Capital gain on sale of Land & on sale of Building can be calculated separately by bifurcating it

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Capital gain on sale of Land & on sale of Building can be calculated separately by bifurcating it

 

 

Capital gain on sale of Land & on sale of Building can be calculated separately I the ratio one can draw from the judgement of CIT vs. Vimchand Golecha.

In this case, the assessee purchased a plot of land on 26th March, 1962. Another piece of land was purchased by the assessee on 9th July, 1968, the patta of which was received on 12th Jan., 1970. The assessee has constructed a bungalow and construction was shown during the years 1968-69, 1969-70 and 1970-71. The bungalow was sold in June, 1970. The court has held that The land is a capital asset in terms of s. 2(14) and in accordance with the scheme of the Act it is stated as a separate asset. Even for the purpose of s. 32 building which is entitled for depreciation would mean only the superstructure and would not include the site. If the price of two capital assets has been charged as one consolidated figure the assessee is entitled to bifurcate the same. A situation may arise that where a gain from one of the capital asset is short-term capital gains while from the other it is a long-term capital as in the present case and in such a situation the benefit to the assessee cannot be denied in respect of a gain arising from the sale of an asset which could be considered as a long-term capital gains. Even for the purpose of value the valuer and the Department has taken the value of the land and the super-structure thereon separately. Therefore, the Tribunal was justified in holding that the capital gains arising from the sale of land has to be treated as long-term capital gains.

In short, if the price of two capital assets has been charged as one consolidated figure, assessee is entitled to bifurcate the same and determine the nature of capital gains viz., short-term or long-term independently. Sale of land and building thereon can therefore be bifurcated as long-term and short-term.

 

The copy of the complete order is as under:

 

COMMISSIONER OF INCOME TAX vs. VIMAL CHAND GOLECHA

HIGH COURT OF RAJASTHAN : JAIPUR BENCH

K.C. Agrawal, C.J. & V.K. Singhal, J.

DB IT Ref. No. 78 of 1981

16th December, 1992

(1992) 60 CCH 0951 RajHC

(1993) 110 CTR 0216 : (1993) 201 ITR 0442

Legislation Referred to

Sections 2(14), 2(42A)

Case pertains to

Asst. Year –

Decision in favour of:

Assessee

Counsel appeared:

G.S. Bapna, for the Department : N.M. Ranka, for the Assessee

V.K. SINGHAL, J.

The Tribunal has referred the following question of law arising out of its order dt. 30th July, 1980 in respect of the asst. yr. 1971-72:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the capital gains arising from the sale of land has to be treated as long-term capital gains ?”

  1. The brief facts of the case are that the assessee purchased a plot of land on 26th March, 1962 for a sum of Rs. 4,650. Another piece of land was purchased by the assessee for Rs. 2,274 on 9th July, 1968, the patta of which was received on 12th Jan., 1970. The assessee has constructed a Bungalow and the investment shown in the construction during the year 1968-69 was Rs. 16,000, during the year 1969-70 Rs. 50,776 and in 1970-71 Rs. 5,785. The Bungalow was sold in June, 1970 to M/s Murli Investment Co. Pvt. Ltd. for a sum of Rs. 1,30,000. According to the assessing authority, the capital asset in question came into existence in the asst. yr. 1970-71 the year in which the construction of the Bungalow was completed and was sold to M/s Murli Investment Co. Pvt. Ltd., Jaipur in June, 1970. The sale deed was registered on 4th Aug., 1970, which was considered by the assessing authority as within two years from the date of completion of the bungalow in the shape it was sold and capital gains were taken as short-term capital gains. An appeal was preferred against the initial assessment made which was set aside by the learned AAC for recomputation of capital gains to find out the value of the property as it existed at the time it was sold in June, 1970. The case was referred to the Valuation Officer under s. 55A of the IT Act, 1961 and the value of the property including the cost of land was estimated at Rs. 1,98,350 as on the date of sale. Objections were raised by the assessee were considered by the assessing authority and short-term capital gains were computed at a figure of Rs. 1,18,845. Against this order an appeal was preferred to the CIT(A), Jaipur, where the contention with regard to the invoking of provisions of s. 52(2) of the IT Act were raised and rejected. Objections with regard to the valuation of the land as well as bungalow were also raised. The land was valued at Rs. 45,700 and bungalow at Rs. 1,50,650. The CIT has held that the capital gains should be recomputed on the basis of full and fair consideration of the property at a figure of Rs. 1,30,000 which was the sale consideration as mentioned in the saledeed dt. 4th Aug., 1970. The contention that gains are long-term capital gains and not short-term cpaital gains was rejected by the CIT(A).
  2. Against this order, the assessee challenged the order before the Tribunal where it was contended by the assessee that the land and building should be treated as separate assets and since the asset (land) came into existence much before two years from the date of sale, therefore, it should be treated as a long-term capital gain. The Tribunal came to the conclusion that there is no dispute that the value of land taken by the ITO and CIT(A) was at a figure of Rs. 45,700 and, therefore, the capital gains arising from the sale of land has to be treated as long-term capital gain. The contention of the Revenue that the composite figure of the sale cannot be bifurcated was rejected.
  3. The submission of the learned counsel for the Revenue is that land has no separate existence after the building is constructed thereon and there cannot be any bifurcation of the price in respect of a composite item of a property which has been sold as one item. Mr. Ranka has placed reliance on the decision of Hon’ble the Supreme Court given in the case of CIT vs. Alps Theatre reported in (1967) 65 ITR 377 (SC).
  4. The land is a capital asset in terms of s. 2(14) of the Act and in accordance with the scheme of the Act it is stated as a separate asset. Even for the purpose of s. 32 building which is entitled for depreciation would mean only the super-structure and would not include the site. Under s. 48 of the Act the income chargeable under the head “capital gains”has to be computed by taking from the full value of the consideration received or accruing as a result of the transfer of the capital asset in the manner provided in this section. It is not in dispute that the land is a capital asset and only then it is liable to tax. If the price of two capital assets has been charged as one consolidated price then the assessee is entitled to bifurcate the same. A situation may arise that where a gain from one of the capital asset is short-term capital gain while from the other it is a long-term capital as in the present case and in such a situation the benefit to the assessee cannot be denied in respect of a gain arising from the sale of an asset which could be considered as a long-term capital gains. Even for the purpose of value the valuer and the Department has taken the value of the land and super-structure thereon separately, therefore, we are of the view that the Tribunal was justified in holding that the capital gains arising from the sale of land has to be treated as long-term capital gains. The reference is accordingly, answered in favour of the assessee and against the Revenue. No orders as to costs.

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