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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 4, Chennai, dated 30.10.2015 and pertains to assessment year 2005-06.
Sh. N. Devanathan, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is with regard to computation of capital gain and disallowance of exemption under Section 54 / 54F of the Income-tax Act, 1961 (in short 'the Act').
The Ld.counsel submitted that the assessee entered into a development agreement for construction of building with M/s Bala Abirami Builders & Developers (P) Ltd. on 04.03.2004. According to the Ld. counsel, the assessee owned 4664 sq.ft. of land at door No.18, I Cross Street, Lake Area, Nungambakkam, Chennai. Out of this 4664 sq.ft. of land, 4081 sq.ft. of land was handed over to the builder for a total consideration of `70,00,000/- and cost of the flat measuring 1300 sq.ft. in the first floor with car park to the extent of `24,70,000/- to be constructed by the builder. According to the Ld. counsel, so as to enable the developer to construct the building, the assessee had to demolish the existing building. Since the existing building had to be demolished, the developer / builder agreed to pay `6500/- per month as compensation for rent to the assessee till handing over of the flat as agreed to the assessee.
The Ld.counsel further submitted that the property was, in fact, inherited by the assessee from his father Shri S.
Lakshminarasimhan through a will dated 19.03.1979. Therefore, the cost of the land for the purpose of computation of capital gain has to be taken as cost of the property to the previous owner, namely, the assessee’s father. The assessee has claimed the cost of the land at `101.66 per sq.ft. and `150 per sq.ft. for the building.
The Assessing Officer disallowed the claim of the assessee on the basis of so-called guideline value said to be received from Sub Registrar. The Assessing Officer computed the cost of the land at `37,381/-. The Assessing Officer, however, refused to take the cost of the building on the ground that the assessee was required to sell only the undivided share of 4081 sq.ft. of land and the whole building which was existing had to be necessarily demolished. Accordingly, the Assessing Officer found that the assessee is not eligible for deduction under Section 54 of the Act. The Assessing Officer also disallowed `28,20,000/- claimed by the assessee under Section 54 of the Act. In the revised computation, the assessee has also claimed `3,50,000/- as investment made in the new flat over and above `24,70,000/- mentioned in the agreement. This claim of `3,50,000/- was rejected by the Assessing Officer on the ground that it is afterthought. According to the Ld. counsel, the cost of the land and building has to be taken on the basis of market value and not on the basis of guideline value. According to the Ld. counsel, the guideline value is only to guide the Sub Registrar to determine the market value of the property and the Sub Registrar’s guideline value cannot be considered to be market value. At the best, the guideline value may be one of the factors to be considered for the purpose of determining the market value of the property.
Referring to the rent received to the extent of `6500/- per 4. month, the Ld.counsel submitted that the rent was received to compensate the assessee since the existing house needs to be demolished. Therefore, it cannot be considered to be part of sale consideration for transfer of land and building. The rent paid by the builder is for the accommodation of the assessee till the completion of construction and handing over the flat to the assessee as per the agreement. Therefore, at any stretch of imagination, the same cannot be treated as part of sale consideration.
On the contrary, Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that the assessee has admittedly sold part of the property inherited from his father, by means of will, at Door No.18, I Cross Street, Lake Area, Nungambakkam, Chennai to M/s Bala Abirami Builders & Developers P. Ltd. for a total consideration of `70,00,000/- and flat worth `24,70,000/- to be constructed by the builder. The assessee has also received a sum of `6500/- as rent till the builder constructed the flat and handed over to the assessee. The Assessing Officer found that the assessee received `6500/- for eight months. Accordingly, he found `52,000/- was received as rental compensation received from the builder. Accordingly, the same was treated as part of sale consideration. The Ld. D.R. further submitted that the cost of the land was taken as `101.66 per sq.ft. by the assessee without any basis. The Assessing Officer has rightly called for the guideline value from the Sub Registrar and the Sub Registrar has informed the Assessing Officer that the guideline value for this property is `9.16 per sq.ft. Therefore, according to the Ld. D.R., the same was rightly adopted by the Assessing Officer.
Referring to exemption under Section 54 of the Act, the Ld. D.R. submitted that the assessee demolished the existing building and what was handed over to the developer was only vacant land. For the purpose of constructing the building, the assessee had to necessarily demolish the existing building. Since the assessee has transferred the land alone and not that of residential house, the assessee is not eligible for exemption under Section 54 of the Act.
Referring to the rent received by the assessee, the Ld. D.R. submitted that the rent was paid by the builder till the flat was constructed and handed over to the assessee. This payment has nexus with that of development agreement. But for this development agreement and transfer of land, the builder would not have agreed to pay `6500/- per month to the assessee as rent.
This rent was paid to the assessee so that the assessee can reside in a rental house till the flat is constructed and ready for occupation. Since the payment has nexus with that of development agreement and handing over of possession of property, the Assessing Officer has rightly found that this was a part of sale consideration, therefore, no interference is called for.
Referring to the additional expenditure of `3,50,000/- on the 7. new flat, the Ld. D.R. submitted that the cost of the flat, which was allotted to the assessee, was estimated at `24,70,000/- and the assessee has claimed that he incurred an expenditure of `3,50,000/- over and above the above said sum of `24,70,000/-. In the absence of any material filed by the assessee before the CIT(Appeals) or before this Tribunal regarding the so-called expenditure of `3,50,000/-, the Ld. D.R. submitted that the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee entered into a development agreement for sale of a residential house with M/s Bala Abirami Builders & Developers (P)
Ltd. on 04.03.2004. The existence of old house and building is not in dispute. The copies of the property tax assessment, which is available at pages 9 and 10, would disclose the existence of building. The claim of the Revenue appears to be that the assessee had to hand over 4081 sq.ft. of land out of 4664 sq.ft. of land.
Therefore, the assessee had to necessarily demolish the existing building. The Assessing Officer disallowed the claim of the assessee on the ground that what was given to the builder is vacant land and not the residential house. The Assessing Officer has also taken the cost of land at `9.16 per sq.ft. on the basis of the guideline value. After considering all material available on record, this Tribunal is of the considered opinion that the existence of old building on the land is not in dispute. In fact, on the date of agreement for development / construction, i.e. on 04.03.2004, the building was very much in existence. The development agreement does not refer to the existence of building. Therefore, the Revenue has taken the advantage of this omission to refer the existence of the building and claimed that what was transferred is only vacant land and not the building. This Tribunal is of the considered opinion that when the old building was very much in existence on the land, the assessee could not have transferred the land alone to the developer / builder. It is nobody’s case that the assessee himself demolished the building. The assessee had to necessarily take the assistance of builder / developer to demolish the existing building before proceeding further in the matter of construction of multistoried building residential complex. Therefore, there is no justification on the part of the authorities below to say that what was transferred by the assessee was only the land and not the building.
Even for argument sake, it is presumed that the existing building was demolished by the assessee, still the demolition was only for the purpose of enabling the builder to put a construction in pursuance of development agreement. Therefore, for all practical purposes, what was transferred is only the residential house and not the vacant site. Therefore, this Tribunal is of the considered opinion that the Assessing Officer is not justified in saying that the assessee has transferred only land and not the residential house. After considering all the material available on record, this Tribunal is of the considered opinion that the assessee has transferred only the residential house, therefore, the assessee is very much eligible for exemption under Section 54 of the Act.
Now, even for argument sake, if we consider that the assessee has transferred only the vacant land and not the house, the assessee is very much eligible for exemption under Section 54F of the Act when the capital gain arising on such transfer was invested in the residential house / flat. Even if the assessee is not eligible for exemption under Section 54 of the Act, the assessee is very much eligible for exemption under Section 54F of the Act.
Therefore, denial of the claim of the assessee for exemption under Section 54 / 54F of the Act on the investment made by the assessee is not justified. Accordingly, this Tribunal is unable to uphold the orders of the authorities below.
Now coming to the value of land and building, the assessee has admittedly inherited the property from his father Late Shri S.
Lakshminarasimhan through a will dated 19.03.1979. This fact is not in dispute. Therefore, the cost of property to the assessee’s father has to be taken as cost of the property to the assessee. The assessee was given option to take the value as on 01.04.1981. The assessee claims that the cost of the land as on 01.04.1981 was at `101.66 per sq.ft. and the cost of the building at `150/- per sq.ft.
The whole building, which was existing, appears to be 1200 sq.ft.
The claim of the assessee was rejected by the Assessing Officer on the basis of guideline value. The Assessing Officer has taken the cost of the land at `9.16 per sq.ft. as against `101.66 per sq.ft. and he has not taken the value of the building at all. This Tribunal is of the considered opinion that the guideline value prescribed by the State Government is only to guide the Sub Registrar to determine the correct market value. The guideline value would not reflect the market value in all circumstances. The market value has to be determined with regard to area of the property, location, infrastructure facilities available around the area, potentiality for future development, etc. The guideline value may also be one of the factors to be taken into consideration for the purpose of determining the market value of the property along with other factors. What was to be determined as on 01.04.1981 is the market value of the property and not the guideline value. The market value is nothing but a price that may be agreed between the a willing purchaser and vendor. In those circumstances, by taking into consideration the property located at Lake Area, Nungambakkam, Chennai, the infrastructure available around the area, schools and colleges and the distance between the subject land and other public transport system available around the area, this Tribunal is of the considered opinion that the cost of the land as taken by the assessee at `101.66 per sq.ft. appears to be more reasonable.
Therefore, the Assessing Officer is not justified in taking the guideline value as market value of the property. Hence, this Tribunal is unable to uphold the orders of the authorities below.
Now coming to the cost of the building, the Assessing Officer has taken the land for the purpose of computation. When the existence of building is not in dispute, the Assessing Officer cannot ignore the building for the purpose of computing the capital gain.
Whether the building was transferred along with land or the assessee demolished the building for handing over the vacant land by itself, the fact remains that there was a building. Therefore, the cost of the building is also to be taken for consideration for the purpose of ascertaining the cost of property. The Assessing Officer failed to consider the cost of the building. Therefore, this Tribunal is of the considered opinion that the cost of the land as valued by the assessee at `150 per sq.ft. has to be taken into consideration while arriving the cost of the property for the purpose of computation of capital gain.
Now coming to the rental income said to be received by the assessee at `6500/- per month from August, 2004 for a period of eight months as claimed by the assessee is not part of the sale consideration. This Tribunal is of the considered opinion that this amount of `6500/- was paid by the builder consequent to the agreement between the parties for transfer of 4081 sq.ft. of land for development. But for this agreement between parties for transfer of land, the builder would not have given the rent to the extent of `6500/- per month. Therefore, there was nexus between the payment of monthly rent of `6500/- and the transfer of land to the extent of 4081 sq.ft. Hence, this Tribunal is of the considered opinion that the rental income received at `6500/- per month to the extent of `52,000/- is part of the sale consideration. Therefore, it has to be considered as part of sale consideration while computing the capital gain.
Now coming to the claim of exemption under Section 54 of the Act, the assessee claimed deduction of `28,20,000/- towards cost of new flat. The assessee claimed before the authorities below in the revised statement that the assessee invested `3,50,000/- in the new flat within a period of three years. The Assessing Officer found that the cost of the flat as per the agreement is `24,70,000/- The claim of the assessee to the extent of `28,20,000/- is in excess of `3,20,000/-. Therefore, the Assessing Officer has not allowed the excess claim of `3,20,000/-. This Tribunal is of the considered opinion that the cost of the flat was `24,70,000/- as per development agreement. The assessee claims further investment of `3,50,000/- and the total cost comes to `28,20,000/-. The investment made by the assessee is not in dispute. Merely because the assessee could not produce voucher or bills, the undisputed development / expenditure made by the assessee cannot be disallowed. When the assessee claims that the investment was made and the investment to the extent of `3,50,000/- is not in dispute, this Tribunal is of the considered opinion that the assessee is eligible for deduction under Section 54 of the Act to the extent of `28,20,000/- which included the investment made to the extent of `3,50,000/- over and above the cost of the flat at `24,70,000/-. Therefore, this Tribunal is unable to uphold the order of the authorities below. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to recompute the capital gain as indicated above and allow exemption under Section 54 of the Act.
In the result, the appeal of the assessee is partly allowed.
Order pronounced on 15th July, 2016 at Chennai.