ITAT allows AO to benefit from the indexation of the acquisition cost up to the year of valuation of the capital gain
In a major relief to Global Health, the Income Tax Appeal Tribunal (ITAT), Delhi Bench has authorized the valuation agent to benefit from the indexation of the acquisition cost until the year of valuation of the capital gain.
The appraised, M / s Global Health Private Limited owned 43 acres of land located in Sector 38, Gurgaon, Haryana, allocated by HUDA. The appraisee has entered into a joint development agreement with M / s. SAS Infoetech P. Ltd. for the development of 5 acres of land on the aforementioned 43 acres of land. Said development was to be carried out entirely by M / s. SAS Infoetech P. Ltd from its own resources no later than the completion date of September 1, 2010. It has further been agreed in the agreement that upon completion of said development, the appraised shall be entitled to take possession of 30,000 mÂ² .ft. of super built-up areas or free the same in favor of the builder M / s. SAS Infoetech P. Ltd. for a consideration of Rs. 33 crores.
As recorded by the Ld. CIT (A), the underlying land has been leased for a period of 90 years. In the appraisal year under benchmark, the project was completed and the appraised chose the option of taking Rs. 33 crores instead of a super built-up area of ââ30,000 square feet and offered the same as ” a long-term capital gain after adjusting the acquisition cost indexed to the proportional cost of 5 acres of land.
The AO rejected the claim for the acquisition cost on the grounds that since the land was still on the appraiser’s balance sheet, the cost benefit could not be granted. As a result, a long term capital gain has been added to the tune of Rs.12,24,33,236 / -. The CIT (A) allowed the benefit of the acquisition cost. However, it limited the indexation until YY 2008-09 compared to YY 2011-12 on the grounds that indexation can only be authorized until the date of signature of the joint development agreement. . CIT (A) further ruled that the land was deemed to have been converted to stock-in-trade in AY 2008-09 at the market value of Rs. 33 crores as the joint development agreement was a business venture in nature. and, therefore, indexation should only be allowed up to AY 2008-09.
The coram of Accountant Member NKBillaiya and Judicial Member Sudhanshu Srivastava observed that a simple reading of Article 45 (2) clearly indicates that it is the prerogative of the appraisee to convert the asset into shares. In addition, the term âbusiness operated by himâ necessarily means that the fixed asset thus converted must form part of the goodwill of the business operated by the appraised. In the present case, the assessed company carries out a healthcare activity and not an activity related to real estate and, as such, it cannot be said that the assessed company, by entering into the joint development agreement, converted the land into his business.
ITAT has concluded that there is no scope of section 45 (2) of the Act to the facts of this case. Therefore, the court found no justification in the action of CIT (A) by invoking the provisions of section 45 (2) of the Act.
âThe result of this discussion is that once we have denounced the application of Article 45 (2), there is no longer any reason to restrict indexing to YY 2008-09 in particular when the fact taxable occurred in AY 2011-12 when construction was completed. and the appraised chose to part with 5 acres of land for a consideration of Rs. 33 crores. Accordingly, taking into account our obtaining of this considered opinion, the valuation agent is invited to authorize the benefit of the indexation of the acquisition cost until AY 2011-12, that is to say the ‘capital gain valuation year,’ the court said.
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