Ita/571/2009 Of The Commissioner Of Income Tax v. Late Shri N.p. Abraham

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 13TH DAY OF DECEMBER 2018 / 22ND AGRAHAYANA, 1940 ITA.No.571 of 2009 AGAINST THE ORDER IN ITA.NO.199/COCH/2003 DATED 18-04-2005 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. APPELLANT: THE COMMISSIONER OF INCOME TAX,COCHIN. BY ADVS.SRI.P.K.R.MENON, SENIOR COUNSEL, GOI (TAXES)SRI.JOSE JOSEPH, STANDING COUNSEL, GOI (TAXES) RESPONDENTS: LATE SHRI N.P. ABRAHAM,REPRESENTED BY L/HRS - 1SMT.SUSAN VARGHESE, TUSCAMY APARTMENTS, NO.22, COLLEGE ROAD, CHENNAI-600006. 2SHRI. PHILIP ABRAHAM, -DO- -DO- 3SMT. ASHA GEORGE PETER, -DO- -DO- BY ADVS.KUM.MEKHALA M.BENNYSRI.ACHYUT K PADMARAJSRI.ANIL D. NAIRSRI.R.SREEJITH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Vinod Chandran,J. JUDGMENT The appeal raises the following two questions of law: (i) Whether, on the facts and in the circumstances ofthe case the manner and method of computation ofcapital gains by the Tribunal is correct and inaccordance with law and fact?the case the manner and method of computation ofcapital gains by the Tribunal is correct and inaccordance with law and fact? (ii) Whether, on the facts and in the circumstances ofthe case, the assessee is entitled to exemptionunder section 54 & 54F of the Income Tax Act?the case, the assessee is entitled to exemptionunder section 54 & 54F of the Income Tax Act? 2. We are, in fact, of the opinion that the second question arises only if we do not agree with the computationarrived at by the Tribunal. In fact, earlier the assessmentwas completed under Section 143 of the Income Tax Act, 1961[for brevity “the Act”]. Subsequently there was an assessmentcompleted under Section 147 read with Section 143(3). Againthere was a rectification application filed by the assesseeon the basis of a certificate issued under Section 230A andan order was passed under Section 154. The said rectifiedorder was set aside by the Commissioner under Section 263,remanding the matter for consideration by the AssessingOfficer [for brevity “AO”]. The AO had, while making computation, interfered with the value of the property as on01.04.1981 and indexed cost arrived at for the purpose ofcomputation of capital gains. There was also an interferenceto the sale value as projected by the assessee before the AO. 3. On facts, it has to be noticed that the assessee,along with one another, by name K.L.George, had ownership andpossession of six grounds of property, three each. The totalarea of property possessed by the two persons was about14,398 sq.ft. The assessee's share was 50%, which came to7,199 sq.ft. In the assessee's portion of the property, therewas a two-storeyed building. The assessee, along withK.L.George, entered into an agreement with a builder fordeveloping the property and having a multi-storeyedconstruction thereon. The land owners, by the agreement as isextracted in Annexure-A assessment order, agreed to sell 38%of the property to the builder, the consideration of whichwas the handing over of 13,400 sq.ft. of the super built uparea, inclusive of common area, to the land owners. Hence,the consideration was, on construction of the building, 62%of the constructed area would be handed over to the landowners, who also retained 62% undivided share of the land.38% of the undivided share was agreed to be sold to thebuilder or his assignees. 4. There was a dispute with respect to the valuationof the property as on 01.04.1981, being the date prescribedunder the IT Act for the purpose of determining capitalgains. The assessee, in fact, had filed an application underSection 230A for sale of the property, wherein the valueshown was Rs.8,69,250/-. The AO sought to cause interferenceto the same on the ground that in a wealth tax assessment ina subsequent assessment year the valuation was shown at a farlower value. We find that the Tribunal had accepted the costindexation as carried out by the assessee on the basis of thevalue of the property determined and proffered in theapplication under Section 230A, which stood slightly revisedat Rs.7,26,750/-. The AO relied on the wealth tax assessmentas also a valuation proffered by the assessee itself from oneM/s.K.V.Subramaniam & Associates, valuing the property atRs.2,43,000/-, vide certificate dated 08.05.1987, in the year1987. The Tribunal had looked at the evidence given in thepaper book, being the value assigned to similarly situatedproperties, to affirm the market value prevailing in thelocality. The Tribunal found it to be ranging from Rs.3.5 to4 lakhs per ground and that in such circumstance, there wasno warrant for taking the value as construed for wealth taxpurposes. The Tribunal also accepted the contention of the assessee that the value fixed for wealth tax purposes on thebasis of rent capitalisation method is not always real. Basedon the independent evidence produced by the assessee, thevaluation of the property as declared by the assessee on01.04.1981 was accepted by the Tribunal. We do not see anyquestion of law arising from the said decision. If the valueshown in the wealth tax assessment is lower; then the saidproceedings should be revised, if not hit by limitation.There is no warrant for adoption of a lower price thanthe actual market value, when there is evidence for theactual value. 5. The further issue is as to the consideration withrespect to the sale of 38% of the property. The assessee hadownership of half of the 38% sold to the builder. As noticedfrom the extract of the terms of the agreement in Annexure-A,the consideration was in the form of transfer of constructedarea in the super built up area of 21,000 sq.ft. Theassessee, being one of the land owners, was to be granted 31%of the total built up area, i.e., 6,700 sq.ft. The dispute isinsofar as what is the value to be assigned to such built uparea. The assessee made the valuation at the cost ofconstruction, being Rs.374/- per sq.ft. The AO determined itat Rs.929/- per sq.ft., being the market value of the ITA.571 of 2009 constructed area in the locality. 6. The learned Senior Counsel, Government of India (Taxes) would canvass the position that the consideration hasto be determined on the basis of the benefit accrued to theassessee, which can only be at the market value of theconstructed area handed over to the assessee. The cost priceis what is incurred by the builder and when the constructedarea is handed over by the builder to the original landowners, the enuring benefit to the land owner is the marketvalue of such constructed area; the value such constructedarea would fetch if it is sold at that point of time. ITA.571 of 2009 constructed area in the locality. 6. The learned Senior Counsel, Government of India (Taxes) would canvass the position that the consideration hasto be determined on the basis of the benefit accrued to theassessee, which can only be at the market value of theconstructed area handed over to the assessee. The cost priceis what is incurred by the builder and when the constructedarea is handed over by the builder to the original landowners, the enuring benefit to the land owner is the marketvalue of such constructed area; the value such constructedarea would fetch if it is sold at that point of time. 7. We are unable to accept such a contention raisedon the part of the Revenue. The agreement specifically showsthat the consideration to the assessee is 31% of the built uparea. What benefit accrues to the assessee is of noconsequence. The builder only promised construction of asuper built up area in a multi-storeyed complex and handingover of 31% of the area. The consideration which passed fromthe builder to the assessee is only the cost of construction.This was the specific agreement between the parties. We donot think that an artificial exercise can be carried out, bywhich the market value of the constructed area can bedetermined and the same computed as the sale consideration which is not the specific terms of the agreement between thebuilder and the land owner. We need not look at whether theassessee kept the area assigned to him, for himself or soldit; which is irrelevant to determine the construction cost.We, hence, answer the first question of law with respect tocomputation in favour of the assessee and against theRevenue. 8. In the context of the said question having beenanswered in favour of the assessee and the net result of thereturns being a capital loss, the issue of exemption underSection 54 or Section 54F does not at all arise. We refuse toanswer the said question. The appeal would stand dismissed, leaving theparties to suffer their respective costs in this appeal. Sd/-K.VINOD CHANDRANJUDGE Sd/-ASHOK MENONJUDGE APPENDIX APPELLANT'S ANNEXURES: ANNEXURE ACOPY OF ASSESSMENT ORDER DATED 27.3.2002 U/S.143(3)R.W.S.263 OF THE INCOME TAX ACT FOR THE ASST. YEAR 1995-96. ANNEXURE B COPY OF THE ORDER DATED 3.3.2003 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE CCOPY OF THE ORDER DATED 18.4.2005 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH,COCHIN IN ITA NO.199/COCH/2003 FOR THE ASST.YEAR 1995-96. Vku/- [ true copy ]