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TMI Blog2003 (4) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of land and building should be determined separately and as the land was sold more than 36 months after its purchase, the gain arising from the sale of land should be treated as long-term capital gain and that the gain from the building alone should be treated as short-term capital gain for the purpose of assessment. This was not accepted by the Assessing Officer, as according to him, though the land was purchased in July, 1981, since a building was constructed thereon in February, 1982, the nature of the asset was changed into one of house property, which came into existence only in February, 1982. On that basis the Assessing Officer treated the entire gains arising from the transaction as short-term capital gains and the deduction available under section 80T as well as exemption under section 54E in regard to a portion of the capital gains was denied. In appeal by the assessees the Commissioner of Income-tax (Appeals) accepted the claim of the assessee and allowed the appeal. In appeal by the Department the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). Hence, the reference at the instance of the Department. We have heard Sri P.K.R. Menon, learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15, 1981. The building was constructed thereon and it was completed in February 1982, and the land together with the building was sold on August 1, 1984. Section 2(14) of the Act defines "capital asset" to mean property of any kind held by an assessee, whether or not connected with his business or profession. The remaining portion is not relevant and hence not dealt with. Section 2(42A) defines "short-term capital asset" to mean a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer. Going by the definition of "capital asset" it is clear that it refers to property of any kind held by an assessee and as per the definition of short-term capital asset any asset which is transferred within thirty-six months of its acquisition will be treated as a short-term capital asset. In the instant case the land which was purchased on July 15, 1981, was sold on August 1, 1984, i.e., more than 36 months after its acquisition. Hence, if the transfer of the capital asset is taken as land it cannot be treated as a short-term capital asset. However, since the assessees had constructed a residential building in the said property the build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such capital asset does not exceed two hundred thousand rupees the whole of the capital gain shall not be charged under section 45 and (b) in a case where the full value of such consideration exceeds two hundred thousand rupees, so much of the capital gain as bears to the whole of the capital gain the same proportion as the amount of two hundred thousand rupees bears to such consideration shall not be charged under section 45. Under the proviso this section shall not apply to a case where the assessee owns on the date of such transfer any other residential house. Section 54 deals with profit on sale of property used for residence. It refers to capital gains arising from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property". Similarly, section 540 deals with capital gain on compulsory acquisition of lands and buildings. It also refers to capital gain arising 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax under section 54E in case the requirements of the said section are satisfied. As already noted, ten cents of land and building were sold by the assessees and the capital gains arising from the sale of the said capital assets was sought to be assessed under the Act. If the land on which the building is situated is treated separately the same will have to be treated as a long-term capital asset since the same was sold after 36 months after its acquisition and the assessee will be entitled to deduction provided under section 80T and also the exemption provided under section 54E provided the conditions therein are satisfied. On the other hand, if the land and the building are treated as one unit and consequently if the date of completion of the building is taken as the basis for determining the nature of the asset as short-term capital asset certainly it has to be assessed as short-term capital asset in which case the benefits available under section 80T as well as under section 54E have to be denied. The Rajasthan High Court in Virnal Chand Golecha's case [1993] 201 ITR 442 considered the question whether the Tribunal was justified in holding that the capital gains arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as a capital asset as per section 2(14) of the Act and in accordance with the scheme of the Act, land would be considered as a separate capital asset, even if a building is constructed thereon. It was also held that where the land has been held for more than the prescribed period, the gains arising from the sale of the land could be considered as long-term capital gains, though the building thereon was a new construction held for a period of less than 36 months. The Madras High Court in CIT v. T.C. Itty Ipe [2001] 249 ITR 591 followed the said decision and held that the Tribunal was correct in coming to the conclusion that the land and the superstructure can be assessed separately as a "long-term capital asset" and as a "short-term capital asset" for the purpose of capital gain. We are in full agreement with the view taken by the Rajasthan and Madras High Courts and hold that the land has to be assessed as a long-term capital asset and the building has to be assessed as a short-term capital asset for the purpose of levy of capital gains tax. We also hold that the fact that the income from the residential property is being assessed as income from house property cannot be a gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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