M.Sankar Trading and Consultancy Private Limited, CHENNAI V. ACIT, CHENNAI

CO 13/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8303 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-03-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-03-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 18-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Cost of acquisition; Reasonable cause; Scheme of amalgamation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NO. 2103/MDS/2012 ASSESSMENT YEAR L 2006-07 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(1), CHENNAI. V. M/S. M. SANKAR TRADING AND CONSULTANCY PVT.LTD., NO. 9, CATHEDRAL ROAD, CHENNAI- 600 028. (PAN : AAECM4398N) (APPELLANT) (RESPONDENT) A N D C.O. NO. 13/MDS/2013 (IN ITA NO. 2103/MDS/2012) ASSESSMENT YEAR 2006-07 M/S. M. SANKAR TRADING AND V. THE ASST. COMMISSIONER CONSULTANCY PVT.LTD., OF INCOME TAX, NO. 9, CATHEDRAL ROAD, COMP ANY CIRCLE-IV(1), CHENNAI-600 028. CH ENNAI. (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SRI SHAJI P. JACOB, ADDL. CIT ASSESSEE BY : SRI VIKRAM VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 26.03.2013 DATE OF PRONOUNCEMENT : 26.03. 2013 ITA NO 2103/MDS/2012 & CO 13/MDS/2013 : 2 : O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT( APPEALS)-V, CHENNAI DATED 07-09-2012 FOR THE ASSESSMENT YEAR 20 06-07. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE WAS AMALGAM ATED WITH M/S. MADHURIKA SANKAR PROPERTIES PVT. LTD. ON 01-01 -2006. IN VIEW OF THE AMALGAMATION ALL THE ASSETS OF AMALGAMATING COMPANY BECAME THE PROPERTY OF THE AMALGAMATED COMPANY AS P ER PROVISIONS OF SEC. 2(18) OF THE INCOME TAX ACT, 196 1 ('THE ACT' FOR SHORT). SIMILARLY, THE PROPERTY UNDER QUESTION AL SO BECAME THE PROPERTY OF THE ASSESSEE COMPANY ON 01-01-2006. BU T THE PROPERTY WAS ORIGINALLY PURCHASED BY THE AMALGAMATING COMPAN Y, MADHURIKHA SANKAR PROPERTIES PVT. LTD. ON 25-08-198 8. DURING THE YEAR THE ASSESSEE SOLD THE PROPERTY ON 24-03-2006 A ND OFFERED LONG TERM CAPITAL GAINS OF ` 3,34,60,829/-. HOWEVER, IN THE COMPUTATION OF LONG TERM CAPITAL GAIN, THE ASSESSEE HAS TAKEN THE YEAR OF ACQUISITION OF ASSET BY THE PREVIOUS OWNER AS THE BASE YEAR FOR THE COST OF INFLATION INDEX. THE ASSESSING OF FICER ASKED THE ASSESSEE TO WHY LONG TERM CAPITAL GAIN SHOULD NOT B E COMPUTED BY TAKING THE YEAR IN WHICH IT WAS FIRST HELD BY THE A SSESSEE AS THE BASE YEAR FOR THE COST OF INFLATION INDEX AS PER SE CTION 48 EXPLANATION (III). IT WAS SUBMITTED BY THE ASSESSE E BEFORE THE ITA NO 2103/MDS/2012 & CO 13/MDS/2013 : 3 : ASSESSING OFFICER THAT THE PROPERTY BECAME THE PROP ERTY OF THE ASSESSEE UNDER THE CIRCUMSTANCES STATED UNDER SECTI ON 49(1) OF THE ACT AND SIMILARLY THE MODE OF ACQUISITION OF THE PR OPERTY FALLS WITHIN THE AMBIT OF SEC. 47(VI) OF THE ACT. HENCE THE COS T OF ACQUISITION OF THE ASSET IS THE COST OF THE PREVIOUS OWNER AS PER SECTION 49(1)(E) AND WHILE CONSIDERING THE PERIOD OF HOLDING OF THE ASSET, IT COMES UNDER THE AMBIT OF SECTION 2(42A) WHICH READS THAT IN THE CASE OF A CAPITAL ASSET WHICH BECOMES THE PROPERTY OF THE ASS ESSEE IN THE CIRCUMSTANCES MENTIONED IN SUB-SECTION (1) OF SECTI ON 49, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE ASSET WA S HELD BY THE PREVIOUS OWNER REFERRED TO IN THE SAID SECTION. 3. FURTHER THE ASSESSEE SUBMITTED THAT IN APPLYING THE PROVISIONS FOR THE COMPUTATION OF CAPITAL GAINS IF THE PERIOD OF HOLDING AND COST INCURRED BY THE PREVIOUS OWNER IS CONSIDERED, THEN IT IS ALSO LOGICAL TO APPLY THE YEAR OF ACQUISITION AS BASE YEAR FOR COST INFLATION INDEX AND IT WILL BE IMPROPER TO APPLY TH E COST INFLATION INDEX APPLICABLE TO THE YEAR OF INHERITANCE. THE ASSESSE E RELIED ON VARIOUS JUDGMENTS BEFORE THE ASSESSING OFFICER AND THESE ARE : 1. PUSHPA SOFAT V. ITO, 81 ITD 1 ITAT CHANDIGA RH 2. DCIT V. MANJULA J. SHAH 318 ITR 417 ITAT- M UMBAI 3. MINA DEOGUN V. ITO 117 TTJ 121 ITAT CALCU TTA 4. KAMALA MISHRA V. ITO 19 SOT 251 ITAT DELH I 5. HR CRAIG HARREY V. CIT 244 ITR 578 HIGH COURT OF MADRAS HOWEVER, THE ASSESSING OFFICER AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE CAME TO THE CONCLUSION THAT WHILE C ONSIDERING THE ITA NO 2103/MDS/2012 & CO 13/MDS/2013 : 4 : COST OF INFLATION INDEX, IT IS THE INDEX ON THE YEA R IN WHICH THE ASSET WAS FIRST HELD BY THE ASSESSEE, I.E.IN THE ASSESSEE S CASE IT IS THE YEAR IN WHICH ASSESSEE BECAME THE OWNER OF THE ASSE T AS A RESULT OF AMALGAMATION. HENCE THE ASSESSEES LOGICAL ARGU MENT THAT THE YEAR OF ACQUISITION BY THE PREVIOUS OWNER HAS TO BE HELD AS BASE YEAR CANNOT BE ACCEPTED. THE ASSESSING OFFICER ACC ORDINGLY CONSIDERED THE INFLATION INDEX TAKING INTO CONSIDER ATION THE BASE YEAR IN WHICH THE ASSESSEE ACQUIRED THE PROPERTY. 4. ON BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). THE LEARNED COUNSEL FOR THE ASSESSEE RE-ITERATED THE SUBMISSIONS WHICH WERE PLACED BEFORE THE ASSESSING OFFICER. BEFORE THE CIT(APPEALS) STRONGLY RELIED ON THE CASE LAWS, PARTICULARLY IN THE CASE OF DCIT V. MANJULA J. SHAH (35 SOT 105)/126 TTJ 145. THE CIT(APPEALS) AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAWS RELIE D ON BY THE ASSESSEE AND ALSO CONSIDERING THE DECISION OF THE H ONBLE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST V. CI T [18 TAXMANN.COM 261 (DELHI)] OBSERVED AS UNDER : 6.3 RESPECTFULLY FOLLOWING THE DECISION OF THE HO NBLE HIGH COURT OF DELHI IN THE CASE OF ARUN SHUNGLOO TR UST (SUPRA), I HOLD THAT THE AMALGAMATED COMPANY HAD AC QUIRED ALL THE ASSETS AND LIABILITIES OF THE AMALGAMATING COMPANY AS PER THE SCHEME OF AMALGAMATION APPROVED BY THE HON BLE HIGH COURT OF MADRAS. THEREFORE THE BENEFIT OF PER IOD OF HOLDING OF THE ASSET BY THE AMALGAMATING COMPANY WO ULD BE AVAILABLE TO THE AMALGAMATED COMPANY AS THE AMALGAM ATED ITA NO 2103/MDS/2012 & CO 13/MDS/2013 : 5 : COMPANY, IN MY CONSIDERED VIEW, INHERITS ALL THE AS SETS AND LIABILITIES OF THE AMALGAMATING COMPANY. THIS IS B ECAUSE THOUGH THE AMALGAMATING AND THE AMALGAMATED COMPANI ES ARE REFERRED TO AS THE TRANSFEROR AND TRANSFEREE RE SPECTIVELY BUT THE TRANSFER OF ASSETS BY THE AMALGAMATING COMP ANY TO THE AMALGAMATED COMPANY IS NOT REGARDED AS TRANSFER FOR THE PURPOSES OF CAPITAL GAINS AND AS SUCH NO CAPITA L GAIN IS LEVIED ON SUCH TRANSFER. THE AO IS THEREFORE DIREC TED TO ALLOW THE BENEFIT OF INDEXATION FROM THE DATE ON WH ICH THE AMALGAMATING COMPANY BECAME THE OWNER OF THE SAID A SSET. THE GROUNDS OF APPEAL RELATING TO THIS ISSUE ARE TH EREFORE ALLOWED. 5. ON BEING AGGRIEVED, THE REVENUE HAS FILED THE PR ESENT APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING , THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE I NVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE T RIBUNAL IN THE CASE OF DCIT V. MANJULA J. SHAH (SUPRA). 6. ON THE OTHER HAND, THE LEARNED DR FAIRLY ACCEPTE D THAT THE ISSUE ON MERITS IS SQUARELY COVERED BY THE ABOVE DE CISION IN THE CASE OF MANJULA J. SHAH. 7. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE O NLY DISPUTE IN THIS APPEAL IS, WHETHER, FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS THE YEAR OF ACQUISITION BY THE PREVIOUS OWNER HAS T O BE TAKEN INTO CONSIDERATION OR THE YEAR IN WHICH THE ASSESSEE HAS ACQUIRED THE PROPERTY HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPO SE OF BASE YEAR ITA NO 2103/MDS/2012 & CO 13/MDS/2013 : 6 : AND FOR THE PURPOSE OF INFLATION INDEX? IN THE CAS E OF MANJULA J. SHAH (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT FOR THE PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAI NS ARISING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PR OPERTY OF THE ASSESSEE UNDER GIFT, THE FIRST YEAR IN WHICH THE CA PITAL ASSET WAS HELD BY THE ASSESSEE HAD TO BE DETERMINED TO WORK O UT THE INDEXED COST OF ACQUISITION, AS ENVISAGED IN THE EXPLANATIO N (III) OF SEC. 48 AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. IN THAT VIEW OF TH E MATTER, IT WAS TO BE HELD THAT THE INDEXED COST OF ACQUISITION OF SUC H CAPITAL ASSET HAD TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WH ICH THE PREVIOUS OWNER FIRST HELD THE ASSET. 8. IN VIEW OF THE ABOVE DECISION OF THE SPECIAL BE NCH OF THE TRIBUNAL AND ALSO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST (SUPRA), WE DISMISS THIS GROUND OF APPEAL RAISED BY THE REVENUE. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 10. COMING TO THE CROSS OBJECTION, THERE IS A DELAY OF 14 DAYS IN FILING THE CROSS OBJECTION. WE FIND THAT THERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING THE CROSS OBJECTION. WE, T HEREFORE, CONDONE THE DELAY AND ADMIT THE CROSS OBJECTION. 11. SINCE WE HAVE UPHELD THE ORDER PASSED BY THE CI T(APPEALS) ON MERIT, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND NO ADJUDICATION IS REQUIRED. ITA NO 2103/MDS/2012 & CO 13/MDS/2013 : 7 : 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DI SMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON TUESDAY, THE 26 TH DAY OF MARCH, 2013, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) (V.DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 26 TH MARCH, 2013. H. COPY TO: ASSESSEE/AO/CIT(A)/CIT/D.R./GUARD FILE