Commissioner of Income Tax vs T.C. Itty Ipe

K. Gnanaprakasam, J.—The question that arises for consideration in this case is as to whether the ""value of the land"" and ""super structure

can be split up and assessed separately as ""long-term capital asset"" and ""short-term capital asset"", respectively, for assessing the capital gains tax.

The land was purchased in the year 1968 by the wife of the assessee at a cost of Rs. 16,065 for which funds were provided by the assessee''s

husband. The building was put up in the year 1972 at a cost of Rs. 73,200 out of which Rs. 43,200 was contributed by the assessee. The total

contribution of the assessee for the house property was Rs. 59,285 made up of Rs. 16,065 for land and Rs. 43,220 for house construction. The

value of the total construction worked out to Rs. 89,285 made up of Rs. 16,065 for land and Rs. 73,220 for superstructure. The capital gain was

computed at Rs. 40,715. Out of the total capital gain of Rs. 40,715 so determined the proportionate amount of Rs. 27,035, having regard to the

contribution of Rs. 59,285 by the assessee to the total cost of Rs. 89,285 was assessed as short-term capital gains for the assessment year 1974-

On appeal, the Appellate Assistant Commissioner upheld the invocation of Section 64 of the Act by the Income Tax Officer. However, the

Appellate Assistant Commissioner followed the order passed in the protective assessment of the assessee''s wife, in which 46 per cent, of the

aggregate of cost of land and cost of construction, was treated as long-term capital gain from the sale of land, of the rest as short-term capital gain

from the sale of the building. He directed the assessee to pay a sum of Rs. 12,400 as long-term capital gain for land and Rs. 14,635 as short-term

capital gain for superstructure. Aggrieved by the same, the Department took it on appeal and the Appellate Tribunal has taken a view that there is

nothing wrong in treating the land as a separate asset, and building as another separate asset and dismissed the appeal filed by the Department.

Under those circumstances, the reference was made to this court :

(i) as to whether the Appellate Tribunal was right in holding that the capital gains arising on the sale of the building should be split up into two parts,

one relating to the land and the other to the superstructure and assessed to tax as long-term capital gains and short-term capital gains, respectively

?

(ii) as to whether the Income Tax Officer was right in assessing the entire capital gains as short-term capital gains in the assessee''s case ?

Learned counsel for the applicant fairly concedes that a similar question came for the consideration of this court in the case of Commissioner of

Income Tax Vs. Dr. D.L. Ramachandra Rao, , wherein this court has held that the definition of capital asset includes property of any kind and land

held by the assessee is a capital asset and a building held by the assessee is also a capital asset and it is possible to bifurcate the capital gain arising

with reference to the sale of the land and building even if they are sold as one unit, if the lands are held by the assessee for a period more than that

prescribed u/s 2(42A) of the Income Tax Act, 1961, namely, 36 months. It is not possible to say that by construction of the building, the land

which was a long-term capital asset, has ceased to be a long-term capital asset. The land is an independent and an identifiable capital asset, and it

continues to remain as an identifiable capita! asset even after construction of the building.

Applying the ratio of the said judgment we hold that the Tribunal was correct in coming to the conclusion that the land and the superstructure

can be assessed separately as a ""long-term capital asset"" and as a ""short-term capital asset"" for the purpose of capital gain.

Accordingly, the questions are answered against the Revenue and in favour of the assessee.