D.C.I.T CIR - 1,KOLKATA, KOLKATA vs. M/S AVERY (INDIA) LTD, KOLKATA

O R D E R

Per Dr. Arjun Lal Saini, AM

Therefore, the consideration value of the property Rs.65,81,000/- cannot be regarded as the actual cost of the asset in the hand of the assessee since outgoing of assesee’s resource for acquisition of the asset is only the tenancy right, value of which is Rs.Nil. As a matter of fact assessee actually paid nothing other than Rates & Taxes and Stamp Duty to bring the asset into existence in its books of accounts. For the purpose of Capital Gain only the actual capital outgoing is to be considered but in assessee’s case this actual capital outgoing is zero except expenditures related to the acquisition of the assets. Accordingly, assessee’s claim of addition to the fixed assets following in the block building is disallowed to the extent of Rs.65,81,000/- and accordingly the AO treated short term capital gain under section 50 at Rs. 65,81,000/-.

The A.O, concluded that the value of property shown by the assessee as the actual cost can only be taken at nil as the assessee relinquished only tenancy right but did not spent any money for acquisition of the new property. But it is very much clear that the asset acquired by the assessee in Subhedhar apartment was not transferred free of cost by the developer but in lieu of surrender value of tenancy right held by the assessee in 'Homi House'. The new premises at 'Subhedhar Apartment' was acquired at a fair market value of Rs. 65,81,000/- in lieu of the amount that the assessee was supposed to receive as sale consideration on surrender of tenancy rights. The mere fact that the assessee instead of receiving the amount of sale consideration of Rs. 65,81,000/-, opted to receive the new premises at 'Subhedar Apartment' in exchange of tenancy right should not change the nature of transaction. The transaction is akin to a situation where the assessee would have opted to receive the sale consideration of Rs. 65,81,000/- on surrender of tenancy right and by a separate agreement would have utilized the same for acquisition of the apartment which would form cost of the apartment. The assessee computed a long term capital gain of Rs. 65,81,000/- on surrender of tenancy right wherein it duly considered the market value of flat acquired of Rs. 65,81,000/- as of Section 55(2)(a)(ii) of the Income Tax Act. The said market value of flat acquired becomes the cost of acquisition of flat acquired in exchange of surrender of tenancy right. As regard the contention of the Assessing officer, it is submitted that sub section 1 of Section 43 defines actual cost to mean actual cost of the asset reduced by that portion of cost thereof, if any, has been met directly or indirectly by any other person. In the instant case, the assessee surrendered tenancy right against which it was supposed to receive consideration of Rs. 65,81,000/-. The assessee in lieu of said consideration or in other words by payment of said consideration received new premises at 'Subhedhar Apartment'. Hence the cost of acquisition of the said apartment was nothing but what was receivable on surrender of tenancy right. Thus, there is definitely a cash outflow in the hands of assessee in acquiring the premises of apartment.

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the fair market value of the consideration given. It may be appropriate to consider also the fair market value of the asset acquired if this is more clearly evident. This way, the ld CIT(A) deleted the addition made by Assessing Officer.

1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred and is not justified in deleting the enhancement made on account of short term capital gain to the tune of Rs.65,81,000/-.

2. That the assessee craves leave to add, alter/or amend any of the grounds of appeal during the course of hearing.

AO, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the Ld. AR for the assessee has submitted before us that the AO merely erred in coming to the conclusion without correctly appreciating that the asset acquired by the assessee in Subhedhar apartment was not transferred free of cost by the developer but in lieu of surrender value of tenancy right held by the assessee in 'Homi House'. The Assessing Officer failed to appreciate that the new premises at 'Subhedhar Apartment' was acquired at a fair market value of Rs. 65,81,000/- in lieu of the amount that the assessee was supposed to receive as sale consideration on surrender of tenancy rights.

The mere fact that the assessee instead of receiving the amount of sale consideration of Rs. 65,81,000/-, opted to receive the new premises at 'Subhedar Apartment' in exchange of tenancy right should not change the nature of transaction. The transaction is akin to a situation where the assessee would have opted to receive the sale consideration of Rs. 65,81,000/- on surrender of tenancy right, but the assessee, by a separate agreement would have utilized the same for acquisition of the apartment (Subhedar Apartment), which would form cost of the apartment. The Ld. AR for the assessee also submitted that the assessee computed a long term capital gain of Rs. 65,81,000/- on surrender of tenancy right wherein it duly considered the market value of flat acquired of Rs. 65,81,000/- as surrender value of tenancy rights and the cost as Nil as per the provisions of Section 55(2)(a)(ii) of the Income Tax Act. The acquired in exchange of surrender of tenancy right. The ld. AR for the assessee also submitted that sub section 1 of Section 43 defines actual cost to mean actual cost of the asset reduced by that portion of cost thereof, if any, has been met directly or indirectly by any other person. In the instant case, the assessee surrendered tenancy right against which it was supposed to receive consideration of Rs. 65,81,000/-. The assessee in lieu of said consideration or in other words by payment of said consideration, received new premises at 'Subhedhar Apartment'. Hence the cost of acquisition of the said apartment was nothing but what was receivable on surrender of tenancy right. Thus, there is definitely a cash outflow in the hands of assessee in acquiring the premises of apartment.