TMI Blog2007 (1) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... 36 received by the appellant-company in respect of the aggregate area of 1656.79 square metre of office space along with proportionate undivided indivisible share in the land underneath, as also the proportionate share in all common areas and facilities etc., sold by the appellant-company to the said four buyer companies named in Ground No. 1 hereinabove. (3) That the ld. CIT(A)-VII, Kolkata erred in arbitrarily alleging and/or holding that by virtue of the Development Agreement dated 24-2-1988 entered into between the appellant-company, the owners, and M/s. Ansal Properties Industries Pvt. Ltd., the Developers, the appellant-company's rights in the whole of the land measuring about 1.805 acres equivalent to 7307 square metres or 78,645 sq. feet, and in the two Wings 'A' and 'B' situate at premises No. B-148, Barakhamba Road, New Delhi got extinguished, and that even the so called purchase consideration, being the development costs of 43.2 per cent of the newly built aggregate office area, being the owner's share/allocation forming part of Wing 'A' therein, was impossible to bifurcate. (4) That the ld. CIT(A)-VII, Kolkata erred in arbitrarily alleging and/or holding that in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed to tax as long-term capital gains, and the gains attributable to the transfer of the superstructure forming part of the said four floors, can be assessed to tax as short-term capital gains. 3. The relevant facts relating to this case are that the assessee-company is engaged, inter alia, in the business of printing and publishing the renowned daily newspaper named "The Statesman" from both Kolkata and New Delhi for a very long time. The assessee-company owned and held on perpetual lease, an immovable property situated at B-148, Barakhamba Road, New Delhi measuring in all about 1.805 acres i.e., equivalent to 7307 sq. metres. The assessee got the said property developed through M/s. Ansal Properties Industries Pvt. Ltd., a reputed builder and developer of New Delhi, vide an Agreement Deed dated 24-2-1988. In pursuant to the agreement, M/s. Ansal Properties Industries Pvt. Ltd. constructed superstructures on such land in two blocks called Wing 'A' and Wing 'B'. Wing 'A' was handed over to the assessee-company on 24-8-2001 and Wing 'B' was retained by the developers in terms of the said Development Agreement dated 24-2-1988. The newly constructed two Wings contained in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fair market value of 56.8 per cent of the land transferred to M/s. Ansal Properties as on 1-41981 at Rs. 11,41,35,056 on the basis of the valuation report by Shri G.C. Mehendiratta and after claiming the benefit of indexation in terms of the second proviso to section 48 of the Income-tax Act computed the indexed cost of acquisition of such 56.8 per cent land at Rs. 48,62,15,339 - (Rs. 11,41,35,056 X 426/100). 6. The Assessing Officer processed the said return filed by the assessee-company for the assessment year 2002-03 in terms of the intimation under section 143(1) dated 11-2-2003 by accepting the return filed by the assessee. The assessee in the meantime capitalized the fair market value of 43.2 per cent of the said land at Rs. 58,28,71,000 and the superstructure at Rs. 14,76,04,000. However, no depreciation whatsoever was claimed by the assessee-company for tax purposes in respect of such capitalized value of building, save and except in respect of Rs. 3,84,211, which related to the office portion of the said building. 7. During the current financial year, i.e., financial year 2002-03 corresponding to the assessment year 2003-04, the assessee-company sold/transferred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land but was in fact owner of the space received in lieu of consideration of old building structure vide Development Agreement with M/s. Ansal Properties Industries Pvt. Ltd. The Assessing Officer further observed that the assessee was claiming depreciation on the said building. Based on above observation the Assessing Officer rejected the contention of the assessee that as per terms of agreement 43.20 per cent of the share of entire land would remain with the Company and the balance would be transferred to the Developer and it was not claiming depreciation on such said building observing that from the perusal of statement of depreciation, it was evident that the depreciation was being claimed on building and the assessee become the owner of 43.2 per cent space of Wing 'A' only it was handed over to it after construction by M/s. Ansal Properties. 10. The Assessing Officer also rejected the contention of the assessee that since land is a capital asset which was acquired much earlier, long-term capital gain was rightly computed on the same and it had rightly made the apportionment of sale consideration between land and building on the basis of IT A T decision in the case of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------- Sale Proceeds Rs. 16,99,85,636 ---------------------------------------------------- Profit on Sale Rs.14,49,14,951 ---------------------------------------------------- From the said detail it is clearly established that the assessee sold office premises viz., depreciable business assets and thereby on sale earned short-term capital gain of Rs. 14,49,14,951. Therefore, the said income is taxable under the head 'Short-term capital gain' and accordingly considered thereof." 12. Aggrieved with such order of Assessing Officer, the assessee preferred an appeal before the ld. CIT(A), wherein it has placed reliance on the agreement and valuation report as discussed above and has contended that it had received a composite sum for the transfer/sale of office premises and while computing the capital gains, the said amount has been apportioned as consideration received towards the sale of the building and the proportionate portion of land attributable to such four floors. The assessee has also filed the computation of capital gains on sale of such building before the ld. CIT(A), which is being re-produced hereunder for the sake o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of CIT v. Dr. D.L. Ramachandra Rao [1999] 236 ITR 51 and the decision of jurisdictional Tribunal in the case of I.T.C. Ltd. 13. The ld. CIT(A) after considering the order of Assessing Officer, submission of the assessee and case laws relied upon has upheld the order of Assessing Officer by observing as under:- "The artificial manner of computation for tax calculation, in which efforts have been made to bifurcate the purchase and the sale consideration, is not amenable for scrutiny and verification. The ratio of indicated value of land to the value of building is based purely on the hypocritical grounds, which cannot be accepted as a proper bifurcation. Since the appellant had sold 1656.79 sq. mtr. of building space at Rs. 16,99,85,636, the sale is to be treated as a composite sale. No separate agreement was entered for the building and for the land. The appellant had claimed that it has received Rs. 12,31,42,645 for land and Rs. 4,68,42,991 for the building by bifurcating the sale consideration received purely on imaginary and hypothetical ratios. This is not admissible under the Income-tax Act. Obviously, the land in question is not capable of being sold for Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and 18 car parking space in the basement in terms of four separate and distinct agreement for sale, all executed by the assessee-company vide agreement for sale dated 22-10-2001 in favour of M/s. Pritty Portfolio Pvt. Ltd., M/s. Nahid Finlease Pvt. Ltd., M/s. Bist Hotels Pvt. Ltd. and M/s. Sagari Secfin Pvt. Ltd., all of New Delhi for an aggregate consideration of Rs. 16,99,85,636, a copy of which of the said four agreements was also placed by Shri Poddar claiming that the same were filed before the Assessing Officer in the course of impugned assessment proceedings. 16. Shri Poddar has thereafter contended that since the said four floors sold by the assessee came to 14.84 per cent of the total area allotted to the assessee in Wing 'N by way of owned shares, the assessee bifurcated such aggregate consideration of Rs. 16,99,85,636 into land and building in the ratio of 2.622 : 1 on the basis of the aforesaid valuation report by Shri G.S. Mendiratta as under:- Land - Rs. 12,31,42,645 Building - Rs. 4,68,42,991 Shri Poddar thereafter has stated that the assessee has computed the long-term capital gain and short-term capital gain on the basis of valuation report and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that both the Assessing Officer as well as CIT(A) erred in arbitrarily treating the said sum of Rs. 14,49,14,951 as short-term capital gain arising to the assessee on sale of 4th, 5th, 6th and 7th floors of the premises and has assailed their observation in holding that the assessee-company's right in the whole of the said land got extinguished and in further holding that allocation of consideration between land and building was not proper as the same was impossible to bifurcate. 20. Ld. Senior counsel Shri N.K. Poddar has pleaded that the tax authorities have erred in treating the said sum of Rs. 14,49,14,951 as short-term capital gain without appreciating the facts and the terms of agreement for developing superstructure of such building between the assessee-company and the developer M/s. Ansal Properties Industries Pvt. Ltd. Shri Poddar has pointed out that the assessee has computed the capital gain in this case in terms of paragraph 4B of the Development Agreement dated 24-2-1988 executed by the assessee with the said developer M/s. Ansal Properties, wherein the assessee-company has agreed to assign only 56.8 per cent share in the entirety of the said plot of land and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd underneath with proportionate shares in all common areas and facilities as detailed in Schedule 'C' to the said agreement for sale as also in the equipment, plant and machinery, etc., as detailed in Schedule 'D'. 23. Ld. senior counsel Shri N.K. Poddar has thereafter assailed the observation of tax authorities in wrongly and arbitrarily alleging that these assets were treated by the assessee as business asset, on which the assessee was claiming depreciation. Shri Poddar has pointed out that the entirety of newly constructed Wing 'A', on reading of the agreement by the assessee-company from the developer, was all along treated as its capital asset and no depreciation whatsoever was either claimed in the assessment year 2002-03 or in the assessment year 2003-04 when the said four floors were sold by the assessee to the said four buyer companies. Shri Poddar has thereafter pointed out from the perusal of depreciation chart, it is evident that the assessee has not claimed any depreciation on such capital asset except depreciation on office space arising out of previous year and filed a copy thereof, which is available at page No. 137 of the paper book. Ld. counsel has thereafter a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax authorities and the same were distinguished by them without correctly appreciating them and has relied on the following judgments:- (1) CIT v. Vimal Chand Golecha [1993] 201 ITR 442 (Raj.); (2) CIT v. Dr. D.L. Ramachandra Rao [1999] 236 ITR 51 (Mad.); (3) CIT v. C.R. Subramanian [2000] 242 ITR 342 (Kar.); (4) I.T.C Ltd. v. Dy. CIT [2003] 86 ITD 135 (Kol.) (TM). Apart from above case laws, he has also relied on the following judgments contending that consideration received by the assessee should be bifurcated and the gains attributable to the transfer of undivided portion of the proportionate share in land should be separately assessed to tax as long-term capital gains:- (1) CIT v. T.C Itty Ipe [2001] 249 ITR 591 (Mad.); (2) CIT v. Estate of Omprakash Jhunjhunwala [2002] 254 ITR 152 (Cal.); (3) CIT v. Citibank, N.A. [2003] 261 ITR 570 (Bom.); (4) CIT v. Smt. Lakshmi B. Menon [2003] 264 ITR 76 (Ker.). It has finally been pleaded by Shri Poddar that even when there is some difficulty in bifurcation/apportionment that cannot be a ground for rejecting the claim of the assessee in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Best Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation reports of land and building dated 12-8-2002 and 26-8-2002 respectively. This is only indicative of the lack of perfection of the valuation report which shall be further elaborated in the forth coming paras. Secondly all sale agreements are of one single date, i.e., 22-10-2001. Similarly, all receipts are dated 30-9-2002. 3. With reference to the valuation report of land page 114 of the paper book may kindly be perused. The basis of adoption of the value of plot at the rate of Rs. 27,500 per sq.m. is not clear, rather it is without any basis, if the first three paras of page 114 of the paper book are read conjointly. It may be argued here that no reasons have been given the valuer for not taking the value of Rs. 10,500 as on 1-4-1981. With reference to page 119 of the paper book, the prevailing market rate of the plot has been taken at Rs. 1,50,000, whereas the prevailing market rate was in the range of Rs. 1.25 lakh and Rs. 2 lakh. It may be reiterated that the estimate made by the valuer in regard to the valuation of land is without any basis and tinged with arbitrariness. 4. With reference to page 124 of the paper book, the fair market value of land has been taken at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddar, ld. senior counsel for the assessee has also filed written submission countering the submission filed by the revenue and has submitted as under:- "It is not correct on the part of the revenue to submit and/or suggest that the value of sale consideration relating to the sale of undivided share or interest in the proportionate land attributable to the sale of fourth, fifth, sixth and seventh floors in the newly developed Barakhambha Road property at New Delhi, at the time of sale, is not available. (i) From the four sale agreements, all dated 22-10-2001 read with the four separate agreements dated 30-9-2002, relating to transfer of car parking space - copies whereof are already on the records of the tax authorities below - kindly see pages 147239 of the paper book, volume II filed on behalf of the appellant assessee-company before the learned Tribunal, it is clearly apparent that the appellant assessee-company had received an aggregate consideration of Rs. 16,99,85,636 for transfer of four floors, viz., 4th, 5th, 6th and 7th floors together with 18 car parking garage space in the newly constructed multistoreyed building situate at B-148, Barakhambha Road, New Delhi. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, as evident from the said four sale agreements, is the correct market value of the said four floors including the proportionate land underneath, as well as the proportionate share in the common areas and facilities, etc., as aforesaid, and that the bifurcated sale consideration of Rs. 12,31,42,645 (land) and Rs. 4,68,42,991 (superstructure forming part of the four floors), as shown in the computation of total income at page 41 of the paper book, Vol. I has been done on a reasonable basis as clearly indicated therein. 5. In paragraph 2 of the written submissions filed on behalf of the revenue, it has been inter alia alleged/submitted that there is a long time gap between the date of the development agreement dated 24-2-1988 and that of the 2 Valuation Reports dated 12-8-2002 and 26-8-2002 respectively. The revenue concludes that in view of the aforesaid fact the valuation report cannot be said to be perfect. It has been further stated that while all the four sale agreements are dated 22-10-2001, all possession letters and receipts are dated 30-9-2002. 6. It is not understood as to how an adverse inference is being drawn based upon the facts set out in paragraph 2 of the writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as arbitrarily and wrongly alleged by the revenue in paragraph 2 of its said written submissions/note or otherwise or at all. Moreover, the 2 valuation reports give the value of land as on 1-4-1981 and of the superstructures as on August, 2001. In this view of the matter, the mere fact that the valuation reports were obtained by the appellant assessee-company in August, 2001, it is respectfully submitted, is wholly irrelevant. 10. It may also be noted that the accounting entries based on the said valuation reports were made by the appellant assessee-company in its audited books of account drawn for the year ending 31-3-2002 corresponding to the assessment year 2002-03, since the allocated portion of appellant assessee-company's share in the newly developed property was received by it only on 24-8-2001, the date falling within the financial year ending on 31-3-2002. The audit report was signed by the auditors on 2-9-2002 and the tax audit report for the said year was also given by the auditors on 30-10-2002 - page 129 of PB, Vol.-I. 11. It is not correct on the part of the revenue to now allege for the first time before the ld. Tribunal that the valuation of land as on 1-4-1981 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be noted that the appellant assessee-company passed the accounting entries based on the approved valuers' report, and this fact is also mentioned in the fixed assets Schedule 5 - appearing at page 20 of the printed accounts for the year ending 31-3-2002 as well as in paragraph 11 of schedule 23 at page 32 of the said printed accounts. The aforesaid fact was again disclosed in the audited printed accounts drawn for financial year ending 31-3-2003 - at fixed assets schedule 5 at page 281 of PB as well as in Note No. 12 of schedule 18 at page 292 of PB, Vol.-II. Both the aforesaid printed accounts had been admittedly filed by the appellant assessee-company along with its respective income-tax returns for the two years viz., assessment years 2002-03 and 2003-04. A copy of the printed accounts for the year ending 31-3-2002 is again annexed hereto for ready reference. 15. It is humbly and respectfully submitted that neither the said 2 valuation reports nor the accounting entries based thereon had been ever challenged by the tax authorities below in either of the said years. 16. The market value of the land as on 1-4-1981 as estimated by the Government Approved Registered Valuer thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the office space, and not the land and building. Therefore, apportionment made by the assessee-company herein was not correct. (iii) The said four floors were part of its business assets, and the assessee-company had duly claimed depreciation thereon as part of buildings. (iv) Since the said four floors, being depreciable business assets, which had been received by it from the developers only in August, 2001 had been sold by the assessee-company during the year under appeal, the profits arising on such sale were wholly assessable to tax as short-term capital gains. The assessee-company cannot be allowed the benefit of taking the market value thereof as on 1-4-1981 and/or the benefit of indexation in respect thereof. As such, the entire profit of Rs. 14,49,14,951, as credited by it to its profit and loss account for the year under appeal, is assessable to Income-tax in its hands as short-term capital gains. (v) The decision of the Kolkata Bench of the learned Tribunal in the case of I.T.C. Ltd. v. Dy. CIT [2003] 86 ITD 135 (TM), is not applicable to the instant case of the assessee-company herein. 29. The ld. CIT(A) in appeal has endorsed the finding of Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Assessing Officer has held that the assessee-company was no longer the owner of the land and building and in fact it only got 43.2 per cent shares by way of its entitlement in lieu of old land and building, however, in our considered opinion, such action of tax authorities does not hold any merit in view of the relevant clauses of terms of agreement between the assessee and the developer M/s. Ansal Properties Industries Pvt. Ltd. A perusal of Development Agreement dated 24-2-1988 executed in between the assessee-company and M/s. Ansal Properties Industries Pvt. Ltd. shows that the assessee has never transferred 100 per cent of the right in land to M/s. Ansal Properties and in fact only 56.8 per cent shares in the said leasehold land was to be transferred to the builder that is only after completion of the development of the land. The above fact is clearly mentioned in clause (4) and clause (21) of the agreement, which is available at pages No. 78, 79 and 89 of the paper book and is being reproduced for the facility of reference hereunder:- "4. The 'Transfer' as defined by Chapter XX-C of the Income-tax Act, 1961 contemplated by this Agreement comprised the following:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold any merit. 33. The second objection by the revenue in this case is basically disputing apportionment of sales consideration by the assessee-company between the value of land and superstructures. However, such objection raised by the revenue is without any concrete and sound reasoning, whereas we find force in the argument of ld. counsel for the assessee that the undivided proportionate portion of land attributable to the structure has to be necessarily transferred and it is common knowledge that the market value of ownership apartment varies according to the situation of land over which the same is constructed. The above argument of the ld. counsel for the assessee gets support from the various case laws relied by him, as in the case of Vimal Chand Golecha, the Hon'ble Rajasthan High Court held as under:- "If the price of two capital assets has been charged at one consolidated price, then the assessee is entitled to bifurcate the same. A situation may arise where a gain from one of the capital assets is a short-term capital gain while from the other is a long-term capital gain and, in such a situation the benefit to the assessee cannot be denied in respect of a gain arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility of reference:- "And whereas the vendor is desirous of transferring and the vendee is desirous of purchasing 4617.76 sq.ft. FAR (capital area) being the entire allocation of the vendor in the 4th floor in 'Statesman House', at B-148, Barakhamba Road, New Delhi as detailed in Schedule 'B' written hereunder along with proportionate undivided indivisible share in the land underneath with proportionate share in all common areas and facilities as detailed in Schedule 'C' and equipment, plant and machinery as detailed in Schedule 'D' written hereunder and hereinafter referred to as the said Apartment." 34. A plain reading of the above clause of agreement and from the ratio of decision of different Courts, it is clear that the assessee has rightly apportioned the sales consideration between the land and building. Even otherwise we find that when there is some difficulty in bifurcation/apportionment, the same cannot be a ground for rejecting the claim of the assessee as held by the Hon'ble Supreme Court in the case of Best Co. (P.) Ltd. Apart from the above orders, the decision of the Hon'ble jurisdictional High Court in the case of Estate of Omprakash Jhunjhunwala is also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration of the same on the basis of material on record, it would not be justified to deny the claim of long-term capital gains on the undivided share in the land sold along with the floors. The nature of treatment of the sale/purchase consideration could be verified from the books of the seller and the purchasers. If however, the sale/purchase consideration was treated as composite and depreciation was also claimed and allowed and it was impossible to bifurcate the cost/sale consideration of the land from the total sale consideration, then only it had to be held as a composite sale. Therefore, the view taken by the Judicial Member on this point was justified." 36. We, therefore, from the facts and circumstances involved in this case and after perusing the relevant terms and conditions between the assessee and the developer and the assessee and the purchasers of 4th to 7th floor, are of the opinion that the assessee has rightly computed the capital gain by apportioning the sale proceeds between the land and building as per valuation report submitted by the Government Approved Valuer and the above computation of capital gain by the assessee is supported by various decisions of Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f authorities below is without any concrete and sound reasoning, whereas the assessee has duly explained the reason for computing the capital gain while proportionating sales consideration between the land and building with the help of relevant documentary evidence and explanation on record. We, therefore, do not find any merit in other objections raised by the revenue while discarding the claim of the assessee. 40. We, therefore, after considering the facts and circumstances involved in this case, the ratio of decisions laid down by the various High Courts including the Hon'ble jurisdictional High Courts, decision of the Hon'ble Third Member in the case of this Tribunal and in the light of above discussion are of the considered opinion that the action of Assessing Officer and CIT(A) in denying the bifurcation of aggregate of sale consideration received by the assessee between the land and building was not correct and in our considered opinion, the action of assessee-company in computing the capital gain by apportioning the sales consideration between land and building was correct in view of the ratios laid down by various High Courts as discussed hereinabove and as per terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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