COMMISSIONER OF INCOME TAX Vs. LAKSHMI B MENON
HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX
Lakshmi B Menon
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(1.) THE Tribunal, Cochin Bench, has referred the following question of law to this Court under Section 256(1) of the IT Act, 1961 (for short 'the Act') at the instance of the Revenue :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the capital gains arising from the sale of land and building should be determined separately?'
(2.) THE brief facts relevant for the purpose of this case are as follows : The assessees (mother and daughter) had jointly purchased 10 cents of land on 15th July, 1981. A residential house was constructed on the said land and the construction was completed in February, 1982. The land together with the building was sold on 1st Aug., 1984.
In the assessment for the year 1985 -86 they claimed that the capital gains arising from the sale of land and building should be determined separately and as the land was sold more than 36 months after its purchase, the gains arising from the sale of land should be treated as long -term capital gain and that the gain from the building alone should be treated as short -term capital gain for the purpose of assessment. This was not accepted by the AO, as according to him, though the land was purchased in July, 1981, since a building was constructed thereon in February, 1982, the nature of the assets was changed into one of house property, which came into existence only in February, 1982. On that basis the AO treated the entire gains arising from the transaction as short -term capital gains and the deduction available under Section 80T as well as exemption under Section 54E in regard to a portion of the capital gains was denied. In appeal by the assessees, the CIT(A) accepted the claim of the assessee and allowed the appeal. In appeal by the Department, the Tribunal confirmed the order of the CIT(A). Hence, the reference at the instance of the Department.
(3.) WE have heard Sri. P.K.R. Menon, learned senior Central Government standing counsel for taxes appearing for the applicant, and Sri P. Balachandran, learned counsel appearing for the respondents -assessees. The senior counsel submitted that admittedly the assessees had constructed a building in February, 1982, on the land acquired by them in July, 1981, and the income therefrom has to be assessed under the head 'income from house property' under Section 22 of the Act. The senior counsel on that basis submits that when the assessees have sold the property subsequently the capital gains arising from the sale of the property will have to be arrived at treating the house property as one unit. In other words, according to the senior counsel, the appellate authorities were not justified in directing the AO to treat the gains attributable to the sale of the land alone as long -term capital gains and to allow the applicants' claim for deduction under Section 80T as well as exemption under Section 54E in accordance with law. The senior counsel in support of his contention has also relied on the provisions of Sections 53, 54 and 54D of the Act. On the other hand, the counsel for the assessees submits that both the land and the building constructed on it are separate capital assets for the purpose of Section 45 of the Act; the fact that the assessees had constructed a building on the land which is a long -term capital asset will not alter the character of the land as a long -term capital asset and, therefore, when the assessee had sold the property consisting of land and building, the capital gain arising from the sale of the land which is a long -term capital asset has to be computed separately and the building has also to be separately valued. The counsel further submits that Section 80 -T of the Act clearly contemplates the separate valuation of the land and building as separate capital assets. The counsel on that basis submits that both the appellate authorities were justified in directing the assessing authority to separately assess the capital gains on land and building. The counsel also relied on the decisions of the Rajasthan High Court in CIT v. Vimal Chand Golecha , Madras High Court in CIT v. Dr. D.L Ramachandm Rao : 236ITR51(Mad) and in CIT v. T.C. Itty Ipe : 249ITR591(Mad) in support of his case.;
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