ITAT rules on capital gains

ITAT rules on capital gains

The assessee had executed a Joint Development Agreement for the property's expansion

The Chennai Branch of the Income Tax Appellate Tribunal (ITAT) has held that capital gains shall be determined according to the respective share of individuals in a residential property. Under the provisions of the Income Tax Act, 1961, it could not be ascertained according to any internal family pact.

The assessee had filed his Income Tax Return (ITR) that came up for scrutiny. The assessing officer (AO) had noticed that the assessee, along with his wife and his father, was a joint owner of a residential property. He had executed a Joint Development Agreement (JDA) for the expansion of the property with a developer.

Accordingly, the assessee and other joint owners received non-refundable deposits and two flats from the developer. This was in lieu of the share in the land sold.

On this premise, the AO recomputed the long-term capital gains (LTCG) in the hands of the assessee. He took into account the total cost of construction incurred by the developer and the non-refundable deposits received by the assessee's father.

The assessee had filed an appeal against the AO's order before the Commissioner of Income Tax (Appeals). The latter upheld the order. Thereafter, 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, instead of two, should have been considered for the purpose of exemption under the IT Act.

But the IT department submitted that the AO had rightly computed the capital gains pursuant to the JDA. Thus, the total value received as a result of the transfer of the property should be shared proportionately with the right of the assessee. It maintained that the IT Act provided exemption from LTCG arising from the sale of a residential property if the gains were invested in the purchase/construction of a new residential property within the prescribed time.

The bench comprising members V Durga Rao (judicial member) and G Manjunatha (accountant member) held that if the three co-owners had a specified share in the property, the full value should be evaluated.

The tribunal ruled that the receipt of the entire non-refundable deposit by the assessee's father and one flat each by the assessee and his wife was an internal arrangement. It had nothing to do with the computation of capital gains.