2011 (5) TMI 576 - AT - Income Tax

Capital gain on account of transfer of the Plot - assessee was allotted a plot of land under the 12.5% Gaothan Expansion Scheme by CIDCO - plot not allotted on ownership basis for perpetuity but only on lease basis for 20 years - Held that - There are two distinct transactions in this case. The first is the acquisition of lands of assessee s father against which the assessee as legal heir was given lease of the Plot on 16-08-2004. This transaction got completed when the assessee got the leasehold rights in the Plot on such date which falls in the previous year relevant to the asstt. year 2005-06. Whatever was the amount of profit or gain on this transaction was accordingly chargeable to tax in A.Y. 2005-06. The second transaction is the transferring of such leasehold rights in the Plot to M/s. Pathik Construction on 25-08-2005 for a consideration of Rs. 2.50 crores which event falls in the previous year relevant to the assessment year under consideration. The full value of the consideration received or accruing as a result of the acquisition by the Govt. is the amount given as consideration for such acquisition or in the alternative the market value of any other capital asset given to the assessee against such acquisition. As in the instant case the Govt. has allotted rights in the Plot as the full value of consideration on the acquisition of lands by it in the years 1970/72 the market value of such right is to be considered as full value of consideration at the time of computing capital gain on the first transaction in the preceding year. Once a particular amount is considered as full value of consideration at the time of its purchase the same shall automatically become the cost of acquisition at the time when such capital asset is subsequently transferred. Thus the full value of consideration should mean the market value of the lease rights in the Plot for sixty years at the time of the first transaction which was completed on 16-08- 2004 and the same amount shall become the cost of acquisition when such rights in the Plot became subject matter of transfer in the current year on 25-08- 2004. Full Value of Consideration and Section 50C - Held that - As sec. 50C applies only to a capital asst being land or building or both it cannot be made applicable to lease rights in a land. As the assessee transferred lease right for sixty years in the Plot and not land itself the provisions of sec.50C cannot be invoked. It is a settled legal proposition that a deeming provision cannot be extended beyond the purpose for which it is enacted. Capital gain on the transaction of assignment of lease rights in the Plot is to be computed in the year in question by adopting the full value of consideration on 25-08-2005 at Rs. 2.50 crores and the cost of acquisition shall be worked out afresh as per law by the AO by taking the market value of lease rights for sixty years in the Plot as on 16-08-2004.

Issues Involved:
1. Chargeability of income under the head 'Capital gains'.
2. Character of the plot as agricultural land.
3. Cost of acquisition of rights in the plot and applicability of Section 49(1).
4. Full value of consideration and applicability of Section 50C.

Issue-wise Detailed Analysis:

1. Chargeability of Income under the Head 'Capital Gains':
The primary issue in this appeal is the chargeability of income under the head 'Capital gains'. The assessee received Rs. 2.50 crores from the sale of a plot and did not offer any income under 'Capital gains' in the return, claiming that the plot did not qualify as a capital asset under Section 2(14)(iii) of the Income Tax Act. The Assessing Officer (AO) disagreed, stating that the plot was a capital asset and its transfer attracted the provisions of Section 45.

2. Character of the Plot as Agricultural Land:
The assessee argued that the plot retained the character of agricultural land, as it was allotted under the 12.5% Gaothan Expansion Scheme in lieu of agricultural land acquired by the government. However, the CIT(A) and the tribunal found this contention untenable. The tribunal clarified that the nature of the asset transferred in the previous year is relevant, not the origin of the asset. The plot, being leasehold rights and not agricultural land, does not qualify for exclusion from the definition of 'Capital assets' under Section 2(14)(iii).

3. Cost of Acquisition of Rights in the Plot and Applicability of Section 49(1):
The assessee claimed the cost of acquisition of the plot to be Rs. 2,88,35,000, based on the market rate. The AO, however, considered the cost of acquisition as Rs. 4,70,362, applying Section 49(1) and taking into account the compensation originally awarded for the acquired land. The tribunal held that Section 49(1) was not applicable, as it pertains to the cost of acquisition of the capital asset that became the property of the assessee by inheritance, gift, etc. Since the plot was a new asset acquired as compensation, its cost of acquisition should be its market value on the date of allotment (16-08-2004).

4. Full Value of Consideration and Applicability of Section 50C:
The AO applied Section 50C, adopting the market value of Rs. 2.88 crores for the plot based on the stamp duty valuation. The tribunal found this application incorrect, as Section 50C applies only to land or building, not to lease rights. The tribunal held that the full value of consideration should be Rs. 2.50 crores, as actually received by the assessee. The AO was directed to compute the capital gain by taking the market value of the lease rights for sixty years as on 16-08-2004 as the cost of acquisition.

Conclusion:
The appeal was allowed for statistical purposes. The tribunal directed the AO to recompute the capital gain by considering the full value of consideration as Rs. 2.50 crores and determining the cost of acquisition based on the market value of the lease rights as on 16-08-2004. The tribunal also clarified that the plot did not retain the character of agricultural land and Section 50C was not applicable to lease rights.

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