ITO, CHENNAI V. Syed Ali Shirazi, CHENNAI

ITA 1998/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81238 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 23-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: D ANAND
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI. . , . !' !' !' !' , # # # # $ $ $ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.1998/MDS/2014 # ' %' / ASSESSMENT YEAR :2008-09 THE INCOME TAX OFFICER, INTERNATIONAL TAXATION II(1) NO. 121, M.G. ROAD, CHENNAI 34. VS. SHRI SYED ALI SHIRAZI, C/O N. SREE KANTH, NO. 188, POONAMALLE HIGH ROAD, GROUND FLOOR, MIDDLE BLOCK, CHENNAI 600 010. [PAN : AAMPS5447F] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI S. DAS GUPTA, JCIT ()&' * + / RESPONDENT BY : SHRI D. ANAND, ADVOCATE * , / DATE OF HEARING : 15.10.2014 -% * , /DATE OF PRONOUNCEMENT : 30.10.2014 . . . . / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VII, CHENNAI, DATED 04.06.2014 RELEVANT TO THE ASSESSMENT YEAR 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL AND NON- RESIDENT. THE MAJOR COMPONENTS OF HIS INCOME DURING THE YEAR UNDER CONSIDERATION ARE FROM LONG TERM CAPITAL GAINS. THE LONG TERM CAPITAL GAINS ACCRUE TO HIM ON TRANSFER OF HIS SHARES OF PROPERTY COMPRISING LAND AND I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1998 998998 998/M/ /M/ /M/ /M/1 11 14 44 4 2 BUILDING SITUATED AT EGMORE, CHENNAI. THE PROPERTY WAS SOLD JOINTLY ALONG WITH THREE OTHER PERSONS BEING SIBLINGS OF THE ASSE SSEE. THE ABOVE PROPERTY CAME TO THE ASSESSEE AND OTHERS AFTER DEMISE OF HIS MOTHER SMT. NARGIS BEGUM SHOOSHTHARY, WHO PASSED AWAY INTESTATE IN 15. 07.2005. THE PROPERTY WAS SOLD DURING THE PREVIOUS YEAR 2007-08 ON 26.10.2007 FOR A CONSIDERATION OF .16,11,00,000/-. THE FULL VALUE OF THE CONSIDERATIO N RECEIVED BY THE ASSESSEE WAS .4,02,75,000/-. 3. THE ASSESSEE COMPUTED THE CAPITAL GAINS AMOUNTI NG TO .2,53,93,524/- AFTER TAKING INTO ACCOUNT EXPENDITUR E IN CONNECTION WITH TRANSFER AND INDEXED COST OF ACQUISITION. IN THE AS SESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE SHARE OF TH E HOUSE PROPERTY WAS OBTAINED ON INHERITANCE. FROM THE COMPUTATION OF CA PITAL GAINS, IT WAS NOTICED THAT THE ASSESSEE COMPUTED COST OF ACQUISIT ION OF THE ASSET WITH REFERENCE TO THE COST INFLATION INDEX APPLICATION F OR 1981-82. IN ADDITION, VARIOUS COSTS OF IMPROVEMENTS STATED TO BE INCURRED BY THE PREVIOUS OWNER, HAD ALSO BEEN CLAIMED. ACCORDING TO THE ASSESSING O FFICER, INDEXATION OF COST OF ACQUISITION WILL HAVE TO BE CALCULATED FROM THE FINANCIAL YEAR 2005-06 AND CALLED ASSESSEES EXPLANATION. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT SECTION 49(1) OF THE INCOME-TAX ACT PROVIDES THAT WHERE THE CAPITAL ASSET HAS BEEN ACQUIRED BY THE TAXPAYER IN ANY OF THE MODES SUCH AS ON PARTITION OF A HINDU UNDIVIDED FAMILY OR UNDER GIFT OR WILL I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1998 998998 998/M/ /M/ /M/ /M/1 11 14 44 4 3 OR BY SUCCESSION OR INHERITANCE, ETC., THE COST TO THE PREVIOUS OWNER SHALL BE DEEMED TO BE THE COST OF ACQUISITION OF TH E TAXPAYER. SIMILARLY, SECTION 2(42A) PROVIDES THAT WHERE A CA PITAL ASSET IS ACQUIRED BY WAY OF GIFT OR INHERITANCE AS MENTIONED IN SECTION 49(1), PERIOD OF HOLDING OF THE PREVIOUS OWNER SHALL ALSO BE INCLUDED IN THE PERIOD HOLDING OF THE TAXPAYER. THEREFORE THE INDEXATION OF THE COST OF THE PROPER TY HAS BEEN TAKEN FROM THE YEAR 1981 AS THE PROPERTY WAS ACQUIR ED BY HIS MOTHER DURING 1956. REFERENCE: MANJULA J. SHAH CASE IN SPECIAL BENCH (3 18) ITR (AT) 417 (MUMBAI)(SB). HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND THE ASSESSING OFFICER HAS CALCULATED T HE INDEXATION COST OF ACQUISITION TAKING INTO CONSIDERATION OF FINANCIAL YEAR 2005-06. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(APPEALS). IT WAS SUBMITTED BEFORE THE LD. CIT(A PPEALS) THAT FOR THE PURPOSE OF CALCULATION OF COST OF INDEXATION, FINAN CIAL YEAR 1981-82 HAS TO BE TAKEN INTO CONSIDERATION AND FOR THAT, THE ASSESSEE HAS RELIED IN THE CASE OF CIT V. MANJULA J. SHAH [2013] 355 ITR 474 (BOM). TH E LD. CIT(APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, BY FOLLOWING THE MUMBAI SPECIAL BENCH DECISION IN THE CASE OF DCIT V. MANJU LA J. SHAH (SUPRA), OBSERVED THAT THE PERIOD OF HOLDING BY THE PREVIOU S OWNER AND COST TO THE PREVIOUS OWNER ARE TO BE SUBSTITUTED FOR WORKING OU T THE CAPITAL GAINS. HENCE THE DENOMINATOR TO BE ADOPTED WILL BE 100 INSTEAD O F 497 AS THE ASSET WAS PURCHASED ON 27.07.1956 AND THE COST AS ON 01.04.19 81 IS APPLICABLE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1998 998998 998/M/ /M/ /M/ /M/1 11 14 44 4 4 ACCORDINGLY, THE LD. CIT(APPEALS) DIRECTED THE ASSE SSING OFFICER TO ADOPT 100 AS THE DENOMINATOR AND CALCULATE THE CAPITAL GA INS. 5. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE THE TRIBUNAL. 6. THE LD. DR RELIED ON THE ORDER PASSED BY THE AS SESSING OFFICER. 7. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER PASSED BY THE LD. CIT(APPEALS) AND ALSO THE DECISION IN THE CASE OF C IT V. MANJULA J. SHAH [2013] 355 ITR 474 (BOM). 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ONLY I SSUE INVOLVED IN THIS APPEAL IS WHETHER THE INDEX COST FOR ACQUISITION IS APPLICABLE FOR 1981-82 OR FINANCIAL YEAR 2005-06 IN WHICH THE PROPERTY WAS IN HERITED BY THE ASSESSEE. THE LD. CIT(APPEALS), BY FOLLOWING THE MUMBAI SPECI AL BENCH DECISION IN THE CASE OF DCIT V. MANJULA J. SHAH (SUPRA), HELD THAT THE INDEXED COST OF ACQUISITION IS APPLICABLE AS ON 01.04.1981. WE HAVE GONE THROUGH THE ABOVE DECISION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF DCIT V. MANJULA J. SHAH (SUPRA). WHILE CONSIDERING THE ISSUE, THE TRIB UNAL HAS OBSERVED THAT FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAI NS ARISING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PROPER TY OF THE ASSESSEE UNDER GIFT, THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE ASSESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEXED COST OF ACQUI SITION AS ENVISAGED IN EXPLANATION (III) TO SECTION 48 AFTER TAKING INTO A CCOUNT THE PERIOD FOR WHICH I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1998 998998 998/M/ /M/ /M/ /M/1 11 14 44 4 5 THE SAID CAPITAL ASSET WAS HELD BY THE PREVIOUS OWN ER. IN THAT VIEW OF THE MATTER, WE HOLD THAT THE INDEXED COST OF ACQUISITIO N OF SUCH CAPITAL ASSET HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. 9. THE VERY SAME ISSUE HAS ALSO BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. MANJULA J. SHAH [2013] 355 ITR 474 (BOM) AND HELD AS UNDER: THE INDEXED COST OF ACQUISITION HAS TO BE DETERMIN ED WITH REFERENCE TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHIC H THE CAPITAL ASSET WAS 'HELD BY THE ASSESSEE'. SINCE THE EXPRESSION 'HELD BY THE ASSESSEE' IS NOT DEFINED UNDER S. 48, THAT EXPRESSION HAS TO BE UNDE RSTOOD AS DEFINED UNDER S. 2. EXPLANATION L(I)(B) TO S. 2(42A) PROVID ES THAT IN DETERMINING THE PERIOD FOR WHICH AN ASSET IS HELD BY AN ASSESSE E UNDER A GIFT, THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE PRE VIOUS OWNER SHALL BE INCLUDED. AS THE PREVIOUS OWNER HELD THE CAPITAL AS SET FROM 29TH JAN., 1993, AS PER EXPLN. 1(I)(B) TO S. 2(42A), THE ASSES SEE IS DEEMED TO HAVE HELD THE CAPITAL ASSET FROM 29TH JAN., 1993. BY REA SON OF THE DEEMED HOLDING OF THE ASSET FROM 29TH JAN., 1993, THE ASSE SSEE IS DEEMED TO HAVE HELD THE ASSET AS A LONG-TERM CAPITAL ASSET. I F THE LONG TERM CAPITAL GAINS LIABILITY HAS TO BE COMPUTED UNDER S. 48 BY T REATING THAT THE ASSESSEE HELD THE CAPITAL ASSET FROM 29TH JAN., 199 3, THEN, NATURALLY IN DETERMINING THE INDEXED COST OF ACQUISITION UNDER S . 48, THE ASSESSEE MUST BE TREATED TO HAVE HELD THE ASSET FROM 29TH JA N., 1993 AND ACCORDINGLY THE COST INFLATION INDEX FOR 1992-93 WO ULD BE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUISITION. IF THE ARGUMENT OF THE REVENUE THAT THE DEEMING FICTION CONTAINED IN EXPLN . L(I)(B) TO S. 2(42A) CANNOT BE APPLIED IN COMPUTING THE CAPITAL GAINS UN DER S. 48 IS ACCEPTED, THEN, THE ASSESSEE WOULD NOT BE LIABLE FO R LONG-TERM CAPITAL GAINS TAX, BECAUSE, IT IS ONLY BY APPLYING THE DEEM ED FICTION CONTAINED IN EXPLN. L(I)(B) TO S. 2(42A) AND S. 49(L)(II), TH E ASSESSEE IS DEEMED TO HAVE HELD THE ASSET FROM 29TH JAN., 1993 AND DEEMED TO HAVE INCURRED THE COST OF ACQUISITION AND ACCORDINGLY MADE LIABLE FOR THE LONG-TERM CAPITAL GAINS TAX. THEREFORE, WHEN THE LEGISLATURE BY INTRODUCING THE DEEMING FICTION SEEKS TO TAX THE GAINS ARISING ON T RANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL AND THE CAPITAL GAINS UNDER S. 48 HAS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1998 998998 998/M/ /M/ /M/ /M/1 11 14 44 4 6 TO BE COMPUTED BY APPLYING THE DEEMED FICTION, IT I S NOT POSSIBLE TO ACCEPT THE CONTENTION OF REVENUE THAT THE FICTION C ONTAINED IN EXPLN. L(I)(B) TO S. 2(42A) CANNOT BE APPLIED IN DETERMINI NG THE INDEXED COST OF ACQUISITION UNDER S. 48. 10. THE LD. CIT(APPEALS), BY FOLLOWING THE DECISIO N OF THE MUMBAI SPECIAL BENCH AS WELL AS THE DECISION OF THE HONBLE BOMBAY HIGH COURT ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(APPEALS) AND THE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE STAND S DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 30 TH OF OCTOBER, 2014 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 30.10.2014 VM/- . * (#,/0 10%, /COPY TO: 1. &' / APPELLANT, 2. ()&' / RESPONDENT, 3. 2 ( ) /CIT(A), 4. 2 /CIT, 5. 03! (#,# /DR & 6. !4' 5 /GF.