Unfinished Building is ‘Capital Asset’, subject to Income Tax on Sale along with Land: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT), while dismissing a second appeal by the assessee, held that an unfinished building is included within the meaning of “capital asset” under the Income Tax Act, 1961 and the same is subject to income tax on its sale along with the land.

The assessee, Sri.Thayappa Balakrishna contended that the amount received on demolished building material is part of sale consideration of land and ought to be increased while arriving at the sale consideration. It was further submitted that the same needs to be reduced in computing capital gains.

The department was of the view that any interest in property / unfinished building is also an asset and since it was sold within the period of three years, the same ought to be assessed as short term capital gains.

A bench of Shri George George K, JM & Ms.Padmavathy S, AM upheld the view of the income tax department holding that the claim of the assessee to include the cost of unfinished building to cost of improvement cannot be accepted for two reasons. Firstly, the assessee had only sold vacant site and the same is evident from the sale deed dated 19.07.2010. Secondly, the assessee himself submitted a receipt on stamp paper showing a receipt of Rs.96,04,899 towards sale of building material and fixtures from demolished building.

“The assessee, therefore, cannot turn around now and say that the amount of Rs.96,04,899 is part of the sale consideration of land. Moreover, the assessee during the course of assessment proceedings, filed revised computation disclosing short term capital gains on receipts of demolished building,” the ITAT said.

Relying on the Apex Court ruling in the case of Giridhar G. Yadalam v. CIT, the ITAT held that “the definition of capital asset as per section 2(14) of the I.T.Act is wide enough to include property of any kind held by an assessee (including an unfinished building) and the sale proceeds of the same would be liable for capital gains as long term capital gains or short term capital gains, depending upon the period of holding.”

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