Income Tax Appellate Tribunal - Delhi
Smt. Vasavi Pratap Chand vs D.C.I.T., Osd-Xi [Alongwith I.T.A. No. ... on 25 November, 2003
Equivalent citations: [2004]89ITD73(DELHI)
ORDER
K.C. Singhal, Judicial Member
1. These appeals involving common issue were heard together and are being disposed of by the common order for the sake of convenience. Though various grounds have been raised by the assessees in the memorandum of appeals but the main effective ground relates to the determination of the cost of acquisition/indexed cost of acquisition for the purpose of computing the capital gain.
2. Briefly stated, the facts of the case are that a property at 6, Aurangzeb Road, New Delhi comprising of a house and an open land around it totaling 2.85 acres was purchased by Shri Sumer Chand around 1947 for Rs. 2-3 lacs. After the death of Sumer Chand in 1951, Shri Pratap Chand succeeded to the property and by 1953-54, it was converted into HUF property comprising of Shri Pratap Chand, his wife Smt. Vasavi Pratap Chand and son Shri Sidharth Pratap Chand. No construction after the purchase of the property in 1947 was ever made till date by any one of them. When Sidharth Pratap Chand became adult in 1969-70, a partial partition was done thereby dividing this property equally among the three and was accordingly shown in the income-tax returns. Shri Sidharth Pratap Chand after his marriage in 1977 started showing the property in his return in the HUF capacity. The total value of the property (in which both the assessees had 1/3rd share) was shown at Rs. 6 lacs approximately in all.
3. The three co-owners made a collaboration agreement with Ansal Properties and Industries Ltd. for saving the land from Urban Land Ceiling Act (ULCA) and for developing the land and getting flats built on it. As per the agreement, the assessee along with other co-owners got built up area of 89136 sq. ft. which was 56% of the total built up area as their share. Thereafter, the three co-owners entered into agreements with various buyers and sold the flats during the previous years relevant to asstt. years 1993-94 to 1995-96.
4. During the year in question, the three co-owners sold 18631 sq. ft. of built up are against total consideration of Rs. 4,72,98,075/-. The capital loss was declared by both the assessees at Rs. 31,30,663/- each, the details of which are given below:
Total built up area sold during this year out of 56% constructed area received in terms of collaboration agreement.
18,631 Sq. ft.
Cost of built up area sold during the year (as per last year @ Rs. 1450.60 per sq. ft.) Rs.1456.60 x 18,631 Rs. 2,70,26,128.60 Amount received from prospective buyers for 18631 sq. ft.
Rs. 4,72,98,075.00 Less:
Cost of 18631 sq.ft. as above Rs.2,70,26,128.60 Index inflation in A.Y. 85-86 125 Index inflation in A.Y. 95-96 259 Indexed cost of Area Transferred 2.70.26.129x2551 -5,59.98.139 125 Brokerage paid 6.92.925 Rs.5,66,90,064.00 93,9X989.00 1/3rd share to each Rs. 31,30,663/-
5. In the original assessment proceedings, the AO was of the view that development of plot, construction of flats and sale thereof amounted to an adventure in the nature of trade. It was also held by him that capital gain was leviable under Section 45(2) as investment in land was converted into stock in trade on 2.5.84 by virtue of collaboration agreement. The AO noted that as per L&DO rate list, the value of lands as on 31.3.87 was Rs. 1450/- per sq. ft. By adopting the escalation method, he worked out the value of land @ Rs. 1160/- per sq. ft. as on 2.5.84 by discounting @ 20%. Similarly, he further reduced the same by discounting @ 30% for ascertaining the value as on 1.4.81. In this manner, he computed business income of Rs. 83,28,292/- and capital gain of Rs. 43,10,049/- in the hands of each co-owners. The CIT(A) confirmed the order of AO. However, on second appeal, the Tribunal held that it was not a case of an adventure in the nature of trade and accordingly, the Tribunal directed the AO to compute the cost of acquisition as well as the income under the head "capital gains". In the fresh assessment proceedings in pursuance of the order of the ITAT dated 5.6.2000, the AO rejected the cost of acquisition @ Rs. 1450 per sq. ft. adopted by assessee as, according to him, such cost was to be determined with reference to the date of 1st April, 1981 and not with reference to 31.3.87 adopted by the assessee. The AO also noticed that assessees had declared the value of 1/3rd share in the property at Rs. 2,03,000/- in the wealth-tax returns which had been accepted by the department. Therefore, he adopted the cost of acquisition of the entire property at Rs. 6,10,000/- as per the wealth tax record and worked out the cost of acquisition for 18631 sq. ft. at Rs. 1,27,436/- and consequently, the indexed cost of acquisition was worked out to Rs. 3,30,060/-. Since the sale consideration was Rs. 4,72,98,075/-, the capital gain was worked out at Rs. 4,69,68,015/-. The 1/3rd share of both the assessees was accordingly worked out at Rs. 1,56,56,005/- each.
6. The matter was carried in appeal before the CIT(A), who held as under:
(i) That in the fresh assessment proceedings, the AI was not bound by the cost of acquisition as on 1.4.81 determining the original assessment proceedings since the Tribunal had restored the entire matter and specifically directed the AI to determine the cost of assets transferred and the capital gain.
(ii) The three-owners had swapped the rights in 44% of the land with 56% of the built up area when they entered into collaboration agreement. Hence, cost of 56% of built up area should be pegged as 44% of the value of the land. However, proceeding further, he opined that total cost of acquisition of 56% built up area which fell to the co-owners' share could only be equated with 44% of Rs. 6,10,000/- which was the value declared by the assessee under the Wealth-tax Act. This was worked out by him at Rs. 3.01 per sq. ft. as against Rs. 6.84 per sq. ft. worked out by the AO. Hence, after giving notice of enhancement, he directed the AO to re-work out the capital gain by taking cost of acquisition @ Rs. 3.01 per sq. ft. Aggrieved by the same, both the assessees are in appeal before the Tribunal.
The learned counsel for the assessee Mr. Sharma has seriously assailed the orders of CIT(A) by raising various contentions. The main contention is that it was the cost of acquisition of flats should have been determined since what were sold by the assessees were the flats and not the land. According to him, the land had already been sold when the assessees entered into collaboration with the builders on 2.5.84. Hence, the cost of acquisition of flats was equal to the value of the entire land as the assessed had surrendered all their rights in such land under the said agreement. It was pleaded that department could levy the tax on the capital gain arising from the sale of such land in asstt. year 1985-86 but it had missed the bus by not assessing the assessees in that year. Regarding the market value, it is submitted that it was determined by the AO in the original assessment proceedings and not disturbed by the order of the Tribunal. Therefore, the AO was bound to adopt the same cost of acquisition as on 1.4.81. The next contention, as an alternate contention, is that sale of property was of an improved property and, therefore, the cost of acquisition would be equal to the cost of acquisition of 44% of the land plus cost of improvement. According to him, the cost of improvement would be equal to the value of 44% of land as on 2.5.84 when the collaboration agreement was entered into. Regarding cost of acquisition of 56% of land, it is submitted that one should assess the market value as on 10.12.84 when it was released from the ambit of ULCA since the character of the land should remain the same. According to him, the theory of escalation cannot be applied to such a situation. Alternatively, it is submitted that value of land assessed under Section 7(4) of Wealth-tax Act does not represent the market value as on 1.4.81 since by virtue of such provisions, the assessed value was the frozen value and not the market value. On the other hand, the learned DR has completely relied on the orders of CIT(A) and, therefore, need not be repeated.
7. Rival submissions of the parties have been considered carefully. After examining the material placed before us, we are unable to uphold the contention of the learned counsel for the assessee that the entire land was sold on 2.5.84 under the collaboration agreement against the consideration of 56% of share in the built up area. In a situation before us, an immovable property can be said to be sold or transferred either when the deed of conveyance is executed as per the general law under the Transfer or Property Act, 1882 (TPA) or when the possession is transferred in part performance of the contract in terms of Section 53A of TPA as provided in Section 2(47) of Income-tax Act, 1961. Admittedly, as per Clause 21 of the collaboration agreement, the owners are required to transfer the land as and when required in favour of either the cooperative society or a limited company or an association of persons or firm of the flat buyers or in the names of nominees of the assessees or the builder. As per Clause 4 read with Clause 1 of this agreement, the assessees will get 56% of the built up area after the construction of flats is completed at the cost of the builder. The built up area will not only include the flat portion but also the common areas, parking place etc. The combined reading of these clauses, in our opinion, clearly shows that 56% of the built up area including land will be retained by the assessee and 44% shall be retained by the builder. As per Clause 21, the ultimate effect of the transfer of land would be that each flat owner would own his respective right in the land whether it is transferred to each flat owner or to the cooperative society or in other status of the flat owners. This conclusion is also fortified by the agreement to sell of the flats by the assessee. A part of the preamble agreement reads as under:
"AND WHEREAS the Vendors have represented to the Vendee that the said plot of land and their respective share, right, title and interest in the said building including said premises being the said flat, the said lawn, the said terrace (hereinafter collectively referred to as the said flat) is free from all encumbrances, liens, attachments, notices, injunctions, mandatory or prohibitory, mortgages, sales, liability disputes and the same is not a subject matter of any security, surety, guarantee or litigation whatsoever and the Vendors have full, unrestricted rights and power to convey, assign, transfer, alienate and sell the said property and the Vendors are competent to enter into and execute this Agreement to Sell".
The perusal of the above clearly shows that the vendors were the owners of not only flat but also the land. The lawn could not have been transferred without the ownership of the land. Therefore, considering the entire facts, it cannot be said by any logic that the entire land was transferred by the assessee. In our considered opinion, what was transferred under the collaboration agreement by the assessee to the builder was only 44% of the land owned by them in consideration of 56% of the built up area and not the entire land as contended by the learned counsel for the assessee. Consequently, it has also to be held that in the year under consideration, the assessees not only transferred the flats but also the proportionate land.
8. The next question is as to at what point of time the land was transferred and at what consideration since the same would be relevant for determining the cost of acquisition of 56% of built up area. Admittedly, no conveyance deed has been executed by the assessee. From the nature of the agreement, it is clear that assessee was bound to transfer the land after the possession of built up flats was given by the builder to the assessees. We have been informed that possession of flats was given in financial year 1991-92 though no material is placed before us. Assuming the same to be correct, it is held that there was simultaneous transfer of possession of 44% of land by the assessees to the builders and possession of 56% of built up area by the builder to the assessees in financial year 1991-92 in terms of Section 2(47) of the Income-tax Act, 1961 read with Section 53A of Transfer of Property Act. Hence, the contention of the assessee's counsel that land was transferred on the date of collaboration agreement is rejected.
9. As far as the consideration part is concerned, we are of the view that value of 44% of land was equal to the cost of construction of 56% built up area. The sale consideration to the seller and cost of acquisition to the buyer are two sides of the same coin. Both the parties to the agreement knew as to what was being transferred and what was being received. In the case of exchange, the price of both the assets would be the same. So when the assessees had agreed to transfer 44% of land, it must have kept in mind the value of construction of 56% of built up area. Therefore, we are of the considered opinion that consideration for the transfer of 44% land was the cost of construction of 56% built up area which was to be incurred by the builder. This very sum would also amount to investment by assessee in the construction of flats and, therefore, the cost of construction of the flats by the builder would also amount to the cost of acquisition of the flats by assessees.
10. In view of the above discussion, it is clear that in the year under consideration, there was transfer of not only the flats as super structure but also the proportionate land in as much as 56% of the land was retained by the assessee under the collaboration agreement. So we are in agreement with the alternate contention of the assessee's counsel that it was a sale of improved asset and consequently, cost of acquisition would include the cost of flats as well as cost of land. As far as cost of flat is concerned, we have already observed that it would be equal to the cost of construction of 56% of the built up area. The reason is obvious. The sale consideration of 44% land was in kind and, therefore, it also amounted to investment in the construction of built up area. Hence, the same will be taken as cost of acquisition of flats after examining the record of the builder.
11. As far as cost of acquisition of land is concerned, we are of the considered view that it shall be the value of the land as on 1.4.81. Admittedly, this property was purchased by the ancestors of the co-owners in 1947 and the co-owners inherited the same. Therefore, the value of land has to be taken as on 1.4.81. No exercise has been made for determining the cost of acquisition of land as on 1.4.81. While computing such value, the provisions of ULCA would also have to be taken into consideration as such provisions were in force on that date. However, on this aspect, we are not in agreement with finding of the CIT(A) that the value of the land as declared under Section 7(4) of Wealth-tax Act should be adopted since, in our opinion, such value is a frozen value for the purpose of Section 7(4) and does not represent the market value as on 1.4.81. The Hon'ble Supreme Court in the case of Shekhawati General Store, 82 ITR 788 {as noted by CIT(A)} has clearly observed "The High Court completely overlooked the fact that for the ascertainment of the fair market value of the shares in question on January 1, 1954, any event prior or subsequent to the said date was wholly extraneous and irrelevant and could not be taken into consideration". In view of these observations, the frozen value of land under Section 7(4) could not be taken as market value as on 1.4.81. The AO as well as CIT(A) had, therefore, grossly erred in adopting such valuation as market value as on 1.4.81.
12. We are also unable to agree that the submissions of assessee's counsel that value determined by AO in the original assessment proceedings should be taken since, in our opinion, the approach of the AO was also erroneous. Once the orders of lower authorities were set aside by the Tribunal, the original order was erased and, therefore, neither party is bound by the observations/findings recorded in such order. In this connection, reference can be made to a recent judgment of the Hon'ble Supreme Court in the case of M.A. Murthy, 264 ITR 1 where it has been observed "where a subsequent judgment of Supreme Court is by way of review of the first judgment, the subsequent judgment rendered on a review petition is the only judgment rendered effectively and for all purposes the earlier decision is erased by entertaining the review petition". Further, the theory of escalation can be applied only where the nature and character of the property at both the points remain the same as rightly contended by the learned counsel for the assessee. As on 1.4.81, the land was subject to the provisions of ULCA while on the date of transfer, the land was outside such provisions. Therefore, the procedure adopted by the AO by invoking the theory of escalation, going backward, was not proper and, therefore, rightly rejected by the CIT(A). Under Section 55 of Income-tax Act, the valuation date is fixed and, therefore, in any case, it has to be taken as on 1.4.81. So the market value of such land has to be made only with reference to the conditions prevailing on the date of valuation. Since no exercise has been made in this regard, the AO is directed to value the same on the basis of material as may be gathered by him and as may be furnished by the assessee before him.
13. Regarding the indexed cost of acquisition, we may point out that indexing is allowed only with reference to long term capital assets. We are concerned with the property comprising of two different capital assets acquired at different point of time. As far as land is concerned, admittedly, it is long term capital asset and consequently, cost of acquisition which may be determined by the AO as per our direction would further be enhanced as per the rule of indexation. However, there is some confusion regarding the date of acquisition of 56% built up area. As pointed out earlier, we are informed by the learned counsel for the assets that possession of flats were taken in financial year 1991-92 but there is no material before us in support of the same. This will be verified by the AO and then determine the period of holding. If it is found that it is long term capital asset then indexed cost would also be determined otherwise no indexation would be allowed.
14. In view of the above discussion, the orders of CIT(A) are modified and the matter is restored to the file of AO for determination of the cost of acquisition/indexed cost of acquisition and also the capital gain assessable to tax in accordance with the directions given by us.
15. In the result, both the appeals are partly allowed.