Udai Hospitals Private Ltd. Vs ITO (ITAT Hyderabad)
Conclusion: By virtue of JDA, assessee was parting with a portion of its land and in consideration thereof, was receiving built-up area on the land retained by it which was a transfer within the meaning of section 2(47)(v) however, AO was directed to re-compute the capital gain again by considering only elements which were necessary for the construction of the building as the cost of construction, and not the entire expenditure of the builder, including the compensation agreed to be paid to K and also the finance charges etc., which were not relevant for computing the cost of the construction.
Held: Assessee-company and its sister concern had initially entered into a development agreement with a builder M/s. K but the same was not carried through and thereafter, they entered into another development agreement with M/s. I for construction of a hospital building. Under the said agreement, assessee company handed over 1000 sq. yards of land to the Developer, while its sister concern has handed over 1600 sq. yards and both the land owners and the developers agreed to share the constructed area and the undivided land of the scheduled property in the ratio of 50:50. Since assessee had transferred the land during the financial year 2013-14, by entering into the development agreement cum GPA, assessee offered the capital gains by adopting fair market value of the share of constructed area to be received by the assessee as sale consideration, which, as per the SRO was Rs.700 per sq. ft. Therefore, assessee reported a long term capital loss of Rs.78,22,123 to be carried forward. AO however, held that the cost of construction to the builder alone was to be adopted as the consideration received by assessee. AO, therefore, took the entire amount agreed to be paid as part of cost of construction including total amount agreed with M/s. K and arrived at a sum of Rs.21,38,39,466 as the total cost of construction. AO worked out the long term capital gain whereas assessee had reported long term capital loss, AO brought the difference amount to tax. Assessee contended that joint development agreement (JDA) was not an agreement of sale, but a transaction of exchange and assessee was exchanging its land with built-up area and hence, there was no sale and there could not be any capital gains arising out of such transaction. It was held there was no finding by any of the Courts that vide JDA, there was no transfer of property u/s 2(47)(v). In fact, in lieu of parting of a portion of its land, assessee was receiving the consideration in kind (i.e. by way of superstructure on the land retained by it) in future and was therefore, a transfer within the meaning of section 2(47)(v). Assessee had adopted the SRO value, but as rightly pointed out by the AO and the CIT (A), the same could not be relied upon in the case as the description of the nature of the building in the SRO certificate did not match with the description of assessee’s building. AO was directed to re-compute the capital gain again by considering only elements which were necessary for the construction of the building as the cost of construction, and not the entire expenditure of the builder, including the compensation agreed to be paid to K and also the finance charges etc., which were not relevant for computing the cost of the construction.
