Income Tax Appellate Tribunal - Chennai
Rukmani Santhanam, Chennai vs Assessee on 24 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A No.1108/Mds/2009
(Assessment year : 2006-07 )
Smt. Rukmani Santhanam vs The Income Tax Officer
15, Aishwarya apartments Ward II(4)
No.6, Coastal Road Coimbatore
Besant Nagar
Chennai 600 090
[PAN APEPR1156H]
(Appellant) (Respondent)
Appellant by : Shri J.Prabhakar, FCA
Respondent by : Shri R.B.Naik, CIT/DR
Date of Hearing : 24.01.2012
Date of Pronouncement : 31.01.2012
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
This appeal of the assesse, for assessment year 2006-07, is directed against the order of the ld.CIT(A), Coimbatore, dated 28.5.2009.
2. Briefly stated, the facts of the case are that the assessee filed her return of income for assessment year 2006-07 on 31.7.2006 :- 2 -: ITA 1108-09 admitting income of ` 18,190/-. The assessee had disclosed inher return of income that her mother had settled a property measuring 5183 sq ft at Kilpauk Garden Road, Chennai in her favour through a Registered Deed of Settlement on 12.1.2006. Thereafter on 20.1.2006, the assessee had entered into a Development Agreement with a builder by the name M/s Doshi Housing Ltd, Chennai. As per this agreement, the builder was to demolish the existing building standing on the said property and thereafter had to construct apartments thereon. The builder company would construct apartmetns on 60% of land and handover it to the assesse. She was also paid a sum of ` 2,50,000/- on 3.2.2006 as non-refundable amount and another sum of ` 7,50,000/- [ ` 5 lakhs on 3.2.2006 and ` 2.5 lakhs on 13.4.2006] as refundable advance by the builder. Any amount realized on the sale of debris was to be paid to the assesse. From the perusal of this agreement, the Assessing Officer came to the conclusion that provisions of section 53A of Transfer of Property Act were attracted and since the transfer became complete as per the agreement, the capital gains had accrued to the assessee in the assessment year 2006-07, itself. In this view of the matter, the Assessing Officer has completed the assessment u/s 143(3) of the Act on 30.12.2008. He has computed the Long Term Capital Gains (LTCG) :- 3 -: ITA 1108-09 arising from the transfer of the said land in his own way. The full value of consideration on transfer was fixed by the Assessing Officer on the basis of the cost of project as reported by the builder for 40% of the area to be retained by it and it was computed at ` 1,57,46,308/- on the basis of the figures reported by him. Alongwith this amount, excess amount towards the cost of excess super built area over and above the portion agreed to, amounting to ` 20,77,323/- was also added to the cost and the total cost was arrived at ` 1,78,23,631/-. This amount represented the cost of 40% area i.e 2,928 sq ft. On this basis, the Assessing Officer computed the sale consideration of the remaining 60% of the area at ` 2,67,34,104/-. The cost of the original asset the Assessing Officer has arrived at ` 9,88,300/- concomitantly 40% thereof was computed at ` 3,95,320/- and this figure was taken into account as the cost of the original asset. In doing so, the Assessing Officer has finally computed the total income of LTCG as under:
Full value of consideration ` 2,67,34,104 Less: Cost of original asset ` 3,85,320 LTCG ` 2,63,38,784 Income from other sources
(i) Non-refundable advance ` 2,50,000 received from Builder treated as income
(ii) Interest as admitted ` 18,190 Total ` 2,68,190 :- 4 -: ITA 1108-09
3. The case of the assessee was that the capital gain did not accrue in the year of account since no transfer had taken place when land development work was given to the builder. In the alternative, it was contended that even if capital gain would accrue, still she would be entitled to exemption fully as provided u/s 54 or u/s 54F of the Act in view of the fact that new residential house was being constructed out of the sale consideration. Regarding non-refundable advance of ` 2.50 lakhs it was argued that it was not at all assessable as income in her hands. The Assessing Officer rejected the stand taken by the assessee and made the assessment as above.
Aggrieved, the assessee preferred appeal for assessment year 2006- 07 against the assessment order dated 30.12.2008 in which LTCG was computed at ` 2,63,38,784/- and addition of ` 2.5 lakhs representing non-refundable deposit as income was also made and her claim of exemption u/s 54/54F was rejected. When first appeal was preferred, the ld.CIT(A) has allowed part relief to the assesse. The assessee is further aggrieved and has raised the following grounds in her second appeal:
"1. The learned Commissioner of Income Tax (Appeals) is not justified in treating the notice issued for scrutiny under section 143 (2) of the Act as within time without due regard to the prospective nature of section 292 BB of the Act, and holding the said section to be administrative in nature and hence retrospective in effect.
:- 5 -: ITA 1108-09
2. The learned Commissioner of Income Tax (Appeals) is not justified in holding that transfer under the development agreement takes place under on the date of development agreement itself (20.1.2006) without due regard to the factual possession given to the developer on 12.4.2006 and brushing aside the cancellation of power of attorneys in favour of the developer in respect of his share of 40% in the said agreement.
3. The learned Commissioner of Income Tax (Appeals) is not justified in determining the alleged consideration under the development agreement at ` 69,85,188 being the construction cost of the builder (including the cost of land area in question) which represents the cost of such land to the builder (already owned by the assessee) and not necessarily the alleged consideration.
4. The learned Commissioner of Income Tax (Appeals) is not justified ignoring the value of building existing on the date of development agreement for the purpose of computation of "original cost as on 1.4.81" to determine capital gains under the development agreement, and also in determining the cost of inflation index at 497 as against 519 relating to Asst. Year 2007-2008 in the Valuation Report submitted before him.
5. The learned Commissioner of Income Tax (Appeals) is not justified in omitting to consider the entire development agreement as a whole with regard to both land and building and artificially dissecting the same for computing the high pitched capital gains tax.
6. The learned Commissioner of Income Tax (Appeals) is not justified in omitting to set off the loss on account of demolition of buildings, being a capital asset against capital gains allegedly determined by him.
7. The learned Commissioner of Income Tax (Appeals) is not justified in denying the claim for exemption under section 54 of the Act, on the ground that the development agreement is for the land alone without due regard to the residential house existing on the date of the development agreement and also in treating the constructed portion of the new building as more than one residential house without looking into the facts in proper perspective.
:- 6 -: ITA 1108-09
8. The learned Commissioner of Income Tax (Appeals) is not justified in observing that the newly constructed residential houses were settled in favour of the appellant's son and daughters, without proper verification and basis, when on facts it is not so, and that the said residential houses have come up after the Tripartite Agreement.
9. The learned Commissioner of Income Tax (Appeals) is not justified in refusing to examine the alternate claim under section 54F without basis.
10. The learned Commissioner of Income Tax (Appeals) failed to construe the agreement in proper perspective and determine the correct value of capital gains which should have been worked out in the following manner on a construction of the development agreement even according to the Department's view:
Value of 40% land area as on April 2006 as per Guideline value of S.R.O. (2074 Sq. feet @ ` 2059/ sq.ft.) - ` 42,70,366 Less: Indexed Value of cost of land & building as on 1-4-81 - ` 21,78,000 (As per Valuation Report dt.25.04.2006) -------------------
Capital Gains - ` 20,92,366 Less: Exemption under section 54 :
Value of one flat -Row House A as per builder's certificate -` 38,59,470 (page 17 of C.l.T (Appeals) order. -------------------
Taxable Capital Gain. ` NIL
---------------------
11. In any event, the order of the Commissioner of Income Tax (Appeals) is illegal, devoid of merit and rendered without due regard to the facts and circumstances of the appellant's case and the law applicable thereto, and that for the above grounds and for such other grounds that may be adduced at the time of hearing, it is prayed that the order of the Commissioner of Income Tax (Anneals) he cancelled. and / or modified accordingly."
:- 7 -: ITA 1108-09
4. We have considered the rival submissions and have perused the entire material available on record. The ld. A.R, while representing the case of the assesse, has reiterated the similar arguments as were taken before the ld.CIT(A). It was argued that LTCG did not accrue or arise to the assessee in assessment year 2008-09 and in any case, sine the assessee had reinvested the entire LTCG, the benefit of section 54F is available to the assesse. On the other hand, the ld.CIT/DR has stated that transfer of land had taken place and not that of the future asset, therefore, provisions of section 53A are attracted.
After considering the rival stands, we have found that the Assessing Officer has treated the transfer to have taken place in the period relevant to assessment year 2006-07 as against claimed by the assessee as relevant to assessment year 2009-10. Undisputedly, the project was completed on 12.1.2009. In fact, the Assessing Officer has not clearly visualized and examined this issue as to when the transfer of the asset in question took place and LTCG will apply to the land or to the building or both has not been considered by the Assessing Officer at all. The year in which the LTCG has to be taxed has also not been correctly examined and given a finding with reasons. Whether the provisions of section 53A would apply or whether the benefit of section 54F will be available to the assessee or not, have :- 8 -: ITA 1108-09 not been examined in their correct perspective. Whether the actual possession of the land given to the builder on 12.4.2006 or the date on which the Development Agreement was executed i.e 20.1.2006 would be the relevant date, especially when the fact that the power of attorney given in favour of the Developer in respect of share of 40% as per the agreement was once cancelled and as such would be the effect thereof. The aspect of determination of the consideration in the Development Agreement qua the cost of the asset and the cost of the land to the builder have not been properly considered. The original cost, as on 1.4.1981, has also not been correctly considered and decided so as to determine the cost of inflation index. The Assessing Officer has not considered the entire development agreement in its totality with regard to both land and building. In nut-shell, the impugned issue has not been properly investigated into and decided and hence, we are of the considered opinion that the matter needs to be remanded back to the Assessing Officer with a direction that he will decide the LTCG arising in this case from the angle of assessment year in which it is to be taxed and the determination of LTCG as per law, as has been discussed above, et al. Accordingly, we remand back this appeal to the file of Assessing Officer with a direction that he shall accord opportunity of being heard to the assessee as per law and :- 9 -: ITA 1108-09 decide the matter afresh. We set aside the impugned finding and direct as above.
5. In the result, the appeal of the assessee stands allowed for statistical purposes.
Order pronounced in the open court on 31.01.2012.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 31st January, 2012
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR