M/s Woddegooda Estate , Bangalore V. Incoem Tax Officer ward-1 , Chikamagalur

ITA 1926/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7156 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PALANI KUMAR
• Assessee Lawyers: A SHANKAR
• Keywords: Capital asset; Cost of acquisition; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH SMC-B, BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNANT MEMBER ITA NO.1926 (BANG) 2017 (ASSESSMENT YEAR : 2011 12) M/S. WODDEGOODA ESTATE, APPELLANT NO. 7 (OLD NO. 9), RAJA RAM MOHAN ROY ROAD, RESIDENCY ROAD, BENGALURU - 560025 PAN. AAAFW4740M VS THE ITO, WARD 1, CHIKMAGALUR RESPONDENT ASSESSEE BY : SHRI A. SHANKAR, ADVOCATE REVENUE BY : SHRI PALANI KUMAR, ADDL. CIT DATE OF HEARING : 21-11-2017 DATE OF PRONOUNCEMENT : 2 4-11-2017 O R D E R PER A. K. GARODIA, A.M.: THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST THE ORDER OF CIT (A) MYSORE DATED 28.10.2016 FOR A. Y. 2011 12. 2. THE ASSESSEE HAS RAISED AS MANY AS 11 GROUNDS. O NE OF THE GRIEVANCES IS REGARDING THIS ASPECT THAT AS PER THE ASSESSEE THAT SALE PROCEEDS OF TRUNK OF SHADE TREES (LEAVING BEHIND 4 TO 6 INCHES OF STEM AND ROOTS FOR ITS REGENERATION) IS AGRICULTURAL INCOME AND HENCE, NOT TAXABLE BUT THE AO TAXED IT AS CAPITAL GAIN. THE SECOND ISSUE I S ABOUT QUANTIFYING OF THE SAID CAPITAL GAIN WHICH IS DONE BY THE AO TO THE EX TENT OF 30% OF SALE VALUE BUT AS PER THE ASSESSEE, 40% OF SALE VALUE SHOULD B E CONSIDERED AS COST ON 01.04.1981 AND ON THAT, INDEXATION SHOULD BE ALLOWE D. 3. BOTH PARTIES WERE HEARD. I FIND THAT THE FIRST I SSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE KARNATAKA H IGH COURT RENDERED IN ITA NO. 1926(BANG)2017 2 THE CASE OF EMERALD VALLEY ESTATES PRIVATE LIMITED VS. CIT AS REPORTED IN 222 ITR 799 WHEREIN IT WAS HELD THAT SHADE TREES IN A C OFFEE ESTATE FOR THE PURPOSE OF PROTECTION OF COFFEE BUSHES ARE CAPITAL ASSET AND ITS SALE WILL GIVE RISE TO CAPITAL GAIN. RESPECTFULLY FOLLOWING THIS J UDGMENT, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 4. REGARDING THE SECOND ISSUE, I FIND THAT THE AO H AS FOLLOWED A JUDGMENT OF HONBLE KERALA HIGH COURT RENDERED IN T HE CASE OF CIT VS. PULLENGODE RUBBER & PRODUCE CO. LTD., 189 ITR 580 A ND HELD THAT 30% OF TOTAL SALE VALUE IS CAPITAL GAIN. RELEVANT PARA OF THIS JUDGMENT IS REPRODUCED BELOW FOR READY REFERENCE:- THE ONLY OTHER QUESTION IS REGARDING THE ESTIMATE O F THE CAPITAL GAINS. THE ITO ESTIMATED THE CAPITAL GAINS AT 50 PE R CENT OF THE SALE VALUE. THE CIT (A) REDUCED IT TO 30 PER CENT OF THE SALE VALUE. HE HAS GIVEN COGENT REASONS THEREFOR. THE TRIBUNAL HAS CONCURRED WITH THE SAID VIEW. THE NET RESULT IS THAT THE CIT (A) A S ALSO THE TRIBUNAL HAVE CONCURRENTLY HELD THAT THE CAPITAL GAINS IS TO BE ESTIMATED AT 30 PER CENT OF THE TOTAL SALE VALUE OF TIMBER. AN ESTI MATE IS ALWAYS A MATTER OF VARIABLE IMPORT. IN SUCH A CASE, WHERE TW O STATUTORY AUTHORITIES HAVE CONCURRENTLY HELD THAT 30 PER CENT OF THE TOTAL SALE VALUE OF TIMBER REPRESENTS THE ESTIMATED CAPITAL GA INS, WE ARE OF THE VIEW THAT IT IS LARGELY A QUESTION OF FACT AND NO Q UESTION OF LAW ARISES ON THAT SCORE. THEREFORE, WE HOLD THAT THE DETERMIN ATION OF THE PERCENTAGE OF THE CAPITAL GAINS IS LARGELY A QUESTI ON OF FACT AND THAT THE SAID QUESTION HAS BEEN CONCURRENTLY FOUND IN TH IS CASE BY THE CIT (A) AND THE TRIBUNAL, AT 30 PER CENT OF THE TOT AL SALE OF TIMBER. 5. FROM THE ABOVE JUDGMENT ITSELF, IT COMES OUT THA T THIS DECISION IS IN RESPECT OF THE FACTS OF THAT CASE AND IT IS NOT A R ATIO LAID DOWN ON A LEGAL ASPECT. AS PER THE SCHEME OF THE ACT, SHORT TERM CA PITAL GAIN IS COMPUTED BY DEDUCTING COST OF ACQUISITION , COST OF IMPROVEMENT AND EXPENSES IN RESPECT OF TRANSFER. IN CASE OF LONG TERM CAPITAL GAIN, IN RESPECT OF FIRST TWO ITEMS, COST HAS TO BE INDEXED BY TAKING THE INDEX OF THE Y EAR OF SALE AND YEAR OF ACQUISITION/IMPROVEMENT. HENCE, AT LEAST IN CASE OF LONG TERM CAPITAL GAIN, IT CANNOT BE SAID THAT A FIXED PERCENTAGE OF SALE VALU E IS INDEXED COST BECAUSE EVEN IF THE ACTUAL COST CAN BE ESTIMATED IN THAT MA NNER THAN ALSO, INDEXATION DEPENDS ON THE GAP OF PERIOD BETWEEN YEA R OF ACQUISITION AND YEAR OF SALE. HENCE, AT THE BEST, HOLDING 30% AS CA PITAL GAIN CAN IMPLY THAT ITA NO. 1926(BANG)2017 3 70% IS COST BUT IT CANNOT BE SAID THAT 70% IS INDEX ED COST IN ALL CASES. IT MAY BE THAT IN THAT CASE, SUCH GAP OF PERIOD BETWEE N YEAR OF ACQUISITION AND YEAR OF SALE WAS SMALL AND THEREFORE, IN THE FACT O F THAT CASE, 30% OF SALE VALUE WAS CONSIDERED AS CAPITAL GAIN. BUT IN MY CON SIDERED OPINION, IN ALL CASES, THIS YARDSTICK CANNOT BE APPLIED. 6. IN THE PRESENT CASE, THE COFFEE ESTATE WAS DEVEL OPED MUCH PRIOR TO 01.04.1981 AND THEREFORE, MARKET VALUE AS ON 01.04. 1981 HAS TO BE ADOPTED AS COST AND THEREUPON, INDEXATION HAS TO BE ALLOWED TILL THE YEAR OF SALE I.E. F. Y. 2010 11. IT IS SEEN THAT IN THE PRESENT CASE, ABOUT 30 YEARS HAS ELAPSED SINCE 01.04.1981 AND HENCE, THERE WILL BE HUGE IMPA CT OF INDEXATION OVER AND ABOVE THE MARKET VALUE ON 01.04.1981. AS PER TH E LEARNED AR OF THE ASSESSEE, ON PAGE 13 OF WRITTEN SUBMISSIONS, EVEN IF 40% OF SALE PROCEEDS RS. 146,34,146/- IS CONSIDERED AS FAIR MARKET VALUE AS ON 01.04.1981 I.E. RS. 58,53,658/-, THE INDEXED COST WILL BE RS. 416,1 9,511/- RESULTING INTO LONG TERM CAPITAL LOSS OF RS. 269,85,365/-. RELIANC E WAS PLACED ON A JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF CIT VS. M/S DODDANANDI ESTATE IN ITA NO. 249/2010 DATED 21. 09.2015 (COPY MADE AVAILABLE AND KEPT ON RECORD). IT WAS POINTED OUT T HAT IN THAT CASE, THIS WAS THE QUESTION RAISED IN THE APPEAL OF THE REVENUE BE FORE THE HONBLE HIGH COURT THAT WHETHER THE TRIBUNAL WAS RIGHT IN DIRECT ING THE AO TO RECOMPUTED THE CAPITAL GAIN BY TAKING 70% OF THE SALE PROCEEDS AS THE MARKET VALUE AS ON 01.04.1981 AND THE APPEAL OF THE REVENUE WAS DIS MISSED. I AM OF THE CONSIDERED OPINION, AS PER THIS JUDGMENT, COST OF A CQUISITION CAN BE ESTIMATED AS A PERCENTAGE OF THE SALE PRICE. BUT TH E CRUCIAL QUESTION IS THIS AS TO WHAT SHOULD BE THAT PERCENTAGE. IN THAT CASE, IT WAS ESTIMATED AT 70% OF SALE PRICE AND IT IS NOTED THAT THE SALE TOOK PL ACE IN THAT CASE ON 25.07.1995 I.E. AFTER 14 YEARS FROM 01.04.1981. IN THE PRESENT CASE, THE SALE HAS TAKEN PLACE ON IN THE FINANCIAL YEAR 2010 11 ALTHOUGH ACTUAL DATE IS NOT COMING OUT FROM THE ORDERS OF THE LOWER AUTHORI TIES BUT IT IS CERTAIN THAT THE SALE HAS TAKEN PLACE AFTER 29 YEARS FROM 01.04. 1981. HENCE, THE SAME PERCENTAGE OF 70% TO ESTIMATE THE COST ON 01.04.198 1 CANNOT BE ADOPTED IN THE PRESENT CASE. THE COST INFLATION INDEX FOR F. Y . 1995 96 WAS 281 AND ITA NO. 1926(BANG)2017 4 FOR F. Y. 2010 11, IT WAS 711. HENCE, IN MY OPINI ON, IN THE FACTS OF THE PRESENT CASE, THE COST AS ON 01.04.1981 SHOULD BE E STIMATED AT 15% OF SALES VALUE INSTEAD OF 70% IN THAT CASE AND 40% PROPOSED BY THE LEARNED AR. RESPECTFULLY FOLLOWING THIS JUDGMENT AND IN VIEW OF THIS DISCUSSION, I DIRECT THE AO TO RECOMPUTE THE CAPITAL GAIN BY ADOPTING 15 % OF SALE VALUE AS COST ON 01.04.1981 AND THAN AFTER ALLOWING THE BENEFIT O F INDEXATION AS PER LAW. REGARDING CARRY OF LONG TERM CAPITAL LOSS, IF ANY, I DO NOT EXPRESS ANY OPINION BECAUSE THAT IS NOT AN ISSUE BEFORE ME AND THIS ISS UE IS LEFT OPEN. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER BANGALORE D A T E D : 24.11.2017 /MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.