The Income Tax Appellate Tribunal (ITAT) of Delhi bench has held that the cost of new property has to be assessed as per collaboration agreement for exemption under section 54 of the Income Tax Act, 1961.
Sh. Ramesh Chandna, the assessee declared a total income of Rs. 32,68,720/- and the case of the assessee was selected for limited scrutiny through CASS. The assessee is a Doctor by profession and derived income from business or profession, income from capital gain and income from other sources.
During the year, the assessee has shown capital gains from the sale of a 50% share in a property which was inherited by him along with his brother Mr Naresh Chandna, in 50% share each. Assessee claimed that, both the brothers had sold their shares to a builder for Rs. 4,53,75,000/- each. The brother of the assessee has received Rs. 4,53,75,000/- for his 50% share.
Based on the sale deed executed for 67.5% of the plot, the AO considered it to be the transfer of 67.5% of the property for Rs. 5,50,00,000/-, which was the sales consideration mentioned in the sale deed.
The AO observed that the assessee was getting only a 32.5% share in the new property. Thus, for Section 54 of the Act, the AO considered that the brothers together have sold 67.5% of the property to the builder for 5,50,00,000/-.
The cost of new property for Section 54 of the Income Tax Act, was taken at Rs. 2,64,81,481/- and the same was considered to be an investment in new property. The cost of acquisition was considered to be 99,250/- and taking share consideration payable to the assessee at 4,53,75,000/- and reducing the cost of acquisition Rs. 99,99,250/-, the AO arrived at capital gains of Rs. 3,53,75,750/- and after reducing investment made in new property calculated as above at Rs. 2,64,81,481/- arrived at a taxable capital gain of 88,94,269/-. On appeal, the CIT(A) has confirmed the addition.
The 32.5% undivided, indivisible and impartible ownership rights in the said plot measuring 300 square yards were the share in the land alone. Which was not transferred and was retained in favour of the assessee while the two brothers jointly sold 67.5% of the land.
A two-member bench comprising Shamim Yahya, Accountant and S Anubhav Sharma, Judicial observed that the cost of the new property is not the cost of a share in the plot alone but all the other constructed and covered area received by the assessee.
It was held that for Section 54 of the Act, the mere value of 32.5% ownership rights on the proportionate basis of share consideration of Rs. 5,50,00,000/- is not correct and the cost of new property has to be assumed to be Rs. Rs. 3,57,50,000/- being the value of interests and share of the assessee in the new construction, as per the collaboration agreement and the sale deed terms.
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