2003 (1) TMI 648 - AT - Income Tax

Summary

Issues:
1. Determination of capital gain on transfer of right to construct floors.
2. Ascertainment of cost of acquisition.
3. Applicability of capital gain tax in the case of transfer of rights.
4. Interpretation of definitions related to capital asset and transfer.

Issue 1: Determination of capital gain on transfer of right to construct floors:
The appeal involved a case where the assessee and his father transferred the right to construct 3rd, 4th, and 5th floors on an existing building. The Assessing Officer contended that the consideration received was for permission to construct flats with conditions/limitations, not a transfer of an asset. The CIT(A) disagreed, citing the Supreme Court's decision that capital receipts cannot be charged to capital gain tax. The Tribunal noted that the transfer of rights constituted a transfer within the meaning of the Income Tax Act, as the assessee sold valuable rights in the property. The Tribunal held that there was a transfer of property liable to capital gains tax under Chapter IV-E of the Act.

Issue 2: Ascertainment of cost of acquisition:
The Assessing Officer argued that since the cost of acquisition of the right to construct floors was not ascertainable, no capital gain should be charged. The Tribunal, however, emphasized that the word "property" in the definition of "capital asset" includes rights or interests. The Tribunal held that the absence of a cost of acquisition does not exempt the transaction from capital gains tax if there was a transfer of valuable rights in the property.

Issue 3: Applicability of capital gain tax in the case of transfer of rights:
The Tribunal discussed various precedents cited by the assessee's representative to support the claim that no capital gain was chargeable due to the unascertainable cost of acquisition. However, the Tribunal rejected these arguments, stating that the transfer of rights constituted a taxable event under the Act, regardless of the cost of acquisition. The Tribunal directed the Assessing Officer to calculate the capital gain after obtaining a valuation report for the transferred rights.

Issue 4: Interpretation of definitions related to capital asset and transfer:
The Tribunal analyzed the definitions of "capital asset" and "transfer" under the Income Tax Act to determine the applicability of capital gains tax in the case. It concluded that the transfer of rights to construct floors constituted a transfer of property, subject to capital gains tax. The Tribunal referred to relevant legal provisions and precedents to support its decision to set aside the CIT(A)'s order and remand the matter to the Assessing Officer for further assessment.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the Assessing Officer to calculate the capital gain on the transfer of rights to construct floors. The cross objection supporting the CIT(A)'s order was dismissed as the matter was remanded for reassessment. The Tribunal's decision emphasized the taxable nature of the transfer of valuable rights in the property, irrespective of the ascertainability of the cost of acquisition.