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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-14, Chennai, dated 11.01.2019 and pertains to assessment year 2014-15.
:-2-: ITA. No:1596/Chny/2019
The assessee has raised the following grounds of appeal: “1. The C IT (Appeals) has erred in confirming the order of the Assessing Officer without going in detail to the merits of the submission.
2. The C.I.T. (A) has himself quoted a Supreme Court decision which also speaks of a net value and treated the net gain as taxable. Whereas in our case it results in a Loss. Hence the C I ,T (A) has not applied his mind in arriving at the decision to dismiss the appeal.
3. The C.I.T (A) ought to have seen that in the transaction of exchange only the net consideration to be taken which in this case is the guide line value of both the properties. He cannot take only one part of the transaction and leave the other and arrive at an erroneous Capital Gain.
4. The C.I.T.(A) ought to have followed the decisions cited by the Appellant wherein only the net consideration is taken into account.
5. The Assessment is excessive and opposed to law and facts of the case.
6. Your Appellant craves leave to file additional grounds of appeal before or at the time of hearing.”
3. The brief facts of the case are that, the assessee is engaged in the business of purchase and sale of land, filed his return of income for the assessment year 2014-15 on 21.09.2014, declaring total income of Rs. 1,50,03,250/-. During the financial year relevant to assessment year 2014- 15, the appellant had claimed capital loss and set off against long term capital gain. The AO, called upon the assessee to file necessary details and justify set off of capital loss against :-3-: ITA. No:1596/Chny/2019 capital gain. In response, the assessee submitted that, on 14.08.2013 he had transferred land admeasuring 35 cents out of 59 cents in survey no. 913/2, Thaiyur Village, Thiruporuru Taluk, Kancheepuram and market value of the said land as on the date of transfer was at Rs. 76,30,000/-, in exchange of land owned by Smt. Ambikavathy of 35 cents out of 68 cents in survey no. 917/1B1 at Thaiyur Village, Thiruporuru Taluk, Kancheepuram, whose market value as on the date of transfer was at Rs. 72,48,500/-. The assessee on 04.09.2013, had also transferred certain plots in survey no. 912/1936/ & 936/2 in the layout called ‘IT Highway Cooperative Nagar’ situated at No. 46 Thaiyur Village, Thiruporuru Taluk, Kancheepuram and market value on the said land as on the date of transfer was at Rs. 1,72,16,400/-, in exchange of the land measuring to an extent of 33 cents out of 68 cents comprised in survey no. 907/1B1, Thaiyur Village, Thiruporuru Taluk, Kancheepuram and market value of said land was at Rs. 1,15,10,400/-. Thus, the assessee had claimed total capital loss from exchange of lands with lands from another person at Rs. 83,06,380/- and claimed set off against long term capital gains. Before the Assessing Officer, the assessee argued that when layout was :-4-: ITA. No:1596/Chny/2019 formed with various survey nos. lands belongs to other persons including Smt. Ambikavathy was by mistake included. Therefore, a compromise arrangement was entered into with owners of other lands and accordingly exchanged his land with their lands by way of registered sale deed. However, there is no consideration received for transfer of lands. Therefore, he has computed capital gains/loss by taking into account market value of land transferred by him in exchange of market value of land received from other persons.
4. The AO, however was not convinced with explanation furnished by the assessee and according to AO, as per the provisions of section 2(47) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), transfer in relation to capital asset, includes (i) the sale, exchange or relinquishment of the asset or (ii) the extinguishment of any rights therein. Since, there is no disagreement with the submissions of the assessee that exchange of properties fall within the ambit of transfer, the AO by taking into account guideline value of the property, as per the provisions of section 50C of the Act, has computed long term capital gains, after allowing cost of :-5-: ITA. No:1596/Chny/2019 acquisition of the properties and computed long term capital gains of Rs. 3,26,75,007/-. The relevant findings of the AO are as under: 3.4 During the course of scrutiny, the assessee was asked to show cause why the capital gain may not be recomputed taking the stamp duty value of the Land transferred as the sale consideration and actual cost of acquisition thereof instead of adopting the market value of the properties received by the assessee in exchange. In response to this, e assessee submitted as under: With regard to your query regarding adoption of stamp value for arriving at the exchange loss instead of market value as mentioned in the document, that in an exchange normally there is no cash involved and only the difference in the vale as per guideline value is taken for consideration for arriving at the stamp duty etc. Hence, the value adopted in the document itself is only the stamp value as determined by the State Government for registration purposes." Further, the assessee has furnished a note on the same issue which reads as under: "The assessee has exchanged a part of the plots and vacant land with another party and in that process acquired lands in the same area which is part of the business asset. This has been necessitated because the land of the party giving the land in exchange was part of the lands plotted and the other party demanded their land. "Exchange" is also part of the definition of transfer and the Courts have held that there should be an existing asset and two parties for the exchange. In this case the same has been complied with. The decisions relied on this account is attached herewith. Since it amounts to transfer the Capital Gain Or Loss arising out of the said exchange has to be worked based on the fair market value of the exchanged properties and not go by the original cost for one asset alone. In case of land sale, the fair value as determined by the registration authorities has to be considered. In this case the net sale consideration on the :-6-: ITA. No:1596/Chny/2019 exchange is considered which is supported by court decision also. The same has been attached. In an exchange normally no cash consideration arises and it is the value on which the exchange takes place if there is difference in valuation that has to be considered. Hence the difference in valuation as assessed for stamp duty purposes is claimed as a Capital Loss." 3.5 The assessee has also discussed the definition of exchange as per various decisions of the Hon'ble Courts such as the decision in Addl. CIT vs HEH the Nizam's Second Supplementary Family Trust (1976) 102 TTR 248 (AP) that "hen two persons mutually transfer the ownership of one thing for the ownership of another, neither thing nor both things being money only the transaction according to Sec. 118 of the Transfer of Property Art 1882 is called an exchange." Further, it has been held in CIT vs RasiklalManeklal (1989) 177 ITR 198 202 (SC) that "An exchange involves the transfer of property by one person to another and reciprocally the transfer of property of that person to that first person. There must he a mutual transfer of ownership of one thing for the ownership of the other." The assessee's plea that exchange is a form of transfer is not disputed. As per Section 2(47) of the Income Tax Act, 1961 "transfer", in relation to a capital asset, includes, (i) The sale, exchange or relinquishment of the asset; or (ii) The extinguishment of any rights therein, Therefore, there is no disagreement with the submission that the exchange of properties undertaken by the assessee fall within the ambit of "transfer" and in the instant case, the assessee has transferred two landed properties: i. Land in Survey No.913/2, Thaivur Village, ThiruporurTaluk on 14/08/2013 for which the consideration received was another piece of land with guideiine value of Rs.72,48,500/-. (Hereinafter referred to as Property A) Land in Survey Nos.912/1936/1 and 936/2 situated at No.46, Thaiyur Village, ThiruporurTaluk on 04/09/2013 for which the consideration received was another piece of land with guideline value of Rs. Rs. 1,15, 10,400/-. (Hereinafter referred to as Property B) 3.6 Since the above two transactions fall within the ambit of "transfer", Section 45 of the Income Tax Act, 1961 shall be applicable and the gains arising thereon shall be :-7-: ITA. No:1596/Chny/2019 chargeable under the head "Capital Gains" in the year of transfer. Once it is established that Section 45 shall be applicable, the next question is how to compute the gain or loss arising from such a transfer. The computation of capital gain or loss is governed by Section 48 wherein it is prescribed that the income chargeable under the head "Capital Gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts such as the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of improvement thereto. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value consideration received or accrued as a result of the transfer as per Section 50C of the Act.
3.7 Taking into account the provisions of Section 48 and Section 50C, the capital gains on transfer of the properties should be computed as under: i. Property A: Sale Consideration received: Rs. 72,48,500/- being guideline value of the property received in exchange) Guideline value as per S,50C: Rs.76,30,000/- (amount on which stamp duty is paid) Highest of the above: Rs.76,30,000/- Cost of acquisition: Rs. 1,22,456/- (Acquired in 2002) Indexed cost of acquisition: Rs. 1,22,456/-(939/447) = Rs.2,57,240/ - Long Term Capital Gain: (Rs.76,30,000)-(Rs.2,57,240) = Rs.73,72,760/- ii. Property B: Sale Consideration received: Rs. 1,15,10,400/- (being guideline value of the property received in exchange)
:-8-: ITA. No:1596/Chny/2019 Guideline value as per S.50C: Rs.1,72,16,400/- (amount on which stamp duty is paid) Highest of the above: Rs. 1,72,16,400/- Cost of acquisition: Rs. 1,04,982/- (Acquired in 2002) Indexed cost of acquisition: Rs. 1,04,982/ - (939/ 447) = Rs.2,20,533/- Long Term Capital Gain: (Rs.1,72,16,400)- (Rs.2,20,533) = Rs.1,69,95,867/- iii. TOTAL LONG TERM CAPITAL GAIN: Rs.2,43,68,627/- 3.8 Against the above working, the assessee has computed the long term capital gain/ loss by adopting the guideline value of the properties received by the assessee in exchange as the cost of acquisition. This is against the provisions of the Income Tax Act, 1961 which stipulate the conditions for computation of the LOng Term Capital Gain/ Loss in consonance with Section 48 and Section 50C of the Act. In this regard, the assessee has submitted that "he Capital gain arising out of exchange has to be worked out based on the fair market value of the exchanged properties and not go by the original cost for one asset alone. In case of land sale, the fair value as determined by the registration authorities has to be considered. In this case the net sale consideration 0n the exchange is considered which is supported by court decision also." The assessee has relied on the following decisions in this regard: a. Decision of the High Court of Bombay in CIT vs Tata Iron and Steel Co. Ltd (1994) 206 ITR 196 (Bombay) b. Decision of the Apex Court in CIT vs G. Narasimhan (Decd.) and Others (1999) 236 ITR 327 (SC) c. Decision of the High Court of Calcutta in Central Industries Ltd vs Commissioner of Income Tax, West Bengal (1975) 99 ITR 211 (Cal)
3.9 While the first two decisions in (a) and (b), are related to what would fall under the purview of "transfer" defined by Section 2(47), the third deals with the capital loss arising on transfer of shares. There is no dispute on whether the exchange undertaken by the assessee falls under the purview of transfer which is also in accordance with the first two decisions relied on by the assessee. The third is the decision of the Hon'ble Calcutta High Court in the case of Central :-9-: ITA. No:1596/Chny/2019 Industries Ltd vs CIT wherein it was held that when the assessee was allotted shares in Birla Cotton Spinning and Weaving Mills Ltd as a result of the amalgamation of Rajputana General Dealers Ltd and Merchandise & Stores Ltd it resulted in a Capital Loss U/s 12B of the Income Tax Act, 1922. The facts and circumstances of this case are entirely different from the facts of the case of the assessee and hence the same cannot be squarely applied to the assessee's case. 3.10 n this regard, reliance is also placed on the decision of the Apex Court in Orient Trading Co. Ltd vs. CIT (1997) in 224 ITR 371 (SC) wherein it was held that were tie shares held as stock-i-trade are exchanged in return for the shares in another company, the difference between the cost of the original shares given and market value of the shares obtained should be taxed as business profit. Since the stocks are held s stock- in-trade, on exchange it is taxable as business income. If the shares were held as capital asset then on exchange, difference would be a capital gain/loss. 3.11 It is clear from the above that the assessee’s contention that only the net sale consideration should be considered in case of an exchange is clearly not as per law and hence not acceptable. 3.12 While the total long term capital gain as discussed above is Rs. 2,43,68,627/-, the assessee has admitted a long term capital loss of Rs. 83,06,380/-. Hence the difference between the two, i.e.,, Rs. 3,26,75,007/- shall be assessed as the income of the assessee for AY 2014-15 chargeable u/s. 45 of the IT Act, 1961 under the head long term capital gains.”
Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and reiterated his arguments taken before the AO. The ld. CIT(A) for the reasons stated in their appellant order dated 11.01.2019, rejected arguments of the assessee and sustained additions made by the AO towards computation of long term capital :-10-: ITA. No:1596/Chny/2019 gains arising out of transfer of land in exchange of land owned by other person. The relevant findings of the CIT(A) are as under: “11. I have carefully considered the facts of the case and the submissions of the authorized representative. The decisions cited by the AR are distinguishable and the reliance place by the Assessing Officer in the case of Orient Trading Co. Ltd vs CIT (1997) in 224 ITR 371, (SC) in the assessment order is more relevant. The facts in that case are as below: The assessee is a company dealing in shares. It was holding 14500 shares of Asiatic Oxygen & Acetylene Company Limited (hereinafter referred to as `the first Company'), of the face value of Rs. 10/- each as its stock-in-trade. The said shares were valued by the assessee at Rs. 1,45,000/- (the cost price) at the end of the assessment year 1962-63 and were included in the closing stock. In the assessment year under reference a new company, Asiatic Oxygen Ltd. (hereinafter referred to as `the second Company') had made an offer to obtain shares of the first Company in exchange for the allotment of its own shares at the rate of 38 equity shares in the second company for 10 equity shares in the first company. The assessee accepted the said offer and received 55,100 shares of the second company in exchange of the aforesaid holding of 14,500 shares in the first company. The face value of the shares of the second Company was Rs. 10/- per share. The assessee, however, valued the shares of the second Company also at Rs. 1,45,000/- being the cost price of the shares of the first Company. The Income Tax Officer did not accept the contention of the assessee that it had not earned any profit in the transaction. He found that the market quotation of the shares of the second Company, as on 11th August, 1962, i.e., only 11 days after the close of the relevant previous year, was Rs. 10.12 per share. He valued the shares of the second company of Rs. 10/- per share and held that Rs. 5,51,000/- was the value of the shares of the second Company. He, therefore, held that the assessee had earned a profit of Rs. 4,06,000/- in the said transaction and brought that :-11-: ITA. No:1596/Chny/2019 amount to tax as the assessee's income from share dealings.
The Hon’ble Supreme Court held on the above facts as below: The question that arises for consideration is whether the surrendering of its shares in the first Company in exchange for the shares of the second Company by the assessee can be regarded as realisation of the security on the date of such surrender and exchange. If it can be so regarded that the sum of Rs. 4,06,000/-, the difference between the book value of 14,500 shares of the first Company and the market value of the 55,500 shares of the second Company as on the date of the such realisation, will have to be treated as profit earned by the assessee in that transaction. The High Court has rightly taken the view that as a result of their having taken the shares in the second Company in exchange of the shares of the first Company the assessee had made realisation of the value of the shares of the first Company and the difference between the price of the shares of the first Company and the second Company on the date of such exchange, i.e., Rs. 4,06,000/-, has to be treated as a profit of the assessee and has been rightly assessed as income of the assessee.
In the above case, the Supreme Court took the cost price of shares in respect of the first company which is Rs. 1,45,000/- and the market price of the shares of the shares of the second company which is Rs. 5,51,000/- and directed the difference between the above two of Rs. 4,60,000/- as the profit earned in the said transaction. The Hon’ble Supreme Court did not compare the market price of the shares of the first company with that of the market price of the shares of the second company. What it compared is the cost price of the shares of the first company with that of the market price of the shares of the second company, whereas, in the case of the appellant, the appellant had compared the market price of the property of the appellant with that of the market price of the property of the other party which got exchanged. If the essence of the Hon’ble Supreme Court judgement as cited above is brought into effect, the cost price of the property of the appellant must be compared with that of the market price of the property received in exchange. The difference in price :-12-: ITA. No:1596/Chny/2019 between cost price and market price must be arrived at if asset is a capital asset. Computation of income charged under the heading ‘capital gains’ shall be computed in accordance with the provisions of section 48 of the Act. Accordingly, the Assessing Officer has computed the capital gain in terms of section 48 r.w.s. 50C of the Act. The computation of capital gain in the case of the assessee is further strengthened by the fact includes exchange of the asset. Therefore, the Assessing Officer is correct in adopting the difference between the sale consideration u/s. 50C and the indexed cost of acquisition as the taxable capital gains. Respectfully drawing the principle from the judgement of the Supreme Court in the case of Orient Trading Company Ltd., cited supra, the addition made of Rs. 3,26,75,007/- is hereby confirmed.”
The Ld Counsel for the assessee, submitted that the Ld. CIT(A) erred in upholding addition made towards computation of long term capital gains on transfer of certain lands in exchange of land held by other persons, without appreciating fact that there is no consideration involved in exchange of land and further, the appellant had also explained the reasons for executing sale deed in exchange of other lands. The Ld. Counsel for the assessee, referring to petition for admission of addition of grounds submitted that, alternatively the fair market value of the land received by the assessee in exchange of land held by others should be treated as cost for the purpose of computation of capital gains. Since, the appellant could not raise this alternate plea before the AO, he has filed a petition for admission of additional grounds and argued said :-13-: ITA. No:1596/Chny/2019 additional ground goes to the root of the matter of computing capital gains and further, all facts are on record. Therefore, additional grounds filed by the assessee may be admitted. In this regard, he relied upon following judicial precedence: (i) CIT vs Ashok Leyland Ltd [253 ITR 425 (Mad)] (ii) CIT vs Associated Stone Industries [224 ITR 560 (SC)] (iii) CIT vs M.K. Yashwant Singh [231 ITR 145 (Del)]
The Ld. DR, on the other hand supporting the order of the ld. CIT(A) submitted that, the assessee is not disputing applicability of provisions of section 2(47) of the Act for exchange of lands, and thus, once exchange of lands falls within the ambit of transfer as defined u/s. 2(14) of the Act, then computation of capital gains needs to be calculated in accordance with law. The AO has rightly computed capital gains by taking into account full value of consideration in terms of provisions of section 50C of the Act and their order should be upheld. As regards, petition filed by the assessee for admission of additional grounds, the DR submitted that additional grounds taken by the assessee are purely on facts :-14-: ITA. No:1596/Chny/2019 and no legal issue is involved. Therefore, petition filed by the assessee cannot be entertained.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. As regards computation of long term capital gains derived from transfer of land in exchange, we do not find any error in the reasons given by the AO as well as the Ld. CIT(A) for the simple reason that exchange also includes in the definition of transfer as defined u/s. 2(14) of the Act. Once, the impugned transfer or sale of land in exchange comes within the definition of transfer as defined u/s. 2(14) of the Act, then capital gains arising out of transfer of said land needs to be computed in accordance with law by taking into account full value of consideration. In this case, the assessee had computed capital loss by taking into account market value of land transferred by him in exchange of market value of land received from other persons, and computed capital loss. The AO has computed long term capital gains by taking into account full value of consideration accruing as a result of transfer by applying provisions of section 50C and has adopted :-15-: ITA. No:1596/Chny/2019 guideline value of the property as on the date of transfer. Further, the AO has allowed cost of acquisition in accordance with law and has arrived net capital gains in respect of both the properties. In our considered view, the method adopted by the AO is in accordance with law and does not called for any interference from our end. Hence, we uphold the computation of long term capital gains with regard to transfer of both the properties and reject argument taken by the Ld Counsel for the assessee.
As regards, petition filed by the assessee for admission of additional grounds, we find that the assessee has taken two grounds and argued that the lower authorities ought to have taken a market value of two properties received in exchange as part of the cost of acquisition in computing gains on sale of those two properties. First of all, we find that petition filed by the assessee for admission of additional grounds is not maintainable because, the assessee failed to make out a case that grounds taken by the assessee in the petition is legal issues, which can be taken at any time of proceedings including proceedings before the Tribunal. Secondly, the :-16-: ITA. No:1596/Chny/2019 assessee has also failed to make out the case that facts with regard to the issues are also on record before the AO and the AO has examined the same. Since, the additional grounds taken by the appellant is purely on question of fact, in our considered view, petition filed by the assessee is not maintainable. Moreover, if you go through grounds filed by the assessee on the issue of consideration of fair market value of land received in exchange as cost for the purpose of computation of capital gains, in our considered view, once the appellant has received certain lands, whether on account of purchase or exchange, the cost or fair market value of said lands will goes to increase the cost of acquisition of land when said land is transferred. Since, the appellant is in the business of purchase and sale of land, in our considered view, he is free to consider cost or fair market value of said lands as cost for the purpose of computation of capital gains as and when said lands has been transferred. But, fact remains that, there is no proof, that the assessee has transferred those lands in the impugned assessment year or in subsequent assessment years. Therefore, if at all the assessee claims fair market value of exchanged lands as cost of acquisition for :-17-: ITA. No:1596/Chny/2019 computation of capital gains, the AO is directed to deal with the claim of the assessee in accordance with law, wherever the issue arises. But, for this year, we reject petition filed by the assessee for admission of additional grounds.