COMMISSIONER OF INCOME TAX Vs. VED PRAKASH RAKHRA

JUDGEMENT

(1.) This appeal is by the Revenue, being aggrieved by the order dated 28-2-2006 made in ITA No. 3782/Bang/2004 passed by the Income Tax Appellate Tribunal, Bangalore 'B' Bench partly allowing the appeal setting aside the order dated 09-11-2004 made in ITA No. 14/W 6(4)/CIT(A)III/2004-05 passed by the CIT (Appeals)-III, Bangalore. The respondent-assessee filed his return of income for the assessment year 2001-2002 on 01-02-2012 declaring a total income of Rs. 8,98,127/-. The same was processed and subsequently selected for scrutiny. Accordingly, notice under Section 143(2) was issued. The authorised representative of the respondent appeared and filed the documents. The Assessing Officer noticed that assessee has shown 1/3rd share of long term capital gain on sale of J.P. Nagar property site of Rs. 8,53,470/-. The said site was jointly held by the assessee along with his two brothers. The long term capital gain has been calculated at Rs. 8,26,500/- taking into consideration the fair market value as on 01-04-1981. However, the appellant got the ownership over the property on 11-11-1987. The Assessing Officer found that adopting fair market value as on 01-04-1981 for calculating the capital gain is contrary to law and assessed the said property arriving at the long term capital income of the assessee at Rs. 18,88,736/-. Further, insofar as the property situated at Aga Abba Ali Road, the assessee claimed that he was a co-owner of the said property along with his two brothers. The said property was sought to be jointly developed with M/s. Embassy Investment. As per the development agreement, the land was handed over to the Developer in the year 1995 and superstructure was built in the year 2000 consisting of multi storied building. As per the agreement, 50% of the flats, 50% of the car parking space and 50% of saleable terrace were given to the assessee and two of his brothers. In that, the assessee is entitled for 1/3 share. The property value has been fixed at Rs. 66,00,000/- taking into consideration the fair market value as on 01-04-1981. The long term capital gain has been shown as NIL. However, the Assessing Authority not accepting the long term capital gain shown by the assessee, worked out the capital gain based on the actual cost of construction reported by the Developer vide letter dated 01-02-2004 as Rs. 2,86,22,931/- and 50% has to be reckoned as the value of site received by the assessee and his brothers would come about Rs. 1,43,11,465/-. The share of the assessee is 1/3. Taking into consideration the said value, the Assessing Officer assessed the capital gain in respect of the property situated at Aga Abba Ali Road at Rs. 47,64,821/- and assessed the income for the assessment year 2001-2002 as Rs. 20,96,614/- including the interest and surcharge, issued demand notice as per the Assessment Order dated 26-3-2004, The assessee being aggrieved by the Assessment Order dated 26-3-2004 preferred an appeal before the CIT (Appeals), Bangalore contending that the order passed by the Assessing Authority is contrary to law. The CIT (Appeals) by its order dated 9-11-2004 partly allowed the appeal and deducted a sum of Rs. 1,82,720/- towards unexplained expenditure and confirmed the order in all other respects. The assessee being aggrieved by the order passed by the Appellate Authority approached the Income Tax Appellate Tribunal in ITA No. 3782/2004. The Appellate Tribunal after examining the matter in detail by its order dated 28-2-2006 partly allowed the appeal setting aside the order passed by the Assessing Authority and issued directions to the Assessing Authority to give exemption under Section 54 of the Income Tax Act. The Appellate Authority clearly held that the market value of the property has to be taken into consideration as on the date of grant of land in respect of the J.P. Nagar property and also market value of the property as on the date of development agreement entered into between the parties in respect of Aga Abba Ali Road The Revenue being aggrieved by the order dated 28-2-2006 passed by the Appellate Tribunal preferred this appeal.

(2.) This appeal was admitted on 11.9.2007, to consider the following substantial questions of law:

(3.) Sri M. Thirumalesh, learned counsel appearing for the revenue contended that the order passed by the Income Tax Appellate Tribunal is contrary to law. Though the erstwhile CITB allotted the land on 05-11-1975 absolute sale deed was executed on 08-08-1987. In view of the judgment of this Court in the case of CIT v. Dr. V.V. Mody, 1996 218 ITR 1 the fair market value as on 01-04-1981 cannot be adopted since the assessee gets the ownership only on 08-08-1987. The capital gain assessed by the Assessing Authority and confirmed by the CIT (Appeal) is in accordance with law. Further insofar as the property situated at Aga Abba Ali Road is concerned, the assessee along with his brothers entered into a development agreement and pursuant to the same, the building situated in the said property was demolished and vacant site was handed over to the developer. As per the Development Agreement, 50% of the flats have to be given to the owners of the property along with car parking space and saleable terrace. The remaining 50% would go to the Developer. The joint development agreement was entered into between the parties in the year 1995 and construction of the residential apartment was completed in the year 2000. Hence, the property value of the year 2000 has to be taken into consideration and not the property value as on the date of agreement. Further, 50% of the total cost of construction has to be taken into consideration to assess the capital gain of the assessee. The reasoning of the Appellate Tribunal to set aside the order passed by the CIT (Appeals) is contrary to law. Further the assessee is entitled for exemption only under Section 54F of the Act. The direction issued by the Appellate Tribunal to extend the exemption under Section 54 of the Act is contrary to law and sought for setting aside the same by allowing the appeal.