Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BENCH ‘C’, CHENNAI
Before: SHRI SANJAY ARORA & SHRI GEORGE MATHAN
आदेश /O R D E R
Per Sanjay Arora, AM:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-14, Chennai (‘CIT(A)’ for short) dated 20.03.2015, dismissing the assessee’s appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 23.12.2011 for the assessment year (AY) 2009-10.
The first issue arising in the present appeal is the disallowance u/s.14A, effected, applying r. 8D, in the sum of �. 14,53,751/-. The assessee objects thereto on several grounds. Firstly, no satisfaction, mandatory u/s. 14A(2), 2 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT stands recorded by the Assessing Officer (AO). The AO had wrongly included the investment in partnership firms at the investment therein as at the year-end, i.e., �. 2862.96 lacs, without realizing that the opening value thereof is nil, so that the average value of the investment in partnership firms held during the year would stand reduced by half. Again, inasmuch as interest in partnership firms is taxable, the same should in fact be excluded in reckoning the value of the investments yielding tax-free income. Further, as explained by the Hon'ble Court in Joint Investments Ltd. v. CIT [2015] 372 ITR 694 (Del), the disallowance (of expenditure) u/s. 14A cannot exceed the amount of tax-exempt income earned during the year.
We shall consider each of the objections. True, the AO, where the assessee claims a particular amount (which could be nil as well), with reference to its accounts, as having been incurred in relation to the tax-exempt income earned during the year – which in the present case is at �. 1,24,031/- (refer para 2 of the notes by the assessee), the AO cannot proceed to invoke r. 8D unless he is not satisfied with the correctness of the assessee’s claim (s. 14A(2) r/w s. 14A(3)). That is, it is incumbent on him to examine the assessee’s claim, also indicating as to why he is not satisfied therewith. This is the clear law in the matter, explained extensively by the Hon'ble Courts, as in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom), since approved by the Hon'ble Supreme Court in CA No.7020 of 2014 dated 08.05.2017. Reference in this regard may also be made to the decision in the case of AFL (P.) Ltd. v. Asst. CIT [2013] 28 ITR (Tribunal) 263 (Mum). The assessee in the present case has made a claim with reference to r. 8D, i.e., de hors its accounts. How, pray, the AO express his dissatisfaction with the assessee’s claim, which he is to before invoking r. 8D? The ld. AR would, on being so questioned by the Bench during hearing, contend that the same (working u/r. 8D) was submitted by the assessee without prejudice, and that he would produce the assesses’s letter per which the 3 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT said working was furnished. However, the same was not produced despite the matter being adjourned on three occasions after the date of the first hearing on 27.06.17, i.e., by the present constitution, before being finally heard on 04.07.2017. Further, if the same represented an alternate claim, what is the assessee’s original claim? No material exhibiting the same, much less any contention to that effect, has been led or stands made before any authority. The plea as to the non-satisfaction of the AO is clearly a bogey. The assessee’s second argument is fact based. The assessee’s balance-sheet as on 31.03.2009 is not before us. If the same reflects the investment in the partnership firms, as adopted, with that at its beginning, i.e., 31.03.2008, being nil, i.e., as claimed, the average investment (in the partnership firms) would work to 50% of that by the AO. Why, the assessee, where it is favourable to it, can also adopt a monthly average, beginning April, 2008. Coming, next, to the assessee’s claim of the investment in partnership firms being excluded as the interest arising thereon is taxable. The same is valid, i.e., in principle. However, the instrument of partnership/s is not on record to exhibit if there is a provision for interest on capital, which is assessable u/s.
In any case, no interest has been earned on the said investment/s, which would, where so, preclude disallowance of any direct or indirect interest cost u/s. 14A. In the present case, the disallowance is restricted only to indirect, administrative expenditure, estimated u/r. 8D(2)(iii). Inasmuch as the (share of) profit from the partnership firms is tax-exempt under Chapter III, i.e., does not form part of the total income of a partner, we find no reason to exclude the investment/s therein for working the disallowance u/s.14A(1), i.e., in respect of such expenditure. Finally, coming to the aspect of the decision in Joint Investments Pvt. Ltd. (supra), its’ head note, which represents truly the judgment, which stands also perused by us, reads as under: Income – computation – disallowance of expenditure on earning non-taxable income – disallowance only to extent of expenditure incurred by assessee in relation to tax exempt income – no reason for 4 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT disallowance of sum volunteered – no scrutiny of accounts – entire tax exempt income lower than disallowance – matter remanded – income-tax rules, 1962, r. 8D – Income-tax Act, 1961, s. 14A.’ How could, then, we wonder, it be said that the said decision lays down the proposition that the disallowance u/s. 14A could not exceed the tax-exempt income? The expenditure incurred in relation to the tax exempt income, which is to be therefore disallowed u/s. 14A, is essentially a matter of fact, as indeed is the nature and the extent expenditure incurred in relation to any income, taxable or non-taxable. Income, it needs to be appreciated, is, by definition, net of expenditure incurred in its respect. Inasmuch as, therefore, the tax exempt income, i.e., the income not forming part of the total income, would only be at net of expenditure incurred in relation thereto, the same is to be quantified and excluded. Else, the same would stand absorbed or set off against income forming part of the total income, also arising to the assessee during the relevant period. This, then, is the substance, objective and purport of sec. 14A, i.e., to arrive at the correct income chargeable to tax under the Act, as explained in many a decision by the Hon'ble Courts (CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1 (SC)). Reference in this context may also be drawn to the decisions inter alia in Dy. CIT v. Damani Estates & Finance Pvt. Ltd. [2013] 25 ITR (Trib) 683 (Mum); Voltech Engineers v. Dy. CIT [2017] 163 ITD 469 (Chennai); and Sundaram Fasteners Ltd. v. Asst. CIT (in ITA No. 874/Mds/2015 dated 17/4/2017). The expenditure, as incurred, and as in any other case, is to be determined on the basis of evidence. Where, however, the assessee’s books of account do not enable a reasonable and proper determination of such expenditure, being incurred along with and in the course of carrying on other activities yielding taxable income, the law, per s. 14A r/w r. 8D, provides a basis for its estimation. This expenditure incurred in relation to the tax exempt income, as indeed qua any other income, could thus be less 5 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT than, equal to, or even exceed the income (gross). Why, sec. 14A(3) itself provides for there being, in the facts of a particular case, no expenditure. There is conceptually no difference between positive, nil or negative income, i.e., loss; the last being where the expenditure exceeds the income (refer CIT v. Harprasad and Co. Pvt. Ltd. [1975] 99 ITR 118 (SC)). There is therefore no basis in law to say that the expenditure incurred and, therefore, its disallowance, cannot exceed the tax-exempt income, and neither has the Hon'ble Court in Joint Investments Pvt. Ltd. (supra) said so. It has, on the contrary, clarified that the disallowance u/s. 14A could not exceed the expenditure incurred in relation to the tax-exempt income. This is precisely what s. 14A prescribes and purports to, and is rather axiomatic. We say so as the disallowance of expenditure could not exceed the expenditure itself! The observation by the Hon'ble Court, as a reading of the decision suggests, warranted by the facts of the case, stated by way of abundant caution. In fact, r. 8D, as amended w.e.f. 02.06.2016, also carries the same caveat. The argument is accordingly inadmissible. The matter, for the purpose of verifying the assessee’s claim with regard to the correctness of the working under r. 8D(2)(iii), shall travel back to the file of AO, to be decided after allowing the assessee an opportunity to state its case in the matter per a speaking order. We decide accordingly.
The second and the principal issue arising in the instant appeal is the correct income chargeable to tax arising to the assessee on the sale of apartments allotted to it under a Joint Development Agreement (JDA) dated 15.12.2006, during the relevant year. The controversy, in the main, is with regard to the cost of the capital asset/s transferred. The facts in brief are that the assessee, an owner of 113.33 grounds (271992 sq.ft.) of land at 136, Arcot Road, Saligramam, Chennai (also referred to as the ‘Owner’), entered into a development agreement with Ceebros Property Development Private Limited on 6 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT 04.05.2005 for development of 102 grounds (244800 sq.ft.) of the said land, i.e., after gifting 11.33 grounds thereof to CMDA toward OSR. The land had built- up area of 55,004.81 sq.ft. (of which 45,598.22 sq.ft. was covered by asbestos sheet roofing) and 8942.59 sq.ft. by concrete roofing. The assessee, running a film studio and recording theatre (upto sometime in the year 2005) thereat was, accordingly, claiming depreciation in respect of the said building, a part (50%) of which is stated as having been let, so that depreciation was being claimed only on 50% of the building. Continuing further, as the superstructure had to be demolished (for the development of the property), the assessee applied for demolition immediately after executing the JDA dated 04/5/2005. Approval for construction of commercial/office/IT building comprising stilt plus 9 floors (in a portion of Schedule A land abutting Arcot Road), and for construction of four residential blocks of dwelling units (each block comprising stilt plus 9 floors) in the rear portion of Schedule A land, was obtained vide G.O. Ms No. 86 dated 20/3/2006. Subsequently, cancelling the agreement dated 04.05.2005, a fresh JDA was entered into by the assessee with Ceebros Property Development (‘Ceebros’ or ‘Developer’ hereinafter), a proprietary concern, on 15/12/2006. This was followed by a power of attorney (POA) in favour of the Developer on 18/12/2006. The principal term of the agreement is that the assessee is to retain 51% of the land, while the balance 49% would fall to the share of the Developer, in consideration for a defined share in the built-up area, i.e., 51% of the total super built area (i.e., including common area), and after reducing 17,500 sq.ft. to the Developer in the residential blocks from out of the total built-up area. The distribution of area stands are presented as under in the agreement: (PB pg. 76, para 2.5 of the impugned order) OWNERS 2,61,385 Sq.ft Entire commercial/ office/I.T. building 1,01,120 Sq.ft 75 apartments in all 4 3,62,505 Sq.ft blocks of residential units While the assessee returned capital gain on the transfer of 49% of land in the year relevant to assessment year 2007-08, for the current year, the capital gains arising to the assessee is on the sale of the built-up area i.e., as constructed and allotted to it under the JDA. There is no dispute qua the sale consideration, which has been adopted with reference to s. 50C of the Act. The bone of contention between the parties is with regard to the cost of the capital asset transferred. While the assessee claims the cost of the since demolished building (at �. 33.97 per sq. ft.), as a part of the cost of the capital asset transferred ( at a total of �. 61.74 per sq. ft.), as for AY 2007-08, the Revenue insists that it is only the cost of the land (i.e., �. 27.77 per sq. ft., being its fair market value as on 1/4/1981) that is to be taken into account, as it is land alone on which the superstructure is to be constructed, and is therefore transferred. Both the costs, i.e., �. 27.77 per sq. ft. and �. 33.97 per sq. ft., it may be noted, are prior to indexation. Two, the built-up area in the form of apartments (6) sold (during the year) is a short-term capital gain, which, though has not been disturbed, and assessed at the returned sum of �. 377.78 lacs. It stands further added that the cost of the building as taken by the assessee, the whole of which is indexed with reference to 01.04.1981, includes building (to the extent of �. 51.33 lacs, out of the total cost of building at �. 83.14 lacs) constructed in the year 2002, so that even where the cost of the same is to be included, i.e., by regarding it as a part of the capital asset/s sold/transferred, the same would stand to be indexed with reference to that year (2002), i.e., at 582/426 (and 519/426 for AY 2007-08), as against 582/100 (and 519/100 for AY 2007-08). No impact of the same though is required as the cost of the existing building has not been taken into account, regarding it as not transferred, so that the question of its indexation does not 8 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT arise (pg. 12 of the assessment order). We may in this regard, for the sake of more clarity, also reproduce the operating part of the impugned order, which endorses the assessment, as under:
6. The Decision: 6.1 A perusal of the agreement for sale of flats to individual buyers reveals that in all these cases what was transferred was the constructed area and undivided share of land as could be seen from the relevant schedules to the agreements. Thus the assessee's action in claiming the indexed cost of the building by way of deduction from the sale consideration to arrive at the capital gains is not correct. 6.2 The land is one capital asset transferred by the appellant and the flats allotted to it in consideration for the transfer of land constitute a different capital asset for the appellant. It is not a conversion or an asset from one form to the other. In the instant case, it is not in dispute that the land held by the appellant was its capital asset. It cannot also be disputed that flats acquired it were also its capital assets. The acquisition of the new asset came to it by way of consideration for transfer of earlier asset, as per s. 2(47) of the Act constituting altogether a new transaction. As per the development agreement appellant has no claim over the land which has been given to the developer. Accordingly, it is held that transfer of land in consideration of the flats constitute one transaction giving rise to capital gains and the sale of flats by the assessee constitute another transaction giving rise to capital gains. [DR. MAYA SHENOY vs. ACIT (2009) 124 TTJ (Hyd) 692:(2009) 23 DTR 140 followed]. 6.3 The authorized representative vehemently argued relied on the assessment for AY 2007-08 made u/s 143(3)/263. In this, Assessing Officer admitted the cost of acquisition @ 6l.74 per sq.ft. By adopting such value he held that cost of acquisition is to include both the land and superstructure thereon. He cited extracts of the joint development agreement in order to prove this fact. At the cost of repetition I am reproducing the same again here. "Joint development agreement was entered between M/s Shyamala Pictures Limited and M/s Ceebros Property development. In Page No.2 of JDA it was mentioned that the "owners herein are the absolute owners of the land of an extent of 6.55 Acres or thereabouts (or 118.88 grounds) and the superstructures 9 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT standing thereon bearing Door No.136, Arcot Road, Saligramam, Chennai 93. In page No.4 of the JDA mentioned that the total land owned by the owners herein namely 6.55 Acres or thereabouts (or 118.88 grounds) and the superstructures standing thereon bearing Door No.136, Arcot Road, Saligraam, Chennai 93. In Page No.19 of JDA in SCHEDULE OF PROPERTY "A" it was mentioned that all that piece of parcel of land of an extent of 6.55 Acres (118.88 grounds) or thereabouts and the superstructures standing thereon bearing Door No.136, Arcot Road, Saligramam, Chennai 93." 6.4 Thus when there is transfer between the land owner i.e. the appellant and the developer it is categorically mentioned that the transferred property constituted land and the superstructure thereon. Hence the AO come to conclusion that cost of acquisition to be taken @ 6l.74 sq.ft. But in the present situation, we are not concerned with the transfer of land to developer for development. At present, there is transfer of constructed space along with undivided share of land. The perspective buyers of flats have no connection with super code superstructure. In the above mentioned paragraph I have already mentioned there is two transactions, one with the joint development agreement another with outright sale. In the second scenario, the cost of acquisition will be limited to land only. Thus the AO is justified in taking the value of cost of acquisition at Rs.27.77.
6.5 During the appellate proceedings, the Authorized Representative relied on the decision made in the case of Smt. Sowcar Janaki Vs. ITO (ITA No.615/Mds/2012). But the said case deal with transfer of land for development where the indexation benefit for building was given. But the present case is different and is dealing with second leg of transfer.
6.6 The existing superstructure was demolished by the joint development agreement and the possession was transferred to the developer. Several flats were constructed and some of them were transferred to appellant as consideration. Subsequently, some of the flats were sold along with undivided share of land. Thus, what was not transferred cannot have the benefit of indexation. Hence the fair market value of land as on 01.04.1981 alone is eligible for deduction by way of cost after due indexation. The fair market value of the land as per valuer's certificate is Rs.67,99,800/-. If the same is divided by 24,480 sq.ft., the cost per sq.ft works out to 10 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT Rs.27.77. The cost alone is the eligible for indexation. Thus, the grounds no.2 to 13 as set out in grounds of appeal are dismissed.
6.7 There is another point which is relevant and the AO also has mentioned in the assessment order. A perusal of the computation of capital gains given by the assessee reveals that while taking into account the value of the building the assessee has indexed the cost of the building as on 1/4/1981 but out of the building value of Rs.83,14,332/- a sum of Rs.51,33,401/- represents depreciated value of the cost of construction added to the existing structure constructed during the year 2002. The assessee has also included the building constructed during the year 2002 in the cost indexation as on 1/4/1981 for the entire building. The base year for the addition made in the year 2002, should be 2002 (i.e. the year of construction) and not 1/4/1981 for the above said additional construction. This portion of the cost amounting to Rs. 51,33,401 has been indexed at 519/100 instead of 519/426 for assessment year 2007-08 and at 582/100 instaed of 582/426 for assessment year 2009-10 the year under consideration. To this extent the assessee has claimed excess cost. Since the cost of the building has been excluded in its entirety in the cost of the property being transferred, this issue is not being raised at this point of time.’
We have heard the parties, and perused the material on record. We may, to begin with, simplistically though – for the land falling to the share of the assessee-owner and the developer may not be contiguous, as drawn, for the sake of better comprehension, seek to graphically represent/exhibit the transaction, as under:
‘A/O’ ‘D’ 51% 49% A/O => the assessee/owner D => Developer For AY 2007-08, the assessee transferred 49% interest in the land in consideration for the built-up area on the balance (51%) of the land. For the 11 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT current year, it is the built-up area on his (part of the) land that is being transferred. Clearly, the same consists of the built-up area, received in consideration for the transfer of 49% of land, and the land area proportionate to the area sold (spread over Schedules B, E, F & H of the JDA). This is as when any built-up area is sold on freehold basis, the title in the proportionate land area also gets transferred along-with. There is in fact no dispute or doubt with regard to this. Again, this will have to be worked out on the basis of super built area, i.e., including common area and, further, also take into account car park area, if any, also sold along with. The land and the built-up area, sold together, in the form of an apartment (as in the case at hand), are two different capital assets inasmuch as land and building thereon are two separate assets. This principle stands laid down by the Apex Court in CIT v. Alps Theatre [1967] 65 ITR 379 (SC). A perusal of the said judgment reveals both the decision as well as its’ basis, i.e., the reason/s informing the same. What is subject to depreciation, an accounting concept, recognized by law, is an allowance for wear and tear, so that the real income can be brought to tax. The land, or the situs of the building, is not subject to depreciation, which is confined only to the superstructure, so that ‘building’ under the Act refers thereto. The Hon’ble Court examined the matter from the stand point of both, the concept of depreciation as well as the context in which the word ‘building’ is used in the Act. The matter is in fact well settled, having been followed by different High Courts in different fact settings (as, inter alia, in CIT vs. Citibank N. A. [2003] 261 ITR 570 (Bom); CIT vs. Parthas Trust [2001] 249 ITR 120 (Ker); CIT v. Dr. D.L. Ramachandra Rao [1999] 236 ITR 51 (Mad); CIT vs. Vimal Chand Golecha [1993] 201 ITR 442 (Raj)), and also applied by the tribunal in many a case (viz. Asst. CIT v. Eagle Burgmann Inds. (P.) Ltd. (in ITA No.4249/Mum/2012 dated 08/4/2015). Further, the land, being owned by the assessee since prior to 01.04.1981, shall be a long-term capital asset (LTCA) on the deemed cost of which (i.e., the fair market value as on 01.04.1981) indexation would apply. The built-up area, 12 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT inasmuch as its holding period is clearly less than 36 months, would be a short- term capital asset (STCA) and, therefore, no indexation on its cost, thus, available. This, then, shall give rise to the question of determination of the extent of long-term capital gain (LTCG) arising on the sale of land and short- term capital gain (STCG) on the transfer of the built-up area. Though, normally, one would, in the absence of any other indicator, seek to apportion the sale value in the ratio of the cost or, as the case may be, indexed cost of acquisition, of the two capital asset/s sold/transferred compositely for a single consideration, in the present case, inasmuch as the same has not been deliberated at any stage, including before us, we consider it proper that this be adjudicated by the AO upon considering all the relevant aspects and, of course, after allowing the assessee an opportunity to state its case on apportionment of the sale value as between land and the built-up area. We may though add that inasmuch as s. 50C is applicable, regard for which has to be necessarily made, the guideline value under the Stamp Act (i.e., of the (vacant) land and the built-up structure (from which, therefore, that sans the land component could be derived), where and to the extent applicable, should serve as a valid, legal basis for apportionment of the sale consideration. The issue in principle is squarely covered by the decision in Dr. D.L.Ramachandra Rao (supra) by the Hon'ble jurisdictional High Court, as well as the decisions by the Bombay and Rajasthan High Courts cited supra. We, next, come to the aspect of the cost of acquisition. As afore-stated, what stands transferred by the assessee (to the buyers of the apartments) is land and the superstructure thereon. It is the cost of these two capital assets alone that is, therefore, relevant, and is to be taken into account for the purpose of determining the nature and quantum of the capital gains arising to the assessee. We have already explained that land and building thereon, which form an integrated unit in-as-much as no building can exist without land, and which was in fact the argument that found favour with both the tribunal and Hon'ble High Court in Alps Theatre’s case (supra), are yet separate assets. Land, it needs to be 13 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT appreciated, despite forming part of the composite unit, does not merge with the building, and retains its independent identity. It is for this reason that, as has been witnessed for centuries now, buildings or other structures keep coming up on the same land. These aspects stand also considered and highlighted by the ld. CIT(A) vide para 6 (i.e., sub paras 6.1 through 6.6) of his order, stating it to be not a case of conversion of an asset into another, and of it being the second leg of the transfer. The decisions in the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC) and Smt. Sowcar Janaki v. ITO [2014] 160 TTJ 747 (Chennai), relied upon by the assessee, do not advance its case in any manner. The very fact that the two – the land and the superstructure thereon, are separate assets, sold as a composite unit, and the superstructure – a part of the unit transferred, could not come into existence without removing the encumbrance of the existing structure (since demolished, and necessarily so), makes even the ‘suggestion’ of taking the ‘cost’ of the existing structure into account, bizarre, besides being inconsistent with and removed from the facts. That is, the same is only to be stated to be rejected. Now, the cost of the land component would be the same, i.e., at �. 27.77 per sq.ft., being the fair market value as on 01.04.1981, which shall be subject to indexation. The cost of the built-up structure would, again, be the same, i.e., its value as adopted for reckoning the sale consideration of the land (and built-up area) transferred to the Developer (49%) in computing the capital gain on the said transfer (for AY 2007-08). This is as the same (built-up structure) stands acquired in lieu, or by way of exchange, of all the assets transferred during the previous year relevant to AY 2007-08. As we see it, the transfer being one to which s. 50C is applicable, it is the guideline value under Stamp Act (as on the date of transfer) of the assets transferred during the relevant previous year (to AY 2007-08), that shall define the sale consideration thereof. In any case, its value gets crystallized. Being a matter pertaining to, and which stands concluded in, that year, we are disinclined to embark on the merits of the said 14 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT value. Again, no doubt, for AY 2007-08, the cost of the assets transferred included both land and the existing structure thereon. However, the cost would only follow what has been regarded as transferred. For the current year, we have, on an examination of the transaction, found no basis to hold that the existing structure, which is agreed to be demolished by the contracting parties; rather, is essentially to be so for the agreement to take effect, could be regarded as an asset transferred, for its cost to be included as part of the assets transferred, i.e., in addition to the cost of the land transferred. The matter is essentially factual. In fact, the two situations are different, and the two scenarios cannot be regarded as at par, even as emphasized by the ld. CIT(A) (refer para 6.4 of his order). In as much as the developer stands to realize some value from the structure to be demolished, even though the same may perhaps be less than the cost of demolition, it is possible to contend that what the assessee has transferred is land and superstructure thereon to the developer, who has, for his own interest, risk and option, decided to demolish the structure thereon. This clearly overlooks the fact of one, composite agreement, and of the developer undertaking development there-under. The moot point, however, is that the same cannot be said for the part falling to the share of the assessee (51% of land) and structure thereon. The demolition of this structure, even if undertaken by the developer, is for and on behalf of the assessee. That is, in contradistinction to the transfer for AY 2007-08, allowing possession and dominion of the land (49%) and the structure thereon to the developer, the transfer for the current year is in relation to that retained by the assessee. There is no transfer of the land retained or the structure thereon to the developer, and the only transfer is of the built-up area, in the form of the apartments, comprising building and the proportionate interest in land. There is, accordingly, no basis and, therefore, no reason for the cost of the existing structure on land, to be and since demolished for the development of land, as forming part of the assets, i.e., apartments, transferred to the buyers thereof, for 15 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT its cost to be taken into account in reckoning the capital gains on the said transfer. Finally, our order being appealable, we may also consider the aspect of a part of the existing superstructure (building) being a depreciable asset, so that the provision of s.50 shall become applicable. This may assume relevance in case our decision does not find acceptance (in whole or in part) by the Hon'ble High Court in further appeal, so that the cost of the existing structure shall have to be taken into account in reckoning the LTCG on sale of (proportionate) land, i.e., on the sale of apartments (new structure built on the land). The assessee has in this regard referred to the statement of taxable income for AY 2003-04 (PB pg. 142); AY 2004-05 (PB pg. 145); and AY 2005-06 (PB pg. 146), claiming depreciation on building at 50% of the amount otherwise exigible. If, as claimed, this is on account of only 50% of the building being put-to-use for the purpose of the business, only that part of the building would qualify as a business asset, and shall constitute, irrespective of the treatment in the accounts, a separate block of assets for the purpose of s. 43(6), and to which the provision of s. 50 shall apply. However, it needs also to be ensured that depreciation at full rate has not been claimed at any stage earlier (or even later, i.e., for AY 2006-07), as that would alter the amount to be regarded as a separate block of assets which is subject to s.
The second aspect of the matter is in respect of the addition to the building during the year 2002, so that, to the extent it does not form part of the block of assets and, thus, is not subject to s. 50, indexation would apply with reference to the year ‘2002’ as the base year. Before parting, we may, lest we be construed as having, in any manner, travelled outside the scope of this appeal, refer to the decision in CIT v. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC), clarifying that the tribunal is to deal with and determine all the questions which arise out of the subject matter of appeal, in light of the evidence and consistently with the justice of the case. Reliance is also placed, inter alia, on the following decisions with regard 16 ITA No.1185/Mds/2015 (AY 2009-10) Shyamala Pictures And Hotel Pvt. Ltd. v. Dy. CIT to the nature and scope of the duty and power of the tribunal/appellate authority: Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC); Hukumchand Mills Ltd v. CIT [1967] 63 ITR 232 (SC); CIT v. C.C.C. Holdings [2003] 260 ITR 433 (Mad); CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705 (Mad); Thanthi Trust v. Asst. CIT [1999] 238 ITR 117 (Mad); Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351(Bom-FB); Controller of Estate Duty v. R.Brahadeeswaran [1987] 163 ITR 680 (Mad); CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj-FB).
In the result, the assessee’s appeal is partly allowed for statistical purposes. Order pronounced on September 27, 2017 at Chennai.