By Taxscan Team – On March 10, 2022 10:02 am
The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the capital gains shall be determined according to the respective share of the parties in residential property and not according to any internal family arrangement under the provisions of the Income Tax Act, 1961.
The Assessee had filed his income tax return, which was taken up for scrutiny. The Assessing Officer (AO) had noticed that the Assesse, along with his wife and his father, was a joint owner of a residential property and had executed a Joint Development Agreement (JDA) for the development of the property with a developer. The Assessee and other joint owners had received non-refundable deposits and two flats from the developer in lieu of the share in the land sold. The AO, on the basis of this information, had recomputed the long term capital gains in the hands of the Assessee from the transfer of property by taking into account the total cost of construction incurred by the developer and the non-refundable deposits received by the Assessee’s father. Againstthis order, the Assessee had filed an appeal before the Commissioner of Income Tax (Appeals) (CIT (A)) who had upheld the order of the AO. The Assessee filed an appeal before the ITAT.
The assessee contended that as per the arrangement between the family members, since one flat was allotted to the Assessee, the cost of only one flat should be considered for the purpose of exemption under Section 54 of the Act instead of two. The departmental representative submitted that the AO had rightly computed the capital gains from transfer of property pursuant to the JDA and the full value of consideration received as a result of the transfer should be shared proportionately with the right of the Assessee in the property.
Section 54 of the Income Tax Act, 1961 provides for exemption from long term capital gains arising from the sale of a residential property if the capital gains are invested in the purchase or construction of a new residential property within the prescribed time.
The bench consisting of members V. Durga Rao (Judicial Member) and G. Manjunatha (Accountant Member), has held that when there were three co-owners with specified share in the property, the full value of consideration received should be considered in their hands according to their share in the property.
The ITAT held that the receipt of the entire nonrefundable deposit by the Assessee’s father and one flat each by the Assessee and his wife was an internal arrangement which had nothing to do with the computation of capital gains under the law. The ITAT ruled that as per law, when a property was transferred, the consideration received as a result of the transfer should be taken into account according to the share of the parties in the property and not as per the internal arrangement between the parties.
“The arguments of the assessee that, he had received consideration separately, as specified in the JDA, we find that receipt of entire non-refundable deposit by the assessee’s father and one flat each by the assessee and his wife is an internal arrangement and which is nothing to do with computation of capital gains by adopting respective share of full value of consideration. As per law, when a property transferred, consideration received or accrued as a result of transfer should be taken into account according to their share in the property, but not as per the internal arrangement between the parties,” the bench said.To Read the full text of the Order CLICK HERE
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