TMI Blog2014 (10) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... re was termination of lease hold rights on 29th March 1998, which was restored only on 06th August 2004 - Held that:- The borrowing costs are recorded in the books of accounts, year after year which have been accepted as such. It would be thus a fallacy to suggest that such borrowing cost in the shape of interest was not incurred for the development of the property. Further the year of capitalization under the building is also not a relevant consideration. The interest cost on year to year basis was capitalized under the head “capital work in progress” which was later transferred to building accounts. It is not in dispute that the borrowing costs have been incurred towards building as the AO has allowed the same as cost incurred while computing the capital gain. Thus there is no justification to contend that the indexation benefit will not be allowed on the borrowing cost. In the result the ground raised by the assessee are allowed. - ITA No. 5102/Del/2011 - - - Dated:- 31-10-2014 - SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER Appellant by : Ajay Vohra, Adv. Respondent by : Vivek Nangia, Sr. DR O R D E R PER A. T. VARKEY, JUD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tituted, transfer of a short-term capital asset, since three years have not elapsed from the date of acquisition of the free-hold rights. He further held that the transfer of free-hold rights was at the cost of the consideration paid for acquisition of the right i.e. ₹ 3,89,89,186/-. In other words, in AO‟s opinion there was no short-term capital gain on transfer of the free-hold rights. Further he held the balance consideration of ₹ 26,10,10,804/- (RS.30,00,00,000/- ₹ 3,89,89,186/-) as consideration received for transfer of long-term capital asset comprising of cost of land, cost of constructions, cost of interest and other charges. And therefore computed the long-term capital gain as under:- 15. In view of the above discussion, the total cost of the long term capital asset transferred by assessee would be the sum of:- A. Indexed cost of land Rs.1,25,25,589/- B. Indexed cost of construction/ improvement Rs.16,16,75,673/- C. Cost of interest payment Rs.3,25,42,455/- D. Other charges related to transfer ` Rs.34, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g rights of the lessee, by removing the requirement of seeking prior written consent of the lessor and payment of unearned increase. In view of the aforesaid, it was submitted that the appellant continued to occupy and enjoy the industrial plot as an owner from the year 1973 and conversion of leasehold to freehold merely had the effect of improvement/ betterment of the appellant‟s rights over the plot, without bringing into existence an altogether new capital asset. Therefore the ld. Sr. Counsel prayed that the impugned order may be set aside. 9. We have heard both the parties and have perused the records of the case and gone through the case laws before us. During the year consideration, the assessee had sold the free-hold plot situated at Mohan co-operative industrial estate, Madhure Road, New Delhi, in terms of sale deed dated 27th April 2007 for an aggregate consideration of ₹ 30 crores. The assessee, on such transfer of the land computed long-term capital gain at ₹ 4,07,35,010/-. The AO, however determined the long term capital gain at ₹ 5,08,54,387/- on the ground that there was transfer of free-hold rights. As regards transfer of free-hold rights h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement to the contrary, the lease is treated as renewed from year to year or from month to month, as the case may be. In such cases also when rent is paid and accepted Section 106 of the Transfer of Property Act would apply and notice of case may be. In such cases also when rent is paid and accepted termination has to be issued. Section 116 of the Transfer of Property Act also, therefore, makes Section 106 applicable once rent is accepted after determination or end of the tenure of the lease. The effect thereof on applicability of Section 106 of the Transfer of Property Act is the same in either case. Month-to-month tenancy cannot be confused with the right to occupy as a tenant as a notice under Section 106 of the Transfer of Property Act is required to be issued before ejectment proceedings are initiated. 9. Long-term asset has been defined in Section 2(29b) of the Act as an asset which is not a short-term capital asset and the expression short- term capital asset has been defined in Section 2(42A) of the Act to mean the capital asset held by an assessee for not more than 36 months immediately preceding the date of its transf1The expression held by the assessee means th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have and to hold, or in that applied to notes, ''the owner and holder. xxx 4. To maintain or sustain; to be under the necessity or duty of sustaining or proving; as when it is said that a party holds the affirmative or negative of an issue In a cause. xxx 8. To possess; to occupy; to be in possession and administration of; as to hold office. 9. To keep; to retain; to maintain possession of or authority over. As per clause 8, the word 'hold' means to possess or occupy, to be in possession and would also include to keep, retain and maintain possession or authority over an asset. 12. The word 'held' thus can be interpreted to embrace the idea of actual possession of the assessee. In Budhan Singk versus Babi Bux, AIR 1970 SC 1880 (at page 1884) the word 'held' was interpreted to mean lawfully held, to possess by legal title . The term 'legal title' here not only includes ownership, but also title or right of a tenant which will mean actual possession of the land and a right to hold the same and claim possession thereof as a tenant (we are not examining rights of a rank trespasser in the present decision and we express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no hesitation to hold that the capital gain accruing on sale of the land in question was a long-term capital gain as the land held and transferred was a long term capital asset, since the said land was held for a period of more than 3 years. The nature of rights i.e. lease-hold or free hold is not a relevant consideration once the asset has been held by the assessee for a period of more than 3 years prior to the date of transfer. Thus we set aside the finding of the ld CIT(A), that the asset sold was a short-term capital asset and further hold that the land sold was a long-term capital asset and entire gain accruing on such transfer is taxable as a long-term capital gain only. 11. The next issue relates to non-grant of indexation on the interest paid on borrowed funds. 12. The AO rejected the claim of indexation on the grounds that :- (a) the construction of the premises had not been carried out by the appellant company on a continuous basis, (b) Accounting Standard-16 provides that capitalization of borrowing cost should be suspended during extended periods in which active development is interrupted and (c) the appellant company itself had capitalized the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk, namely, construction of office premises has continuously and uninterruptedly continued during the FYs 1998-99 to 2005-06. Further, as recorded by the AO, the cost of interest was not forming part of work-in-progress prior to the FY 2005-06 and therefore, there is no credible/independent evidence to support the claim of the appellant that the construction had been carried out in a systematic manner. In this fact situation, I do not find any substance in the claim of the appellant company that the provisions of AS - 16 mandating suspension of capitalization of borrowing cost do not apply to the facts of the present case. There is also no material placed before me by the appellant company that during the period of cancellation and restoration of lease hold rights, the construction activity had been carried out uninterruptedly. In view of the aforesaid, I do not find any infirmity in the action of the AO and the same is being upheld.‟ 14. From the aforesaid, it is evident that the authorities below have denied the indexation benefit on the ground that there was termination of lease hold rights on 29th March 1998, which was restored only on 06th August 2004. In our consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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