SARITA BHOTIKA,KOLKATA vs. ITO, WARD - 7(2), KOLKATA , KOLKATA

आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2011-12 arises against the Commissioner of Income Tax (Appeals)-3, Kolkata’s dated 16.11.2017, passed in case No.1443/CIT(A)-3/Wardd 7(2)/Kol/14-15, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file /the assessee’s detailed paper book running into 140 pages comprising of written submissions before the ITO, the CIT(A), purchased deed dated 17.02.1994, sale deed dated 10.05.2010, copies of inspection letter, mutation certificate and case law; stand perused.

ITA No.115/Kol/2018 A.Y.2011-12 Sarita Bhotika Vs. ITO Wd-7(2), Kol. Page 2 2. It emerges during the course of hearing that the assessee’s pleadings her concise grounds of appeal raise the sole substantive issue of correctness of long term capital gains addition amounting to ₹15,43,807/- made in the course of assessment and affirmed in the lower appellate proceedings. Both the learned representatives takes us to CIT(A)’s detailed discussions reading as under:- “3. Decision: The only issue in this case is the Long Term capital gains assessed by the AO ofRs.15,43,807/- on account of sale of land. It is contended by the A/R of the appellant that the land, when purchased was an agricultural land, and hence capital gains tax should not be levied in this case. Further, it is submitted that the condition of the land, over a long period of time, has improved by various external factors after acquisition. Therefore, capital gain tax is not chargeable in this case. It is further contended that as land has improved due to external factors, the cost of improvement cannot be ascertained and hence capital gain tax should not be levied. The other argument given is that the land was an agricultural land even at the time of transfer. Mere extension of Municipal limit does not change the character of the land and hence it should not be charged to tax. The basic facts of the case are that the assessee is the co-owner of land, the specification of which are as under:- " CS Dag No.5549, RS/LR Dag no 3541, CS Khatian No 280,R S Khatian no.222,L R Khatian no.1175,1176,1177,1178,179,1180 etc., lying and situated at Mouza Krishnapur, Pargana Kalikata, PS Rajarhat now Baguihati ADS RO Bidhannagar, Salt Lake City, within the local limit of Rajarhat Gopalpur Municipality in Ward No.34 in the District North 24 Parganas." The land admeasuring 2 cottahs 9 chataks was purchased by M/s Asha Real Estates & Developers Private Limited from the appellant vide conveyance deed dated 24.06.2010. The appellant was paid a sum of Rs.18lakhs vide draft number 109539 dated 30.04.2010 drawn in favour of Punjab & Sind Bank. The cost of acquisition of the said plot of land was Rs.87,920/- as on 17.02.1994. Sale consideration of Rs.18 lakhs is not disputed. The total cost of acquisition of Rs.87,920/- is not also disputed. The contention of the appellant is that when the land was purchased it was agricultural land and hence it should not be subjected to tax. In this regard, the AO collected information u/s.133(6) from the Chairman of Rajarhat Gopalpur Municipality regarding the nature of land. In reply it was reported that the said piece of land was situated in Ward No. 34 within the Municipal limit of Rajarhat Gopalpur Municipality. This fact has also been admitted by the appellant in his written submissions and it has been stated that the land when purchased was in Krishnapur Gram Panchayat and was a rural land. However, the same falls in the municipal area of Rajarhat Gopalpur Municipality and can be categorized as urban land as on the date of sale. Urban land falling within the municipal limit of Rajarhat Gopalpur Municipality would definitely be subject to capital gains tax. As regards cost of improvement it has been admitted that no direct expenditure has been incurred by the appellant for improvement of the land. Therefore, the AO has rightly granted

ITA No.115/Kol/2018 A.Y.2011-12 Sarita Bhotika Vs. ITO Wd-7(2), Kol. Page 3 indexation on the cost of purchase of land for the purposes of computing capital gains. The only contention of the appellant is that the value of land has appreciated because of the improvement of the external environment of the land and hence not chargeable to Capital Gains tax. In this regard, my observation is that the appreciation in the value of land occurs mostly because of improvement of external factors like development of the locality, construction of schools, colleges and hospitals in nearby areas, deployment of the market condition etc..so appreciation in the value of land due to improvement of the locality has to be taxed under the head 'capital gains' only. In this case, there is no doubt that the land sold is an urban land. The fact that it was agricultural land at the time of purchase has no material bearing. The appellant has also received sale consideration of Rs.18 lakhs. The AO has granted indexation on account of long term holding of the asset. Therefore, the contention of the appellant that the value of the land has increased because of the improvement of the external environment should not be brought to capital gain tax is not acceptable. The last legal argument taken by the assessee is as follows:- "When law requires deduction of indexed cost of improvement, it is clear that cost of improvement has to be ascertained, computed and indexed with cost of inflation index to allow requisite deduction. When there is improvement but cost of improvement is nil, it cannot be indexed with cost inflation index, so the provision for computation fails and therefore, charging provision also fails. " From the perusal of the above, it can be seen that the assessee has argued that in this case as the cost of improvement cannot be ascertained the charging provisions for computation of capital gains tax would fail and therefore the charging section would also fail. In this regard, the appellant has relied on various case laws. It is pertinent to point out that the cost of improvement has been defined in the Act, w.e.f 01.04.1988, u/s.55(1)(b) which reads as follows:- (b) 'cost of improvement"- (1) In relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process any article or thing][or right to carry on any business} shall be taken to be nil; and (2) in relation to any other capital asset, -] i) where the capital asset became the property of the previous owner or the assessee before the [1st day of April.[1981] means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alternations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in [sub-section (1) of] section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head "Interest on securities", "Income from house property".

ITA No.115/Kol/2018 A.Y.2011-12 Sarita Bhotika Vs. ITO Wd-7(2), Kol. Page 4 "Profits and gains of business or profession," or "Income from other sources ", and the expression "improvement" shall be construed accordingly." On perusal of the above, it has been specifically laid out that cost of improvement constitutes all direct expenditure of capital nature made by the assessee for making addition or alteration to the capital asset. In this case, it is admitted fact that no direct expenditure has been made by the appellant for any kind of improvement for the capital asset. Accordingly, the AO has rightly taken the cost of improvement as Nil. In this case, there is no dispute regarding the cost of acquisition of the asset Rs.Rs.87,920/-. Therefore, it is seen in this case that both the cost of acquisition and cost of improvement has rightly been determined by the AO. Hence, the charging provision does not fall in this case and capital gains has been correctly computed. Case Laws quoted by the assessee: a) B.C. Srinivasa Setty ([1981] 128 ITR 294 (SC) This case law is regarding capital gain on transfer of goodwill of a firm and pertaining to A. Y r.1966-67. As the law stood then, goodwill- was a self acquired asset whose cost of acquisition could not be determined and consequently not chargeable to Capital Gains tax. However, amendment has been brought to the Act w.e.f 01.04.l988 and the definition of cost of improvement and cost of acquisition has been inserted in the Act. Therefore, this case law does not hold good any more. b) Jaswantlal Dayabhai 1978(4) TMI 91-MADHYA PRADESH HIGH COURT [1978] 114 ITR 798, 1978 CTR 208. The relevant A.Yr.1962-63. The issue is once again taxability of capital gain on transfer of goodwill. The issue being that creation of goodwill does not cost anything and hence self-generated goodwill cannot be brought to tax. In view of the amendment, this law does not hold good. c) Suman Tea & Plywood Industries (P) Ltd.1991(3) TMI 189-ITAT CALCUITA-E The issue was capital gain on sale of timber which was self- generating asset. The facts of this case are different from facts in the case of the appellant in the impugned year of appeal. In the case of appellant the issue is capital gains arising on sale of land. However, in the case of Suman Tea(supra) the issue before the Hon'ble Tribunal was capital gains on sale of timber which is a self generating asset. d) Home Industries And Co. 1977 (2) TMI 24-BOMBAY HIGH COURT. This case again pertains to A.Yr.1960-61 and is regarding transfer of goodwill and is not applicable to the facts of the case. Assessee has relied on various case laws on the issue of self generating assets not chargeable to tax pertaining to the period prior to insertion of section 55-which now defines cost of acquisition and cost of improvement. In view of the provisions of section 55 the AO has rightly taken the cost of improvement at NIL. Moreover, the

ITA No.115/Kol/2018 A.Y.2011-12 Sarita Bhotika Vs. ITO Wd-7(2), Kol. Page 5 appellant has also admitted that no expenditure was incurred for improvement of the land. In view of the above, I do not see any error in the calculation of capital gains made by the AO. Accordingly, the appeal of the assessee on this issue is hereby dismissed.” 3. Learned authorized representative vehemently contends during the course of hearing that both the lower authorities ought to have considered the fact that the assessee had admittedly purchased the impugned capital assets as agricultural land way back in the year 1994 going by the purchased deed dated 17.02.1994 forming part of case records in pages 16 to 21. That the land falls within the specified distance of the nearest municipal limits as prescribed in sec. 2(14 (iii)(b) of the Act is also not an issue. His only case is that the assessee deserves the relief of cost of improvement in computation of her long term capital gains which has been declined by the Assessing Officer as well as CIT(A) in above extracted reasoning. Learned counsel seeks to buttress the claim that with the passage of time and on account of conversion of agricultural land from the time of purchase in 1994 to the sale deed in issue executed on 10.05.2010, the assessee must have incurred some expenses as cost of improvement allowable u/.48(ii) of the Act. He lastly avers on that rejection of the assessee’s cost of improvement claim renders the entire computation of capital gains as nil in view of various judicial precedents discussed in CIT(A)’s order under challenge (supra).

ITA No.115/Kol/2018 A.Y.2011-12 Sarita Bhotika Vs. ITO Wd-7(2), Kol. Page 6 submissions. We accept the Revenue’s arguments in this peculiar factual backdrop and affirm the CIT(A)’s detailed discussion that the Assessing Officer had rightly made the impugned long term capital gains addition after distinguishing the assessee’s case law quoted in the lower appellate proceedings (supra). We see no illegality or irregularity in the CIT(A)’s action distinguishing the same on facts. The assessee fails in her sole substantive grievance. This assessee’s appeal is dismissed. 5. Order pronounced in open court on 27/11/2019 Sd/- Sd/- (उपा य!) (#या$यक सद'य) (P.M.Jagtap) (S.S.Godara) Vice President Judicial Member *Dkp-Sr.PS (दनांकः- 27/11/2019 कोलकाता / Kolkata आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Sarita Bhotika, 26, Prince Anware Shah Road, Merlin Residency, Flat No.7H, Kolkata-33 2. ��यथ�/Respondent-ITO Wd-7(2), Aayakar Bhawan, P-7, Chowringhee Sq. Kol-69 3. संबं+धत आयकर आयु.त / Concerned CIT 4. आयकर आयु.त- अपील / CIT (A) 5. /वभागीय �$त$न+ध, आयकर अपील�य अ+धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड3 फाइल / Guard file. By order/आदेश से, /True Copy/ सहायक पंजीकार आयकर अपील�य अ+धकरण, कोलकाता ।