ITO, CHENNAI V. Kumar Rajaram, CHENNAI

ITA 1067/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90649 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 07-05-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R KUMAR
• Keywords: Capital asset; Gift; Search and seizure; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' #$ BEFORE SHRI N.R.S.GANESAN, JUDICIAL MMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ./ ITA NO. 1067/MDS/2015 / ASSESSMENT YEAR : 2012-13 THE INCOME-TAX OFFICER, INTERNATIONAL TAXATION-2(1), CHENNAI 34. APPELLANT) V. SHRI KUMAR RAJARAM, NO.12, VII CROSS, KARPAGAM GARDENS, ADYAR, CHENNAI 600 020. PAN BDWPR4473G RESPONDENT) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : SHRI R. KUMAR, ADVOCATE ! / DATE OF HEARING : 15.07.2015 '# ! / DATE OF PRONOUNCEMENT: 17.07.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 27 .2.2015. - - ITA 1067/15 2 2. THE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS T HAT THE CIT(APPEALS) ERRED IN HOLDING THAT THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO YEAR IN WHICH PREVIOUS OWNER FIRST HELD THE ASSET AND NOT YEAR IN WHICH AS SESSEE BECAME OWNER OF ASSET BY WAY OF INHERITANCE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A NON-RESIDENT INDIVIDUAL, FILED HIS RETURN OF INCOME ADMITTING TOTAL INCOME OF ` 6,22,63,973/-, WHICH INCLUDES LONG TERM CAPITAL GA INS OF ` 5,99,21,346/- ON SALE OF HIS RESIDENTIAL HOUSE PRO PERTY AT NO.38, DEFENCE OFFICERS COLONY HAL-II STAGE, INDIR A NAGAR, BANGALORE-560038 ON 10.11.2011. THIS PROPERTY WAS INHERITED BY THE ASSESSEE AFTER THE DEMISE OF HIS FATHER ON 1 1.6.2011. IN HIS WORKING OF LONG TERM CAPITAL GAINS, THE ASSESSE E CLAIMED INDEXED COST OF ACQUISITION AS ` 1,12,76,154/- I.E. ADOPTING THE MARKET VALUE AS ON 1.4.1981 AS THE COST OF ACQUISIT ION SINCE THE PROPERTY WAS PURCHASED BY THE ASSESSEE S FATHER ON 26.7.1979 AND COST OF IMPROVEMENT IN 1990. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO EX PLAIN WHY THE INDEXED COST OF ACQUISITION OF THE PROPERTY SHOULD NOT BE TAKEN FROM THE FINANCIAL YEAR 2010-11 I.E. THE YEAR IN WHICH THE - - ITA 1067/15 3 PROPERTY WAS FIRST HELD BY THE ASSESSEE. THIS IS A S PER EXPLANATION (III) TO SEC.48 OF THE ACT. THE ASSESS EES REPRESENTATIVE RELIED ON VARIOUS JUDICIAL DECISIONS TO SUPPORT HIS STAND THAT THE EXPRESSION HELD BY THE ASSESSEE SH OULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER. HOWEVER, THE ASSESSING OFFICER HAS PASSED THE ORDER HOLDING THAT THE BENEFIT OF INDEXA TION WILL BE AVAILABLE ONLY FROM THE YEAR IN WHICH THE PROPERTY WAS LEGALLY VESTED WITH THE ASSESSEE THAT IS AFTER THE DEMISE O F HIS FATHER. ACCORDINGLY, THE ASSESSING OFFICER HAS ADOPTED THE COST OF ACQUISITION OF THE ASSESSEES PROPERTY AS ` 13,79,200/- (BEING THE VALUE OF THE PROPERTY AS ON 1.4.1981) AS AGAINS T INDEXED COST OF ACQUISITION ` 1,12,76,154/- CLAIMED BY THE ASSESSEE. AGGRIEVED BY THIS ORDER, THE ASSESSEE WENT IN APPEA L BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS). 4. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEAL S) OBSERVED THAT FOR THE PURPOSE OF COMPUTATION OF CAP ITAL GAINS, INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO YEAR IN WHICH PREVIOUS OWNER FIRST HELD ASSET AND N OT YEAR IN WHICH THE ASSESSEE BECAME OWNER OF ASSET BY WAY OF - - ITA 1067/15 4 INHERITANCE. HE PLACED RELIANCE ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. MANJULA J. SHAH (2 49 CTR 270), WHEREIN IT WAS HELD THAT WHILE COMPUTING THE CAPITA L GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED BY THE ASSE SSEE UNDER A GIFT, THE INDEXED COST OF ACQUISITION HAS TO BE COM PUTED WITH REFERENCE TO THE YEAR IN WHICH PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE O WNER OF THE ASSET. AGAINST THIS, THE REVENUE IS IN APPEAL BEFO RE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN OUR OPINION, THE COMMISSIONER OF INC OME- TAX(APPEALS) FINDING IS BASED ON THE RATIO RAID DOW N BY THE BOMBAY HIGH COURT IN THE CASE OF MANJULA J. SHAH(SU PRA). FURTHER, THE SAME VIEW WAS SUPPORTED BY THE JUDGMEN T OF THE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST VS. CIT (294 CTR 294), WHEREIN IT WAS HELD AS UNDER: '15 . NORM A LLY LITER A L RULE OF CONSTRUCTION IS APPLIED A ND THE WORDS OF TH E STATUTE ARE TO BE UNDERSTOOD IN THEIR ORDINARY AND POPULAR SENS E , BUT THIS I S SUBJECT TO THE RIDER THAT THIS SHOULD NOT LEAD TO ABSURDITY , CONTRADICTION O R STULTIFICATION OF THE STATUTORY OBJECTIVE . LITER A L C ONSTRU C TION SHOULD B E AVOIDED , IF IT LEADS TO UNWARRANTED REPUGNANCE OR INCONSISTENCIES . IN SUCH CIRCUMSTANCES THE EXPRESSIONS/WORDS CAN BE INT E RPR E T E D B Y TH E COURT S TO AVOID - - ITA 1067/15 5 ABSURDITIES AND INCONSISTENCIES BETWEEN THE PROVISIONS . IN THE PRESEN T CASE , AS NOTICED ABOVE , THE CONSTRUCTION PL A C E D BY THE R E V E NU E W ILL LE AD TO INCONSISTENCY AND INCONGRUITI E S , WHEN WE R E F E R TO S. 49 AND CL . (IV) O F E X PL N. (1) TO S. 48: THIS WILL RESULT IN ABSURDITIES BEC A US E THE HOLDING O F PREDE C E S S O R HAS TO BE ACCOUNTED FOR THE PURPOSE OF C OMPUTING THE COST OF A C QUISITION , C O S T OF IMPROVEMENT AND INDEXED COST OF IMPROVEM E NT BUT AS P E R THE R E V E NU E N OT FOR THE PURPOSE OF INDEXED COST OF ACQUISITION. AS NOTICED BELOW , EVEN FOR TH E LONG-TERM CAPITAL GAIN , THE HOLDING BY THE PREDEC E SSOR IS TO B E TAKE N I NTO CONSIDERATION . 16. BENEFIT OF INDEXED COST OF INFLATION IS GIVEN TO ENSURE THAT THE TAXPAYER PAYS CAPITAL GAIN TAX ON THE 'REAL' OR ACTUAL 'GAIN' AND NOT ON THE INCREASE IN THE CAPITAL VALUE OF THE PROPERTY DUE TO INFLATION. THIS IS THE OBJECT OR PURPOSE IN ALLOWING BENEFIT OF INDEXED COST OF IMPROVEMENT, EVEN IF THE IMPROVEMENT WAS BY THE PREVIOUS OWNER IN CASES COVERED BY S . 49. ACCORDINGLY THERE IS NO JUSTIFICATION OR REASON TO NOT ALLOW THE BENEFIT OF INDEXATION TO THE COST OF ACQUISITION IN CASES COVERED BY S. 49. THIS IS NOT THE LEGISLATIVE INTENT BEHIND CL . (III) OF EXPLANATION TO S . 48 OF THE ACT. 1 7 . THERE IS NO REASON AND JUSTIFICATION TO HOLD THAT CL . (III) OF THE EXPLANATION INTENTS TO REDUCE OR RESTRICT THE 'INDEXED COST OF ACQUISITION' TO THE PERIOD DURING WHICH THE ASSESSEE HAS HELD THE PROPERTY AND NOT THE PERIOD DURING W H ICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER. THE INTERPRETATION RELIED BY THE ASSESSEE IS REASONABLE AND IN CONSONANCE WITH THE OBJECT AND PURPOSE BEHIND SS. 48 AND 49 OF THE ACT . - - ITA 1067/15 6 1 8 . THE EXPRESSION 'HELD BY THE ASSESSEE' USED IN EXPLN. (III) TO S . 48 HAS TO BE UNDERSTOOD IN THE CONTEXT AND HARMONIOUSLY WITH OTHER SECTIONS. THE COST OF ACQUISITION STIPULATED IN S . 49 MEANS THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQUIRED THE PROPERTY. THE TERM 'HELD BY THE ASSESSEE' SHOULD BE IN T ERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PR E VIOUS OWNER.' (EMPHASIS SUPPLIED) 6. FURTHER, IN THE CASE OF CIT-I VS. GAUTAM MANUBHA I AMIN (2013) 218 TAXMANN 319 (GUJARAT), THE HIGH COURT IN FERRED THAT FOR PURPOSE OF COMPUTATION OF CAPITAL GAIN, INDEXED COST OF ACQUISITION WAS TO BE COMPUTED WITH REFERENCE TO YE AR IN WHICH PREVIOUS OWNER FIRST HELD ASSET AND NOT YEAR IN WHI CH ASSESSEE BECAME OWNER OF ASSET BY INHERITANCE. WHILE COMING TO SUCH CONCLUSION, HIGH COURT RELIED ON THE DECISION IN TH E CASE OF B.N.VYAS (1986) 156 ITR 141(GUJ) AND CIT VS. MANJUL A J. SHAH (2012) 249 CTR 270(BOM.). IN THESE DECISIONS, IT W AS HELD THAT FOR PURPOSE OF COMPUTATION OF LONG TERM CAPITAL GAI N, INDEXED COST OF ACQUISITION WAS TO BE COMPUTED WITH REFEREN CE TO YEAR IN WHICH PREVIOUS OWNER FIRST HELD ASSET AND NOT YEAR IN WHICH ASSESSEE BECAME OWNER OF ASSET. SAME ANALOGY WOUL D BE APPLIED WITH RESPECT TO THE PROPERTY OF INHERITANCE . - - ITA 1067/15 7 7. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) IN HOLDING THAT WHILE COMPUTING THE CAPITAL GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED BY THE ASSESSEE UNDER A GIFT OR INHERITANC E, THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFEREN CE TO THE YEAR IN WHICH PREVIOUS OWNER (FATHER) FIRST HELD THE ASS ET AND NOT THE YEAR IN WHICH THE PRESENT ASSESSEE BECAME THE OWNER OF THE ASSET. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON FRIDAY, THE 17 TH OF JULY, 2015 AT CHENNAI. SD/- SD/- ( $ . . $ . %& ) ( ' ( ) * ) N.R.S.GANESAN + ,-./01.2334.15+ 6 78 /JUDICIAL MEMBER ! 789::3;/<./<=>?@>1 '6 /CHENNAI, A7 /DATED, THE 17 TH JULY, 2015. MPO* 7& BCDC /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E+ /CIT(A) 4. E /CIT 5. CF% G /DR 6. %HI /GF.