Assessee not liable to LTCG as registered owner where land leased to builder for flats construction and payments received directly by builder

Assessee not liable to Long Term Capital Gain for being registered owner where the land was leased out to a builder company for construction of flats and payments for flat sales were received directly by the builder.

Case Details:

INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI

I.T.A. No 4518/Mum/2012 Assessment Year: 2007-08

Income Tax Officer vs. Sam P Toddywalla

Date of Order/Judgment: 14/03/2016

Brief Facts of the Cases:

The assessee and his brother were co-owners of land having share of 50% each which was leased out by them for 999 years in 1979 to Daryani (Indo Saigon) Construction Pvt.Ltd. a builder for a sum of Rs. 12,50,000/-which was nonrefundable. The said land was purchased by them for a sum of Rs. 1,00,000/- in the year 1951 and was transferred in the name of assessee and his brother in 1957 and till the year of sale the assessee and his brother carried on agriculture operation on the said land. Consequently the possession of the property was handed over and given in 1979 to the said builder company.

The said land was developed and flats were constructed by the builder. In 2006 a deed of conveyance was registered between the assessee, his brother (owners), the Daryani (Indo Saigon) Construction Pvt. Ltd., and the flat buyers represented by Deepti Shakti Mukti Co-operative Hsg.Soc.Ltd. for a consideration of rupees 2,47,60,250/-which was received by the builder company directly. The case of the assessee was reopened under section 147 read with section 148 of the Income Tax Act, 1961 to assess the long-term gain arising out of the said transaction. In response to the notice the assessee filed his return of income at Rs. 164,451/-.

The assessee during the course of assessment proceeding submitted before the AO that he was not given any consideration or part thereof and the entire consideration under the conveyance deed was received by the developer M/S DCPL. The assessee submitted before the AO that Rs. 2,47,60,250/- represented the total price paid by the flat owners for the flats purchased and car parking area to the builder and he had not received anything out of the said consideration. The said builder had duly paid the income tax on the profits on the sale of flats.

The assessee however admitted that he had not paid any tax on the money received upon granting of lease these for 999 years in the financial year 1979-80 which was as good as sale however the assessee continued to be the registered owner of the property .  The AO rejected the contention of the assessee that the property was leased out to DCPL in 1979 and accordingly computed the income from long term gain at Rs. 99,24,008/-and assessed the assessee accordingly.

CIT(A) however allowed the assessee’s appeal and directed the AO to work out the LTCG on the basis of Rs. 6.25 lakhs (50% of Rs. 1200000/- received in 1979).

Important Excerpts from ITAT Judgment:

We have considered the rival submissions and perused the material on record. We find that the assessee had leased out the land for 999 years for a lump sum compensation of Rs. 12,50,000/-which was non-refundable and also handed over the possession of the land to builder. Thereafter the assessee had no control over the said property. We further note that it conveyance deed was executed in favour of the purchasers of flats through the cooperative society to which the assessee was also confirming party and a sum of 2,47,60,250/- was paid by the flat owners to the builders M/S DCPL and the assessee did not get anything out of the sale consideration. The developer DC PL had paid the income tax on the income resulting from the consideration of Rs. 2,47,60,250/-. So far as the assessment by the AO of long term capital gain based on the sale consideration received by the M/S DCPL is concerned , the action of AO is totally wrong and unacceptable especially when the consideration flowed directly to the builder from the purchasers of the flats and nothing was received by the assessee. It is also an undisputed fact that the builder had paid the due taxes on the profits earned by it and income from the same transaction could not be taxed twice firstly in the hands of developers M/.S DCPL who received the consideration actually and second in the hands of the assessee who was just confirming party to the conveyance deed. In our opinion the assessee must be taxed only in respect of the long-term gain on the lump sum compensation received at the time of leasing of the land Rs. 6,25,000/- being 50% of total compensation received i.e Rs.12,50,000/- in 1979. Thus, we do not find any infirmity in the ordere of CIT(A) and uphold the same. We therefore, direct the AO to take the sale consideration at Rs.6,25,000/- in the hands of the assessee and tax the long term gain accordingly if any.

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