M.M.KUMAR, J. - (1.) ON the application filed by the Revenue before the Income -tax Appellate Tribunal, Chandigarh Bench, Chandigarh ("the Tribunal"), being R.A. No. 432/Chd/1988 in ITA No. 245/Chd/1987, in respect of the asst. yr. 1983 -84, the Tribunal was persuaded to refer the following question of law for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in bifurcating the profit or gain the plot and short -term capital gain with reference to the construction of a superstructure made on the plot when the asset sold was one, i.e., incomplete house, and there was only one sale transaction -
(2.) IT would be necessary to make a brief reference of facts as emerge from the order of the Tribunal, where the only issue debated was that the capital gain computed by the Income -tax Officer ("the ITO"), should have been treated as long -term gains as contemplated by s. 54F of the IT Act, 1961 (for brevity, "the Act"). The assessee had sold a small plot with a small superstructure on it for a sum of Rs. 2,25,000 during the asst. yr. 1983 -84. He claimed the benefit of s. 54F of the Act. The assessee claimed that the plot had been purchased and the construction was started long before the AO, however, on the basis of information collected from the assessee held that the benefit of s. 54F of the Act was not when he received the first instalment and the remaining two instalments were received later on. On that basis the AO superstructure is raised on the plot, it becomes entirely a different asset and the life of this asset cannot be linked with
(3.) ON appeal, the CIT(A) upheld the order of the AO and the assessee approached the Tribunal. The Tribunal recorded the findings that the assessee had purchased the land from Shakti Co -operative House Building the date of construction, the Tribunal has noticed that the Municipal Corporation, Ludhiana, sent a notice to the assessee therefore, he had contravened s. 195A of the Municipal Act, 1911, which led to the prima facie conclusion that construction had started as early as 1977. In that regard some receipts were produced before the authorities not be disputed by the Revenue and that the date of acquisition of the property was to constitute the basis for deciding whether he would be liable to pay short -term capital gain or long -term capital gain. The Tribunal held that the capital gains arising out of the assets created by the assessee during the three years immediately preceding the sale should be considered to be short -term capital gains while gains on the remaining assets were to be considered as long -term capital gains. The order of the Tribunal reads as under : "... what at best can be said for the Department is that the capital gains arising out of the assets created by the assessee during the three years immediately preceding the sale could be considered to be short -term capital gains while gains on the remaining assets should be considered to be the long -term capital gains. One thing to note in this behalf is that the intention of the framers of the Act was to tax the actual profits earned on the sale of the asset. It is a matter of common knowledge that due to the general rise in consumer price index in the last several years, there has been a phenomenal rise in the market price of plots at Ludhiana. In fact, the rise in the price of property is more to the price of the land which is now in shortage. Of course, there is also rise in the cost of material but qua the building there is some corresponding decline also because of depreciation. At any rate, there would not be much rise in the price of material during the three years immediately preceding the sale because the total cost of construction has been estimated by the Therefore, the construction must have been done by the assessee after 1980. It is difficult to give the exact date of construction but keeping in view the overall fact and circumstances, we would estimate that the assessee may have spent about half the amount, i.e., Rs. 25,000 during the three years immediately preceding the sale. It is correct that the assessee received a loan of Rs. 40,000 from for this construction in this period but it was explained before us that part of the loan was utilised from payment of outstanding bills. Profit in relation to what the assessee had spent during these three years should therefore be estimated taking into consideration the general rise in the consumer price index during the year thereafter giving deduction for the estimated depreciation of the building. At best, to that extent, the gains resulting to the assessee can be considered to be short -term capital gains. All the balance profit earned by the assessee on the sale of the building should be considered to be a long -term capital gain." ;