If long-term capital gains and indexation are permitted for one co-owner, the other co-owner must be permitted the same
Fact and issue of the case
This appeal is filed by the assessee against the assessment order dated 22.07.2022 passed u/s 143(3) read with section 144C(13) for the AY 2019-20 pursuant to the directions of the DRP order dated 27.05.2022 u/s 144C(5) of the Income Tax Act, 1961. The assessee in his appeal raised the following grounds: –
“Thatthe learned Additional/Joint/Deputy/Commissioner of Income Tax/Income Tax Officer, National Ase-Assessment Centre, Delhi (“AO”) has erred both in law and on facts in determining total income of the appellant at Rs.1,04,15,420/-as against declared income of Rs.60,24,620/- in an order of assessment dated 22.7.2022 under section 143(3) read with section 144C(13) of the Act.
That the learned AO/DRP has further erred both in law and on facts in determining the short term capital gain on sale of capital asset in the instant year by denying indexed cost of acquisition and indexed cost of improvement claimed by the appellant.
That finding of the learned DRP that “floors came into existence in FY 2018-19 and were sold within the same financial year thus rendering the transaction of the nature of short term capital gain. As such, indexation will not be allowable thereon” is not based on correct appreciation of facts on record and hence untenable.
That various adverse findings and conclusions recorded by the learned Assessing Officer/DRP are factually incorrect and contrary to record, legally misconceived and untenable.
That without prejudice the learned DRP has also erred both in law and on facts in not computing the capital gain separately on land and building by erroneously holding that it is a fresh claim and therefore not allowable in view of judgment of Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT reported in 284 ITR 323. 4. That the learned Assessing Officer has further erred both in law and on facts in levying interest of Rs. 3,29,247 u/s 234D of the Act which is not leviable on the facts and circumstances of the case of the appellant.” 2. Ground no.1 of grounds of appeal is in general and needs no adjudication. 3. Ground nos. 2 and 3 of grounds of appeal are directed against the order of the AO/DRP in determining the short term capital gain of capital assets and denying indexed cost of acquisition and indexed cost of improvement claimed by the assessee.
Briefly stated the facts are that the assessee is an individual filed his return of income on 24.07.2019 declaring total income of Rs.60,24,620/- comprising of long term capital gains of Rs.59,10,401/- and income from other sources at Rs.1,24,222/-. The Assessing Officer in the draft assessment order passed u/s 144C of the Act dated 29.09.2021 denied long term capital gain claimed by the assessee in the absence of copy of purchase deed of the property, bills, vouchers, etc. to prove the cost of improvement as the assessee did not furnish the details as called for by the Assessing Officer. The long term capital gain declared by the assessee at Rs.59,10,401/- was denied and the Assessing Officer computed the long term capital gain at Rs.1,13,39,599/- on the sale of property. Accordingly a draft assessment order was passed. The assessee filed his objections before the DRP along with various details including purchase deed, sale deed, copy of bank statements, copy of approval from Municipal Corporation of Delhi for construction of the building and provided the details of cost of construction and contended that the land on which the construction was made constituted long term capital asset since the land was acquired in 1979 and, therefore, it was contended that the nature of capital gain was long term capital gain. The assessee also contended that the floors constructed after demolition of the old super structure does not alter the nature of capital gain. Alternatively the assessee claimed that the capital gain on land and building will be long term capital asset and short term capital asset respectively.
The DRP felt that all these evidences have to be examined by the Assessing Officer and accordingly direction was given to the Assessing Officer to compute the capital gain. However, the DRP observed that since the floors came into existence in the FY 2018-19 and were sold within the same financial year the transaction is of the nature of short term capital gain and not long term capital gain. The DRP held that in such situation indexation is not allowable. In so far as the alternative claim of the assessee that land has to be assessed as capital gain and building as short term capital gain is concerned the DRP did not entertain the assesse’s claim citing the decision of the Hon’ble Supreme Court in the case of Goetze (India) Limited 284 ITR 323.
On the directions of the DRP the Assessing Officer passed final assessment order on 22.07.2022, wherein the Assessing Officer examined all the evidences furnished and accepted the claim of the assessee in respect of cost of improvement and cost of acquisition. However, the Assessing Officer computed the short term capital gain on the sale of property both land and building under the head “short term capital gain” at Rs.1,03,01,202/- without allowing indexation.
The Ld. Counsel for the assessee submits that in the year 1978, property located at B-1/116, Paschim Vihar, New Delhi was purchased by Late Sh. Sunder Lal Bansal, father of the assessee. That on account of demise of Late Sh. Sunder Lal Bansal, on 21.1.2011, the property was equally transferred to two sons namely Sh. Pradeep Bansal and Sh. Harsh Bansal in terms of his will dated 8.9.1993. That appellant and his brother demolished the property and reconstructed the same after obtaining approval from Municipal Corporation of Delhi and the construction was completed in financial year 2018-19 relevant to assessment year 2019-20. It is submitted that the land on which floor constructed and sold constitute long term capital asset since the land was acquired in 1979 therefore the nature of capital gain is long term capital gain. Ld. Counsel submits that it is apparent from the draft order of assessment that the floors sold after construction are long term capital asset since the land on which the floors has been constructed and sold held for as long as 40 years. It is submitted that learned Assessing Officer therefore computed long term capital gain on the sale of three floors in the instant year. It is submitted that the only dispute before DRP was to the computation of long term capital gain whereby the learned Officer had denied the cost of acquisition being fair market value of property as on 01.04.2001 and cost of improvement on the said property after indexation, which has now been accepted and no more in dispute. It is also submitted that mere fact that the floor were constructed after demolition of the old super structure does not alter the nature of capital gain i.e. long term capital gain particularly when identical claim stands accepted in the case of brother of the appellant namely Sh. Harsh Bansal.
The Ld. Counsel for the assessee further referring to page 32 to 38 of the PB which is the assessment order dated 26.11.2021 passed u/s 143(3) r.w.s. 144C(3) of the Act for the AY 2019-20 in the case of assessee’s brother Shri Harsh Bansal who is the co-owner of the property having 50% share submits that the Assessing Officer has accepted the asset sold by the assessee as long term capital asset and accordingly computed the long term capital gains with indexation.
The Ld. Counsel without prejudice to the above contentions that the entire asset is to be treated as long term capital asset, submits that at best capital gain on land and building has to be computed separately. Reliance was placed on the decision of the Kerala High Court in the case of CIT vs. Smt. Laxmi B. Menon 264 ITR 76. Reliance was also placed on the decision of the Delhi High Court in the case of ACIT vs. Ashok Kumar Arora 161 Taxman 101. The Ld. Counsel further submits that the question as to whether the income is required to be computed under the head “short term capital gain” or “long term capital gain” and whether the benefit of indexation to the cost of acquisition of land is allowable to the assessee and whether the income is required to segregate into two parts as an income from transfer of land and income of transfer of building separately is now settled principle of law that in case of sale of land in building the gains attributable to sale of land are assessable as long term capital or short term capital gains according to the period of holding of each asset. Reliance was placed on the decision of the Bombay High Court in the case of CIT vs. City Bank NA 264 ITR 18. 9. On the other hand, the Ld. DR strongly placed reliance on the order of the AO/DRP. 10. Heard rival submissions, perused the orders of the authorities below.
Observation of the court
We find valid point in the submission of the Ld. Counsel for the assessee that once in the hands of one of the co-owner of the property namely Harsh Bansal the claim for long term capital gain has been accepted by the Assessing Officer along with cost of acquisition and indexation thereon in our view claim has to be allowed in the hands of the assessee namely Pradeep Bansal being the other co-owner. This view is supported by the decision of the Punjab & Haryana High Court in the case of Jaswant Rai vs. CIT (supra).
We further noticed that in the case of CIT vs. Smt. Laxmi B Menon the Hon’ble Kerala High Court agreeing with the judgments of the Hon’ble Rajasthan High Court in the case of Vimal Chand Golecha and the Hon’ble Madras High Court in the case of Dr. B.L. Ramachandran Rao, held that the land has to be assessed as long term capital asset and the building has to be assessed as a short term capital asset for the purpose of levy of capital gains tax. Following the above decisions similar view has been taken by the Hon’ble Delhi High Court in the case of JCIT vs. Ashok Kumar Arora [161 Taxman 101]Therefore, even if we accept the alternative claim of the assessee that capital gain has to be computed on land and building separately the position in the assessee’s case emerges as under: –
Statement of computation of capital gain on the land and on the building separately as a “long term capital asset and as a short term capital asset”
|Particular||As per return of income (Land & Building)||Land||Building|
|Nature of capital asset||Long term capital gain||Long term capital gain||Short term capital gain|
|Sales Consideration||1,72,50,000||1,30,03,050 (75.38%)||42,46,950 (24.62%)|
|Cost of Acquisition||52,39,366||63,00,000 (As per registered valuer report)||–|
|Cost of improvement||61,00,236||–||58,87,500 (Actual cost incurred)|
|Capital Gain||59,10,398||67,03,050 (A)||-16,40,550 (B)|
|Net capital gain on which tax paid||59,10,398||50,62,500 (A-B)||–|
|Tax @ 20%||11,82,080||10,12,500|
Basis of bifurcation of sales consideration:
|S.No.||Particulars||Sale deed dated 28.02.2019||Sale deed dated 01.03.2019||Sale deed dated 28.02.2019|
|i)||Actual sales consideration received from sale of floor (A)||1,10,00,000/-||1,25,00,000/-||1,10,00,000/-|
|ii)||Total circle value of floor (B)||1,06,21,936/-||1,06,21,936/-||1,06,29,531/-|
|iii)||Total Stamp duty paid (% of A)||5,50,000/-||7,50,000/-||4,95,000/-|
|iv)||Basis of computation of circle value: Land of floor Construction of floor Total circle value||80,06,813/- (75.38%) 26,15,123/- (24.62%) 1,06,21,936/-||80,06,813/- (75.38%) 26,15,123/- (24.62%) 1,06,21,936/-||80,05,536/- (75.31%) 26,23,995/- (24.69%) 1,06,29,531/-|
As could be seen from the above computation it is evident that even if capital gain computed on the land and on the building separately as a long term capital asset and as a short term capital asset respectively still there is no liability arises on the assessee to pay additional tax on account of capital gains. In the circumstances allowing the appeal of the assessee, we direct the AO to allow indexation on cost of acquisition and cost of improvement while computing the long term capital gain as was done in the case of the co-owner and the assessee’s brother Shri Harsh Bansal.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 25.08.2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee