THE COMMISSIONER OF INCOME TAX, vs. LATE SHRI N.P. ABRAHAM,

We are, in fact, of the opinion that the second question arises only if we do not agree with the computation arrived at by the Tribunal. In fact, earlier the assessment was completed under Section 143 of the Income Tax Act, 1961 [for brevity “the Act”]. Subsequently there was an assessment completed under Section 147 read with Section 143(3). Again there was a rectification application filed by the assessee on the basis of a certificate issued under Section 230A and an order was passed under Section 154. The said rectified order was set aside by the Commissioner under Section 263, remanding the matter for consideration by the Assessing Officer [for brevity “AO”]. The AO had, while making - 3 - computation, interfered with the value of the property as on 01.04.1981 and indexed cost arrived at for the purpose of computation of capital gains. There was also an interference to the sale value as projected by the assessee before the AO.

On facts, it has to be noticed that the assessee, along with one another, by name K.L.George, had ownership and possession of six grounds of property, three each. The total area of property possessed by the two persons was about 14,398 sq.ft. The assessee's share was 50%, which came to 7,199 sq.ft. In the assessee's portion of the property, there was a two-storeyed building. The assessee, along with K.L.George, entered into an agreement with a builder for developing the property and having a multi-storeyed construction thereon. The land owners, by the agreement as is extracted in Annexure-A assessment order, agreed to sell 38% of the property to the builder, the consideration of which was the handing over of 13,400 sq.ft. of the super built up area, inclusive of common area, to the land owners. Hence, the consideration was, on construction of the building, 62% of the constructed area would be handed over to the land owners, who also retained 62% undivided share of the land. 38% of the undivided share was agreed to be sold to the builder or his assignees.

There was a dispute with respect to the valuation of the property as on 01.04.1981, being the date prescribed under the IT Act for the purpose of determining capital gains. The assessee, in fact, had filed an application under Section 230A for sale of the property, wherein the value shown was Rs.8,69,250/-. The AO sought to cause interference to the same on the ground that in a wealth tax assessment in a subsequent assessment year the valuation was shown at a far lower value. We find that the Tribunal had accepted the cost indexation as carried out by the assessee on the basis of the value of the property determined and proffered in the application under Section 230A, which stood slightly revised at Rs.7,26,750/-. The AO relied on the wealth tax assessment as also a valuation proffered by the assessee itself from one M/s.K.V.Subramaniam & Associates, valuing the property at Rs.2,43,000/-, vide certificate dated 08.05.1987, in the year 1987. The Tribunal had looked at the evidence given in the paper book, being the value assigned to similarly situated properties, to affirm the market value prevailing in the locality. The Tribunal found it to be ranging from Rs.3.5 to 4 lakhs per ground and that in such circumstance, there was no warrant for taking the value as construed for wealth tax purposes. The Tribunal also accepted the contention of the - 5 - assessee that the value fixed for wealth tax purposes on the basis of rent capitalisation method is not always real. Based on the independent evidence produced by the assessee, the valuation of the property as declared by the assessee on 01.04.1981 was accepted by the Tribunal. We do not see any question of law arising from the said decision. If the value shown in the wealth tax assessment is lower; then the said proceedings should be revised, if not hit by limitation. There is no warrant for adoption of a lower price than the actual market value, when there is evidence for the actual value.

The further issue is as to the consideration with respect to the sale of 38% of the property. The assessee had ownership of half of the 38% sold to the builder. As noticed from the extract of the terms of the agreement in Annexure-A, the consideration was in the form of transfer of constructed area in the super built up area of 21,000 sq.ft. The assessee, being one of the land owners, was to be granted 31% of the total built up area, i.e., 6,700 sq.ft. The dispute is insofar as what is the value to be assigned to such built up area. The assessee made the valuation at the cost of construction, being Rs.374/- per sq.ft. The AO determined it at Rs.929/- per sq.ft., being the market value of the - 6 - constructed area in the locality.

The learned Senior Counsel, Government of India (Taxes) would canvass the position that the consideration has to be determined on the basis of the benefit accrued to the assessee, which can only be at the market value of the constructed area handed over to the assessee. The cost price is what is incurred by the builder and when the constructed area is handed over by the builder to the original land owners, the enuring benefit to the land owner is the market value of such constructed area; the value such constructed area would fetch if it is sold at that point of time.

We are unable to accept such a contention raised on the part of the Revenue. The agreement specifically shows that the consideration to the assessee is 31% of the built up area. What benefit accrues to the assessee is of no consequence. The builder only promised construction of a super built up area in a multi-storeyed complex and handing over of 31% of the area. The consideration which passed from the builder to the assessee is only the cost of construction. This was the specific agreement between the parties. We do not think that an artificial exercise can be carried out, by which the market value of the constructed area can be determined and the same computed as the sale consideration - 7 - which is not the specific terms of the agreement between the builder and the land owner. We need not look at whether the assessee kept the area assigned to him, for himself or sold it; which is irrelevant to determine the construction cost. We, hence, answer the first question of law with respect to computation in favour of the assessee and against the Revenue.

In the context of the said question having been answered in favour of the assessee and the net result of the returns being a capital loss, the issue of exemption under Section 54 or Section 54F does not at all arise. We refuse to answer the said question.