2008 (10) TMI 262 - AT - Income Tax

Long-term and short-term capital gains - Transfer Of Land - Joint development agreement - exemption u/s. 54F - Liability to pay capital gains - Capital gain arise in the year of entering into development agreement or not - AO hold that the assessee had entered into two different transactions resulting into two kinds of capital gains-long-term capital gains on transfer of ownership rights over 55 per cent of the undivided share of land and short-term capital gains on sale of flat - CIT(A) upheld the computation of short-term capital gains on the sale of flat (part) except for correcting certain computational errors. Thus the assessee got partial relief from the CIT(A). HELD THAT - It is well established that it is enough if the assessee has received the right to receive the consideration. The assessment so made may be liable to modification when the actual consideration is determined. Therefore we have no hesitation in holding that in the instant case capital gains accrued in the previous year relevant to AY 2000-01. May be the AO might have had to resort to estimating the consideration but the same would have been subject to modification later. Thus we hold that the capital gain arising on the transfer of land is not chargeable to tax in the year under consideration. It is not in dispute that the land held by the assessee was her capital asset. It cannot also be disputed that the flats acquired by her were also her capital assets. As per the development agreement she has no claim over the land which has been given to the developer and she may not sell any of the flats coming to her share. In that case despite there being transfer of land as per s. 2(47) the assessee could escape the liability of capital gains tax. Therefore the stand of the assessee to treat the two transactions as one is too fallacious. It does not merit acceptance. Accordingly we hold that transfer of land in consideration of the flats constitute one transaction giving rise to capital gains and the sale of flats by the assessee constitute another transaction giving rise to capital gains. Year of Taxability of capital Gain - Transfer of land - HELD THAT - It is well established that it is enough if the assessee has received the right to receive the consideration. It may be quantified later or it may be received later but these factors do not retard or stall the accrual and hence the gain has to be taxed in the year of its accrual only. - in the instant case capital gains accrued in the previous year relevant to asst. yr. 2000-01. - the capital gain arising on the transfer of land is not chargeable to tax in the year under consideration. Exemption u/s. 54F - It has been rightly allowed by the CIT(A) as the provision is very clear to the effect that if the assessee is having one residential house as on the date of transfer of the asset then the assessee would be entitled to exemption u/s. 54F. Therefore on this issue we uphold the order of the CIT(A) and reject the ground raised by the Revenue. Computation of Capital Gain - Allowability of the cost of the old superstructure demolished by the assessee - HELD THAT - the building being attached to the earth will pass on to the transferee along with the land. It is immaterial that the said building was demolished by the assessee. It was merely taking upon oneself a responsibility. Further it also makes no difference if the sale proceeds of the scrap are taken by the owner i.e. the transferor. This fact does not necessarily lead us to the inference that the building is not transferred along with the land. Thus unless there is a specific agreement to the contrary when land is transferred things attached to it or fastened to anything attached to the earth will also get automatically transferred. At the most if the owner receives the sale proceeds of the scrap then while computing capital gains on transfer of land the proceeds so received may be added to the overall consideration received by the assessee. Computation of Capital Gain - Matter restored before the AO to compute the capital gain in view of the various issued decided in this matter.

Issues Involved:
1. Effect of the development agreement on the transfer of land.
2. Effective date of transfer for capital gains purposes.
3. Whether the events from the development agreement to the sale of flats constitute one single transaction or two separate transactions.
4. Computational aspects of the capital gains.
5. Deduction of the cost of the superstructure in computing capital gains.
6. Entitlement to exemption under section 54F of the Income Tax Act.

Issue-wise Detailed Analysis:

Effect of Development Agreement:
The Tribunal examined whether the development agreement constituted a transfer under section 2(47) of the Income Tax Act. The term "transfer" includes sale, exchange, or relinquishment of the asset, extinguishment of any rights therein, and any transaction involving the allowing of possession of any immovable property in part performance of a contract. The Tribunal found that the development agreement resulted in the transfer of the land to the developer. The assessee exchanged her property for 4-1/2 flats, which constituted a transfer. The developer had the right to exploit the property, and the assessee had no claim over the 55% of the land transferred to the developer. Thus, the Tribunal held that the development agreement had the effect of transferring the land as per section 2(47) of the Act.

Effective Date of Transfer:
The Tribunal determined that the effective date of transfer was when the developer got the right to make use of the land. Although the agreement was executed in March 1995, the possession of the land was handed over to the developer in December 1999 after the old structure was demolished. The transfer was complete when the developer got possession of the land, making December 1999 the effective date of transfer for capital gains purposes. Hence, the capital gain was chargeable to tax in the assessment year 2000-01.

Single or Separate Transactions:
The Tribunal rejected the assessee's contention that the events from the development agreement to the sale of flats constituted a single transaction. The Tribunal held that the transfer of land and the sale of flats were two separate transactions. The land was one capital asset, and the flats received in exchange were another capital asset. The sale of flats by the assessee constituted a different transaction from the transfer of land.

Computational Aspect of Capital Gains:
The Tribunal upheld the Revenue's approach of treating the transfer of land and the sale of flats as two separate taxable events. The long-term capital gain on the transfer of land was not taxable in the year under consideration (assessment year 2001-02) but in the assessment year 2000-01. The Tribunal directed the AO to recompute the short-term capital gains on the sale of 1-1/2 flats during the year under consideration after considering the CIT(A)'s viewpoint and giving the assessee an opportunity to be heard.

Deduction of Cost of Superstructure:
The Tribunal held that the cost of the old superstructure demolished by the assessee should be allowed as a deduction in computing capital gains. The Tribunal referred to the Hyderabad Bench's decision in Prabhandam Prakash vs. CIT and noted that the building being attached to the earth would pass on to the transferee along with the land. The Tribunal concluded that the proceeds from the sale of scrap should be added to the overall consideration received by the assessee.

Exemption under Section 54F:
The Tribunal upheld the CIT(A)'s decision to allow the assessee's claim for exemption under section 54F. The provision denies exemption only when the assessee has more than one residential house on the date of transfer of the asset. Since the assessee had only one residential house on the date of transfer, the exemption under section 54F was rightly allowed.

Conclusion:
The Tribunal partly allowed the assessee's appeal and dismissed the Department's appeal, directing the AO to recompute the short-term capital gains on the sale of 1-1/2 flats during the year under consideration.

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