Dr. Fareed Jamshid Italia v. Asstt. CIT

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The Tax Publishers2012 TaxPub(DT) 0800 (Mad-HC) : (2011) 203 TAXMAN 0241 INCOME TAX ACT, 1961 --Capital gains--ComputationFull value of consideration vis-a-vis apparent consideration--The assessee was the owner of the immovable property known as 'Wellington Talkies', measuring about 20.419 grounds. The assessee, along with his father J.D., jointly owned the property, each having 50% share. J.D. died on 20-9-1985. Under the Will executed by J.D. dated 10-6-1985, the assessee was given 1/3rd share in the 50% share of J.D. in the Wellington Talkies property. Apart from this, the assessee's sons were also given equal share as that of the assessee. Thus, together with the share that the the assessee had originally, the total extent of share held by the assessee came to 67.68% share in the property and two sons held 16.16% each. As per the terms of the Will of the deceased J.D., the assessee's sisters and mother were given certain amount of cash. Apart from that, the assessee's sisters were also given 10% share in the Wellington Talkies property or Rs. 1,00,000 each payable by the assessee. The Will stated that the choice as to whether the daughters were to be given 10% share in the Wellington property or to be given cash was, however, left to the assessee's choice and that the said decision shall not be questioned by the assessee's sisters and mother. Thus, in terms of the Will, the assessee, his mother and sisters entered into an agreement on 18-5-1986 as to the distribution of Assets in the Estate of the late Mr. J.D. Thus, apart from cash payment, instead of 10% share in the immovable property, the assessee paid a sum of Rs. 6,00,000 to each of his sisters. It is seen from the facts herein that along with his two sons, the assessee entered into a development agreement with M/s K Construction company) on 27-9-1987, whereunder, the assessee and the construction company had two options, viz., outright sale of the entire property for a consideration of Rs. 4,80,00,000 or cash payment of Rs. 66,00,000 and constructed area of 36,000 sq.ft. to be built for the assessee and his two sons. In terms of provisions of Chapter XX-C, the assessee and the construction company filed an application under Form No. 37-I, wherein they gave total apparent consideration for the transfer of the property was Rs. 3,38,95, 489.50. For the purpose of working out the capital gains, as per clause Nos. 8, 9 and 18 of the development agreement dated 27-9-1987, the assessee took the cost of construction of 28759 sq.ft. at Rs. 248 per sq.ft. The assessee also claimed deduction of the amount paid to the sisters in terms of the Will. In computing the capital gains, the AO held that the developers had constructed a total extent of 1,20,773 sq.ft. Since the assessee had gone in for clearance under Chapter XX-C, the cost of construction was to be on the lines of what the Appropriate Authority held as apparent consideration. In these circumstances, the AO viewed that the full value of the consideration for the purpose of computation of capital gains under section 48 was to be taken at Rs. 3,38,96,489. As regards the payment made to the assessee's sisters, the AO rejected the plea of the assessee holding that the amount of Rs. 16,00,000 was not paid to the legatees as on the date of assessment; hence, the same was not liable to be considered for deduction in computing the capital gains. Aggrieved by this, the assessee went on appeal before the CIT(A), who, however, agreed with the assessee and allowed the appeal. As far as the order of the CIT(A) in adopting the value of Rs. 240 per sq.ft. is concerned, the Tribunal adopted the value of Rs. 576 per sq.ft. as taken by the Appropriate Authority. Thus, while setting aside the order of the CIT(A), it modified the order of the AO, taking the extent of constructed property given to the assessee at 28,302 sq.ft. and directed the AO to adopt the value of Rs. 576 per sq.ft. As far as the payments made to three sisters are concerned, the Tribunal held that it was only an application of money and hence, it could not be given deduction. Accordingly, the Tribunal set aside the order of the CIT(A). Thus, the Department's appeal was allowed in part. *Held:* The CIT(A) pointed out that under section 48, capital gains herein was to be worked out on the total consideration and not at the apparent consideration as given under Chapter XX-C. Thus, agreeing with the assessee, the CIT(A) set aside the assessment and directed the ITO to re-work the capital gains, taking the cost of construction at Rs. 240 per sq.ft. Given the fact that the apparent consideration defined as market value as defined in section 269UA is of limited relevance only for the purpose of proceedings under Chapter XX-C and it has no relevance for computing the capital gains as given under section 48 and in the absence of any provision to adopt the value as given under Form 37-I for the purpose of computing the capital gains under section 48, there is no hesitation in accepting the case of the assessee that the Tribunal as well as the assessing authority fell into grievous error in construing section 48 viz., 'full value of consideration' received to mean 'apparent consideration' as given in Chapter XX C. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0800 (Mad-HC) : (2011) 203 TAXMAN 0241

INCOME TAX ACT, 1961

--Capital gains--ComputationFull value of consideration vis-a-vis apparent consideration--The assessee was the owner of the immovable property known as 'Wellington Talkies', measuring about 20.419 grounds. The assessee, along with his father J.D., jointly owned the property, each having 50% share. J.D. died on 20-9-1985. Under the Will executed by J.D. dated 10-6-1985, the assessee was given 1/3rd share in the 50% share of J.D. in the Wellington Talkies property. Apart from this, the assessee's sons were also given equal share as that of the assessee. Thus, together with the share that the the assessee had originally, the total extent of share held by the assessee came to 67.68% share in the property and two sons held 16.16% each. As per the terms of the Will of the deceased J.D., the assessee's sisters and mother were given certain amount of cash. Apart from that, the assessee's sisters were also given 10% share in the Wellington Talkies property or Rs. 1,00,000 each payable by the assessee. The Will stated that the choice as to whether the daughters were to be given 10% share in the Wellington property or to be given cash was, however, left to the assessee's choice and that the said decision shall not be questioned by the assessee's sisters and mother. Thus, in terms of the Will, the assessee, his mother and sisters entered into an agreement on 18-5-1986 as to the distribution of Assets in the Estate of the late Mr. J.D. Thus, apart from cash payment, instead of 10% share in the immovable property, the assessee paid a sum of Rs. 6,00,000 to each of his sisters. It is seen from the facts herein that along with his two sons, the assessee entered into a development agreement with M/s K Construction company) on 27-9-1987, whereunder, the assessee and the construction company had two options, viz., outright sale of the entire property for a consideration of Rs. 4,80,00,000 or cash payment of Rs. 66,00,000 and constructed area of 36,000 sq.ft. to be built for the assessee and his two sons. In terms of provisions of Chapter XX-C, the assessee and the construction company filed an application under Form No. 37-I, wherein they gave total apparent consideration for the transfer of the property was Rs. 3,38,95, 489.50. For the purpose of working out the capital gains, as per clause Nos. 8, 9 and 18 of the development agreement dated 27-9-1987, the assessee took the cost of construction of 28759 sq.ft. at Rs. 248 per sq.ft. The assessee also claimed deduction of the amount paid to the sisters in terms of the Will. In computing the capital gains, the AO held that the developers had constructed a total extent of 1,20,773 sq.ft. Since the assessee had gone in for clearance under Chapter XX-C, the cost of construction was to be on the lines of what the Appropriate Authority held as apparent consideration. In these circumstances, the AO viewed that the full value of the consideration for the purpose of computation of capital gains under section 48 was to be taken at Rs. 3,38,96,489. As regards the payment made to the assessee's sisters, the AO rejected the plea of the assessee holding that the amount of Rs. 16,00,000 was not paid to the legatees as on the date of assessment; hence, the same was not liable to be considered for deduction in computing the capital gains. Aggrieved by this, the assessee went on appeal before the CIT(A), who, however, agreed with the assessee and allowed the appeal. As far as the order of the CIT(A) in adopting the value of Rs. 240 per sq.ft. is concerned, the Tribunal adopted the value of Rs. 576 per sq.ft. as taken by the Appropriate Authority. Thus, while setting aside the order of the CIT(A), it modified the order of the AO, taking the extent of constructed property given to the assessee at 28,302 sq.ft. and directed the AO to adopt the value of Rs. 576 per sq.ft. As far as the payments made to three sisters are concerned, the Tribunal held that it was only an application of money and hence, it could not be given deduction. Accordingly, the Tribunal set aside the order of the CIT(A). Thus, the Department's appeal was allowed in part. Held: The CIT(A) pointed out that under section 48, capital gains herein was to be worked out on the total consideration and not at the apparent consideration as given under Chapter XX-C. Thus, agreeing with the assessee, the CIT(A) set aside the assessment and directed the ITO to re-work the capital gains, taking the cost of construction at Rs. 240 per sq.ft. Given the fact that the apparent consideration defined as market value as defined in section 269UA is of limited relevance only for the purpose of proceedings under Chapter XX-C and it has no relevance for computing the capital gains as given under section 48 and in the absence of any provision to adopt the value as given under Form 37-I for the purpose of computing the capital gains under section 48, there is no hesitation in accepting the case of the assessee that the Tribunal as well as the assessing authority fell into grievous error in construing section 48 viz., 'full value of consideration' received to mean 'apparent consideration' as given in Chapter XX C.