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2014 (3) TMI 288 - AT - Income TaxNature of Asset - Whether the development arrangement entered into by the owners is in furtherance of their business activity of real estate development or is only toward realizing a capital asset - No capital gains arises to the assessee prior to A.Y. 2005-06, whereat the entire capital gain under the agreement dated 28.08.2001, as modified by the conciliation deed dated 05.04.2004, inures - To the extent, the same is against cash consideration, the capital gain is assessable u/s.45(1), while to the extent it is against the consideration in kind, i.e., the constructed space, the same is assessable u/s.45(2) - thus, liable to tax in the year of sale of the corresponding stock-in-trade. The difference in the per unit sale price, i.e., between the rates at which it is effected in respect of the assessee and her co-brother, Sh. Bharat Khatiwala even though the consideration for the area foregone for both is qua the same property and from the same person (Developer), being in fact qua the same Agreement - the area foregone for cash consideration, is only toward direct transfer u/s. 45(1) - the area stipulated as consideration for transfer of land being since substituted for cash, the consideration as stipulated, i.e., without reference to a different (or higher) rate for the other would be adopted - the different rate would not have any bearing on the computation of capital gains, which in either case would be per the respective rates - This is also so as the Revenue has not doubted the genuineness of the arrangement, and neither invoked s.50C. The assessee has worked out the area finally retained (6172.75 sq. ft.), and which would therefore be subject to capital gains u/s. 45(2), at 11%, qua which there is though no adjudication. Besides, how and in what manner, in case of any difference between the parties, would the issue get resolved. The ld. CIT(A) has also himself not given finding of the entire capital gains as having been computed by the assessee in terms of his findings. We have already stated that we consider this aspect as integral to the income determination (qua the relevant agreement). Accordingly, while presenting our observations in the matter (which may not be considered as final findings, but only as representing our understanding), we remit this aspect back to the file of the first appellate authority, so that the due process of adjudication is observed and no prejudice caused to either side; there being no argument on this aspect of the matter before us. We shall, nevertheless, clearly state the basis on which our calculation is premised to enable its appreciation. What is important is that internal consistency is maintained inasmuch as it is only the transfer consideration as agreed to and arrived at between the parties that forms the basis of the determination of the land and the construction component of the assets under reference, with the Revenue having not applied s.50C - Each method would have its pluses and minuses, being essentially an estimation exercise, so that what is paramount is that internal consistency, or the integrity of the computation, is maintained. The value of the capital asset (land) treated as stock-in-trade and the construction as reckoned for computing the capital gains, shall become the cost thereof for the purpose of computing the business income on its sale/transfer - The capital gain, though arising in the year of conversion/treatment as stock-in-trade, so that the same is to be computed applying the fair market value on the date of conversion/treatment, i.e., 05.04.2004, the charge to tax is deferred to the year of actual sale or transfer of the asset - the difference between the final sale (transfer) consideration and the cost, so arrived at, would be chargeable u/s.28 as business income; the assessee selling one flat and two flats in the previous years relevant to A.Ys. 2005-06 and 2006-07 respectively – thus, the matter remitted back to the CIT(A) for computation of capital gain as well as the business income arising to the assessee for both the years – Decided in favour of Assessee.
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