Roads and common facilities area in land development agreement also part of assessee’s share in land for capital gain purpose and had to be in the same ratio-ITAT
ABCAUS Case Law Citation:
ABCAUS 2275 (2018) (04) ITAT
The Assessing Officer (AO) had the information that the assessee and eight other persons had entered into a development agreement with a company (developer) for development of their land but in his return of income, the assessee had not disclosed the capital gains arising out of the said agreement.
Accordingly, notice u/s 148 of the Income Tax Act, 1961 (the Act) was issued with necessary approval from the Addl. Commissioner of Income Tax which was validly served on the assessee.
Thereafter, during the assessment proceedings u/s 143(3) r.w.s. 147 of the Act, the AO observed that by virtue of the development agreement, the assessee had given his land of 1 acre 33 guntas to the developer with the sharing ratio of 45:55 i.e. the assessee’s share was 45% and the developer’s share was 55%.
It was observed that the assessee and fourteen other persons also entered into a Supplemental Agreement with the Developer by virtue of which, the assessee was allotted seven villas/houses along with undivided share of land of 2275 sq. yards (325 x 7). Observing that the developer has not handed over the villas/houses that were allotted to the assessee during the relevant financial year, the AO held that the assessee was liable to pay capital gain tax on the land transferred by the assessee to the developer vide the development agreement.
To know the cost of land on the date of Development Agreement, a letter was sent to SRO requesting to furnish the market value of the land as on agreement date. The market rate as informed by the SRO was Rs. 48.00 lakhs. The AO therefore, issued a show-cause notice to the assessee with regard to the computation of the LTCG.
The assessee replied that as per the development agreement 55% of his land was transferred to the Builder and the assessee was holding 45%. The AO, however, observed that the assessee was supposed to receive 325 sq. yards for each plot and the total land retained by the assessee was only 2275 sq. yards (325 x 7). Thus, according to him, the assessee has retained only 25.78% of the total land and therefore, the land transferred by the assessee is 74.22%. Thereafter, the AO computed the short term and long term capital gains arising from the said transaction.
The AO, accordingly computed the LTCG and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO. In the second appeal the assessee was before the Tribunal.
The assessee contended that as per the Development Agreement, the assessee and the developer were to share the plots in the ratio of 45:55, and thereby the land covering the common areas such as roads and the land left for amenities etc., was also to be shared in the same ratio.
It was submitted that the AO and the CIT(A) had taken only the net plotted area allotted to the assessee for coming to a conclusion that the assessee had only transferred 74.22%, which is incorrect.
The ITAT observed that as per the agreement what was to be shared amongst the land owners and the developer, were the plots with houses. The developer was required to make a lay-out and the entire cost of the development of the scheduled property such as levelling, surveying, demarcation and making of plan, architectural design and the cost of construction etc., including the amount spent for obtaining sanction of lay-out and permit and the cost of providing internet, electrification to the buildings was to be borne exclusively by the developer.
It was further observed that after the sanctioning of the lay-out, the parties had entered into a supplemental agreement for demarcating their shares of plots/houses. The no. of plots with houses allotted to the assessee towards his share of land was 7, with each plot being of 325 sq. yards. But, the area covering roads and common facilities etc., also fall to the share of the assessee for calculating the assessee’s share of land and it had to be in the same ratio.
The ITAT opined that the findings of the AO and the CIT (A) that the assessee was holding only 25.78% and has transferred 74.22% to the developer was not correct.
In view of the above the ITAT remitted the issue back to the file of the AO for recomputation of the capital gains after taking into consideration, 45% of the total plotted area including the roads and common facilities as part of the assessee’s share.
