DR ABHIJIT GHOSH,KOLKATA vs. ITO, WD-55(3), KOLKATA, KOLKATA

The captioned appeal filed by the Assessee, pertaining to Assessment Year 2010-11, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-6, Kolkata in Appeal No.142/CIT(A)-6/Kol/13-14, dated 29.01.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 26.03.2013.

That the assessee craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated here-in-above either before or at the time of hearing of the appeal.”

At the time of hearing the ld. Counsel for the assessee informed the Bench that assessee does not press Ground No.1(c), therefore, we dismiss the Ground No.1(c) as not pressed.

The brief facts qua the issue are that the assessee with his other three co- owners, during the FY 2009-10, sold his ancestral property, and as per copy of registered sale deed i) at 27A Shib Krishna Daw lane, P.S. Phoolbagan, Kolkata- 700054 measuring 43 cottahs of land with 10 very old (49 year) dilapidated asbestos shaded residential units measuring 14,100/-sq ft and, ii) at 27D Shib Krishna Daw Lane, Kolkata- 700054 measuring 2 cottahs of land with one old dilapidated semi- commercial asbestos shaded room measuring 1000/- sq. ft. The aforesaid property excluding the asbestos shaded construction was leased out to one Khirode Prasanna Tarafder on 27.08.1960 for a period of twenty years by Arabinda Nath Ghosh, the grandfather of the assessee. The ld AO noted that only land was leased out which was evident from page number 6 of the sale deed where it is stated that “All that the divided South Western portion of the piece and parcel of land situated at premises No. 27 Shib Krishno Daw Lane and Northern divided part of premises No. 30A Shib Krishna Daw Lane containing by measurement 2(two) Bighas be the same a little more or less and also at page 7 of the same deed which states ‘divided North Eastern portion of the piece or parcel of land……. by measurement 2 (two) cottahs'. The construction of the asbestos shaded residential or semi-commercial units were constructed by the leaseholder or his successors which is evident from page numbers 19, Schedule A and 20 Schedule B which state that the constructions were made by the confirming party or their predecessor, here the confirming parties, as per the deed of sale are Biplab Tarafder & others, the successors of the first lease holder Khirode Prasanna Tarafder. For this reason, that the construction on land as sated above was done by neither the assessee nor his ancestors. So, the assessee's claim of value of 3 Dr. Abhijit Ghosh Assessment Year: 2010-11 building as cost of acquisition in computation of long Term Capital Gains cannot be admitted.

The ld AO noted that the purchaser, M/s Penion Developers (P) Ltd, paid directly to confirming parties (Successors of the leaseholder Khirode Prasanna Tarafder since deceased ), Shri Biplab Tarafder & others Rs. 41,00,000/- separately for 'forever discharge and acquit and surrender their lease hold right'. It is to be noted that the leaseholders were occupying the property unauthorizedly and suit number 487/1981 was filed against them before the Learned 1st Civil Judge at Sealdah, which was not decided. But the assessee while computing the Long Term Capital Gains deducted Rs. 41,00,000/- from the Stamp Duty Valuation of Rs 3,46,64,309/-.

During the assessment proceedings, the assessee was asked to state under which provision of the Income Tax Act, l96l, the payment of Rs. 41,00,000/- had been deducted from the total sales consideration receipt. In reply, the assessee submitted a letter on 14.03.2013, but ld AO noted that assessee could not through any light regarding his claim of deduction of Rs 41,00,000/- from the sales consideration. He mentioned the sales deed and stated that the sale was executed by the vendor, the purchaser and the confirming parties and the total consideration of Rs.2,41,00,000/- and payment to confirming parties an amount of Rs 41,00,000/- were agreed upon by all the parties. But nothing found in the deed of sale that payment of Rs. 41,00,000/- to the confirming parties were agreed upon by the assessee. Actually, the vendors had no role in determination the quantum of payment to the confirming parties who decided the matter with the purchaser.

The ld AO then analyzed the provisions of Section 48 of the I.T. Act, (in the light of the above facts) which states that: “The income chargeable under the head "Capital Gains" shall be computed by deducting from the full value of consideration received or accruing as a result of transfer of the capital asset the following amounts namely: ‘expenditure incurred wholly and exclusively in connection with such transfer’. But the assessee with other members of the vendor did not incur the expenditure, the payment of Rs.41,00,000/- was made by the purchaser, M/s Penion

Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the order passed by the Assessing Officer. The ld. CIT(A) observed that lessee had received consideration for his tenancy rights and not in lieu of the asset. Hence, the deeming fiction could not be applied to the value of consideration received by him. The same principle is applicable to the sum of Rs.41 lacs received by the unauthorized occupants in the instant case. The amount had been paid to them only to obtain vacant possession of the property and was not relatable to any share in the asset transferred in the form of land and/or buildings. Therefore, the ld. CT(A) rejected the assessee’s prayer for 5 Dr. Abhijit Ghosh Assessment Year: 2010-11 reducing the proportionate amount of Rs.58,92,933/- from the total deemed value of consideration.

Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

The ld. Counsel for the assessee submitted before us that the sale deed was entered into between three parties. The first party being the assessee and other co- owners, the second party being the purchaser and the third party being the unauthorized occupants. Hence, the total consideration to be paid by the purchaser for purchase of the property was agreed upon among the co-owners including the assessee, the unauthorized occupants and the purchaser. The total consideration of the property sold was agreed at Rs.241 Lac. Out of the above consideration, a sum of Rs. 200 Lac was attributable to the share of the assessee and other co-owners of the property. The remaining amount of Rs.41 Lac. was paid to the unauthorized occupants. As such, each of the above parties was liable to pay tax in respect of the proportionate share of the total consideration received by them.

The ld Counsel stated that in the return of income, the assessee, while computing the deemed value of sale consideration for the purpose of calculating the capital gains arising from the sale of the property deducted the actual consideration received by the unauthorized occupants from the total stamp duty value of the property and thereafter paid capital gains tax on the proportionate share of the capital gains computed for each of the co owners. The Assessing Officer disallowed the same on the alleged ground that the assessee had not incurred the expenditure for payment to unauthorized occupant on the incorrect notion that the assessee had claimed the payment made to unauthorized occupant as deduction under section 48(1) of the Act. Before the Ld CIT(A), the assessee, while computing the deemed value of sale consideration for the purpose of calculating the capital gains arising from the sale of the property claimed, the proportionate stamp duty value of the consideration received by the unauthorized occupants to be deducted from the total stamp duty value of the property and thus requested the Ld. CIT(A) to compute capital gains tax on the proportionate share of the capital gains based on proportionate stamp duty value for each of the co-owners. The Ld CIT(A) rejected the said contention of the assessee, on the alleged ground that since the provisions of section 50C of the Act is not applicable to the unauthorized occupants, the aforesaid deduction of the proportionate share of the stamp duty value of the unauthorized occupants cannot be taken into consideration. Further, the Ld CIT(A) also confirmed the action of the AO in not giving the deduction of Rs. 41 Lac in arriving at the deemed value of consideration of the property on the alleged ground that there is no provision in section 50C of the Act to reduce the value of consideration of the property paid to unauthorized occupants in order to arrive the deemed value of consideration of the property.

The Counsel submitted that the co-owners including the assessee along with the unauthorized occupants were parties to the sale of the property. Though the title to 7 Dr. Abhijit Ghosh Assessment Year: 2010-11 the property was transferred by the assessee and other co-owners to the developer, the possession of the property was handed over by the unauthorized occupants to the purchaser in lieu of the consideration received for a sum of Rs. 41 Lac. Had the unauthorized occupants were not there then the assessee along with the other co- owners would have received the entire sale consideration agreed upon by the purchaser i.e. Rs.241 Lac. (if not more) for the sale of the property. In that case, there would have been no hesitation for the assessee to disclose the entire deemed consideration without any deduction corresponding to the value of the deemed consideration received by the unauthorized occupant for determining the value of capital gains of the property. In the instant case, since the actual consideration of the property of Rs. 241 Lac is being replaced by the deemed value of consideration under the provisions of section 50C of the Act amounting to Rs. 346 Lac. The counsel requested the Bench to accept the proportionate stamp duty value corresponding to the actual consideration received by the assessee from the sale of the property.

The ld Counsel made the alternative plea that there is no denying the fact that the market value of the property was higher only because the buyer got clear title of the property i.e. free from encumbrances. In other words, had the unauthorized occupants not surrendered the possession to the developer, the market value of the property would have been much lower and as such the deemed value of consideration would have been much lower than that disclosed in the return of income and then also there would have been no hesitation for the assessee to disclose the entire reduced deemed consideration for the purpose of determining the value of capital gains of the property. Hence it is abundantly clear that in the total deemed value of consideration of the property there was a share of the unauthorized occupants' being in proportion to the consideration received by them (i.e total deemed value of consideration × 41/241) and as such the same should be deducted from the total deemed value of consideration in order to compute the LTCG in the hands of the assessee.

We have given a careful consideration to the rival submissions and perused the materials available on record, we note that assessee had sold his ancestral property which was jointly owned by the assessee and other family members. The said property was sold by virtue of a tripartite agreement entered into by the assessee, three co-owners of the property and the persons who had pre-occupied the property, known as, ‘unauthorised occupants’ illegally with the developer. We note that the unauthorized occupants were occupying the property by virtue of a lease deed entered into by their predecessor with the ancestors of the assessee on 27.08.1960 for a period of 20 years. However, the said parties continued to be in possession of the property even after the expiry of the lease term without appropriate legal authority. The assessee and his co-owners had been attempting to evict the aforesaid persons for a long time but were unsuccessful in doing so. Further a suit was filed against the ‘unauthorised occupants’ before the 1st Judge at Sealdah Court which remained unresolved. Ultimately, the assessee and other family members decided to sale the property to a developer in order to reduce the litigation related expenses and as such the tripartite agreement was entered into by them. The total sale price of the property was fixed at Rs.2,41,00,000/-, out of that a sum of Rs.41,00,000/- was directly paid by the buyer (developer) to the ‘unauthorized occupants’ and balance of Rs. 2,00,00,000/- ( Rs.2,41,00,000- Rs.41,00,000) were received by the co-owners,( a sum of Rs.50,00,000/- each). Thereafter, the assessee filed the return of income and computed long term capital gain taking into account the stamp duty value U/s 50-C as deemed full value of consideration at Rs.3,46,64,309/- The computation of capital gain for A.Y. 2010-11 are given below:

We note that the first allegation of the Assessing Officer is that nothing found in the deed of sale that payment of Rs 41 lacs to the unauthorized occupants, were agreed upon by the assessee. We note that the sale deed was entered into among three parties, the first party being the assessee and other family members, the second party being the purchaser and the third party being the unauthorized occupants. The entire sale consideration was received by the assessee and other family members and the unauthorized occupants, and as such the allegation has no leg to stand and hence we do not agree with the assessing officer.

In the result, the appeal filed by the assessee is allowed.