Income Tax Appellate Tribunal - Bangalore
Deputy Commissioner Of Income Tax, ... vs S. Rajamannar on 21 February, 2005
Equivalent citations: [2006]6SOT91(BANG)
ORDER
P. Mohanarajan, J. M. This appeal is by the revenue directed against the order of the Commissioner (Appeals)-IV, Bangalore, dated 1-11-2000.
2. The assessee, an individual, filed return of income for the assessment year 1997-98 declaring income of Rs. 22,29,617 which included Rs. 19,64,050 being capital gain on sale of sites. The assessee acquired 30000 sq.ft. of land from Shri Anjanappa on 3-6-1990 in consideration for developing lands etc., the total cost of such development came to Rs. 7 lakhs. The assessee also constructed small houses on the site at a cost of Rs. 2 lakhs and incurred Rs. 60,000 brokerage for sale of sites. As the property was deemed to have been purchased in 1990. In view of section 2(47) of the Income Tax Act, the assessee indexed the cost and reduced the indexed cost. The assessing officer held that the assessee did not become the owner of the sites and sale value of sites was the compensation received and assessed the same under the head 'Capital gain'. The assessing officer also did not consider the cost of building of Rs. 2 lakhs as cost.
On first appeal, the Commissioner (Appeals) granted relief to the assessee as prayed for. Aggrieved, revenue is in appeal before us.
3. The learned departmental Representative vehemently submitted that Shri Anjanappa had entrusted a few acres of land to the assessee to form layout in the form of residential sites. As per the agreement, the assessee had to incur expenditure in connection with formation of the layout in lieu of which the assessee received land which was part of the property to be developed. The assessee had given sub-contract for forming the layout. Certain expenditure was directly incurred by the assessee amounting to Rs. 1 lakh. After development, the assessee on his piece of land formed sites and sold to various parties. It is stated that it was an error in treating the expenditure in forming the layout as the cost of land received by the assessee as compensation and the assessee further claimed indexation on the same.
The learned DR further submitted that the assessee was entitled to a defined area of 28510 sq.ft. land in compensation for forming the layout. The assessee had never become the owner of the piece of land. No amount was paid by him to Shri Anjanappa excepting in the form of layout. No registered document by way of agreement exists in respect of the piece of land. The assessee was entitled to deal with this piece of land only if the entire form of layout was completed. Therefore, the assessee cannot be treated as the owner of this land. The compensation of Rs. 7 lakhs was received by the assessee for services rendered by him. Against this, the assessee received sale proceeds of Rs. 29,83,050 from the land measuring 28,510 sq.ft. Therefore, the assessing officer taxed the difference as business income and not as capital gain.
4. On the other hand, the learned counsel for assessee submitted that there is no dispute that the asset was acquired during the course of business. However, the assessee received a fixed asset which was acquired as business consideration and not as stock in trade. Simply because the asset was acquired during the course of business the income on sale of the asset will still be capital gain and not income from business. Regarding ownership of the land, it was pointed out that it is not necessary that the land should be registered in the name of the assessee to become owner of She property. The assessee will be deemed to be the owner of the property even though the same was not registered in his name. It was argued that the amount received in consideration for developing the land was received in the form of property. Thus the amount stands invested in the land. Therefore, the assessing officer should have accepted the income from long-term capital gain.
5. We have considered the rival submissions and perused the records. In this case, the assessee entered into an agreement with Shri Anjanappa on 3-6-1990 for development of 2 acres 29 guntas of agricultural land into layout after obtaining necessary permission for using the land for other purposes. The expenditure for obtaining the necessary permission was not within the capacity of Shri Anjanappa. The agreement with the assessee was for developing roads, providing drainage, water supply facility and fixing prospective purchasers for the developed sites etc. The assessee took possession of the property and the consideration for executing the labour works was fixed. The assessee spent Rs. 7 lakhs for developing the land. In consideration of this, he was allotted 28,510 sq.ft. towards the cost of development of the layout which was almost equivalent to Rs. 7 lakhs. The assessee held the property as capital asset and also spent Rs. 2 lakhs towards construction of sheds on the said property.
Out of the above, the assessee sold 18,477 sq.ft. for Rs. 29,83,050 during the relevant year to assessment year 1997-98. He computed the capital gains after reducing brokerage and cost of building from the total consideration received and also worked out the indexed cost land. The computation was as follows:
Sale consideration received Rs. 29,83,050 Less:Brokerage Rs. 60,000 Rs. 29,23,050 Less :Cost 18,447 sq.ft. at Rs. 24.55 per sq.ft.
= 4,52,874 Indexed cost of land ie.
4,52,874 X 305 182 = 7,58,937 Cost of building = 2,00,000 Rs. 9,58,937 Long-term capital gain Rs. 19,64,113, The assessing officer computed income on sale of property at Rs. 22,23,050 as business income and allowed the cost of development of land and cost of building. He held that he cannot allow the indexed cost as the assessee was never the owner of the property and there was no registered document in this respect.
6. From the facts it is seen that the assessing officer had not doubted the fact that the assessee had sold land and received sale proceeds in respect of land. The appreciation has taken place with regard to the value of the land and the same was not on account of business dealings. The main argument in the assessment order was that the assessee never became the owner of the piece of the land as no registered document exists with regard to the same. As per the agreement, Shri Anjanappa, landlord had entrusted a few acres of land to the assessee for forming a layout in the form of residential sites. In lieu of/as compensation for the services rendered and the expenditure incurred, Shri Anjanappa was to make available land to the extent of 28,510 sq.ft. The assessee was entitled to the land and was at liberty to deal with it in any manner. Thus, the physical possession of the land vested with the assessee as per the facts of the case.
7. The main objection of the assessing officer with regard to the ownership is on account of the fact that no registered document was executed. The definition of the word 'transfer' has widened in section 2(47) to include by way of any agreement or any arrangement whereby such person acquired any right in any building which is either constructed or which has to be constructed. Transactions of such nature are not required to be registered under the Registration Act and such arrangements confer the privileges of ownership without transfer of title. The Commissioner (Appeals) further observed in para 8 of his order as under:
"In a recent judgment in the case of Mr. R. Sathyanarayana, ITAT, Bangalore Bench (ITA No. 536/Bang./2000) have relied on the decision of the Honble Supreme Court in the case of Mysore Minerals Ltd. v. CIT 239 ITR 775 (SC) to support their finding that the assessee became the owner of the property when he took possession of the same from BDA. They pointed out that the Honble Supreme Court have held that liberal interpretation of the provisions of the Act are required when there is ambiguity and that ownership must be assigned a liberal and wider meaning. Any one in the possession of property in his own title so as to exclude others from exercising any right over the said property and is in occupation of the property would be the owner of the property. The amendment to section 2(47) and the authority of the Apex Court clearly establishes the same. They have also derived support from the decision of the Honble Supreme Court in the case of CIT v. Podar Cement (P.) Ltd. 226 ITR 625 (SC)."
8. The other objection of the assessing officer is that the land was acquired by the assessee as compensation for entire formation of layout i.e. in lieu of rendering services by the assessee in the form of layout together with expenditure involved. Against this expenditure, the assessee received land to the extent of 28,510 sq.ft. of land. The agreement with the assessee was for the purpose of developing roads, drainage, water supply and other facilities etc., and also finding prospective purchasers for the development of sites. In consideration for the amount spent by the assessee at Rs. 7 lakhs for developing land, the assessee received land measuring 28,510 sq.ft. which was equivalent to Rs. 7 lakhs spent by him. There is no dispute that the asset was acquired during the course of business. However, consideration was received in the nature of fixed asset. Therefore, we are inclined to agree with the assessee that the assessee acquired capital asset even though the same was acquired during the course of business which was never converted to his stock in trade. Income received from sale of asset (partly on account of appreciation to the value of the asset) will still be capital gain and not income from business. It may be pointed out that in case the assessee had received money in kind from the landlord of Rs. 7 lakhs and spent the same in purchasing part of the land, it would have become a capital asset. In this case, the landlord was probably not in a position to spend and decided to give land in lieu of the compensation to the assessee for developing this property. Besides, the business activity was conducted before getting possession of the land whereas the income in this case is in the form of sale proceeds from the sale of the land amounting to Rs. 29,83,050 which assessee has duly shown as income from long-term capital gain. Therefore, we are of the opinion that we cannot deny the assessee the benefit of indexation and the income should be treated as income from capital gains and not as business income. It is ordered accordingly.
9. In the result, the appeal filed by the revenue is dismissed.