K.S. Akhilesh Babu Vs ACIT (ITAT Bangalore)
Capital Gains on JDA & Sale of Villas – Higher Cost Allowed, Section 50C Relief Granted, Notional Rent Deleted; LTCG Claim Rejected for Partners
The Bangalore ITAT partly allowed the assessee’s appeal for AY 2021-22 arising from sale of villas received under a Joint Development Agreement (JDA) and granted substantial relief on computation of capital gains and house property income. The Tribunal held that while the cost of construction (₹760 per sq. ft.) adopted at the time of JDA was correct, the cost of land had to be computed on the basis of saleable / undivided share area, not on the entire land given up earlier. Accordingly, the cost of land was directed to be adopted at ₹95.26 per sq. ft. instead of ₹45.91 per sq. ft. taken by the AO, substantially enhancing the allowable cost. On Section 50C, applying the third proviso, the Tribunal directed adoption of actual sale consideration where stamp value was within 110% tolerance. Restriction of exemption under Section 54 was reversed, holding that minor unverifiable construction expenses (about 5%) cannot defeat substantive exemption when 95% was proved. The addition of notional rent on vacant villas kept for sale during the Covid period was deleted, holding that where properties were genuinely intended for sale and could not be let due to pandemic conditions, notional income was unwarranted.
However, in the connected appeals for AY 2007-08, the Tribunal dismissed the partners’ claims and upheld taxation of gains on execution of JDA as short-term capital gains, holding that once land was distributed by the firm to partners and immediately transferred under JDA, the partners’ period of holding commenced only from the date of distribution and could not inherit the firm’s holding period. Consequently, the benefit of long-term capital gains and 20% rate was denied and taxation at 30% as STCG was confirmed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
