ITO,Wd. 2(1), Pune V. Shirish Motilal Nahar, Pune

ITA 199/PUN/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56461 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO. 199/PN/2010 (ASSTT. YEAR: 2005-06) INCOME TAX OFFICER ... APPEL LANT WARD 2(1), PUNE V. SHIRISH MOTILAL NAHAR RESPONDENT K-204 ADINATH SOCIETY PUNE SATARA ROAD, PUNE 411037 PAN : ADSPN0504D APPELLANT BY : SHRI NEERA MALHOTRA RESPONDENT BY : WRITTEN SUBMISSION DATE OF HEARING : 2.8.11 DATE OF PRONOUNCEMENT: .10.11 ORDER PER I.C. SUDHIR, JM THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER O N THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN ALLOWING THE ASSESSEES APPEAL BY FOLLOWING THE DEC ISION OF THE SPECIAL BENCH OF THE ITAT, MUMBAI IN THE CASE OF DCIT VS. MANJULA J SHAH IN ITA NO.7315/MUM/2007 DATED 16/10/2009 INSTEAD OF CONFIR MING THE ASSESSMENT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN HOLDING THAT FOR THE PURPOSE OF DETERMINING THE IND EXED COST OF ACQUISITION IN RESPECT OF AN ASSET ACQUIRED BY SUCCESSION OR INHER ITANCE, THE COST INFLATION INDEX HAS TO BE WORKED OUT BY TAKING THE DATE OF AC QUISITION BY THE PREVIOUS OWNER. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) GROSSLY ERRED IN FAILING TO APPRECIATE THAT AS PER CLAUSE (III) OF T HE EXPLANATION TO SECTION 48, ITA . NO 199/PN/2010 SHIRISH M NAHAR A.Y. 2005-06 PAGE OF 6 2 THE COST INFLATION INDEX TO BE TAKEN ON THE DENOMIN ATOR HAS TO BE NECESSARILY THE INDEX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE AND NOT BY ANY PREVIOUS OWNER. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE LEGISLATURE IN ITS WISDOM HAS CLEARLY DISTINGUISHED THE ASSIGNMENT OF COST TO THE ASSET T RANSFERRED U/S. 49(1)(II) AND THE BENEFIT OF INDEXATION TO BE GIVEN ON SUCH C OST (EXPLANATION (III) U/S. 48); AND, IN THE CIRCUMSTANCES, THE BENEFIT OF INDE XATION HAS TO BE WORKED OUT ONLY AS PER EXPLANATION (III) TO SECTION 48 OF THE ACT. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT UNDER THE SCHEME OF THE ACT, THE BENEFIT OF INDEXATION CAN BE GIVEN ONLY TO THE OWNER OF THE AS SET, AND THAT TOO FROM THE DATE HE BECOMES THE OWNER TO THE DATE HE CEASES TO BE THE OWNER. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT BY NO MEANS THE INTENTIO N OF THE LEGISLATURE WAS TO GRANT THE BENEFIT OF INDEXATION TO AN ASSESSEE FOR THE PERIOD WHEN HE WAS NOT THE OWNER OF THE ASSET SINCE THE VERY PURPOSE OF GI VING THE BENEFIT OF INDEXATION IS TO NEUTRALIZE THE EFFECT OF INFLATION IN THE HANDS OF THE ASSESSEE- CUM-OWNER. 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE, AN IND IVIDUAL WAS IN RECEIPT OF LONG TERM CAPITAL GAIN ON ACCOUNT OF SALE OF RESIDENTIAL HOUSE ADMEASURING 352.85 SQ.MTS. AT CITY SURVEY NO. 170/171, BHAWANI PETH, PUNE. THE OWNERSHIP OF THE SAID PROPERTY CAME TO THE ASSESSEE AFTER THE DEMISE OF H IS FATHER IN THE F.Y. 1994-95. THE REGISTERED VALUER WORKED OUT THE PURCHASE VALUE OF THE PROPERTY AND LAND APPURTENANT THERETO AT RS. 5,02,066/-. THE A.O. ADOPTED THE COST INFLATION INDEX OF THE YEAR 1994-95, DURING WHICH THE ASSESSEE BECA ME THE OWNER OF THE PROPERTY BY SUCCESSION. HE DID NOT AGREE WITH THE SUBMISSIO N OF THE ASSESSEE THAT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS, THE COST INFLATION INDEX IN THE YEAR OF ACQUISITION SHOULD BE TAKEN WITH REFERENCE TO THE PREVIOUS OWNER OF THE PROPERTY AND NOT OF THE YEAR WHEN THE ASSESSEE HAD RECEIVED THE PROPERTY BY SUCCESSION ON ITA . NO 199/PN/2010 SHIRISH M NAHAR A.Y. 2005-06 PAGE OF 6 3 THE DEMISE OF HIS FATHER. THE ASSESSEE IN THIS REG ARD PLACED RELIANCE ON THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF PUSHPA SOFAT (2004), 89 TTJ (CHAND.) 499. THE LD CIT(A), HAS HOWEVER ACCEPTED THIS CONTENTION OF THE ASSESSEE AND FOLLOWED THE DECISIONS CITED BEFORE IT ON THE ISSUE INCLUDING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF DCIT VS. MANJULA SHAH, ITA NO. 7315/MUM/2007 DATED 16.10.2009 IN SUPPORT. 3. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELIED UPON. 4. THE ISSUE RAISED BEFORE US IS AS TO WHETHER THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT FOR THE PURPOSE OF COMPUTATION OF CAP ITAL GAINS, THE COST INFLATION INDEX IN THE YEAR OF ACQUISITION SHOULD BE TAKEN WI TH REFERENCE TO THE PREVIOUS OWNER OF THE PROPERTY AND NOT OF THE YEAR WHEN THE APPELLANT HAD RECEIVED THE PROPERTY BY SUCCESSION ON THE DEMISE OF HIS FATHER. WE FIND THAT THE ISSUE IS FULLY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. MANJULA SHAH, ITA NO. 7315/MUM/2007 DATED 16.10.200 9. THE FIRST APPELLATE ORDER ON THE ISSUE IS COMPREHENSIVE AND REASONED ONE. FO R A READY REFERENCE PARA NO. 4.2 & 4.3 OF THE FIRST APPELLATE ORDER ARE BEING RE PRODUCED HEREUNDER : 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT THE APPELL ANT HAD RELIED ON A NUMBER OF DECISIONS OF VARIOUS ITAT BENCHES. THE APPELLAN T HAS ALSO CITED THE VERY RECENT DECISION OF SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF DCIT VS. MANJULA SHAH, ITA NO. 7315/MUM/2007 DATED 16.10. 2009. IN THAT CASE IT WAS HELD THAT THE INDEXED COST OF THE GIFTED ASSET HAS TO BE DETERMINED WITH REFERENCE TO PREVIOUS OWNER. IN THAT CASE THE ASSE SSEE HAD RECEIVED THE CAPITAL ASSET BY GIFT ON 01.02.2003 WHEREAS THE PRE VIOUS OWNER HAD ACQUIRED IT ON 29.01.1993. THE ASSESSEE HAD CLAIMED THE COS T INFLATION INDEX OF THE YEAR RELATED TO THE DATE OF ACQUISITION OF THE PRE VIOUS OWNER, WHEREAS THE A.O TOOK IT WITH REFERENCE TO THE DATE OF RECEIPT OF GIFT BY THE ASSESSEE. THE SPECIAL BENCH OF ITAT MUMBAI DECIDED THE ISSUE AFTE R CONSIDERING THE ITA . NO 199/PN/2010 SHIRISH M NAHAR A.Y. 2005-06 PAGE OF 6 4 PROVISIONS OF EXPLANATION (III) TO SECTION 48 TOGET HER WITH EXPLANATION 1(B) TO SECTION 2(42A) AND IT WAS HELD AS UNDER : 11. COMBINED READING OF BOTH THE AFORESAID PROVISI ONS, WHICH ARE RELEVANT IN THE PRESENT CONTEXT, CLEARLY SHOWS THA T IMPORTANCE IS ASSIGNED TO THE PERIOD OF HOLDING OF THE CAPITAL AS SET IN AS MUCH AS EXPLANATION (III) TO SECTION 48 REFERS TO THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE WHEREAS EXPLANATION 1(B) T O SECTION 2(42A) PROVIDES FOR INCLUSION OF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER IN DETERMINING THE PERIOD FOR WHIC H ANY CAPITAL ASSET IS HELD BY THE ASSESSEE. HAVING REGARD TO THIS ASP ECT AS WELL AS KEEPING IN VIEW THAT THE DEFINITIONS GIVEN IN SECTI ON 2 ARE APPLICABLE FOR THE ENTIRE ACT, WE ARE OF THE VIEW THAT THE LEGISL ATIVE INTENTION BEHIND ENACTING THESE PROVISIONS IS VERY CLEAR TO TREAT TH E DATE AS WELL AS COST OF ACQUISITION OF CAPITAL ASSET OF THE PREVIOUS OWN ER TO BE DATE AND COST OF ACQUISITION OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING CAPITAL GAIN IN TERMS OF SECTION 48. THIS IS THE SCHEME OF THE ACT AS LAID OUT IN THE RELEVANT PROVISIONS AND THIS IS THE CONTEXT IN WHICH THE SAME HAS TO BE UNDERSTOOD AND APPRECIATED. AS RIGHTLY CONTE NTED BY THE LD. COUNSEL FOR THE ASSESSEE, HAD IT NOT BEEN THE INTEN TION OF THE LEGISLATURE, THE EXPRESSION USED IN EXPLANATION (II I) TO SECTION 48 WOULD HAVE BEEN FOR THE FIRST YEAR IN WHICH THE CAP ITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE AS USED IN SEC TION 49(1). .. 13. THIS IS SO ALSO BECAUSE WHEN THE COST OF ACQUI SITION TO THE PREVIOUS OWNER AS ON THE DATE OF ACQUISITION OF THE CAPITAL ASSET BY HIM IS TO BE ADOPTED AS COST OF ACQUISITION TO THE ASSESSEE EVEN FOR THE PURPOSE OF WORKING OUT THE INDEXED COST OF ACQUISIT ION AS PER THE MEANING GIVEN IN EXPLANATION (III) TO SECTION 48, I T DOES NOT SOUND LOGICAL TO ADOPT THE COST INFLATION INDEX FOR THE YEAR IN WHICH THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE A ND NOT THAT FOR THE YEAR IN WHICH THE ASSET WAS ACQUIRED BY THE PREVIO US OWNER. IN OUR OPINION, WHEN THE COST OF ACQUISITION OF THE PREVIO US OWNER AS ON THE DATE OF ACQUISITION OF THE CAPITAL ASSET BY HIM IS TO BE TAKEN FOR WORKING OUT THE INDEXED COST OF ACQUISITION, THE ON LY CONCLUSION WHICH LOGICALLY AND REASONABLY FOLLOWS IS TO ADOPT THE CO ST INFLATION INDEX ITA . NO 199/PN/2010 SHIRISH M NAHAR A.Y. 2005-06 PAGE OF 6 5 CORRESPONDING TO THAT DATE FOR APPROPRIATELY DETERM INING THE INDEXED COST OF ACQUISITION. ACCORDINGLY, THE SPECIAL BENCH HELD THAT SINCE THE PERIOD FOR WHICH THE CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER WAS TO BE INCL UDED IN THE HOLDING PERIOD OF THE ASSESSEE FOR THE PURPOSE OF DETERMINI NG THE INDEXED COST OF ACQUISITION, THE INDEXED COST OF ACQUISITION WAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER F IRST HELD THE ASSET. IN THE PROCESS THE SPECIAL BENCH HAS OVERRULED THE DECISIO N OF DCIT VS. KISHORE KANUNGO (2006) 104 TTJ 560 (MUMBAI). 4.3 IN VIEW OF THE SPECIAL BENCH DECISION, THE MATT ER NOW STANDS SQUARELY COVERED IN FAVOUR OF THE APPELLANT. THEREFORE, THE COST INFLATION INDEX AND THE INDEXED COST OF ACQUISITION HAS TO BE WORKED OUT B Y TAKING THE DATE OF ACQUISITION BY THE PREVIOUS OWNER IN CASE OF THE PL OT RECEIVED BY THE APPELLANT BY SUCCESSION ON THE DEATH OF HIS FATHER. GROUND NOS. 2, 4, 5 AND 6 ARE, THEREFORE, ALLOWED. 5. AS DISCUSSED ABOVE, THE FIRST APPELLATE ORDER ON THE ISSUE IS FULLY COVERED BY THE DECISIONS RELIED UPON BY THE LD CIT(A), WE ARE THUS NOT INCLINED TO INTERFERE THEREWITH. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. THE GROUNDS INVOLVING THE ISSUE ARE ACCORDINGLY REJECTED. 6. IN RESULT, THE APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 3RD OCTOBER, 2011 SD/- SD/- (D.KARUNAKARA RAO) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 3RD OCTOBER, 2011 US ITA . NO 199/PN/2010 SHIRISH M NAHAR A.Y. 2005-06 PAGE OF 6 6 COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -II, PUNE 4. THE CIT-II, PUNE 5. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE