TaxTMI 
TaxTMI 
2007 (1) TMI 200
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....ssible to bifurcate the aggregate sale consideration of Rs. 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 proportionate 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 ld. CIT(A)-VII, Kolkata erred in arbitrarily alleging and/or holding that by virtue of the Development Agreement dated 24-2-1988 entered into between the appellant-company, the owners, and M/s. Ansal Properties & Industries Pvt. Ltd., the Developers, the appellant-company'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 Delhi got extinguished, and that even the so called purchase consideration, being the development costs of 43.2 per cent of the newly built aggregate office area, being the owner's share/allocation forming part of Wing 'A' therein, was impossible to bifurcate. (4) That the ld. CI....
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.... 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. metres. The assessee got the said property developed through M/s. Ansal Properties & Industries Pvt. Ltd., a reputed builder and developer of New Delhi, vide an Agreement Deed dated 24-2-1988. In pursuant to the agreement, M/s. Ansal Properties & Industries Pvt. Ltd. constructed superstructures on such land in two blocks called Wing 'A' and Wing 'B'. Wing 'A' was handed over to the assessee-company on 24-8-2001 and Wing 'B' was retained by the developers in terms of the said Developm....
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....n transfer of 56.8 per cent of the said land to the developers, M/s. Ansal properties & Industries Pvt. Ltd., which was transferred in terms of letter dated 24-8-2001. While claiming such capital loss, the assessee-company valued the fair market value of 56.8 per cent of the land transferred to M/s. Ansal Properties as on 1-41981 at Rs. 11,41,35,056 on the basis of the valuation report by Shri G.C. Mehendiratta 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 per cent land at Rs. 48,62,15,339 - (Rs. 11,41,35,056 X 426/100). 6. 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 11-2-2003 by accepting the return filed by the assessee. The assessee in the meantime capitalized the fair market value of 43.2 per cent of the said land at Rs. 58,28,71,000 and the superstructure at Rs. 14,76,04,000. However, no depreciation whatsoever was claimed by the assessee-company for tax purposes in respect of such capitalized value of building, save and except in respect....
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....oor 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 old building structure vide Development Agreement with M/s. Ansal Properties & Industries Pvt. Ltd. The Assessing Officer further observed that the assessee was claiming depreciation on the said building. Based on above observation the Assessing Officer rejected the contention of the assessee that as per terms of agreement 43.20 per cent 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 being claimed on building and the assessee become the owner of 43.2 per cent space of Wing 'A' only it was handed over to it after construction by M/s. Ansal Properties. 10. The Assessing Officer also rejected the contention of the assessee that since land is a capita....
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....------------------- Description 4th to 7th floors of Delhi High Rise of asset and 18 Garage Spaces ---------------------------------------------------- Cost Rs. 2,57,18,814 ---------------------------------------------------- Depreciation Rs. 6,48,129 ---------------------------------------------------- Sale Proceeds Rs. 16,99,85,636 ---------------------------------------------------- Profit on Sale Rs.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 Rs. 14,49,14,951. Therefore, the said income is taxable under the head 'Short-term capital gain' and accordingly considered thereof." 12. Aggrieved with such order of Assessing Officer, the assessee preferred an appeal before the ld. CIT(A), wherein it has placed reliance on the agreement and valuation report as discussed above and has contended that it had received a composite sum for the transfer/sa....
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....-------------------- Cost of acquisition 21,904,434 (147,604,000 X 14.84%) ------------------------------------------------------------- Indexed cost of acquisition 57,583,213 200,942,000 X 43.2% X 14.84% X 4.47 ------------------------------------------------------------- Short-term capital gains 24,938,557 ------------------------------------------------------------- Long-term capital gains 65,559,433 on sale of land ------------------------------------------------------------- Less: set off against 65,559,433 LTCGb/fd. ------------------------------------------------------------- Long-term capital gains 0 ------------------------------------------------------------- The assessee has further relied on the various decisions of different ....
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.... order. Shri Poddar has submitted that the entire order of Assessing Officer and CIT(A) is based on misappropriation of the facts of the case and has submitted that it is important to note that while filing its return of income for the immediately preceding year, i.e., for the assessment year 2002-03, the assessee-company computed the capital gain/loss arising on sale/transfer of 56.8 per cent of the said land in favour of the developer M/s. Ansal Properties & Industries Pvt. Ltd. and the sum of Rs. 28,99,11,595 i.e., loss based on the said valuation reports, as per details given in the computation of total income was filed by the assessee-company along with its income-tax return for the assessment year 2002-03, which was duly proceeded by the Assessing Officer under section 143(1) vide intimation dated 12-2-2003. He has filed a copy thereof, which is available in the paper book. Ld. Senior counsel Shri Poddar has thereafter pointed out that during the year under consideration, the assessee-company sold an aggregate area of 1659.79 sq. mtr. of the office space forming part of 4th to 7th floors of the said premises in 'A' Wing along with the proportionate undivided individual shares....
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.... by the assessee to M/s. Ansal Properties & Industries Pvt. Ltd., against which the assessee has got 43.2 per cent share on the old land plus some payment by bank accounts and accordingly, the Assessing Officer has observed that such assets were acquired by the assessee only in August, 2001 by the developer and such four floors sold by the assessee during the year under consideration were wholly assessable to tax as short-term capital gains since all the four purchasers purchasing office space at 4th to 7th floors had only acquired office space and not the land and building and, therefore, the apportionment made by the assessee was not proper and the assessee could not be allowed the benefit of indexation with effect from 1-4-1981 as such asset was only acquired by the assessee in August, 2001. 18. Shri Poddar has assailed such observation of Assessing Officer, which has been confirmed by the ld. CIT in appeal, basically agreeing with the observation of Assessing Officer while making the impugned addition. Shri Poddar pointed out that the ld. CIT(A) has endorsed the view of Assessing Officer on the basis of same analogy as observed by Assessing Officer that the assessee only rec....
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....1. Shri Poddar has submitted that the assessee-company's right in proportionate undivided individual shares in the land underneath with proportionate shares in all common area and facilities, etc. as were attributable to each of the said four floors as have been sold by it in pursuance to the said four separate and individual agreements for sale stood extinguished by way of transfer in favour of each of the said four buyers, in pursuant to the said agreement for sale and not in pursuant to the development agreement dated 24-2-1988 and, therefore, it is not correct to say that four purchasers, to whom the said four floors were sold, acquired only the office space forming part of their respective allotted floors and not the proportionate land underneath, and as also the common facilities and structures attributable thereto, as wrongly and arbitrarily alleged by each of the said two tax authorities below, or otherwise at all. 22. Shri Poddar has thereafter pointed out that in fact on reading of each of the said four agreements for sale dated 22-10-2001, which are available in the paper book from pages 147 to 239, it was clearly evident that what was sold to each of the said buyers,....
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....e determination of purchase consideration and the construction cost of 43.2 per cent considering the same as impossible to determine or bifurcate and has submitted that the same was determined on the basis of suggestion made by valuer and reiterated his submission that no defect whatsoever in the said valuation report and the basis of allocation as to the value of construction suggested by the valuer was found by the tax authorities. 25. It has, therefore, been stated by Shri Poddar that the ld. CIT(A) erred in observing and/or in holding that the undivided interest in the land along with superstructure thereon, in ownership apartments, cannot be valued and/or transferred and/or that such undivided interest in the land has no market value. Shri Poddar has stated that it is not correct to say that no body would buy the rights over the undivided portion of the land and has contended that in the matter of transfer of ownership apartments, 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 the ownership apartment varies according to the situation of land over which the same i....
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....ould be set aside and the return filed by the assessee should be accepted. 26. In his rival submission, the ld. Departmental Representative for the revenue has relied heavily on the order of Assessing Officer and CIT(A). The ld. D.R. for the revenue has also filed written submission, which is being re-produced hereunder for the sake of clarity:- "1. In the present case, (a) The value of sale consideration for sale of undivided share or interest in land as at the time of transfer of the same is not available. (b) There is no splitting of consideration in the sale agreements. No separate consideration for such land or undivided share or interest in land is available in the conveyance instrument itself. Merely writing in the agreement 'undivided indivisible share' is not enough. Let us assume that the value of undivided indivisible share in land can be estimated only, still no bifurcation of the value of land and building is available in the sale agreement. (c) Once the assessee is unable to give consideration for sale of undivided share or interest in land or the fair market value for land as on the date of transfer the claim for bifurcation of consideration has no leg....
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....portioned for the land and how much of the sale proceeds pertained to the structure'. In view of the fact that the bifurcation or allocation between the sale proceeds pertaining to land and building separately has not been done, it can be said that the burden has not been discharged by the assessee-company. (6) Reliance is placed upon the findings of the Assessing Officer and CIT(A) in their respective orders. Apart from the above, reliance is placed upon the decision of Kolkata Bench (Third Member) in the case of I.T.C. Ltd. v. Dy. CIT 86 ITD 135 (Kol.) (TM), with special reference to the Hon'ble Accountant Member's observation made on page 166. (7) It is very important to mention that a report was called for from the Assessing Officer concerned who has submitted a report vide his letter No. ACIT/Cir.7/K/2006-07/767, dated 8-11-2006. Kindly refer to the paras (a) and (d) of the said report which reflects that pages 108 to 124 of the paper book volume-I were not filed before the Assessing Officer during the course of assessment proceedings. In view of the facts and circumstances stated above, it is prayed that the Assessing Officer may be given opportunity of submitting a rem....
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....p was done on a reasonable and scientific basis, and the tax authorities below never challenged such splitting up of the aforesaid consideration at any time whatsoever. 2. It is true that the sale agreements do not give the split consideration for land and building separately, but here is nothing unusual in this respect. The agreements and the conveyance instruments normally give the consideration in the aggregate terms only. The said four sale agreements read with the possession letters/receipts make it quite clear that the aggregate consideration of Rs. 16,99,85,636 had been received by the appellant assessee-company for the sale/transfer of the said four floors and also along with proportionate share in the land underneath as well as proportionate share in the common areas, facilities including in the plant, equipment, machinery, etc. 3. It is not correct on the part of the revenue to submit and/or allege that the appellant assessee-company has not been able to give the bifurcated consideration for sale of undivided share or interest in land and/or the fair market value for the proportionate land attributable to the said four floors, as on the date of transfer, as alleged ....
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....as on 1-4-1981 became relevant only for the purpose of computation of long-term capital gains arising on sale of the said four floors. The sale agreements had been executed on 22-10-2001. At the relevant time, the buyer companies only paid certain amounts by way of advance. The balance consideration was paid by each of the said four buyers in 3 different instalments viz., 7-5-2002, 28-5-2002 and 30-9-2002, as noted on the respective receipts appearing at pages 163,187,211 and 235 of PB, Vol.-II. As such, the actual possession of the said four floors along with proportionate share in the land underneath with proportionate share in the common areas and facilities, etc. had been handed over by the appellant assessee-company to the respective buyers only on 30-9-2002, on receipt of final instalment of the aggregate consideration, as aforesaid. Since the appellant assessee-company expected that the possession would be handed over to the respective buyers in or around September, 2002, the valuers had been engaged in or around July/August, 2002, to give their valuation reports in respect of land as on 1-4-1981 and in respect of superstructures as on August, 2001, the time when the appella....
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....n neither be said 10 be unreasonable arbitrary and or without any basis whatsoever, as wrongly alleged by the revenue in paragraph 3 of its said written submissions. 12. Moreover, in the computation of total income filed by the appellant assessee-company for the assessment year 2002-03 - page 127 of the paper book Vol.-I, the appellant assessee-company had made specific references to the valuation report dated 12-8-2002 based upon which the total value of the land as on 1-4-1981 had been taken by it at Rs. 20,09,42,000, and the proportionate share (43.2 per cent) of the appellant assessee-company therein was taken at Rs. 11,41,35,056, which was then indexed to Rs. 48,62,15,339 based upon the then prevailing capital gain index of 426. 13. A copy of each of the said 2 valuation reports dated 12-8-2002 and 26-8-2002 made by Mr. G.S. Mehendiratta, Government Approved Registered Valuer, was duly filed by the appellant assessee-company before the learned Assessing Officer in course of the assessment proceedings for the assessment year 2003-04, and again in course of the appellate proceedings before the ld. CIT(A)-VII, Kolkata. The ld. CIT(A)'s order dated 23-8-2006 passed in respec....
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....e parties. In this case, the revenue has basically disputed the computation of capital gain by the assessee by apportioning the consideration received between the value of land and building on the basis of Registered Valuer's report and the Assessing Officer has disputed such computation of capital gain by the assessee basically observing as under:- (i) The rights of the assessee-company herein in the land and building forming part of the said property situate 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 office space in the new multistoreyed building forming part of Wing 'A'. The assessee-company became the owner of newly constructed office space received by way of consideration from the developers under the Development Agreement dated 24-2-1988, in lieu of its share in the old land and building. In fact, in lieu of its 43.2 per cent share in the old land and building structures, the assessee-company received by way of its entitlement, 43.2 per cent share in the newly constructed multistor....
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.... per cent of total area was sold in form of sale of 4th to 7th floors along with the right of superstructures and proportionate portion of land thereto. It has further been contended by the assessee that 14.2 per cent of land was never sold by the assessee to the developer as alleged by the revenue and the superstructure thereon was made available by the developer by virtue of an agreement and by transferring 56.8 per cent of the land to them. It has further been contended by the ld. counsel for the assessee that the assessee has rightly apportioned the sales consideration of these four floors on the basis of Government Approved Valuer and by allocating the proportionate value of land and building sold to the respective purchasers on the basis of such report of valuer, which has not been doubted or contradicted by the revenue at any stage. 31. We after carefully perusing the facts and circumstances involved in this case find that the first objection by the Assessing Officer while treating the sale of four floors as income from short-term capital gains is based on the observation that the rights of the assessee-company in the land and building forming part of the said property si....
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.... be selected by the Developers, i.e., the person to whom the developers may sell, on what is known as Ownership basis, the different units in the developers' allocation. 21. It is hereby expressly clarified, declared and confirmed that allowing the Developers to enter upon the said land contemplated by clause 19 and/or 20 above is not intended to be and shall not be construed to be nor claimed by the Developers to imply that the Owners have allowed the Developers to enter into possession or given to the Developers possession of the said land or allowed the Developers to retain possession of the said land or of any part thereof in part performance of the contract referred to in section 53A of the Transfer of Property Act, 1882 nor is it intended to be nor will it be construed to be 'Transfer' as defined by Chapter XX-C or section 2(47) of the Income-tax Act, 1961." 32. From the above clauses of terms and agreement, the fact that emerges is that the assessee at no point of time has relinquished or transferred the right of ownership on such land to the extent of 43.2 per cent land and the assessee always held the ownership of 43.2 per cent of the land as evident from the plain r....
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....0] 242 ITR 342 and also by the jurisdictional Tribunal in the case of I.T.C. Ltd. v. Dy. CIT [2003] 86 ITD 135 (Kol.)(TM). Since in the present case also, the assessee is the owner of 43.2 per cent of the building and the land on which such building had been constructed, the assessee has rightly apportioned the sales consideration in its books of account on the disposal of 4th to 7th floors as per the principle laid down by the various High Courts. We also find that for the purpose of apportionment, the assessee has rightly taken the market value of land as on 1-4-1981, since the land was acquired before 1981 and the gain arising on disposal of the land was long-term capital gain and the gain on disposal of the above four floors of the building has rightly been treated as short-term capital gain. We also find that the fact in the present case clearly reveals that the assessee has also transferred proportionate undivided individual shares in the land to the purchasers of such floors as evident from the agreement for sale between the assessee and M/s. Pritty Portfolio (P.) 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....
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....iability by apportioning the value between land and building as per valuation determined by the Government Approved Valuer, which was placed before the revenue even immediately preceding previous year and was not contradicted/rebutted by the revenue at any stage of time. 35. Apart from the above decision of the Hon'ble jurisdictional High Court, identical issue came before this Tribunal in the case of I.T.C Ltd., wherein it was held by Third Member as under:- "In India, separate ownership of land and building is recognized in law. A person can hold the land and another person can be owner of the building or superstructure constructed thereon. This is fully recognized under the Act. Section 132 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. The only problem in the instant case was the question of bifurcating 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....
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.... devoid of any merit. 38. The authorities below has also disputed the benefit of indexation by the assessee but such action of revenue is also not tenable in view of the fact that the assessee has made necessary entries in the books of account on the basis of valuation report by the Government Registered Valuer and the revenue has not doubted/contradicted such valuation report at any point of time. Virtually the assessee has submitted such computation of capital gain by taking into indexation of land from 1-4-1981 while filing return for the assessment year 2002-03, which is available at page 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 per cent of land to any person and, therefore, the objection of tax authorities in denying the claim of indexation was not found correct. 39. The other objection raised by the revenue regarding disputing the ratio of decision by the Ho....