Exp. incurred on converting land from leasehold to freehold to be treated as cost of improvement: ITAT

Case Details: Sanjay Majumdar v. PCIT [2021] 131 taxmann.com 265 (Allahabad - Trib.)

Judiciary and Counsel Details

• • Vijay Pal Rao, Judicial Member and Ramit Kochar, Accountant Member
  • Basudev Banerjee, CA for the Appellant. 
  • Debashish Chanda, CIT-DR for the Respondent.

Facts of the Case

Assessee was an owner/inherent lessee of a land. He had entered into an agreement to sell said land for consideration of certain amount. There was a condition in agreement to sale that land should be converted by assessee from leasehold into freehold to perfect ownership title of the buyer in land. Transfer deed was registered only after the conversion of land.
Assessee claimed conversion charges incurred for converting land from leasehold to freehold as cost of improvement while computing LTCG chargeable to tax. Assessing Officer allowed same. However, the Commissioner invoked revision jurisdiction on ground that assessee wrongly claimed such conversion charges as cost of improvement as said charges were borne by the purchaser and not by assessee. Assessee filed the appeal before the Tribunal.

ITAT Held

The Allahabad Tribunal held that freehold conversion charges were included in sale consideration agreed upon by buyer and seller, and the same was not to be paid by buyer over and above the amount of sale consideration.
Further, the freehold conversion of the property was done by the State of U.P. in favour of the existing leaseholders and not in favour of the buyers. This also strengthens the view that sale consideration included freehold conversion charges, stamp duty, etc.
Thus, the assessee had rightly claimed the deduction on account of his share of freehold conversion charges for converting the said property into freehold, being the improvement in the property. Accordingly, the provisions of section 48 were rightly applied while computing income from long-term capital gains chargeable to tax.