S.H.KAPADIA, J. - (1.) FOR the assessment year 1979 -80, the Department has come by way of reference under Section 256(1) of the Income -tax Act, 1961, for our opinion on the question quoted hereinbelow : 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the surplus realised on the sale of land shall be treated as long -term capital gains and the surplus on the sale of building shall be treated as short -term capital gain ?' Facts :
(2.) SOME time during the accounting year ending December, 1975, the assessee purchased a plot of land admeasuring 3,930 sq. yards at Friends Colony, New Delhi. In the next year, the assessee started construction of a bungalow as a residence for the assessee's manager in New Delhi. On August 7, 1978, the assessee sold the entire property for Rs. 30,00,000. In the conveyance the price was allocated as follows ; for the land, it was Rs. 14,00,000 ; for the building, it was Rs. 9,00,000 and Rs. 7,00,000 was for the air -conditioning plant, equipment, installations and fixtures. The total consideration was Rs. 30,00,000. At this stage, it may be mentioned that out of the total area admeasuring 3,930 sq. yards, the built up area occupied by the bungalow/building was 1,235 sq. yards. The assessee -Citibank is a non -resident company, engaged in banking business in India. On June 29, 1979, it submitted its return of income of Rs. 5,05,08,610. On September 21, 1981, the assessee submitted a revised return showing a total income of Rs. 5,03,03,660. As per annexure C filed with the return of income, the assessee -bank had returned a short -term capital gain of Rs. 26,242 on the sale of house property and a long -term capital gain of Rs. 4,87,913 on the sale of land. This working was not accepted by the Assessing Officer, who took the view that the house property had been constructed on the land and, therefore, the gain arising on a transfer resulted in short -term capital gains. According to the Assessing Officer, the entire gain arising to the assessee on the transfer represented short -term capital gain and, accordingly, the Assessing Officer computed short -term capital gain at Rs. 5,14,155. Being aggrieved by the decision of the Assessing Officer, the assessee carried the matter in appeal to the Commissioner (Appeals), who substantially confirmed the assessment order. Being aggrieved, the matter was carried in appeal to the Tribunal by the assessee, which took the view that in the present case the land was a distinct and separate capital asset vis -a -vis the building ; that the land was a long -term capital asset; that in India, the principle 'dual ownership' was applicable ; that for the purposes of computation of capital gains, land and building were two separate and distinct assets and, therefore, profits arising from the sale of land was required to be considered as long -term capital gain whereas, profits arising from the sale of building was required to be considered as short -term capital gain. Being aggrieved by the decision of the Tribunal, the matter has come by way of reference at the behest of the Department. Arguments :
(3.) MR . R. V. Desai, learned senior counsel appearing on behalf of the Department, argued that after the construction of the building on the land, the house property became an inseparable asset. That, after construction of the building on the land, the house property became a new asset. That, it was not possible to bifurcate the capital gains as relatable to building separately or land separately and since the apportionment was not possible, the view of the Tribunal was not correct in law. According to learned counsel for the Department, the land and building are not sold separately but as one unit and, therefore, it is not possible to bifurcate the building and land as two separate units.;