Land is a capital asset separate from the building constructed on it, and the assessee is entitled to bifurcate the sale price of the two assets.

1. - The Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated July 30, 1980, in respect of the assessment year 1971-72 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the capital gain arising from the sale of land has to be treated as long-term capital gain?"

2. The brief facts of the case are that the assessee purchased a plot of land on March 26, 1962, for a sum of Rs. 4,650. Another piece of land was purchased by the assessee for Rs. 2,274 on July 9, 1968, the patta of which was received on January 12, 1970. The assessee has constructed a bungalow and the investment shown in the construction during the year 1968-69 was Rs. 16,000, during the year 1969-70 Rs. 50,774 and in 1970-71 Rs. 5,785. The bungalow was sold in June, 1970, to M/s. Murli Investment Co. Private Limited for a sum of Rs. 1,30,000. According to the assessing authority, the capital asset in question came into existence in the assessment year 1970-71, the year in which the construction of the bungalow was completed and was sold to M/s. Murli Investment Co. Pvt. Ltd., Jaipur, in June, 1970. The sale-deed was registered on August 4, 1970, which was considered by the assessing authority as within two years from the date of completion of the bungalow in the shape it was sold and the capital gains were taken as short-term capital gains. An appeal was preferred against the initial assessment made which was set aside by the learned Appellate Assistant Commissioner for recomputation of capital gains to find out the value of the property as it existed at the time it was sold in June, 1970. The case was referred to the Valuation Officer under section 55A of the Income-tax Act, 1961, and the value of the property including the cost of land was estimated at Rs. 1,98,350 as on the date of sale. Objections raised by the assessee were considered by the assessing authority and short-term capital gains were computed at a figure of Rs. 1,18,845. Against this order, an appeal was preferred to the Commissioner of Income-tax (Appeals), Jaipur, where the contention with regard to the invoking of the provisions of section 52(2) of the Income-tax Act were raised and rejected. Objections with regard to the valuation of the land as well as bungalow were also raised. The land was valued at Rs. 45,700 and the bungalow at Rs. 1,50,650. The Commissioner of Income-tax has held that the capital gains should be recomputed on the basis of full and fair consideration of the property at a figure of Rs. 1,30,000 which was the sale consideration as mentioned in the sale deed dated August 4, 1970. The contention that the gains are long-term capital gains and not short-term capital gains was rejected by the Commissioner of Income-tax (Appeals).

3. Against this order, the assessee challenged the order before the Income-tax Appellate Tribunal where it was contended by the assessee that the land and building should be treated as separate assets and since the asset (land) came into existence much before two years from the date of sale, therefore, it should be treated as a long-term capital gain. The Income-tax Appellate Tribunal came to the conclusion that there is no dispute that the value of land taken by the Income-tax Officer and the Commissioner of Income-tax (Appeals) was at a figure of Rs. 45,700 and, therefore, the capital gains arising from the sale of land has to be treated as long-term capital gain. The contention of the Revenue that the composite figure of the sale cannot be bifurcated was rejected.

4. The submission of learned counsel for the Revenue is that land has no separate existence after the building is constructed thereon and there cannot be any bifurcation of the price in respect of a composite item of a property which has been sold as one item. Mr. Ranka has placed reliance on the decision of the Hon'ble Supreme Court given in the case of CIT v. Alps Theatre 1967 (65)