TaxTMI 
TaxTMI 
2018 (1) TMI 1
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....s given for development to M/s Prajay Engineers Syndicate Ltd (Developer) vide agreement dated 24.12.2000 on sharing of constructed area @ 50:50 basis. The said development agreement was subsequently modified by MOU dated 24.04.2003 with the specific identification of Row houses to be allotted to the assessee. The assessee agreed to pay the difference in the constructed area received as per MOU over and above the 50% share of the constructed area according to the prevailing market rate. Accordingly, the assessee got four row houses with the built-up area of 12,544.62 sq.ft in the year 2005-06 with undivided share of land 767 sq.yards. Out of the four row houses received three row houses were sold for a consideration of Rs. 88,00,000/- @29,50,000/- for each row house No. 8 and 5 and for Rs. 29,00,000/- for Row house No. 3. The market value of the row houses received by the assessee was determined at Rs. 1,41,26,893/-. The assessee admitted the actual consideration received for sale of flat nos.3, 5 and 8 amounting to Rs. 88,00,000/- for capital gains in the assessment year 2006-07 and claimed the deduction u/s 54F of Income Tax Act and the difference was admitted for capital gains. ....
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.... of three row houses which alone should be taken for charging to capital gains for the assessment year 2006-07. The Ld.CIT(A) also upheld the value as per the stamp valuation authority u/s 50C of Income Tax Act, which amounts to Rs. 89,51,843/- against the market value adopted by the AO. 3.1. With regard to be taxability of capital gains in respect of transfer of land in exchange of row house, the Ld.CIT(A) held that property was given for development in the year 2000-01 and the municipal plans for construction was obtained in 2003. The assessing officer did not dispute the transfer of land under the development agreement in the year 2000-01. As per the development agreement dated 24.09.2000, the entire cost of construction has to be borne by the developer and the developer is entitled to mortgage, hypothecate or to create mortgage in respect of it's share of 50% constructed area. In the subsequent sale deeds executed by the assessee in respect of the row houses to third parties, the developer M/s Prajay Engineering Syndicates Ltd. was also shown as co-vendor and builder of the houses. In view of the recitals of sale documents and the development agreement, the Ld.CIT(A) held that....
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.... which do not require specific adjudication. 5. Ground No.3 is related to the assessment of long term capital gains in exchange of land for row houses. As discussed above, the Ld.CIT(A) held that the assessee has entered into development agreement for transfer of land on 24.12.2000 relevant to the assessment year 2000-01. The assessee has admitted the long term capital gains on sale of three row houses in the year 2005-06. The assessing officer has taxed the market value of four row houses as sale consideration for transfer of the land and brought to tax in the assessment year 2006-07. Ld.CIT(A) held that the assessee has transferred 50% land by development agreement dated 24.12.2000 and received the constructed area for transfer of the land, the incidence of transfer was in the year 1999-2000, hence the long term capital gains for transfer of land would be arising in the assessment year 2000-01, but not in the financial year 2005-06. Since the transfer of land did not take place in the year 2005-06 and only the consideration was received in the year under consideration. 6. Appearing for the revenue, the Ld.DR argued that the development agreement entered by the assessee, does no....
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....elating the developer. There was no clause for revocation of the development agreement or to cancel the development agreement either mutually or by the land owners. Therefore, from the above agreement, it is clear that the land owners have transferred the land for exchange of row houses and given the possession of the land to the developers. As rightly observed by the CIT(A), the incidence if transfer of land took place in the assessment year 2000-01 which is evidenced by the subsequent sale deeds. Only the consideration for transfer of the land was received by the assessee in the year 2005-06. The question is whether the capital gain should be charged in the year in which the land was transferred within the meaning of section 2(47) of I.T. Act or in the year in which the consideration is received. As per the I.T.Act it is the year in which the transfer took place. This view is upheld by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarakadas Kapadia Vs. CIT [260 ITR 491] and Hon'ble AP High Court in the case of Potla Nageswara Rao Vs. Dy.Commissioner of Income Tax. The Hon'ble A.P. High court in the cited judgement held as under: 9. The element of factual possession a....
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.... Therefore, the consideration in respect of fourth row house should be taxed in the A.Y.2007-08 but not in the year under consideration. The three row houses were sold in the year under consideration, hence the sale value of the three row houses would be taxed as capital gain in the year under consideration. 9.1 The sale value of the three row houses involve the long term capital gains in respect of transfer of land and short term capital gains in respect of the row houses. The assessee has sold the land which was acquired in the year 1999 in the year 2005-06. Therefore, the consideration received for transfer of land would be taxed as long term capital gains and the consideration received for sale of row houses would be taxed as the short term capital gains. Ld.CIT(A) also has taken the same view. Since there was a difference in actual sale consideration the valuation as per 50C of I.T.Act, the full value of consideration should be adopted as per the stamp valuation authority which was Rs. 89,51,843/-. Accordingly, we uphold the order of the Ld.CIT(A) and is dismiss the revenue's appeal on this ground. 10. Ground No.5 is related to the cost of construction. The assessee has acqu....
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....be ascertained with reference to the cost of construction to the builder. Such a view has been expressed by the Hontle ITAT, Hyderabad In the case of DDIT Vs. G.Raghuram 39 SOT 406 (2010). 8.5 Further it has to be noted that the sale of row houses comprise sale of long term asset, (land) and sale of short term asset (built up area). The argument that the built up area should also be considered as long term capital asset as it was acquired under the development agreement dtd 24.09.2000 is untenable as what was acquired then was only a right to certain percentage of constructed area. The constructed area came to exist and was held by the assessee only in the year 2005-06 and therefore it would take the characteristic of a short term capital asset. The cost of acquisition of LTCG land has to be ascertained with reference to the cost of acquisition of the land and the cost of acquisition of built up area has to be ascertained with reference to the cost or construction to the builder. 8.6 Accordingly the cost of the constructed area to the developer may be taken as the cost of acquisition in regard to the row houses sold. In this regard, It may be noted that the assessee flied lette....
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....houses to the assessee took place in 2005-06. i.e. the construction, completion and handing over of the constructed houses was in 2005-06 and the assessee has sold the row houses immediately on receipt of the same. The assessee did not retain the row houses for more than 36 months as required u/s 2(29A) and 2(29B) to hold the same as a long term capital asset . Since the assessee was holding the asset for less than 36 months, the CIT(A) rightly held that the transfer of land should be assessed as long term capital gains and the transfer of row houses to be assessed as short term capital gains. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. Appeal of the assessee on this ground is dismissed. 15. Ground No.3 is related to the deduction u/s 54F. The assessee argued that the assessee is entitled for deduction u/s 54F since four row houses were not completed and sold as unfinished property. Ld.CIT(A) held that deduction u/s 54F is not allowable in the assessee's case, since the assessee has not satisfied the conditions for allowing the deduction u/s 54F, i.e. the assessee should not own more than one residential house. as on the date of tr....
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....relief. The ld A.R also relied on the decision 275 CTR 0329 (Kar) and (2010) 36 DTR 0385. Therefore, Ld.AR contended that the assessee is eligible for exemption u/s 54 of I.T.Act. 17. On the other hand, Ld.DR argued that the assessee has acquired the right in share of constructed area on the date of development agreement. The development agreement perse should not be construed as acquiring the residential houses. The residential houses were constructed and delivered to the assessee in 2005-06 and the assessee has sold the residential houses in the same financial year without holding asset for 36 months. Since the assessee has sold the property which is to be assessed as short term capital gains, the assessee is not entitled for exemption u/s 54(1) of I.T.Act. The Ld.DR invited our attention to the section 54(1) of I.T.Act, wherein statutory provision places restriction of exemption to be allowed only in respect of a residential house being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property". Ld.DR argued that though the land is long term capital asset since the building is a short term....
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....ee. Further, following the aforesaid circulars, the Hon'ble Gujarat High Court in the case of CIT v . Jindas Panchand Gandhi (supra) held that the assessee was entitled to claim long-term capital gain on sale of the flat. The facts before the Hon'ble High Court were that the assessee became a member in a co-operative society. He was allotted a flat in the building of the society by resolution dt. 4th Nov., 1980. On this date, the property was under construction and came to be completed on 12th Nov., 1983. Physical possession was handed over to the assessee on that date itself. On 30th April, 1984, the assessee sold the flat for a consideration of Rs. 3.75 lakhs and worked out the capital gains at Rs. 1,59,295. The matter ultimately came to the Hon'ble High Court and the High Court concluded the matter as under : "that the assessee in the present case was allotted a share by the cooperative housing society on 4th Nov., 1980, and the sale of the same took place on 30th April, 1984, i.e., after a period of 36 months. The Tribunal was therefore justified in holding that the capital gains arising were long-term capital gains and the assessee was entitled to deduction from ....