16 August 2011
An assessee was allotted land by Haryana Urban Development Authority (HUDA) in the year 1986 on payment of Rs.40,000.00 and balance was payable in installments of Rs.15000.00 each for 15 years.
The assessee sold the land in 2008-09 for Rs.48,00,000.00.
Since the assessee could not construct a house on the land within 5 years from the date of allotment, it was liable to pay Extension Fee of Rs.13500.00 per year for non-compliance of condition for construction within 5 years from the date of allotment.
The assessee completed the formalities of possession in August 2000 after paying the due Extension Fee.
The AO says that he will allow indexing of cost from 2000-01 as the possession was taken in this previous year.
I have submitted to the AO that for all practical purposes, date of allotment is valid for: 1. Calculation of cost, 2. Duration of holding period, 3. Ascertaining the period for completing construction on the land.
The last installment was paid in P.Y. 2002-03.
My queries are: Q1. Whether the Extension Fee considered as cost by me can be disallowed? Q2. Indexing from date of allotment is correct or not. Give supporting Case Laws and Board’s Circulars to reply further.
16 August 2011
1. Extension Fees is the cost for maintaining the property and not for acquisition of the property. Hence extension fees cannot be considered to be cost of acquisition.
2. Indexation has to be applied in the year in which the property is acquired i.e the date of contract executed. If the allotment has been done as per any agreement and the date of agreement provides evidence of transfer then same can be produced to show evidence that the indexation rate has to applied for the year in which allotment is made.
In the query it has been mentioned that - . "The assessee completed the formalities of possession in August 2000 after paying the due Extension Fee." .
The above statement shows that possession has been completed in 2000. .
However, you have also mentioned that extension fee has been paid for non-construction within the prescribed time frame. . Tell me, how construction can be started without taking the effective possession of the allotted plot? . Charge of extension fee clearly shows that you were entitled for construction, which clearly indicates that constructive possession was existing even before Aug 2000. . By maintaining the above ground, the case squarely covers the definition of transfer vide Section 2(47)(v) . Possession need not necessarily be sole and exclusive possession. So long as the transferee is, by virtue of the possession given, enabled to exercise general control over the property and to make use of it for intended purpose, the mere fact that the owner has also the right to enter the Property to oversee the development work or to ensure performance of the terms of agreement DOES NOT INTRODUE ANY INCOMPATIBILITY- (Jasbir Singh Sarkaria, In re(2007) 164 Taxman 108(AAR-New Delhi) . You should modify your statement by mentioning that in August 2000, in spite of the word "Possession", the registration formalities have been completed. .
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