TMI Blog2011 (5) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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 cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands belonging to the assessee's father, Late Shri Gangadhar Vishnu Puranik, were acquired by the Govt. of Maharashtra vide Notification dated 03-02-1970 and subsequent Notification dated 28-12-1972 issued u/s. 6 of the Land Acquisition Act, 1884. Compensation was paid to Shri Gangadhar Vishnu Puranik in the period between 1973 to 1975 by the Special Land Acquisition Officer at the rate of Rs. 5 per square meter. The assessee's father expired in the year 1980. A further claim for addition compensation was made before the Addl. Distt. Judge, Raigad, Alibag. On an examination of witness Shri Ashok Puranik, also one of the co-owners from Puranik family and an Engineer himself, the Add. Distt. Judge, vide his order dated 25.04.2000 awarded compensation at the rate of Rs.16/- per sq. metre for the reason that the lands acquired by the Government from Shri Gangadhar Vishnu Puranik, were acquired by the Puranik family for industrial purposes. It was also noticed that the lands under reference were situated within the extended limits of Panvel Municipal Council. Shri Ashok Puranik deposed before the Addl. Dist. Judge that Puranik family had prepared plans to develop the lands for industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing 1/5th as assessee's share, the AO determined the cost of acquisition of the Plot at Rs.4,70,362/- (i.e. Rs.23,51,813/- divided by Rs.5). As the assessee got possession of the Plot from CIDCO vide agreement dated 08-08-2005 and sold the same to M/s. Pathik Construction for a consideration of Rs.2.50 crores, the AO held that capital gain was to be charged as short-term capital gain. It was noticed by him that since the assessee had submitted market rates prevailing for lands at Kamothe-II published by Panvel Nagar Palika from 01-04-2004 to 31-12- 2004 at Rs.3950 per sq. mtr., the AO computed the market value of the Plot at Rs.2,88,35,000/- (Rs.3950 X 7300 sq. mtrs.) as per the provisions of sec. 50C of the I.T. Act. The amount of capital gain was thus worked out as under:- "Value of the asset sold on 25.8.2005 (i.e. land at Village Kamothe sold to M/s. Pathik Construction on 25.8.2005) Rs. 2,88,35,000 Less:- Cost of acquisition as worked out in Para 5(ii) Rs. 4,70,362 Short Term Capital Gains Rs. 2,83,64,638" 5. The assessee preferred appeal before the ld. first appeal authority, inter alia, contending that the land acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us in the light of correct and complete facts as afore noted. 7. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee's father late Shri Gangadhar Vishni Puranik was owner of certain lands which were acquired by the Govt. of Maharashtra by Notification dated 03-02-1970 and subsequent Notification dated 28-12-1972. The possession of the lands was taken over by the Govt. in March 1973 by awarding original compensation @ Rs. 5/- per sq. mtr. some where in the financial year 1973-74. The assessee's father passed away in 1980. The assessee, along with other co-owners, became the legal heir of his father. The grant of compensation at Rs.5/- per sq. mtr. was challenged which was enhanced by the Addl. District Judge to Rs.16/- per sq. mtr. vide his order dated 25-04-2000. Thereafter, 12.5% Scheme was introduced and according to the ld. A.R., the said sum at Rs.16/- per sq. mtr. was returned and the assessee was allotted the Plot on 16-08-2004 on lease basis for sixty years. The lease agreement was executed on 08-08-2005. The assessee assigned such rights in the Plot to M/s. Pathik Construction for a conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was put forth that since the assessee transferred agricultural lands (being rights in the Plot assuming to have the character of original agricultural lands acquired by the Government), in this year, there will not arise any liability to pay tax under the head Capital gain' because the agricultural land is excluded from the definition of Capital assets' given in section sec. 2(14) of the Act. In the opposition, the ld. DR relied on the impugned order in this regard. 9.1 The assessee acquired lease rights in the Plot in consideration of acquisition of original lands owned by the assessee's father in the earlier years. A lot of discussion has been made by the authorities below on the question of determination of the character of such lands as agricultural lands or otherwise. In our considered opinion, it is only an academic exercise in so far as the issue in question is concerned, being the assignment of lease rights in the Plot. It is obvious for the reason that when the assessee was allotted the lease rights in the Plot in the preceding year on 16.08.2004, that transaction got completed. The amount of capital gain, if chargeable, should have been included in the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset so transferred in the previous year and not the origin or the source from which such asset came to be acquired. 9.4 Adverting to the facts of the instant case, once the assessee acquired rights in the Plot, which in itself is admittedly not an agricultural land, there is no question of considering it to be an agricultural land on the premise that it was allotted to the assessee against acquisition of agricultural land. Further the question whether the lands acquired by the Govt. in the years 1970/72 were agricultural land or not is beyond our purview as we are concerned only with the second transaction of transfer of rights in the Plot, which event took place in the year under consideration. We, therefore, hold that the assessee's contention that the rights in the Plot should also be considered as agricultural land transferred during the year, is bereft of any force and is jettisoned. As such, we advance further to determine the amount of capital gain arising to the assessee in the year in question on the transfer of rights in the Plot. II. Cost of Acquisition of Rights in the Plot and Section 49(1):- 10. During the course of assessment proceedings, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv), the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of improvements, etc. The Explanation below sub-section (1) defines the expression "previous owner of the property" to mean the last previous owner who acquired it by a mode of acquisition other than those referred to in clauses (i) to (iv) of this sub-section. The sum and substance of sec. 49(1) is that where a capital asset becomes the property of the assessee by any of the modes specified in clauses (i) to (iv), such as gift or will, succession, inheritance or devolution, etc., the cost of acquisition of such capital asst in the hands of the assessee receiving such capital asset shall be deemed to be the cost for which it was acquired by the person transferring such capital asset in the prescribed modes. The rationale behind this provision is that the transfer of such asset by the person receiving in any of the modes prescribed, should not go tax free. In order to compute capital gain on the transfer of any capital asset, the existence of cost of acquisition is an essential element. If there is no cost of acquisition and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this year is the right in the Plot, which was not inherited by the assessee from his father. The assessee only received the capital asset in the shape of right to receive compensation from the Government on the death of his father. Cost to the previous owner u/s 49(1) would be relevant at the time of computing the capital gain in the preceding year, when compensation was received in the shape of right in the Plot. Once the first transaction on the allotment of rights in the Plot came to an end, the provisions of sec. 49(1) also ceased to operate. It could not have been applied to the second independent transaction on the sale of such rights to M/s. Pathik Construction in the year in question. We, therefore, hold that the authorities below were not justified in applying sec. 49(1). 10.5 Having held that sec. 49(1) is not applicable, the immediate question which arises for consideration then is that what is the cost of acquisition of rights in the Plot transferred on 25-08-2005 to M/s. Pathik Construction. The ld. A.R. argued that the market value of the plot of land on the date of allotment should be taken as the cost of acquisition, as has been held by the Tribunal in ACIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08- 2004. We, therefore, set aside the view taken by the ld. CIT(A) on this issue and hold that the market value of such lease rights for sixty years in the Plot as on 16-08-2004 shall constitute the cost of acquisition for the purpose of computing capital gain when it was assigned for a consideration of Rs.2.50 cores on 25- 08-2005. The AO is directed to determine the cost of acquisition in terms indicated above after allowing a reasonable opportunity of being heard to the assessee. III. Full Value of Consideration and Section 50C:- 11. The AO adopted the value of asset sold on 25-08-2005 at Rs.2.88 crores by applying the provisions of sec.50C for the purposes of computing capital gain. His view was based on the assessee's submission that the market rate prevailing for land at Village Kamothe-II published by Panvel Nagar Palika during 1.4.2004 to 31.12.2004 was Rs.3950 per sq. meter. The ld. CIT(A) upheld the action of the AO on this score. The ld. counsel for the assessee contended that the authorities below were unjustified in applying section 50C. Per contra, the ld. DR supported the impugned order on this issue. 11.1 In order to appreciate the rival contentions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sec. 50C extends only to a capital asset which is "land or building or both". It, therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction under sub-sec. (1) shall be activated to substitute such adopted or assessed or assessable value as full value of consideration received or accruing as a result of such transfer in the given situation. 11.3 It is a settled legal proposition that a deeming provision cannot be extended beyond the purpose for which it is enacted. The Hon'ble Apex Court in CIT v. Amarchand N. Shroff (1963) 48 IT 59 (SC) has considered the scope of a deeming provision and came to hold that it cannot be extended beyond the object for which it is enacted. Similar view has been reiterated by the Hon'ble Supreme Court in CIT vs. Mother India Refrigeration Industries P. Ltd. (1985) 155 ITR 711 (SC) by laying down that "legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right in the Plot for a period of sixty years, which right was further assigned to M/s. Pathik Construction in the year in question. It is axiomatic that the lease right in a plot of land are neither land or building or both' as such nor can be included within the scope of land or building or both'. The distinction between a capital asset being land or building or both' and any right in land or building or both' is well recognized under the I.T. Act. Sec. 54D deals with certain cases in which capital gain on compulsory acquisition of land and building is charged. Sub-sec.(1) of sec. 54D opens with: "Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking.....". It is palpable from sec. 54D that land or building' is distinct from any right in land or building'. Similar position prevails under the W.T. Act, 1957 also. Section 5(1) at the material time provided for exemption in respect of certain assets. Clause (xxxii) of sec. 5(1) provided that "the value, as determined in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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