Capital Gains Tax Can Be Computed Separately Even In Case Of Consolidated Sale Of Land And Building, Confirms Rajkot ITAT

The Rajkot ITAT held that Assessing Officer has not erred in computing separate capital gains tax in respect of sale of land (being Long Term Capital Gains) and sale of building / super structure (being Short Term Capital Gains), even if the assessee had made a consolidated sale of both land and building, as part of the same agreement.

The Member of the ITAT comprising Siddhartha Nautiyal (Judicial Member) and Waseem Ahmed (Accountant Member) observed that, “the Assessing Officer has not erred in facts and in law in computing separate capital gains tax in respect of sale of land (being Long Term Capital Gains) and sale of building / super structure (being Short Term Capital Gains), even if the assessee had made a consolidated sale of both land and building, as part of the same agreement.” (Para 7)

As per the brief facts of the case, the Assessee sold his property and computed a Long Term Capital Gains. The assessee declared sale consideration and after taking cost of acquisition and indexed cost of improvement, the assessee computed Long Term Capital Loss. AO was of the view that there is a consideration towards of sale of land and sale of building as well. Hence, the AO computed Long Term Capital Gains on sale of land and Short-Term Capital Gains on sale of building separately. The total capital gains computed by the Assessing Officer in the case of assessee was, the Long-Term Capital Gains being subject to tax @ 20% and the Short-Term Capital Gains being subject to tax @ 30%.

The CIT(A) found that there is no infirmity in the computation of short term and long-term capital gain and dismissed the appeal.

Referring to the decision of High court in case CIT v. C.R. Subramanian 242 ITR 342 (Karnataka), the Coram stated that since site and building subsequently constructed thereon are separable assets, for purpose of capital gains, even though they had been sold as a single asset, profits arising from sale of site would be considered as long-term capital gains and profit arising out of sale of building would be considered as short-term capital gains.

The Bench stated while referring the case of ACIT v. Sekhar Gupta 79 ITD 192 (CAL.) that the definition of 'Capital Asset' includes property of any kind and land as well as building held by assessee are both capital assets. Therefore, it is possible to bifurcate capital gain arising with reference to sale of land and building even if they are sold as one unit, if land is held by assessee for 36 months as prescribed u/s 2(42A). Therefore, capital gains arising on both assets had to be worked out separately.

While relying on the case of ACIT v. Yamuna Syndicate Ltd. 162 Taxman 167 (Chd.) (Mag.), the Bech further stated that where assessee-company had sold its land and building for a composite consideration, computation of short-term capital gain in relation to proportionate consideration of building and long-term capital gain in relation to proportionate consideration of land on which no depreciation had been claimed by assessee was justified.

Therefore, on finding no infirmity in the order of CIT(A), the ITAT dismissed the assesee's appeal.

Counsel for Appellant/ Taxpayer: None

Counsel for Respondent/ Department: Ashish Kumar Pandey

Case Title: M/s. L. N. Technocast Pvt. Ltd. Verses Income Tax Officer

Case Number: ITA. No.16/Rjt/2020

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