2013-ITS-80-ITAT-Natraj -Vs- Deputy Commissioner of Income-tax, Cir. 10, Ahmedabad* , On. JANUARY 4, 2013
IN THE ITAT AHMEDABAD BENCH ‘A’
Natraj
v.
Deputy Commissioner of Income-tax, Cir. 10, Ahmedabad*
G.C. GUPTA, VICE-PRESIDENT And A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER IT APPEAL NO. 3063 (AHD.) OF 2010 [Assessment year 2007-08]
JANUARY 4, 2013
Bottom line:- It is well settled that when certain provision of law has clear language and leaves no room for ambiguity, there should be no violence to the provision as enacted by the Legislature and no words should be added or omitted while reading a specific provision of law. The Legislature has intentionally not added word ‘land’ in the provision of section 55(2)(a), and therefore, the provision of section 55(2)(a)(ii) would not be applicable while valuing the ‘cost of acquisition’ of the land for the purpose of computation of ‘long term capital gain’ of the assessee.
J.P Shah for the Appellant. Rahul Kumar for the Respondent.
ORDER
G.C. Gupta, Vice-President – This appeal by the assessee for the assessment year 2007-2008 is directed against the order of the CIT(A)-XVI, dated 06.09.2010.
2. The grounds of the appeal of the assessee are as under:
“1. That the C.I.T. (APPEALS) erred in not allowing the indexed Fair Market Value of Rs. 2,99,72,250 as on 1-4-1981 in respect of the Leasehold Land acquired by the appellant as per the registered Lease Deed dt.15.9.1966 in accordance with the provisions of sec.48 and 55(2)(b) of the I.T. Act on the ground that the appellant had not incurred any cost for acquiring the said leasehold land by relying upon the provisions of sec. 55(2)(a) which is absolutely incorrect and inapplicable because on the facts of the case, the appellant had incurred the cost for construction of the building to be vested in the Lessors on the expiry of the lease period pursuant to the Lease Deed, it is, therefore, submitted that the indexed fair market value of Rs. 29972250 be allowed in computing the Long-term Capital Gains and that the assessment be directed to be modified accordingly.
2. Without prejudice to above, it is also submitted that if it is to be held that the appellant has not incurred any cost for acquiring the leasehold land, the provisions of section 48 relating to the computation fail and, therefore, no capital gains can he levied in respect of the sale of the leasehold land since the provisions of sec.55(2)(a) prescribing ‘Nil’ cost in respect of certain capital assets apply inter alia to Tenancy Rights and not to Leasehold Rights and arc, therefore. not applicable to the facts of the case and therefore, the old decisions still hold good in respect of the transaction in question. It is, therefore, submitted that the said capital gains be excluded from the purview of the total income and that assessment be directed to be modified accordingly.
3. That the C.I.T.(Appeals) further erred in holding that the A.O. had given an opportunity of hearing to prove the cost of acquisition of land before denying the deduction of Rs. 2,99,72,250 u/s 48 r.w.s. 55(2)(b) of the I.T. Act in respect of the sale of the leasehold land in spite of the fact that no such opportunity of hearing was given with regard to the cost of acquisition of the land during the course of the assessment proceedings and thereby the principles of natural justice were clearly violated. It is, therefore, submitted that the assessment order passed by the AO, be held to be bad-in-law on the ground of violation of the principles of natural justice.”
3. The learned counsel for the assessee submitted that the only issue in this case of the assessee is with regard to the cost of acquisition of leasehold land at Ashram Road, Ahmedabad claimed at Rs. 2.99 crores by the assessee and taken at NIL by the Department. He submitted that other issues with regard to the violation of principles of natural justice etc. are not being contested by the assessee. The learned counsel for the assessee submitted that the assessee has taken the land on lease for 98 years admeasuring 5082 square yards on main Ashram Road vide registered deed dated 15.9.1966. He submitted that the assessee (lessee) has committed vide term 3(e) of the agreement that it shall construct a Cinema Hall on or before 31st December, 1966 at minimum cost of Rs.4 lakhs. He submitted that this amount of four lakhs became the cost of acquisition in the hands of the assessee for the year 1966. He submitted that the Revenue authorities have taken the cost of acquisition of the land at NIL by invoking the provisions of Section 48 r.w.s. 55(2)(a)(ii) of the I.T. Act, 1961, although this section 55(2)(a)(ii) was applicable only to goodwill, trade mark and others as detailed in the said provision of law. He submitted that in accordance with the scheme of the Act and in particular the provision of section 48 of the Act, the assessee was entitled to adoption of fair market value of the land as on 1.4.1981 and the indexed cost of the acquisition thereof. He submitted that the said land was sold on 11.5.2006 after demolition of the Cinema building and in accordance with the agreement, 60% of the sale price was received by the assessee (lessee) and the remaining 40% was taken away by the lessor. He submitted that the assessee has submitted valuation report of the plot of land from the approved valuer, copy of which has been filed in the compilation before the Tribunal.
4. The learned DR has opposed the submissions of the learned counsel for the assessee. He submitted that no cost of acquisition was incurred by the assessee as per the terms and conditions of the registered lease deed, and therefore in accordance with the provision of section 55(2)(a)(ii) of the Act, the cost of acquisition has to be taken at NIL. He referred to the term-4 of the lease deed dated 15.9.1966 wherein it was agreed that all the building and structure put up by the lessee on the said land remain the property of the lessee only. He referred to the relevant portions of the assessment order as well as appellate order passed by the CIT(A) in support of the case of the Revenue. He submitted that the cost of construction of cinema hall could not be attributed to the cost of taking land on lease and the assessee has already demolished the building before it had transferred back the lease hold land in question. He relied on the order of the AO and the CIT(A).
5. We have considered rival submissions and have perused the orders of the AO and the CIT(A) and copies of the various documents filed in the compilation before us including the copy of the lease deed dated 15.9.1966 and also copy of the valuation report dated 11.9.2006 for fair market value as on 1.4.1981. We find that the Revenue authorities in this case have been influenced and have based their decision on the fact that the assessee has not paid any “cash” at the time of execution of lease deed on 15.9.1966 and has only committed to invest in the construction of cinema building at a minimum cost of Rs. 4 lakhs. We find that in accordance with the scheme of the Act and in particular the provision of Section 48, for the asset held by the assessee for the year prior to beginning of 1st day of April, 1981, the fair market value of the “asset” in question as on the first day of April, 1981 has to be taken as “cost of acquisition” of the asset and the benefit of indexed cost of acquisition has to be allowed to the assessee while determining the long term capital gain of the assessee. In this case, the assessee has acquired lease hold rights for a long term period of 98 years in the year 1966, which is clearly prior to 1.4.1981, and therefore for the purpose of determining the “long term capital gain”, the fair market value of the leasehold rights of the assessee in the land as on 1.4.1981 has to be calculated and the indexed cost of acquisition has to be determined. In this case, plea of the assessee was that it was bound by the terms of lease deed dated 15.9.1996 to spend a sum of Rs. 4 lakhs in the construction of Cinema hall, and this amount should be taken as cost of acquisition of the plot of land. This plea of the assessee in our considered opinion, is not acceptable for the reason that building of cinema hall as per terms of the lease deed dated 15.9.1966 had to remain with the ownership of the assessee (lessee) and also for the reason that the cinema building itself was demolished before the date of sale of leasehold rights in the plot of land. However having rejected this plea of the assessee as not acceptable and the value of the land in question as on the date of execution of lease agreement i.e. 15.9.1966 is not taken at Rs. 4 lakhs, the fair market value of the land as on 1.4.1981 of the leasehold rights of the assessee in the land still has to be decided and determined. In a case where the assessee has acquired some land for NIL value prior to a year starting from 1.4.1981, even then the provision of section 48 shall be applied and the fair market value of the land in question as on 1.4.l981 along with the indexed cost of acquisition has to be determined in order to arrive at the figure of “long term capital gain”. In our considered view, the value for which the assessee has acquired the land in question prior to 1.4.1981 is not relevant for the determination of the “fair market value” of the land as on 1.4.1981.
6. We find that the important issue before us for adjudication is whether the provision of section 55(2)(a)(ii) of the Act relied upon by the Revenue is applicable to the case of the assessee to value the land in question as on 1.4.1981, even though the land was acquired by the assessee for NIL value. We have already held in the foregoing paras of this order that where the assessee has acquired some land for NIL value prior to a year starting from 1.4.1981, even then the provision of section 48 shall be applicable and the fair value of the land in question as on 1.4.1981 along with indexed cost of acquisition has to be determined in order to arrive at the figure of “long term capital gain” and the value for which the assessee has acquired the land in question prior to 11.4.1981 is not relevant for determining the “fair market value” of the land as on 1.4.1981. However, the Revenue has relied on the amended provision of Section 55(2)(a)(ii) and have submitted that in accordance with this amended provision of law, in such a case as that of the assessee, the cost of acquisition shall be taken at NIL. None of the parties could cite any decision of Hon’ble Court or the Tribunal in their favour on this issue. Thus, important law point before us for adjudication is that whether in view of amended provision of Section 55(2)(a)(ii) of the Act, where the assessee has acquired a piece of land at NIL value in a year prior to 1.4.81, the “fair market value” of the land in question as on 11.4.81 for the purpose of determination of “cost of acquisition” as per provision of section 48 and 49 of the Act shall be taken at NIL. For the sake of ready reference we reproduce the provision of Section 55(2)(a) of the Act as under:
For the purposes of sections 48 and 49, “cost of acquisition”,–
(a) in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours, —
(i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and
(ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49, shall be taken to be nil ;
7. A plain reading of this provision of law makes it clear that the for the purpose of sections 48 and 49, the cost of acquisition shall be taken at “NIL”, in the case not falling under the provision of Section 55(2)(a)(i) or any other case not being case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49, and shall apply only in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours. The case falling under sub-clauses (i) to (iv) of Section 49(1) are with regard to the case where the capital asset became the property of the assessee on the distribution of assets on partition of a Hindu undivided family or under a gift or will or by succession, inheritance or devolution, or any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or on any distribution of assets on the liquidation of a company, or under a transfer to a revocable or an irrevocable trust, or under any such transfer as is referred to in certain clauses of section 47 or in the case of HUF by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969, and in this type of cases, the cost of acquisition of the asset shall be cost for which the previous owner of the property acquired it as increased by the cost in improvement of the assets etc. We find that the provision of section 55(2)(a) shall apply in relation to the capital assets mentioned in Section 55(2)(a) of the Act only. The capital assets as mentioned in Section 55(2)(a) are exhaustive and all inclusive of capital assets, such as goodwill, trade mark brand name, right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours, and being an exhaustive list of capital assets, any other capital asset such as land etc. could not be included for the purpose of valuation of “cost of acquisition” for sections 48 and 49 of the Act. It is well settled that when certain provision of law has clear language and leaves no room for ambiguity, there should be no violence to the provision as enacted by the Legislature and no words should be added or omitted while reading a specific provision of law. We find that the Legislature has intentionally not added word “land” in the provision of Section 55(2(a) of the Act, and therefore, the provision of section 55(2)(a)(ii) of the Act would not be applicable while valuing the “cost of acquisition” of the land for the purpose of computation of “long term capital gain” of the assessee. Accordingly, we hold that the value of the lease-hold rights in the land in question of the assessee, has to be determined in accordance with the provision of section 48 of the Act by valuing “fair market value” of the land as on 1.4.1981 and the index cost of acquisition has to be determined in order to assess long term capital gains in the hands of the assessee.
8. This leaves us to the only point for decision that what would be the fair market value of the land in question as on 1.4.1981 for the lease hold right of the assessee in the land at Ashram Road, Ahmedabad. This is purely a question of fact. We find that the assessee has obtained the lease-hold rights for a long period of 98 years vide registered deed dated 15.9.1966. The land is situated at the main Ashram Road, Ahmedabad and is a prime commercial location. The land is facing main Ashram Road on east side and TPS road on its south side. Before us, both of the parties have submitted that the cinema building was already demolished and plot was plain plot of land as on the date of sale of the property. The land in question is surrounded by the commercial buildings, viz. cinema theatres, handloom house, petrol pumps, Reserve Bank of India, Chinubhai Tower, Neptune building, Karaka building, Times of India Building, GIDC offices, Income Tax Office, Navdeep building etc. are within one km. from the property. We find that the assessee was having only leasehold right for a long period of 98 years in the land, and it is well established principle for valuation of “fair market value” of such lease hold rights of the assessee, is by capitalizing the “net annual income” of the land of certain number of years purchase in accordance with the prevailing rate of interest and by deducting the annual rent payable to the lessor out of the total income of the assessee. However, no such exercise was undertaken by the assessee or by the department to find out the net annul income of the land in this case and no data of net annual income is available. In such a situation, other method of valuation of fair market value as on 1.4.1981 would be to value free hold land as on the relevant valuation date, and thereafter due deduction on account of the land being leasehold may be allowed. We find that no specific sale instances of free hold/lease hold lands in the vicinity of the land in question have been cited either by the assessee or by the Revenue. The AO has chosen not to refer the issue of valuation of the land in question as on 1.4.1981 to the Departmental Valuation officer. The assessee has filed a copy of the valuation report of the Approved valuer dated 11.9.2006 valuing the land in question as on 1.4.1981 at Rs. 57,75,000/- and copy thereof has been filed in the compilation before the Tribunal. We find that no effort has been made by the Revenue to controvert the value of the land as on 1.4.1981 as estimated by the approved valuer. We have perused the copy of the Approved valuer’s valuation report filed in the compilation before us. We find that the approved valuer has committed one glaring mistake in its valuation report by not making suitable deduction on account of assessee’s right in the land being only that of “lessee” for 98 years and the assessee not being owner thereof. We find that the approved valuer has recorded that he has taken into consideration surrounding sales and its location, size, frontage, neighbourhood, prospects of developments, distance to the commercial establishments etc. while determining the land rate of Rs. 1200/- per square yard as on 1.4.1981. However, this value of the land estimated at Rs. 1,200/- per square yard may be reasonable for a free hold land as on 1.4.1981, but the value of a free hold land could not be equated with the value of leasehold rights of “lessee” in a particular piece of land. No mention of the fact that whether the approved valuer has considered this fact while estimating the value at Rs. 1,200/- per square yard and whether he has allowed some deduction on account of the fact that the assessee has only the leasehold rights in the plot, we hold that it shall be reasonable to estimate the value of the land as on 1.4.1981 after making suitable deduction on account of the assessee not being full owner of the land. We find that at the time of sale of the land, during the relevant assessment year 2007-2008, the assessee has received 60% of the proceeds and the balance 40% of the sale proceeds have gone to the lessor. However, while the transaction of sale has taken place on 11.5.2006, when the lease period of about 40 years have passed, out of the total lease period of 98 years with the assessee, the lease period of 15 years only had passed as on the relevant valuation date of 1.4.1981, as the lease deed was executed on 15.9.1966 conveying the lease hold rights on the assessee for a period of 98 years. We find that with the passage of 25 more years of lease after the relevant valuation date i.e. 1.4.81, the share of assessee-lessee in the value of the land will definitely be less and the share of the owner (lessor) shall definitely be more. Considering the entire factual matrix of the case, and holding that fair market value of the land in question as on 1.4.81 has been reasonably estimated at Rs.1,200/- per square yard by the approved valuer as on 1.4.1981, we hold that it shall be fair and justified to value the leasehold rights of the assessee in the land at Ashram Road as on 1.4.1981 at Rs.800/- per square yard after making suitable deduction on account of the land not being free hold and the assessee’s right being that of “lessee” for long period of time. We direct the AO to determine the “long term capital gain” after taking the value of the lease hold rights of the assessee at Rs. 800/- per square yard as on 1.4.81 and after allowing indexed cost of acquisition to the assessee and also the expenses already allowed by the AO in the assessment out of the total consideration received by the assessee and to determine the “long term capital gain” of the assessee, and accordingly the grounds of the assessee are partly allowed.
9. In the result, the appeal of the assessee is partly allowed.
