No Capital Gain without incurring cost

Where Whole amount of sale consideration was taxed by the Assessing Officer as capital gains without giving assessee any benefit with regard to cost of acquisition or cost of construction because the assesse could not prove the expenditure.

Held by ITAT that  It can be nobody's case that the assessee had acquired the property without paying any cost. Some value for cost of acquisition has to be given to the assessee. Even in cases of properties acquired through gifts, etc. the cost of acquisition as incurred by the previous owner is given to the assessee.

Nand lal Popli [2016] 71 taxmann.com 246 (Chandigarh - Trib.)]

As per Section 2(14)(iii), agricultural land outside specified limit is not capital asset and hence there can be no capital gain on transfer of such agricultural land. Hence it is important to determine whether land is agriculture land or not. A few case laws relevant to the subject:

In Gemini Pictures Circuit (P.) Ltd. v. CIT [1981] 130 ITR 686/6 Taxman 42 (Mad.) it was held that onus is on the department to prove that land is non agricultural or that it forms part of business assets. Once the assessee proves that the land is raagricultul land the burden of proving that it is not agricultural land is on the revenue.

In case of Gordhanbhai Kahandas Dalwadi v. CIT [1981] 127 ITR 664 (Guj.), it was held that the correct test that has to be applied is whether on the date of sale the land was agricultural land or not. Just because after the sale the purchaser was going to put the land to non-agricultural use, it does not mean that the land had ceased to be agricultural land on the date of sale.

In case of CIT v. Borhat Tea Co. Ltd. [1982] 138 ITR 783/[1981] 7 Taxman 388 (Cal.), it was held that for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. What is to be seen is whether such land is capable of agricultural operations being carried on.

In case of CIT v. Modhabhai H. Patel [1994] 208 ITR 638/77 Taxman 408 (Guj.), it was held that if a land is recorded as agricultural land in the revenue records and if till the date of its sale it is used and exploited as agricultural land, and if the owner of the land has not taken any step which would indicate his intention to exploit the land thereafter as non-agricultural land, then such a piece of land would have to be regarded as agricultural even though it was included within the municipal limits or it was sold on a per square yard basis and not acreage basis.

The purpose for which such a land is sold, though not relevant, will not have that much importance and weight as it would have in a case where the land has remained a spadatar or idle or is used for agricultural purposes only by way of a stop-gap arrangement.

Where assesse enters into agreement to sell agri land. There after makes an application to the authorities to permit to covert the land into farm houses and authority replies that no such conversion required for farm houses and there after the sale deed with buyer is registered. Whether the land ceases to be agricltual land on the date of registration of sale deed. What is the relevant date of transfer, the date of agreement or date of registration of sale deed?

As per Section 2(14)(iii), agricultural land outside specified limit is not capital asset and hence there can be no capital gain on transfer of such agricultural land. Hence it is important to determine whether land is agriculture land or not.

Where assesse enters into agreement to sell agri land. There after makes  an application to the authorities to permit to covert the land into farm houses  and authority replies that no such conversion required for farm houses and there after the sale deed with buyer is registered. Whether the land ceases to be agricltual land on the date of registration of sale deed. What is the relevant date of transfer, the date of agreement or date of registration of sale deed?

Held by Jaipur Tribunal in Megh Chand Meena, HUF [2016] 70 taxmann.com 374 (Jaipur - Trib.) MAY  17, 2016  that  it was clear that there was no conversion of agricultural land and what had been transferred by assessee continued to be agricultural land beyond 8 Kms. of municipal limits. it was not a capital asset under section 2(14)(iii) . therefore, sale consideration was not liable to capital gains tax under section 45.

Taxability of Damages for breach of contract received by the buyer of Immovable property discussed by ITAT Amritsar

The law under section 51 and 56(2)(ix) provides for the taxability of forfeiture of advance money received in the hands of seller. Till AY 2014-15, the forfeited sum was deductible from the cost and even the excess of forfeited money over cost was capital receipt not taxable by virtue of Supreme Court Judgment in Travoncore Rubbers. In the hands of buyer the forfeiture of amount by reason of failure on the part of buyer was not treated as capital loss by virtue of Bombay High Court Judgement in Sterling Investment Corporation 123 ITR 441. However wef AY 2015-16, the forfeited amount is taxable in the hands of seller as Income from other Sources and no reduction from cost of the asset has to be made.

Amount recoverable from wholly owned Indian subsidiary was assigned to another company by non resident company assessee for loss. Held by ITAT Mumbai that even though an advance, a debt or a recoverable amount is a 'current asset' from an accountant's perspective, as long as such an advance, debt or recoverable amount satisfies the requirements of Section 2(14), it will have to be treated as a 'capital asset' for the purposes of computation of capital gain. The concept of 'current asset' is alien to the law on taxation of capital gains, or, for that purpose, to the law on taxation of income. Further as per Section 9(1)(i) any income, "through the capital asset situated in India" is deemed to accrue or arise in India, the debt being recoverable from company in India is a capital assets in India. As a corollary to this taxability of income, the loss through the capital asset situated in India is also required to be taken into account. Also the transaction satisfies the definition of term “transfer” u/s 2(47) as it is sale of debt. The sale of trade debts, or even loans, is a part of day to day trade and commerce. Hence loss from assigning the amount recoverable from Indian entity is short term capital loss which can be set off against capital gain Income of the assessee non resident company

Siemens Nixdorf Informationssysteme GmbH [2016] 68 taxmann.com 113 (Mumbai - Trib.) MARCH  31, 2016 

Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company is not regarded as transfer u/s 47(x). As per Rule 8AA inserted vide Notification dated 17-03-2016 , In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.

Where entire cost of property (both land and building) was taken by the assesssee as building only and depreciation was claimed there on. On Sale of the property AO took 1/6 th of the consideration towards building and balance towards land. AO reduced sale allo cated towards building from block and took cost of land at NIL value. Hence entire sale consideration allocated towards land was taken as capital gain. CIT A allocated WDV of property in the same ratio as sale consideration and applied cost of indexation on such deemed value of land. Held by ITAT that stand taken by CIT A is reasoned one and has rightly apportioned the WDV between land and building. [Para 22 Construction Engineers pronounced by ITAT Asr on 18-02-2016]

The Tribunal granted benefit under section 54F of the Act on the entire amount of investment in new house including the amount paid to the builders for amenities like car parking. It dismissed the revenue’s action of restricting the benefit to the value disclosed in the registered sale deed and held that disclosure of a lower value of property (excluding amount paid for amenities like car parking) for stamp duty was an issue alien to the question of allowing deduction under section 54 of the Act. S Tejraj Ranka v ACIT (ITA No.82/Bang/2014) – TS-512-ITAT-2015 (Bang)

The Tribunal held that the surrender of tenancy right was a “transfer” as defined under the Act and that the consideration received on such transfer was assessable to tax under section 45 of the Act and not under the head ‘Income from Other Sources’. It further allowed deduction under section 48 of the Act for expenses incurred on dismantling factory constructed on lease-hold land while computing capital gains upon surrender of lease hold rights on the ground that it was wholly and exclusively in connection with the transfer irrespective of the fact that the expenses were incurred by a person other than the assessee. Sri Laxmidas Bapudas Darbar v ITO [ITA No 731 / Bang / 2014] – TS-498-ITAT-2015 (Bang)

Revision proceedings by CIT on the issue of purchase of new house partly from owned funds and partly from housing loan quashed by ITAT Hyd in Smt. Sumathi Gedupudi [2015] 64 taxmann.com 382 (Hyderabad - Trib.) holding that money has no colour and it is sufficient if requisite amount is invested in new house irresepective of whether it comes from direct sale proceeds or any other source including borrowed funds. ITAT further held that the issue of granting deduction/exemption under S.54F on the borrowed money is a debatable issue and revision proceedings can not be under taken where two views are possible

Capital gain on agriculture land with in 8 km from area not notified, not chargeable to taxable. Madhu Kumar N. HUF 78 DTR 391 (Kar HC)

Assessee a shareholder along with other shareholders sold all the shares of company to “R” could not be treated indirect transfer of flats owned by company to “R” Hence provisione of Section 50C could not be applied to transaction of sale of shares. Irfan Abdul Kader Fazlani (Mum Trib) 29 TMC424

Guidelines of land value fixed by sub register is only a guideline value to ascertain market value of land for collection of stamp duty and can not be sole basis to fix market value on 1.1.81 R.Vidhyadharan (Cochin Trib.) 30 TMC 130 21.12.12

Deposit of money in FD cannot be constructed as deposit in capital gain bonds for claiming exemption u/s 54 EC R.Vidhyadharan 30 TMC 130 (Cochin) 21.12.12

S.54 F exemption is available on house constructed on agriculture land -Om Parkash Goyal ITA 647 /JP /2011/2.02.12

For 2(42A) calculation of 12m /36m ,” more then 12m/36m immediately preceeding date of transfer , date of transfer to be excluded. Month = calendar Month as defined in Gen Clauses Act 1897. If asset acquired on 2nd Jan period of 12m to expire on 1st Jan . Hence if asset sold on 2nd jan it is LTCA Bharti Ramola Gupta(Del HC)72 DTR 387

Barren land is not agriculture land and liable for capital gain tax Suresh kumar D . Shah (2012) 49 SOT 341 (HYD TRIB)

Loss on transfer of compensation bonds issued to assessee in consideration of assignment of debt receivable (in US dollars) from Iraq Govt.is not covered by head capital gain and hence no indexation can be made. However loss can be claimed as bad debt because payment received in form of bonds for services rendered under contract would not alter the character of income Ircon International Ltd. (Del HC ) 15.5.15 57TMC 336

For Investment u/s 54 F funds other than from transfer of capital asset can also be used. Section 54F does not put any restriction in this regard-Held by Punjab and Haryana High Court in Kapil Kumar Aggarwal ITA 12/2015 dtd. 04-11-2015. P&H High Court relied upon K.C. Gopalan 107 taxman 591(Ker); Anandraj 56 taxmann.com 176 (karnatka); Rajesh Kumar jalan 286 ITR 274 (Gau) and V.R. Desai 197 taxman 52 (Ker). In Anand Raj the assessee used borrowed funds, still exemption was held allowable.[Page 13 Para 18]

SC in Zuari Estate Development & Investment Company Limited has held that intimation u/s 143(1) is not assessment and hence while issuing notice u/s 148 there is no change of opinion and hence notice is valid. Bombay High Court Judgement is set aside and matter restored to ITAT to decide on merits. Comments : In this case the notice u/s 148 was issued for not reflecting capital gain u/s 2(47)(v) rws 53A of Transfer of Property Act in respect of an agreement entered in 1984 by which property was stipulated to be transferred in 1991 only. However section 2(47)(v) has come into operation w.e.f. AY 1988-89 only and high court had held in para 18 of its judgement that “ no prudent or reasonable person, reasonably instructed in law, could have come to the conclusion that an agreement as contemplated by section 53A of the Transfer of Property Act had been entered into for the assessment year 1991-92” and that mere exchange of letters is not agreement u/s 53A. SC has not considered this part of the judgement. How shall now ITAT decide the issue ?