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TMI Blog2011 (8) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the ITAT was justified in not upholding the cost of construction of Rs.240/- per sq.ft. adopted by the Commissioner (Appeals) based on the information provided by the Assessing Officer? 4. Whether on the facts and in the circumstances of the case, the ITAT was justified in adopting Rs.576/- per sq.ft. by making reference to the Form 37-I filed before the Appropriate Authority as rate for arriving the cost of construction which was not the subject matter before the Appropriate Authority? 5. Whether on the facts and in the circumstances of the case, the ITAT was justified in adopting Rs.576/- per sq.ft. as cost of construction which is inconsistent with the evidence available and contrary to the facts on record? 6. Whether on the facts and in the circumstances of the case, the ITAT erred in holding that the amount payable to the sisters of the appellant as per the Will of the appellant's father is not deductible in computing the capital gains assessable to tax? 7. Whether on the facts and in the circumstances of the case, the ITAT is justified in holding that the obligation to make the payment to the sisters under the Will was a voluntary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of the 14.419 ground as follows:- ANNEXURE The Total Apparent Consideration for the transfer of the 14.419 Ground includes: a) Payment of Rs.66,00,000,00 in two instalments - Rs.10,00,000/- immediately the agreement is signed and Rs.55,00,000/- within a period of six months of the date of signing the Development Agreement b) Obligation to construct and provide to the Owners 36,000 sq.ft., of office area at the Developers' cost. c) Obligation to provide to the Owners flats/flat having an aggregate area of 3,000 sq.ft., at the Developers' cost. d) Rented flat until flats/flat till point "C" is provided. The Apparent consideration is worked out as follows: 1.Cash to be received : Rs.66,00,000.00 2.Market value of constructed area to be retained by the owners : Rs.2,07,45,489.50 a)36,000 sq.ft., @ Rs.1,000/- per sq.ft : Rs.3,60,00,000.00 b)Less : Value of 6 grounds @ Rs.25,43,418.42 per ground:Rs.1,52,54,510.50 ---------------------------- Rs.2,07,45,489.50 ---------------------------- 3. Market value of 3,000 sq.ft., flats/fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for the purpose of computation of capital gains under Section 48 of the Income Tax Act was to be taken at Rs.3,38,96,489/-. The assessee took the plea that the computation on the capital gains could not be based on the apparent consideration as given under Section 269UA(b)(1)(i) and (ii) of the Income Tax Act. Considering the fact that apparent consideration was defined as market price and that under Section 48, Capital gains had to be computed by taking the full value of consideration received as a result of the transfer of capital assets, the amount given under Form 37-I before the Appropriate Authority should not be taken as the basis for computing the capital gains. 6. As regards the payment made to the assessee's sisters, the Assessing Officer rejected the plea of the assessee holding that the amount of Rs.16,00,000/- was not paid to the legatees as on the date of assessment; hence, the same was not liable to be considered for deduction in computing the capital gains. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who, however, agreed with the assessee and allowed the appeal. 7. The first Appellate Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal was allowed in part. Aggrieved by the same, the present appeal have been filed by the assessee. 11. Learned counsel for the assessee took us through the provisions of Sections 45 and 48 as well as Chapter XX-C of the Income Tax Act, particularly the definition of 'Apparent Consideration' and the terms of the development agreement, whereby the assessee was paid cash as well as constructed area; to contend that for the purpose of working out the capital gains, the full value of the consideration received or accruing as a result of the transfer of capital asset alone should be taken note of and not the apparent consideration. Thus, while for the purpose of Section 37-I, the apparent consideration has to be necessarily based on the market value concept, as far as Chapter IV is concerned, the capital gains herein has to be worked out, taking the full value of consideration received - a concept which is totally different from what is contemplated under Chapter XX-C. 12. Placing reliance on the decision of the Apex court reported in 66 ITR 622 COMMISSIONER OF INCOME TAX AND ANOTHER v. GEORGE HENDERSON & CO. LTD., on the scope of the phrase "full value of the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred by way of sale, the consideration for such transfer as specified in the agreement for transfer; (ii) if the immovable property is to be transferred by way of exchange- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made; (B) in a case where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made, and such sum; 17. Chapter XX-C of the Income Tax Act - "PURCHASE BY CENTRAL GOVERNMENT OF IMMOVABLE PROPERTIES IN CERTAIN CASES OF TRANSFER" comprising of Section 269U to 269UO, inserted by Finance Act, 1986 in the place of Chapter XX-A relating to pre-emptive purchase by the Central Government in certain cases of transfer of immovable properties under stated circumstances effected after 01.10.1986, thereby superseding the agreement entered into between the parties. The object of the Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the immovable property is to be transferred by way of exchange,- (A) in a case where the consideration for the transfer consists of a thing or things only, the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made; (B) in a case where the consideration for the transfer consists of a thing or things and a sum of money, the aggregate of the price that such thing or things would ordinarily fetch on sale in the open market on the date on which the agreement for transfer is made, and such sum;, (iii) if the immovable property is to be transferred by way of lease,- (A) in a case where the consideration for the transfer consists of premium only the amount of premium as specified in the agreement for transfer; (B) in a case where the consideration for the transfer consists of rent only, the aggregate of the moneys (if any) payable by way of rent and the amounts for the service or things forming part of or constituting the rent, as specified in the agreement for transfer; (C) in a case where the consideration for the transfer consists of premium and rent, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or things as in this case herein by way of construction of flat or built up area to be given to the owner, namely assessee, the apparent consideration would be the open market price which the built up area would fetch, if ordinarily sold. In other words, in a case of joint development, the apparent consideration herein would have to be the cash plus the market value of the built up area, the value being the price that the built up area would fetch in an open sale. 20. Section 48 of the Income Tax Act pertains to mode of computation and deductions in respect of capital gains. Section 48, as it stood during the relevant assessment year, reads as follows: - "48. Mode of computation and deductions- (1) The income chargeable under the head "Capital gains" shall be computed, - (a) by deducting from the full value of the consideration received or acquiring as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the asset and the cost of any improvement thereto : (b) where the capital gain arises from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion received or accrued for computing the capital gains. 23. It may be of relevance to note that Section 50C "Special Provision for full value of consideration in certain cases" was inserted by the Finance Act, 2002 only to operate prospectively with effect from 2003-04 to tackle the unaccounted income by the practice of under-statement of consideration in acquisition of property in case of transfer of immovable property. Thus, with effect from 1.4.2003, provision is available under Section 50-C for determining the full value of consideration in cases of transfer of immovable property by enabling the Officer to refer the valuation of a capital asset to a Valuation Officer if the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purpose. The Officer may take such fair market value to be the full value of consideration. If the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purpose, the the Officer shall take the full value of consideration to be the value adopted or assessed for stamp duty purpose. Thus, Section 50-C substitutes a statutory value in the place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 49 on the other, in the absence of any provision available therein to adopt the market value in computing the capital gains under Section 48, we have no hesitation in holding that the concept available for Chapter XX-C can have no application at all, while working out the computation under section 48 of the Act. 25. In this connection, the reliance placed by the learned counsel for the assessee on the decision reported in 66 ITR 622 COMMISSIONER OF INCOME TAX & ANR. v. GEORGE HENDERSON CO. LTD. has to be seen. The said decision relates to interpretation of Section 12B of the Income Tax Act, 1922, corresponding to Section 48 of the 1961 Act, which dealt with the capital gains thereon. The Supreme court pointed out therein "the expression on full value of the consideration" as appearing in Section 12B could not be construed as having a reference to the market value of the asset transferred; the expression meant only the full value of consideration received by the transferor in exchange for the capital asset transferred by him. The Supreme Court held that "the consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apparent consideration defined as market value as defined in Section 269UA is of limited relevance only for the purpose of proceedings under Chapter XX-C and it has no relevance for computing the capital gains as given under Section 48 of the Act and in the absence of any provision to adopt the value as given under Form 37-I for the purpose of computing the capital gains under Section 48, we have no hesitation in accepting the case of the assessee that the Tribunal as well as the Assessing Authority fell into grievous error in construing Section 48 of the Act viz., "full value of consideration" received to mean "apparent consideration" as given in Chapter XX C. 28. Learned Standing counsel appearing for the Revenue relied on the decision of this Court reported in 139 ITR 736 - SANGAMESWAR COFFEE ESTATES LTD. v. C.I.T. as regards the phrase "full value of consideration". We do not think the reliance by the Revenue is well placed. The case therein related to sale of 200 standing rose wood trees for a total consideration of Rs.7,25,000/-. The purchaser therein felled and removed as many as 150 trees during the Accounting Year ending 31.3.1971 and paid the assessee company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47,490/-. The Tribunal held that the value at Rs.200/- as given under Clause 32 of the agreement would be inapplicable to the assessee on account of the approval given by the Assessing Authority. However, considering the reduction in the area and rejecting the value adopted by the Commissioner of Income Tax, the Tribunal fixed it at Rs.576 per sq.ft. It is a matter of relevance to note that even in the development agreement, the parties had agreed that the cost of construction, to be assigned to the portion to be built by the developer for the assessee as part of the agreement, was to work out the cost without including the profit on the materials used. That being the case, in the absence of any other materials for the Revenue to dispute on the value adopted by the Commissioner of Income Tax (Appeals), we have no hesitation in accepting the value as given by Commissioner of Income Tax (Appeals) as regards the cost of construction, which the parties agreed as part of the full value of consideration received by the assessee. 31. The Commissioner of Income Tax (Appeals) accepted the contention of the assessee as to the cost supported by the certificate from the builder that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declare that they have no claim whatsoever on the property known as 'Wellington Talkies' situated at Mount Road, Madras in view of the Clause 7 Supra. It is hereby mutually agreed that until such time the amount is paid pursuant to the provisions contained in Clause 7 Supra, 30 percent of the net property income of the late Mr.J.D. Italia's share in the property would be equally distributed amongst the Second, Third and Fifth parties. ......" 34. Going by the said Clause therein, read in the context of the agreement entered into between the assessee, his mother and three sisters, wherein the parties had agreed that the assessee had to pay Rs.6 lakhs to each of his sisters, we have no hesitation in agreeing with the Tribunal in holding that the payment was not, in any manner, relatable to the rights already there in the property. Going by the Clause in the Will and in the agreement, we do not find any good ground to differ from the view of the Tribunal. Consequently, we confirm the order of the Tribunal. 35. In the result, as far as the computation of capital gains is concerned, we set aside the order of the Tribunal and allow the assessee's appeal. As far a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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