Land do not form part of Block of Assets & cannot be treated as short term capital assets

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INCOME TAX APPELLATE TRIBUNAL,DELHI

I.T.A. No.3375/Del/2010

Assessment Year: 2006-07

Deputy Commissioner of IT, Vs. M/s I.K. International Pvt. Ltd

Assessee has produced valuation report at the time of purchase as well as sale. In Remand, Assessing Officer has not pointed out any lacunae in the same. Moreover, the cost of land so bifurcated was being already reflected in the books of accounts and no depreciation was claimed on that account. In the case of C.I.T. vs. D.C. Ramachandra Rao 236 ITR 51, Hon’ble Madras High Court has held that it is possible to bifurcate the capital gain arising out of sell of land and building, even if, they are sold as one unit. Land is an independent and identifiable capital asset and it continues to remain so, even after construction of building thereon. It was further held that land held by the assessee for a period exceeding 36 months – building constructed later and held by the assessee for a shorter period, land cannot be treated as short term capital assets. This case law clearly applies to the facts of the present case. Other case law referred by the Ld. Commissioner of Income Tax (Appeals) also supports the assessee’ s proposition.

Thus, when the value of the land and building has been bifurcated at the time of purchase and so reflected in the books of accounts, any construction in building cannot link to the land at the time of sale also. Assessee has submitted a Valuation Report bifurcated the sale value between land and building. No infirmity in this bifurcation has also been pointed out. In such circumstances, revenue’s plea that sale of land cannot be bifurcated from the sale of building cannot be accepted. Admittedly, assessee has held the land for a period exceeding 36 months.