2014 (12) TMI 192 - HC - Income Tax

Amount of Rs. 12 lakhs deducted while computing LTCG Determination of cost of acquisition - Whether amount paid by the assessee to the seller at the time of purchase of the property must be construed as a cost of acquisition of the asset so as to be deducted from the full value of consideration received by the assessee at the time when he had sold and transferred the property Held that - The Tribunal was rightly of the view that after noting Section 48 of the Act which relates to the aspect of capital gain was of the view that the sale deeds by which the assessee had sold the property does not mention the fact about the sale of furniture and fixtures and other fittings - The Tribunal also rejected the basis on which the assessee has claimed deduction at Rs. 12 lakhs on the ground that the description of items indicates that the same consisted of removable wood work - the furniture and fixtures are personal effects which have been specifically excluded from the definition of capital asset as contained in Section 2(14) of the Act. The Authorities below was of the view that the assessee had acquired the property by way of four sale deeds each of Rs. 4.50 lakhs the total of which was Rs. 18 lakhs - there was no agreement nor any registered deed in that regard - The AO was right in noting that there was no mention in the sale deeds of Rs. 18 lakhs about purchase of the furniture and fixtures by way of a separate agreement for Rs. 12 lakhs - the deed of 2008 also does not give the inventory of the furniture and fixtures as sold in the year 2008 which aspect has been conceded by the assessee at the time of the arguments. Most of the items which are said to have been acquired are primarily personal effects which are excluded from the definition of capital asset u/s 2(14) of the Act if they are meant for personal use - Rs. 12 lakhs was for all the fixtures and fittings including furniture - the breakup of Rs. 12 lakhs was not given - the Authorities below were right in disallowing Rs. 12 lakhs for the purpose of computation of the capital gain as such no substantial question of lawarises for consideration Decided against assessee.

Summary

Issues Involved:

1. Whether Rs. 12 lakhs paid for fixtures and fittings should be considered as part of the cost of acquisition of the property for computing long-term capital gains.
2. Whether the fixtures and fittings qualify as "personal effects" and are excluded from the definition of "capital asset" under Section 2(14) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Cost of Acquisition of Property:

The appellant-assessee, an architect, purchased a property in July 1997 for Rs. 18 lakhs under an unregistered agreement. The payment details included Rs. 14 lakhs on 28.06.1997, Rs. 8.5 lakhs on 07.07.1997, and Rs. 7.5 lakhs on 08.07.1997, totaling Rs. 30 lakhs. Four registered sale deeds were executed between 23.12.1998 and 25.01.1999, each showing a consideration of Rs. 4.5 lakhs. No sale deed was registered for fixtures and fittings, for which Rs. 12 lakhs was paid. The appellant sold the property in April 2008 for Rs. 90 lakhs and deducted Rs. 12 lakhs for fixtures and fittings from the sale consideration in the capital gains computation.

The Assessing Officer (AO) did not allow the deduction of Rs. 12 lakhs, holding that the items were "furniture" and "personal assets" under Section 2(14) of the Act. The AO noted that the sale deeds did not mention a separate agreement for fixtures and fittings and concluded that the payment for acquisition could only be ascertained from registered sale deeds. The AO allowed a cost of improvement of Rs. 9,62,107/- and computed the long-term capital gain as Rs. 18,19,945/-.

The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the payment for furniture could not be assumed to be for the acquisition of the house property. The Tribunal also rejected the appellant's claim, noting that the sale and purchase deeds did not reflect the sale or purchase of furniture and fixtures. The Tribunal concluded that the items were personal effects excluded from the definition of a capital asset under Section 2(14).

2. Classification as Personal Effects:

The Tribunal and lower authorities held that the fixtures and fittings, including removable woodwork, display windows, partitions, wooden grills, wardrobes, cupboards, fans, geysers, light fittings, and rugs, were personal effects. These items were not considered capital assets as per Section 2(14) of the Act. The appellant did not provide evidence that these items were not for personal use. The authorities found that the Rs. 12 lakhs paid for these items did not qualify as a cost of acquisition for computing capital gains.

Conclusion:

The High Court dismissed the appeal, agreeing with the lower authorities that the Rs. 12 lakhs paid for fixtures and fittings could not be deducted from the sale consideration for computing capital gains. The court found that the items were personal effects and excluded from the definition of a capital asset under Section 2(14) of the Act. The findings were primarily factual, and no substantial question of law arose. The appeal was dismissed with no order as to costs.