Surplus from land contributed as capital contribution liable to pay tax - Real Estate Giant DLF in Mega SB decision of the ITAT
TODAY we are bringing you a mega decision of the ITAT Special Bench running into 230 pages. It is really fascinating and astonishing to see such long judgements. By the time I finish a four page article, I lose track of what I have written in the first page!
This marathon judgement was delivered on 4 th January 2010 and a copy was available only at 7 pm yesterday. One of my colleagues who managed to get the copy was insistent that we should carry this order today. Poor editors have no choice when their staff dictate the terms.
So we bring you the order today – yet another first from TIOL.
DLF, the real estate giant had entered into a partnership with four of its subsidiaries and contributed five plots of land measuring 16.98 acres as its contribution. The market value was determined at Rs. 11.50 crore. In the assessee's books of account, the said land contributed towards capital in the partnership firm was shown at a cost of Rs. 4,40,62,419/-. The said newly constituted partnership firm credited the capital account of the assessee company by Rs. 11.50 crores being the value of the land contributed by the assessee as capital. The assessee also recorded the value of said land contributed as capital in the firm at Rs. 11.50 crores in its books, and the surplus amounting to Rs. 6.01 crore was credited to the profit and loss account, but, was claimed as not exigible to tax in the return of income filed by the assessee.
The taxability of this 6.01 Crores was the issue before the Special Bench.
The Special Bench held,
the surplus arising to the assessee from the transaction of contribution of land held by it to a firm as capital contribution shall be assessable to tax as profit or gains under the head “capital gain” under section 45 of the Income Tax Act, and for that purpose, the amount of 11.50 crore recorded in the books of accounts of the partnership firm as the value of the land shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the land as so provided under sub-section (3) of the section 45 of the Act, effective from the A.Y. 1988-89.
We bring you this large judgement today – please see Breaking News.