construction activity soon after the sanction of the buildin....
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....es as on August, 2001. In this view of the matter, the mere fact that the valuation reports were obtained by the appellant assessee-company in August, 2001, it is respectfully submitted, is wholly irrelevant. 10. It may also be noted that the accounting entries based on the said valuation reports were made by the appellant-assessee-company in its audited books of account drawn for the year ending March 31, 2002, corresponding to the assessment year 2002-03, since the allo cated portion of the appellant-assessee-company' s share in the newly developed properly was received by it only on August 24, 2001, the date falling within the financial year ending on March 31, 2002. The audit report was signed by the auditors on September 2, 2002 and the tax audit report for the said year was also given by the auditors on October 30, 2002 page 129 of PB, Vol. I. 11. It is not correct on the part of the Revenue to now allege for the first time before the learned Tribunal that the valuation of land as on April 1, 1981, given by the valuer in his valuation report dated August 12, 2002 (pages 109-114 of PB, Vol.-I) is arbitrary and/or without any basis, as alleged or otherwise or at all. The ....
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.... of the said valuation reports. 14. It may also be noted that the appellant assessee-company passed the accounting entries based on the approved valuers' report, and this fact is also mentioned in the fixed assets Schedule 5- appearing at page 20 of the printed accounts for the year ending March 31, 2002, as well as in paragraph 11 of schedule 23 at page 32 of the said printed accounts. The aforesaid fact was again disclosed in the audited printed accounts drawn for financial year ending March 31, 2003 affixed assets schedule 5 at page 281 of PB as well as in Note No. 12 of schedule 18 at page 292 of PB, Vol.- II. Both the afore said printed accounts had been admittedly filed by the appellant assessee-company along with its respective income-tax returns for the two years viz. assessment year 2002-03 and 2003-04. A copy of the printed accounts for the year ending March 31, 2002, is again annexed hereto for ready reference. 15. It is humbly and respectfully submitted that neither the said two valuation reports nor the accounting entries based thereon had been ever challenged by the tax authorities below in either of the said years. 16. The market value of the land as on April ....
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....ed, inter alia, the said four floors. (ii) The four purchasers, who purchased the office space at 4th, 5th, 6th and 7th floors of the said wing " A", acquired the office space, and not the land and building. Therefore, apportionment made by the assessee- company herein was not correct. (iii) The said four floors were part of its business assets, and the asses see-company had duly claimed depreciation thereon as part of buildings. (iv) Since the said four floors, being depreciable business assets, which had been received by it from the developers only in August, 2001, had been sold by the assessee-company during the year under appeal, the profits arising on such sale were wholly assessable to tax as short-term capital gains. The assessee-company cannot be allowed the benefit of taking the market value thereof as on April 1, 1981, and/or the benefit of indexation in respect thereof. As such, the entire profit of ₹ 14,49,14,951, as credited by it to its profit and loss account for the year under appeal, is assessable to income-tax in its hands as short-term capital gains. (v) The decision of the Kolkata Bench of the learned Tribunal in the case of ITC Ltd. v. DCIT ....
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....sessee-company in the land and building forming part of the said property situated at B-148, Barakhamba Road, New Delhi were extinguished, as soon as the same were handed over to the developer for development through construction of new multistoreyed building. Though the Assessing Officer has held that the assessee-company was no longer the owner of the land and building and in fact it only got 43.2% shares by way of its entitlement in lieu of the old land and building, however, in our considered opinion, such action of the tax authorities does not hold any merit in view of the relevant clauses of terms of agreement between the assessee and the developer M/s. Ansal Properties and Industries Pvt. Ltd. A perusal of development agreement dated February 24, 1988, executed in between the assessee-company and M/s. Ansal Properties and Industries Pvt. Ltd. shows that the assessee has never transferred 100% of the right in land to M/s. Ansal Properties and in fact only 56.8% share in the said leasehold land was to be transferred to the builder that is only after completion of the development of the land. The above fact is clearly mentioned in clause (4) and clause (21) of the agreement, wh....
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....the assessee always held the ownership of 43.2% of the land as evident from the plain reading of terms and agreement between the assessee-company and the developer. Therefore, the first objection by the Revenue while denying the computation of capital gains by the assessee does not hold any merit. 38. The second objection by the Revenue in this case is basically disputing apportionment of sales consideration by the assessee-company between the value of land and superstructures. However, such objection raised by the Revenue is without any concrete and sound reasoning, whereas we find force in the argument of learned counsel for the assessee that the undivided proportionate portion of land attributable to the structure has to be necessarily transferred and it is common knowledge that the market value of ownership apartment varies according to the situation of land over which the same is constructed. The above argument of learned counsel for the assessee gets support from the various case law relied on by him, as in the case of CIT v. Vimal Chand Golecha [1993] 201 ITR 442, the hon' ble Rajasthan High Court held as under (headnote) : " If the price of two capital assets has....
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....arly reveals that the assessee has also transferred proportionate undivided individual share in the land to the purchasers of such floors as evident from the agreement for sale between the assessee and M/s. Pritty Portfolio Pvt. Ltd., a copy of which has been placed in the paper book at page Nos. 147 to 167, and at page No. 149 it has been clearly mentioned that the assessee is transferring undivided individual shares in the land underneath to the purchasers. The relevant portion of such agreement is being reproduced hereunder for the facility of reference : " And Whereas the vendor is desirous of transferring and the vendee is desirous of purchasing 4617.76 sq. ft. FAR (capital area) being the entire allocation of the vendor in the 4 floor in ' Statesman House' at B-148, Barakhamba Road, New Delhi, as detailed in sche dule ' B' written hereunder along with proportionate undivided indi visible share in the land underneath with proportionate share in all common areas and facilities as detailed in schedule ' C' and equip ment, plant and machinery as detailed in Schedule ' D' written here under and hereinafter referred to as the said apartment.&qu....
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....reon. This is fully recognized under the Act. Section 32 provides for depreciation on buildings, etc. From its very nature, land neither requires insurance against destruction nor any repair nor does it depreciate in value by use. [paragraph 18] The only problem in the instant case was the question of bifur cating the cost of the land and the flat from the sale consideration thereof which was not done by the assessee. If the cost of the land and the sale consideration of the same was impossible to work out and in fact if the seller and purchaser included the entire cost as a composite one, then the view taken by the Accountant Member was the appropriate view and justified in law. However, if it was possible to work out the cost of the land and the sale consideration of the same on the basis of material on record, it would not be justified to deny the claim of long-term capital gains on the undivided share in the land sold along with the floors. [paragraph 20] The nature of treatment of the sale/purchase consideration could be verified from the books of the seller and the purchasers. If, how ever, the sale/purchase consideration was treated as composite and depreciation was also c....
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....n of land from April 1, 1981, while filing the return for the assessment year 2002-03, which is available at pages Nos. 126 and 127 of the paper book and the Assessing Officer accepted such claim of the assessee while processing the same under section 143(1) and the Department has not initiated any other proceeding on such return by the assessee till date. Apart from the above fact, we have already held hereinabove that the assessee never relinquished the right of 43.2% of land to any person and, therefore, the objection of the tax authorities in denying the claim of indexation was not found correct. 48. The other objection raised by the Revenue regarding disputing the ratio of the decision by the hon' ble Third Member in the case of ITC Ltd. [2003] 86 ITD 135 (Kol) and treating the valuation by the Government approved valuer as hypothetical, is also found without having any merit keeping in view the fact that such observation of authorities below is without any concrete and sound reasoning, whereas the assessee has duly explained the reason for computing the capital gains while proportionating sales consideration between the land and building with the help of relevant documen....