Altimetrik India Private Limited , Bangalore V. Deputy Commissioner of Income TAx Circle-6(1)(2), Bangalore

ITA 1509/BANG/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3049 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNDAR RAO I ITAT BENGALURU
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition; Scheme of amalgamation
• Section: 143(3); 2(14); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI A.K. GARODIA , ACCOUNTANT MEMBER I TA NO. 1509/BANG/2017 ASSESSMENT YEAR : 2012 - 13 M/S. ALTIMETRIK INDIA PRIVATE LTD., SY. NO.7P & 93P, INDUSTRIAL AREA, BEGUR HOBLI, ELECTRONIC CITY 2 ND PHASE, BANGALORE 560 100. PAN: AAFCS 4915A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, CA RE SPONDENT BY : SHRI SUNDAR RAO, CIT(DR - I )(ITAT), BENGALURU. DATE OF HEARING : 2 9 . 08. 201 8 DATE OF PRONOUNCEMENT : 24 .09.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 1509/BANG/2017: THIS IS AN APPEAL BY TH E ASSESSEE AGAINST THE ORDER DATED 12.04.2017 OF THE CIT(APPEA LS)-1, BANGALORE RELATING TO ASSESSMENT YEAR 2012-13. 2. GR.NO.1 & 2 ARE GENERAL AND CALLS FOR NO SPECIFI C ADJUDICATION. GR.NO. 3 TO 5 RAISED BY THE ASSESSEE READS AS FOLLO WS:- 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS BY UPHOLDING THE DECISION OF THE LEARNED ASSESSING OFF ICER ('AO') IN CONCLUDING THAT GAIN ON SALE OF LAND HELD BY THE APPELLANT FOR ITA NO.1509/BANG/2017 PAGE 2 OF 14 GREATER THAN 36 MONTHS AS PART OF A SALE CUM LEASE DEED IS A SHORT TERM CAPITAL GAIN. 4. THE LEARNED CIT(A) HAS ERRED IN LAW IN NOT CONSI DERING THE PROVISIONS OF SECTION 2(47)(V) OF THE ACT AND IN NO T FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C IT V SMT C SHAKUNTALA (ITA NO. 117 OF 2006 DATED SEPTEMBER 19, 2007) WHEREIN, IT WAS HELD THAT THE GAINS MUST BE CONSIDE RED AS LONG TERM CAPITAL GAINS ON THE BASIS THAT THE DATE OF TR ANSFER OF THE CAPITAL ASSET IS THE DATE ON WHICH POSSESSION HAS B EEN GRANTED. 5. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE APPELLANT'S SUBMISSION THAT THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF C/T VS VV MODI (218 ITR 1) RELIED BY THE LEARNED AO WAS RENDERED PRIOR TO THE INSERTION OF CLAUSE (V ) TO SECTION 2(47) OF THE ACT AND HENCE IS NOT APPLICABLE TO APP ELLANT'S CASE. 3. THE ASSESSEE IS AN INDIAN COMPANY INCORPORATED O N JULY 27, 2001 AS SYNOVA INNOVATIVE TECHNOLOGIES PRIVATE LIMITED ( 'SYNOVA'). SYNOVA WAS AMALGAMATED WITH ALTIMETRIK WITH EFFECT FROM AP RIL 1, 2013. PURSUANT TO THE APPROVAL OF THE SCHEME OF AMALGAMATION BY THE K ARNATAKA HIGH COURT, SYNOVA HAS CEASED TO EXIST AND ALTIMETRIK HAS TAKEN OVER ALL THE ASSETS, LIABILITIES AND INCOME TAX PROCEEDINGS OF SYNOVA. 4. THE ASSESSEE WAS ENGAGED IN THE BUSINESS PROVID ING SOFTWARE RELATED SERVICES AND RENDERING OF INFORMATION TECHN OLOGY ('IT') ENABLED SERVICES. THE ASSESSEE HAD FILED ITS RETURN OF INCO ME FOR THE AY 2012- 2013 ON 30.11.2013 DECLARING A TOTAL INCOME OF RS.6 3,688,290 AND TAX LIABILITY AMOUNTING TO RS.14,741,753. 5. SUBSEQUENTLY, AN ORDER UNDER SECTION 143(3) OF T HE ACT WAS PASSED BY THE AO MAKING THE ADJUSTMENTS TO THE TOTAL INCOM E DECLARED BY THE ASSESSEE. IN THE SAID ORDER, THE AO RECLASSIFIED L ONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE OF RS.607,19,488 AS SHORT TE RM CAPITAL GAIN. ITA NO.1509/BANG/2017 PAGE 3 OF 14 6. THE FACTS WITH REGARD TO THE CAPITAL GAIN ARE TH AT THE ASSESSEE HAD APPLIED TO KARNATAKA INDUSTRIAL AREAS DEVELOPMENT B OARD ('KIADB) FOR ALLOTMENT OF LAND FOR SETTING UP AN INDUSTRIAL PROJ ECT PURSUANT TO WHICH KIADB HAD AGREED TO LEASE A PLOT OF LAND UPON CERTA IN TERMS AND CONDITIONS. A LEASE AGREEMENT DATED SEPTEMBER 23, 2 004 DULY REGISTERED WAS ENTERED INTO BETWEEN THE ASSESSEE AND KIADB. A S PER THE SAID AGREEMENT, THE LAND WAS CONVEYED ON LEASE FOR A TER M OF SIX YEARS (REFER CLAUSE 1.C) FOR THE PURPOSE OF DEVELOPMENT OF SOFTW ARE TECHNOLOGY PARK (REFER CLAUSE 8). FURTHER, AS PER CLAUSE 23 OF THE AGREEMENT IT WAS AGREED THAT KIADB SHALL SELL THE PROPERTY TO THE ASSESSEE DURING THE CURRENCY OF THE LEASE PERIOD OR AT THE END OF SIX YEARS, ON THE ASSESSEE PERFORMING ALL THE CONDITIONS CONTAINED IN THE AGREEMENT. 7. CONSEQUENTLY, ON FULFILMENT OF THE CONDITIONS, A SALE DEED DATED MARCH 31, 2009 WAS EXECUTED BETWEEN KIADB AND ASSES SEE. SUBSEQUENTLY, ON 13.6.2011, THE ASSESSEE SOLD THE L AND ALONG WITH THE BUILDING CONSTRUCTED UPON THE LAND TO VATTIKUTI TEC HNOLOGIES PRIVATE LIMITED FOR INR 10,72,50,000. THE OPENING WDV OF THE SAID BUILDING AS ON APRIL 1, 2011 WAS INR 3,58,73,310. AS THE BUILDING BLOCK CEA SED TO EXIST, THE ASSESSEE AS PER THE PROVISIONS OF SECTION 50 OF THE ACT, COMPUTED SHORT CAPITAL LOSS OF INR 1,93,63,074 ON SALE OF BUILDING . ACCORDING TO THE ASSSESSEE, THE LAND WAS HELD BY THE ASSESSEE FOR MO RE THAN 36 MONTHS, AND THEREFORE THE ASSESSEE COMPUTED LONG TERM CAPIT AL GAIN ON SALE OF THE LAND. 8. IN THE ORDER OF ASSESSMENT, THE AO HELD THAT THE DATE OF ACQUISITION OF THE LAND BY THE ASSESSEE IS THE DATE ON WHICH TH E ASSESSEE SALE OF THE LAND WAS REGISTERED IN FAVOUR OF THE ASSESSEE BY KI ADB I.E., 31.3.2009. IN COMING TO THE ABOVE CONCLUSION THE AO PLACED RELIAN CE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V DR V MODI ITA NO.1509/BANG/2017 PAGE 4 OF 14 (218 ITR 1) WHEREIN IT WAS HELD THAT THE DATE OF ACQUISITION O F THE CAPITAL ASSET WOULD BE THE DATE ON WHICH THE SALE DEED HAS BEEN EXECUTED. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) UPHELD THE ORDER OF THE AO. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE HAS RAISED GR.NO.3 TO 5 BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE DISP UTE BETWEEN THE ASSESSEE AND THE REVENUE IS AS TO WHETHER THE GAIN ON SALE OF THE LAND WHICH WAS OBTAINED ORIGINALLY ON 23.9.2004 ON LEASE FROM KIADB WHICH WAS SUBSEQUENTLY CONVEYED ABSOLUTELY BY KIADB TO TH E ASSESSEE BY A REGISTERED SALE DEED DATED 31.3.2009 CAN BE SAID TO BE A LTCG. 11. SEC.2(29B) OF THE ACT DEFINES LONG TERM CAPITAL GAIN AS FOLLOWS:- 'LONG-TERM CAPITAL GAIN' MEANS CAPITAL GAIN ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET; SEC.2(29A) OF THE ACT DEFINES LONG TERM CAPITAL ASS ET AS FOLLOWS:- 'LONG-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET WHI CH IS NOT A SHORT-TERM CAPITAL ASSET ; SEC.2(42A) OF THE ACT DEFINES SHORT TERM CAPITAL AS SET AS FOLLOWS:- (42A) 'SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL AS SET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MO NTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER : .. SEC.2(42B) OF THE ACT DEFINES SHORT TERM CAPITAL GA IN AS FOLLOWS:- (42B) 'SHORT-TERM CAPITAL GAIN' MEANS CAPITAL GAIN ARISING FROM THE TRANSFER OF A SHORT-TERM CAPITAL A SSET; ITA NO.1509/BANG/2017 PAGE 5 OF 14 12. WE HAVE TO LOOK AT THE DEFINITION OF THE TERM SHORT TERM CAPITAL GAIN BECAUSE WHAT IS NOT SHORT TERM CAPITAL GAIN IS LONG TERM CAPITAL GAIN AND THAT IS THE WAY LONG TERM CAPITAL GAIN HAS BEEN DEF INED IN THE ACT. SHORT TERM CAPITAL GAIN MEANS CAPITAL GAIN ARISING FROM T HE TRANSFER OF A SHORT TERM CAPITAL ASSET. SHORT TERM CAPITAL ASSET HAS BE EN QUITE EXHAUSTIVELY DEFINED, COVERING SEVERAL SITUATIONS. FOR THE PRESE NT APPEAL THE PORTION OF THE DEFINITION WHICH SAYS SHORT TERM CAPITAL ASSET MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MO NTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER ALONE IS RELEVA NT. THE FACTUAL DETAILS WITH REGARD TO ACQUISITION OF THE PROPERTY BY THE ASSESS EE HAS ALREADY BEEN SET OUT IN THE EARLIER PARAGRAPH OF THIS ORDER. THE DE TAILS OF THE PAYMENT MADE BY THE ASSESSEE ARE GIVEN IN PAGE-115 OF ASSESSEES PAPER BOOK AND THE SAME IS AS FOLLOWS:- DETAILS OF THE COST OF LAND ACQUIRED FROM KIADB DATE DESCRIPTION ORIGINAL COST 31/10/2004 LAND COST AND REGISTRATION FEES PAID TO KIADB 7,835,405.00 26/03/2009 STAMP DUTY / FEES PAID TO SUB REGISTRAR'S OFFICE 658,850.00 30/03/2009 STAMP DUTY / FEES PAID TO SUB REGISTRAR'S OFFICE 77,952.00 30/03/2009 AMOUNT PAID TO KIADB 74,140.00 31/03/2009 CHARGES FOR LANDSCAPE & GARDENING WORK PAID TO NAVNEETH BUSINESS SERVICES 625,000.00 31/03/2009 EXPENSES INCURRED FOR THE PAVED AREA AROUND THE GENERATOR ROOM PAID TO NAVNEETH BUSINESS SERVICES 105,125.00 31/03/2009 CHAGRES FOR LANDSCAPE AND GARDEN WORK PAID TO NAVNEETH BUSINESS SERVICES 1,255,750.00 11/11/2008 ADVOCATE FEES 15,000.00 13/11/2008 ADVOCATE FEES 10,000.000 ITA NO.1509/BANG/2017 PAGE 6 OF 14 13. IT CAN BE SEEN FROM THE ABOVE DETAILS THAT THE ASSESSEE PAID COST OF THE PROPERTY AS EARLY AS 31.10.2004 AND WAS IN POSS ESSION OF THE PROPERTY AS LESSEE CUM AGREEMENT HOLDER WITH RIGHT TO OBTAIN CONVEYANCE OF ABSOLUTE INTEREST OVER THE LAND THAT WAS LEASED. T HE EXPRESSION HELD BY THE ASSESSEE IN THE CONTEXT OF SEC.2(42A) OF THE A CT, IS RATHER AMBIGUOUS, IN THE SENSE THAT IT DOES NOT SPEAK OF THE DATE OF VESTING OF LEGAL TITLE TO THE PROPERTY. EVEN THE PROVISIONS OF SEC.2(47)(V) & (VI ) OF THE ACT WHICH DEFINES WHAT IS TRANSFER FOR THE PURPOSE OF THE ACT, CONS IDERS POSSESSORY RIGHTS AS AKIN TO LEGAL TITLE. IT IS THEREFORE NECESSARY TO L OOK INTO THE POLICY AND OBJECT OF THE PROVISIONS GIVING EXEMPTION FROM LEVY OF TAX ON CAPITAL GAIN. IN THE PRESENT CASE, AS WE HAVE ALREADY SEEN, THE ASSESSEE HAD PAID THE ENTIRE CONSIDERATION FOR THE SITE ORIGINALLY ALLOTTED AS E ARLY AS IN THE YEAR 2004. THE ASSESSEE HAD PERFORMED ITS PART OF THE CONTRACT WITH KIADB. THEREFORE THE CLAIM OF THE ASSESSEE THAT IT HELD THE PROPERTY FROM THE YEAR 2004 HAS TO BE ACCEPTED, KEEPING IN MIND THE POLICY AND OBJE CT OF THE PROVISIONS GIVING EXEMPTION FROM LEVY OF TAX ON CAPITAL GAIN. 14. IN COMING TO THE CONCLUSION THAT THE LTCG DECLA RED BY THE ASSESSEE IS STCG, THE CIT PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DR.V V MODY 218 ITR 1 (KARN.) WHEREIN THE FACTS WERE THAT THE ASSESSEE, AN INDIVIDUAL, WA S ALLOTTED A SITE BY THE BANGALORE DEVELOPMENT AUTHORITY ON THE 25TH MAY, 19 72 IN ACCORDANCE WITH THE RELEVANT RULES OF ALLOTMENT. A LEASE-CUM-S ALE AGREEMENT WAS EXECUTED ACCORDING TO WHICH THE ASSESSEE WAS REQUIR ED TO PAY A CERTAIN AMOUNT TO THE BANGALORE DEVELOPMENT AUTHORITY AND A T THE END OF THE 10TH YEAR, SECURE A CONVEYANCE IN HIS FAVOUR UPON PAYMEN T OF THE ENTIRE SALE CONSIDERATION. CONSEQUENTLY, A SALE-DEED WAS EXECUT ED IN FAVOUR OF THE ASSESSEES BY THE BANGALORE DEVELOPMENT AUTHORITY ON THE 29TH MARCH, 1982, REGISTERED ON THE 13TH MAY, 1982. SHORTLY, TH EREAFTER, ON 27TH NOV., ITA NO.1509/BANG/2017 PAGE 7 OF 14 1982, THE ASSESSEE SOLD THE SITE TO A THIRD PERSON FOR A TOTAL CONSIDERATION OF RS. 1,69,200. THE QUESTION BEFORE THE COURT WAS AS TO WHETHER IT CAN BE SAID THAT THE ASSESSEE HELD THE PROPERTY FROM THE YEAR 1971 OR ONLY WHEN THE REGISTERED CONVEYANCE WAS EXECUTED IN HIS FAVOU R. THE HONBLE KARNATAKA HIGH COURT HELD AS FOLLOWS:- 12. THE TERM CAPITAL ASSET AS DEFINED BY S. 2(14) OF THE ACT MEANS PROPERTY OF ANY KIND HELD BY THE ASSESSEE WHE THER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE THE SPECIFIED ITEMS OF PROPERTY. LEASEHOLD RIGHTS H ELD BY AN ASSESSEE DO NOT FALL UNDER ANY ONE OF THE EXCLUSION S CONTEMPLATED BY THE DEFINITION. THE EXPRESSION 'PROPERTY' IS OF THE WIDEST IMPORT AND SUBJECT TO ANY LIMITATIONS WHICH THE CON TEXT MAY REQUIRE, IT SIGNIFIES EVERY POSSIBLE INTEREST WHICH A PERSON CAN ACQUIRE, HOLD AND ENJOYREFER AHMED G.H. ARIF & ORS . VS. CWT (1970) 76 ITR 471 (SC). IT IS, THEREFORE, TRUE THAT IF ANY ONE OF SUCH INTERESTS WAS ALIENABLE BY THE HOLDER OF TH E SAME, IT COULD GIVE RISE TO A CAPITAL GAIN SHORT OR LONG-TERM DEPE NDING UPON THE PERIOD FOR WHICH THE INTEREST WAS HELD BY THE PERSO N CONCERNED. 13. THE QUESTION, HOWEVER, IS NOT WHETHER THE LEASEHO LD RIGHT HELD BY THE ASSESSEE COULD INDEPENDENT OF THE SALE IN FAVOUR OF THE ASSESSEE HAVE BEEN TREATED AS A PROPERTY RIGHT CAPABLE OF GENERATING A CAPITAL GAIN IN THE HANDS OF THE ASSES SEE. THE QUESTION REALLY IS AS TO WHETHER ANY SUCH RIGHT EXI STED AND COULD BE TRANSFERRED BY THE ASSESSEE AFTER THE SAME HAD M ERGED IN THE LARGER ESTATE ACQUIRED BY THE ASSESSEE. THIS IS PAR TICULARLY SO BECAUSE WHAT IS TRANSFERRED BY THE ASSESSEE IS NOT THE LESSER INTEREST HELD BY HIM EARLIER TO HIS BECOMING THE AB SOLUTE OWNER BUT THE TOTAL INTEREST ACQUIRED BY HIM IN THE FORM OF ABSOLUTE TITLE TO THE PROPERTY, TRANSFERRED. IN THE CIRCUMSTANCES, UNLESS IT WAS POSSIBLE FOR THE ASSESSEE TO HOLD THE TWO ESTATES S IMULTANEOUSLY AND INDEPENDENT OF EACH OTHER, THE TRANSFER OF THE TITLE IN THE PROPERTY COULD NOT BE DEEMED TO BE TRANSFERRING THE LESSER AND THE LARGER ESTATES BOTH SO AS TO MAKE THEM AMENABLE TO A PROCESS OF SPLITTING FOR PURPOSE OF TAXING THE CAPITAL GAIN AR ISING AS A SHORT- TERM OR LONG-TERM GAIN. THIS, HOWEVER, WAS NOT SO I N THE PRESENT CASE. AS FROM THE 29TH MARCH, 1982, THE ASSESSEE HE LD ONLY ONE ITA NO.1509/BANG/2017 PAGE 8 OF 14 ESTATE REPRESENTING THE TITLE TO THE PROPERTY IN QU ESTION AND ANY CAPITAL GAIN ARISING FROM THE TRANSFER OF THE SAID ESTATE MADE ON 27TH NOV., 1982, COULD ONLY BE GIVING RISE TO A SHO RT-TERM GAIN. THE TRIBUNAL WAS IN THESE CIRCUMSTANCES IN ERROR IN HOLDING OTHERWISE. 15. THE DECISION IN THE CASE OF DR.V.V. MODY (SUPRA) WAS CONSIDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DR.SHAKUNTALA ITA NO.117 OF 2006 JUDGMENT DATED 19.9.2007 . IN THE CASE OF DR.SHAKUNTALA (SUPRA) THE FACTS WERE THAT THE ASSESSEE GOT A SITE ALLOTT ED IN HER FAVOUR BY THE BANGALORE DEVELOPMENT AUTHORITY (BDA) UNDER A L EASE-CUM-SALE AGREEMENT DATED 28.2.1981 AND WAS PUT IN POSSESSION OF THE SITE ALLOTTED. SHE GOT ABSOLUTE SALE DEED FROM BDA ONLY ON 19.9.19 96. SHE SOLD THE PROPERTY ON 25.3.1997. THE QUESTION BEFORE THE HON BLE KARNATAKA HIGH COURT WAS AS TO WHETHER THE CAPITAL GAIN CAN BE REG ARDED AS LTCG OR STCG. THE CASE OF THE REVENUE WAS THAT THE PERIOD OF HOLDING HAD TO BE RECKONED FROM 19.9.1996 AND THE CAPITAL GAIN HAD TO BE REGARDED AS STCG. THE PLEA OF THE ASSESSEE WAS THAT THE HOLDIN G PERIOD HAD TO BE RECKONED FROM 18.2.1981 THE DATE ON WHICH THE ASSES SEE GOT POSSESSION OF THE PROPERTY UNDER LEASE-CUM-SALE AGREEMENT. TH E REVENUE RELIED ON THE DECISION IN THE CASE OF DR.V.V. MODY (SUPRA) . THE HONBLE KARNATAKA HIGH COURT UPHELD THE DECISION OF THE TRIBUNAL WHIC H DISTINGUISHED THE DECISION IN THE CASE OF DR.V.V. MODY (SUPRA) AS A DECISION RENDERED PRIOR TO THE INSERTION OF CLAUSE (V) TO SEC.2(47) OF THE ACT WHICH DEFINES TRANSFER FOR THE PURPOSE OF CAPITAL GAIN U/S.45 OF THE ACT. SIM ILAR DECISIONS WERE RENDERED BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SMT.RAMA RANI KALIA 358 ITR 499 (ALL) & AMAR NATH AGARWAL 37 1 ITR 183 (ALL) . ITA NO.1509/BANG/2017 PAGE 9 OF 14 16. WE ALSO FIND SUPPORT FOR THE AFORESAID CONCLUSI ONS FROM ANOTHER DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS A SURESH RAO 223 TAXMANN 228 (KAR) WHEREIN SIMILAR ISSUE WAS CONSIDERED AND WHEREIN THE SIGNIFICANCE OF THE EXPRESSION HEL D USED BY THE LEGISLATURE HAS BEEN ANALYSED AND EXPLAINED AT LENGTH. HONBLE HIGH COURT ANALYSED VARIOUS PROVISIONS OF THE ACT PERTAINING TO COMPUTA TION OF CAPITAL GAIN UNDER VARIOUS SITUATIONS AND ALSO CIRCULARS ISSUED BY THE CBDT ON THIS ISSUE. RELEVANT PORTION OF THE OBSERVATION WHEREIN THE ISS UE BEFORE US HAS BEEN PROPERLY ANALYSED IS REPRODUCED HEREUNDER:- THE DEFINITION AS CONTAINED IN SECTION 2 (42A) OF THE ACT, THOUGH USES THE WORDS, A CAPITAL ASSET HELD AN ASS ESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRECEDING T HE DATE OF ITS TRANSFER, FOR THE PURPOSE OF HOLDING AN ASSET , IT IS NOT NECESSARY THAT, HE SHOULD BE THE OWNER OF THE ASSET, WITH A R EGISTERED DEED OF CONVEYANCE CONFERRING TITLE ON HIM . IN THE LIGHT OF THE EXPANDED DEFINITION AS CONTAINED IN SECTION 2(47), EVEN WHEN A SALE, EXCHANGE, OR RELINQUISHMENT OR EXTINGUISHMENT OF ANY RIGHT, UNDER A TRANSACTION THE ASSESSEE IS PUT IN POSSESSI ON OF AN IMMOVABLE PROPERTY OR HE RETAINED THE SAME IN PART PERFORMANCE OF THE CONTRACT UNDER SECTION 53-A OF THE TRANSFER OF PROPERTY ACT, IT AMOUNTS TO TRANSFER. NO REGISTERED DEED OF SALE IS REQUIRED TO CONSTITUTE A TRANSFER. SIMILARLY, ANY TRANSACTIO N WHETHER BY WAY OF BECOMING A MEMBER OF OR ACQUIRING SHARES IN A CO -OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MA NNER WHATSOEVER, WHICH HAS THE EFFECT OF TRANSFERRING, O R ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY, ALSO CONSTITUT ES TRANSFER AND THE ASSESSEE IS SAID TO HOLD THE SAID PROPERTY FOR THE PURPOSE OF THE DEFINITION OF SHORT-TERM CAPITAL GAIN. IN FACT, THE CIRCULAR NO.495 MAKES IT CLEAR THAT TRANSACTIONS OF THE NATU RE REFERRED TO ABOVE ARE NOT REQUIRED TO BE REGISTERED UNDER THE R EGISTRATION ACT, 1908. SUCH ARRANGEMENTS CONFER THE PRIVILEGES OF OWNERSHIP WITHOUT TRANSFER OF TITLE IN THE BUILDING AND ARE C OMMON MODE OF ACQUIRING FLATS PARTICULARLY IN MULTISTORIED CONSTR UCTIONS IN BIG CITIES. THE AFORESAID NEW SUB-CLAUSES (V) AND (VI) HAVE BEEN ITA NO.1509/BANG/2017 PAGE 10 OF 14 INSERTED IN SECTION 2(47) TO PREVENT AVOIDANCE OF C APITAL GAINS LIABILITY BY RECOURSE TO TRANSFER OF RIGHTS IN THE MANNER REFERRED TO ABOVE. A PERSON HOLDING THE POWER OF ATTORNEY IS AU THORIZED THE POWERS OF OWNER, INCLUDING THAT OF MAKING CONSTRUCT ION THOUGH THE LEGAL OWNERSHIP IN SUCH CASES CONTINUES TO BE W ITH THE TRANSFEROR. THE INTENTION OF LEGISLATURE IS TO TREA T EVEN SUCH TRANSACTIONS AS TRANSFERS AND THE CAPITAL GAIN ARIS ING OUT OF SUCH TRANSACTIONS ARE BROUGHT TO TAX. FURTHER, THE CIRCU LAR NO.4 71 GOES TO THE EXTENT OF CLARIFYING THAT FOR THE PURPOSE OF INCOME-TAX ACT, THE ALLOTTEE GETS TITLE TO THE PROPERTY ON THE ISSU ANCE OF THE ALLOTMENT LETTER AND THE PAYMENT OF INSTALLMENTS IS ONLY A FOLLOW UP ACTION AND TAKING THE DELIVERY OF POSSESSION IS ONLY A FORMALITY. IN CASE OF CONSTRUCTION AGREEMENTS, THE TENTATIVE COST OF CONSTRUCTION IS ALREADY DETERMINED AND THE AGREE MENT PROVIDES FOR PAYMENT OF COST OF CONSTRUCTION IN INSTALLMENTS SUBJECT TO THE CONDITION THAT THE ALLOTTEE HAS TO BEAR THE INCREAS E, IF ANY, IN THE COST OF CONSTRUCTION. THEREFORE, FOR THE PURPOSE OF CAPITAL GAINS TAX THE COST OF THE NEW ASSET IS THE TENTATIVE COST OF CONSTRUCTION AND THE FACT THAT THE AMOUNT WAS ALLOWED TO BE PAID IN INSTALLMENTS DOES NOT AFFECT THE LEGAL POSITION. TH EREFORE, IN CONSTRUING SUCH TAXATION PROVISIONS, WHAT SHOULD BE THE APPROACH OF THE COURTS AND THE INTERPRETATION TO BE PLACED I S CLEARLY SET OUT BY THE APEX COURT IN THE CASE OF SMT. SAROJ AGGARWA L VS CIT 156 ITR 497 WHEREIN IT IS HELD AS UNDER:- FACTS SHOULD BE VIEWED IN NATURAL PERSPECTIVE, HAV ING REGARD TO THE COMPULSION OF THE CIRCUMSTANCES OF A CASE. WHERE IT IS POSSIBLE TO DRAW TWO INFERENCES FROM TH E FACTS AND WHERE THERE IS NO EVIDENCE OF ANY DISHONEST OR IMPROPER MOTIVE ON THE PART OF THE ASSESSEE, IT WOU LD BE JUST AND EQUITABLE TO DRAW SUCH INFERENCE IN SUCH A MANNER THAT WOULD LEAD TO EQUITY AND JUSTICE. TOO H YPER- TECHNICAL OR LEGALISTIC APPROACH SHOULD BE AVOIDED IN LOOKING AT A PROVISION WHICH MUST BE EQUITABLY INTE RPRETED AND JUSTLY ADMINISTERED COURTS SHOULD, WHENEVER POS SIBLE UNLESS PREVENTED BY THE EXPRESS LANGUAGE BY ANY SEC TION OR COMPELLING CIRCUMSTANCES OF ANY PARTICULAR CASE, MAKE A BENEVOLENT AND JUSTICE ORIENTED INFERENCE. FACTS MUST BE VIEWED IN THE SOCIAL MILIEU OF A COUNTRY. ITA NO.1509/BANG/2017 PAGE 11 OF 14 THEREFORE, KEEPING THE AFORESAID PRINCIPLES IN MIND , WHEN WE LOOK AT SECTION 48, THE LANGUAGE EMPLOYED IS UNAMBI GUOUS. THE INTENTION IS VERY CLEAR. WHEN A CAPITAL ASSET IS TR ANSFERRED, IN ORDER TO DETERMINE THE CAPITAL GAIN FROM SUCH TRANS FER, WHAT IS TO BE SEEN IS, OUT OF FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING, THE COST OF ACQUISITION OF THE ASSET, THE COST OF IMPROVEMENT AND ANY EXPENDITURE WHOLLY OR EXCLUSIVE LY INCURRED IN CONNECTION WITH SUCH TRANSFER IS TO BE DEDUCTED. WHAT REMAINS THEREAFTER IS THE CAPITAL GAIN. IT IS NOT NECESSARY THAT AFTER PAYMENT OF COST OF ACQUISITION, A TITLE DEED IS TO BE EXECU TED IN FAVOUR OF THE ASSESSEE. EVEN IN THE ABSENCE OF A TITLE DEED, THE ASSESSEE HOLDS THAT PROPERTY AND THEREFORE, IT IS THE POINT OF TIME AT WHICH HE HOLDS THE PROPERTY, WHICH IS TO BE TAKEN INTO CO NSIDERATION IN DETERMINING THE PERIOD BETWEEN THE DATE OF ACQUISIT ION AND DATE OF TRANSFER OF SUCH CAPITAL GAIN IN ORDER TO DECIDE WHETHER IT IS A SHORT-TERM CAPITAL GAIN OR A LONG-TERM CAPITAL GAIN . 17. IN THE LIGHT OF THE AFORESAID DECISIONS, WE AR E OF THE VIEW THAT THE CAPITAL GAIN IN QUESTION IN THE PRESENT CASE HAS TO BE TREATED AS LTCG AS CLAIMED BY THE ASSESSEE. GR.NO.3 TO 5 ARE ACCORDING LY ALLOWED. 18. GR.NO.6 & 7 RAISED BY THE ASSESSEE READS AS FO LLOWS:- 6. THE LEARNED CIT(A) HAS ERRED IN LAW IN UPHOLDIN G THE ACTION OF THE LEARNED AO IN RESTRICTING THE RATE OF DEPRECIATION ON SERVERS, NETWORKING EQUIPMENT, PRINTERS AND SWITCHE S TO 15 PERCENT APPLICABLE FOR 'PLANT AND MACHINERY' AS AGA INST THE PRESCRIBED RATE OF 60 PERCENT WHICH IS APPLICABLE F OR 'COMPUTERS AND COMPUTER SOFTWARE'. 7. THE LEARNED CIT(A)/AO HAS ERRED IN NOT APPRECIAT ING THAT THE SERVERS, NETWORKING EQUIPMENT, PRINTERS, ETC WE RE CAPITALIZED UNDER THE HEAD 'COMPUTERS AND SOFTWARE' FOR THE REA SON THAT THE SAID ASSETS FORMED AN INTEGRAL PART OF THE COMPUTER SYSTEM. ITA NO.1509/BANG/2017 PAGE 12 OF 14 19. THE DISPUTE RAISED IN GR.NO. 6 & 7 IS WITH REGA RD TO THE RATE OF DEPRECIATION ON SERVERS. IF SERVERS ARE REGARDED A S PART OF COMPUTER AND HENCE DEPRECIATION HAS TO BE ALLOWED AT 60%. THE C ASE OF THE REVENUE IS THAT SERVERS ARE NOT PART OF COMPUTER AND HAVE TO B E REGARDED AS PLANT AND MACHINERY ELIGIBLE FOR DEPRECIATION AT 15%. THE HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES YAMUNA POWER LTD. 358 ITR 47 (DEL.) HAS TAKEN THE VIEW THAT COMPUTER ACCESSORIES AND PERIPH ERALS SUCH AS PRINTERS, SCANNERS AND SERVER ETC., FOR INTEGRAL PART OF COMP UTER SYSTEM AND HENCE THEY ARE ENTITLED TO DEPRECIATION AT 60%. FOLLOWIN G THE AFORESAID DECISION, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATI ON AT 60% ON SERVERS. GR.NO.6 & 7 ARE ALLOWED. 20. GR.NO.8 RAISED BY THE ASSESSEE READS AS FOLLOWS : 8. THE LEARNED CIT(A) HAS ERRED IN LAW IN UPHOLDIN G THE ACTION OF THE LEARNED AO IN MAKING A DISALLOWANCE U NDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (THE 'RULES'). 21. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 14 3(3) OF THE INCOME- TAX ACT, 1961 [THE ACT], THE AO NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME WHICH WAS EXEMPT U/S. 10(34) OF THE ACT. IN TERMS OF SECTION 14A OF THE ACT, THE AO WANTED TO DISALLOW E XPENSES INCURRED IN EARNING EXEMPT INCOME. THE DISPUTE BEFORE THE AO W AS ONLY WITH REGARD TO DISALLOWANCE OF OTHER EXPENSES IN TERMS OF RULE 8D(2)(III) OF THE INCOME- TAX RULES, 1962 [THE RULES] R.W.S. 14A OF THE ACT . ACCORDING TO THE ASSESSEE, NO EXPENSES WERE INCURRED FOR EARNING THE EXEMPT INCOME. THE ASSESSEE PLEADED THAT THE INVESTMENTS ARE NOT MADE FREQUENTLY AND IN FACT NO INVESTMENT WAS MADE DURING THE RELEVANT PREVIOUS YEAR. THE INVESTMENTS WERE HELD FOR A LONG TIME AND THERE CAN BE COST ATTRIBUTABLE TO EARNING THE EXEMPT INCOME. ITA NO.1509/BANG/2017 PAGE 13 OF 14 22. THE AO, HOWEVER, WAS OF THE VIEW THAT OTHER EXP ENSES HAD TO BE DISALLOWED IN TERMS OF RULE 8D(2)(III) OF THE RULES . ACCORDINGLY, THE AO COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(III) AS FOLLOWS:- RULE 8D(2)(III) : % OF AVERAGE VALUE OF INVESTM ENT = RS.5,72,538/- 23. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) WAS OF T HE VIEW THAT DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT IS MAN DATORY AND THEREFORE DISALLOWANCE OF EXPENSES MADE BY THE AO WAS PROPER. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSESSEE HAS PREFERRED G R.NO.8 BEFORE THE TRIBUNAL. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE HONB LE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P) LTD. V. CIT, 372 ITR 694 HAS TAKEN THE VIEW THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT E XCEED THE EXEMPT INCOME. SIMILAR VIEW WAS EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HOLCIM INDIA PVT. LTD., 272 CTR 282 (DEL) . THESE DECISIONS WERE CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FUTURE CORPORATE RESOURCES LTD V. ACIT, ITA NO.4658/MUM/20 15 DATED 26.07.2017 RELATING TO AY 2011-12 AND IT WAS HELD BY THE TRIB UNAL MUMBAI BENCH THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. FOLLOWING THE AFORESAID DECISIONS, WE HOLD THAT DISALLOWANCE U/S. 14A OF THE ACT IN THE PRESENT CASE SHOULD BE RESTRI CTED TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY AND PARTLY ALLOW GR.NO.8. ITA NO.1509/BANG/2017 PAGE 14 OF 14 25. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( A.K. GARODIA ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 24 TH SEPTEMBER, 2018. / D ESAI S MURTHY / COPY TO: 1. THE APP ELL ANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.