MAHINDRA ARYA, MUMBAI V. ACIT 17 & 28, MUMBAI

ITA 2239/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62229 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: K SHIVRAMAN
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B BENCH BEFORE SHRI J. SUDHAKAR REDDY (ACCOUNTANT MEMBER) AND SHRI S.S. GODARA (JUDICIAL MEMBER) ITA NO. 2239/MUM/2009 : ASSESSMENT YEAR : 2006-07 SHRI MAHENDRA ARYA 203, GIRIRAJ, S.T. ROAD, CARNAC BUNDER, MUMBAI PAN NO. ADEPA3519P VS. ASST. COMMISSIONER OF INCOME TAX 17 & 28, INCOME TAX OFFICE, AAYKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. SHIVRAMAN RESPONDENT BY : SHRI P.C. MAURYA DATE OF HEARING : 20.03.2012 DATE OF PRONOUNCEMENT : 20.04.2012 ORDER PER S.S. GODARA, JM: THE INSTANT APPEAL HAS BEEN PREFERR ED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 21.02.2009 PASSED BY LD.CIT(A). 2. BRIEF FACTS OF THE CASE LEADING TO THE FILING OF INSTANT APPEAL ARE THAT ON 30.03.2007, THE ASSESSEE / APPELLANT FILED HIS INCOME TAX RETURN DECLARING INCOME OF RS.1,31,229. IT WAS ALSO CLARIFIED THAT HE WAS A PARTNER IN PARTNERSHIP FIRM NAMELY ECONOMIC TRANSPORT ORGANIZATION SINCE 30 .11.1992 TILL 05.01.2005. PER ASSESSEE, HE HAD RETIRED FROM THE SAID FIRM BY WAY OF A SETTLEMENT DATED 15.01.2005. IN VIEW OF SAID THE SETTLEMENT, THE ASSESSEE RECEIV ED THE FOLLOWING PROPERTIES IN LIEU OF SHARES : ITA NO. 2239/MUM/2009 SHRI MAHENDRA ARYA 2 PROPERTY AT BOOK VALUE BARODA 15,11,772/52 BHAVNAGAR 3,91,801/04 BHIWANDI 10,07,848/34 MADURAI 12,59,810/43 NASIK 5,03,924/17 SHOLAPUR 7,24,39/- ____________ TOTAL 53,99,547/50 TOTAL OF AMOUNT VALU ING RS. 53,99,547.50. 3. HOWEVER, THE AO ISSUED A SHOW CAUSE NOTICE TO ASSESSEE AS TO WHY THE PROFIT RISING FROM THE SALE OF ABOVE SAID PROPERTIES BE NOT DEALT WITH AS SHORT TERM CAPITAL GAIN. THE ASSESSEE CLARIFIED IN THAT SECTION 49 OF THE INCOME TAX ACT (HEREIN AFTER TO BE REFERRED AS ACT) WAS NOT APP LICABLE. FURTHER CONT ENDED THAT BENEFIT OF HOLDING PERIOD HAD ALSO TO BE COUNTED SINCE DATE OF ACQUISITION OF THE ASSETS BY PARTNERSHIP FIRM. IN THAT EVENTUALITY; PER A SSESSEE, HE WAS ELIGIBLE FOR CAPITAL LOSS FOR RELINQUISHMENT OF HIS RIGHTS IN THE FIRM. 4. THE AO DID NOT AGREE TO THE ASSESS EES PLEA. VIDE ASSE SSMENT ORDER DATED 28.12.2007, THE AO HELD THAT INSTEAD OF REALIZ ATION OF SHARE IN TH E PARTNERSHIP FIRM, IT WAS THE CASE OF TRANSFER OF ASSETS. SECTION 45(IV) OF THE ACT WAS RELIED UPON BY THE AO IN HOLDING THAT ACQUISITION OF THE ABOVE SAID PROPERTIES OF THE ASSET BY THE ASSESSEE AMOUNTED TO TRANSFER. THEREFORE, THE AO TREATED THE CASE UNDER SHORT TERM CAPITAL GAINS BECAUSE THE PROPERTIES IN QUESTION WERE SO LD WITHIN 3 YEARS ON ACQUISITION. REGARDING COST OF ACQUISIT ION OF ASSET, THE AO TOOK INTO CONSIDERATION BOOK VALUE OF THE SAME AS PER AGREEMENT DATED 15. 01.2005. ACCORDINGLY, COMPUTED SHORT TERM CAPITAL GA IN AT RS. 25,80,970. 5. AGGRIEVED BY THE SAID ORDER THE ASSESSEE PREFE RRED APPEAL. RAISED PLEA THAT HE HAD ONLY SOLD 2 PROPERTIES I.E. OF BHAVN AGAR & SOLAPUR. ALSO SUBMITTED THAT COST OF THE ACQUISITION OF SOLAPUR PROPERTY HAD CR OSSED THE SALE PRICE. BUT, THE LD.CIT(A) ITA NO. 2239/MUM/2009 SHRI MAHENDRA ARYA 3 VIDE IMPUGNED ORDER ADOPTED STRICT ER APPROACH IN INTERPRETING THE WORD TRANSFER MENTIONED IN SETTLEMENT DATED 15.01.2005. DID NOT SPECIFIC ALLY DECIDE AS TO HOW MANY PROPERTIES HAD BEEN SOLD BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. UPHELD THE FINDINGS OF THE AO. IT IS IN VIEW OF THIS FACTUAL POSITION THAT THE ASSESSEE HAS FILED THE INSTANT APPEAL BEFORE US. 6. AT THE TIME OF FILING THE APPEAL, TH E ASSESSEE HAD RAISED 3 GROUNDS. HOWEVER, DURING PENDENCY OF THE INSTANT APPEAL, HE HAS FILED REVI SED GROUNDS. THE ORIGINAL GROUNDS AS WELL AS REVISED GROUNDS RAISE T HE ISSUE OF THE LEGALITY OF THE ORDER OF LD.CIT(A). THEREFORE, WE TAKE ON RECO RD REVISED GROUNDS. SINCE THE REVISED GROUNDS ARE INTERCONNECTED, THEREFORE, WE ARE DECIDING THE SAME TOGETHER. 7. IN SUPPORT OF THE GROUNDS RAISED, THE LD. AR HAS SUBM ITTED THAT FINDING OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAS SO LD ALL THE PROPERTIES IS AGAINST RECORD AVAILABLE IN PAPER BOOK. CONTENDED THAT DURI NG THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD SOLD ONLY 2 PROPERTIES THAT IS ONE AT BHAVNAGAR AND OTHER AT SOLAPUR. ONE PROPERTY HE HAS CONTRIBUTED TO HUF. IN TH IS REGARD HE HAS ALSO REFERRED TO PAGE 283 OF PAPER BOOK I.E. COPY OF ASSESSEE S RETURNS ASSESSMENT YEAR 2007-08 WHERE HE HAS DULY MENTIONED INCOME FROM SHORT TE RM CAPITAL GAIN ON SALE OF PROPERTIES AT MADURAI AND BARODA. ACCORDIN GLY, HE HAS PLEADED THAT THE RECORD IN THE CASE HAS NOT BEEN APPROPRIATELY APPRECIATED BY THE LD. LOWER AUTHORITIES. 8. THE LD. AR HAS FURTHER ARGUED THAT PROVISIONS OF SECTION 45 HAVE BEEN WRONGLY APPLIED IN THE INSTANT CASE AS THE ALLEGED REA LIZATION OF ASSESSEES SHARE BY WAY OF GETTING PROPERTIES DOES NOT AMOUNT TO ACQUISITION OF NEW ASSETS. ALSO SUBMITTED THE SAME IS NOT TRANSFER. BY REFERRING TO SECTION 45 SUB-SECTION 4 HE HAS ARGUED THAT ONCE THE SAID REALIZATION OF SHARE IS NOT EVEN TRANSFER WITHIN THE MEANING OF SAID PROVISION AS WELL AS SECT ION 2(47) OF THE ACT, THE SAME IS NOT APPLICABLE TO THE FACTS OF INSTANT CASE. 9. THE LD. AR HAS ALSO RAISED AN AR GUMENT THAT SECTION 49 OF THE ACT ONLY COVERS THOSE CASES WHERE CAPITAL ASSETS IN QUESTION BECOME THE PROPERTY OF ASSESSEE ON DISTRIBUTION OF ASSETS BECAUSE OF DISSOLUTION OF FIRM, BODY OF INDIVIDUALS ITA NO. 2239/MUM/2009 SHRI MAHENDRA ARYA 4 AND OTHER ASSOCIATION OF PERSONS WHIC H HAD TAKEN PLACE ON OR BEFORE THE 01.04.1987 PROVIDED BY FINANCE ACT IN 1947. IT HAS BEEN STATED THAT SINCE THE PRESENT REALIZATION ON ASSETS IS DATED 15.01.2005. THEREFORE, THE SAID PROVISION ALSO DOES NOT COVER TH E ASSESSEES CASE. IN THE ALTERNATIVE, IT HAS BEEN SUBMITT ED BY THE LD. AR T HAT IN THE INSTANT CASE, BENEFIT OF HOLDING PERIOD OF THE ASSE TS HAS ALSO NOT BEEN GRANTED. IN SUPPORT THEREOF, THE LD. AR HAS STATED THAT THE A SSESSEE BECAME PARTNER OF A FIRM IN 1992. INSTEAD OF INDEXATION OF PROPERTIES IN QUESTION WITH EFFE CT FROM THE YEAR 1992, THE COST OF ACQUISITION HAS BEEN TAKEN INTO C ONSIDERATION WITH EFFECT FROM 15.01.2005 (SETTLEMENT DEED). THE LD. AR HAS ALSO RELIED ON THE CASE LAW I.E ATUL G. PURANIK VS. ITO 132 ITD 499 ITAT, MUMBAI BENCH ORDER DATED 13 .05.2011. REFERRED TO PARA 10.2 & 10.3 OF THE SAME WHICH ARE REPRODUCED AS UNDER : A BARE PERUSAL OF THE PROVISION INDICATES THAT WHERE CAPITAL ASSET BECAME THE PROPERTY OF THE A SSESSEE IN ANY OF THE SITUATIONS CONTEMPLATED IN CLAUSES (I) TO (IV), THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST OF FO R WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY THE COST OF IMPROVEMENTS, ETC. THE EXPLANATION BELOW SUB-SECTI ON(1) DEFINES THE EXPRESSION PREVIOUS OWNER OF THE PROPERTY TO MEAN THE LAST PR EVIOUS OWNER WHO ACQUIRED IT BY A MODE OF ACQUISI TION OTHER THAN THOSE REFERRED TO IN CLAUSES (I) TO (IV) OF THIS SUB- SECTION. THE SUM AND SUBSTANCE OF SECTION 49(1) IS THAT WHERE A CAPITA L ASSET BECOMES THAT PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPEC IFIED IN CLAUSES (I) TO (IV), SUCH AS GIFT OR WILL, SUCCESSION, INHERITANCE OR DEVOLUTI ON, ETC., THE COST OF ACQUISITION OF SUCH CAPITAL AS SET IN THE HANDS OF THE ASSESSEE RECEIVING SUCH CAPITAL ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH IT WAS ACQUIRED BY THE PERSON TRANSFERRING SUCH CAPITAL ASSET IN THE PRESCRIBED MODES. THE RATIONALE BEH IND THIS PROVISION IS THAT THE TRANSFER OF SUCH ASSET BY THE PERSO N RECEIVING IN ANY OF THE MODES PRESCRIBED, SHOULD NOT GO TAX FREE IN ORDER TO COMPUTE CAPITAL GAIN ON THE TRANSFER OF ANY CAPITAL ASSET , THE EXISTENCE OF COST OF ACQUISITION IS AN ESSENTIAL ELEMENT. IF THERE IS NO CO ST OF ACQUISITION AND THE CASE IS NOT COVERED UNDER SECTION 55(2), THEN THE COMPUTATION PROVISION SHALL FAIL AND NO LIABILITY TO TAX SHALL ARISE UNDER SECTION 45. AS NOT COST IS ACTUALLY INCURRED BY THE ASSESSEE IN ACQUIRING THE ASSETS UNDER SUCH MODES, AND ON THE FURTHER TRANSFER OF SUCH ASSETS, THE CAPITAL GAIN IS CONTEMPLATED BY THE LEGISLATURE, THE MECHANISM OF SECTION 49 HAS ITA NO. 2239/MUM/2009 SHRI MAHENDRA ARYA 5 BEEN PUT IN PLACE TO REMEDY THE SITUATION. THIS PROVISION DEEMS THE COST OF ACQUISITION OF THE ASSESS EE AS THE COST OR WHICH IT WAS ACQUIRED BY THE PREVIOUS OWNER AS INCREASED BY THE COST OF ANY IMPROVEMENTS INCURRED BY THE PREVIOUS OWNER. HOWEVER, IN ORDER TO APPLY THE MANDATE OF SECTION 49(1), IT IS SINE QUA NON THAT THE C APITAL ASSET ACQUIRED BY THE ACQUIRED BY THE ASSESSEE IN ANY OF THE MODES PRESCR IBED IN CLAUSE(I) TO (IV) SHOULD BECOME THE SUBJECT-MATTER OF TRANSFE R AND ONLY IN SUCH A SITUATION WHERE SUCH CAPITAL ASSET IS SUBSEQUENT LY TRANSFERRED, THE COST TO THE PREVIOUS OWNER IS DEEMED AS THE COST OF ACQUISITION OF THE ASSET. IT IS APPARENT FROM THE LANGUAGE OF SUB-SECT ION (1) ITSELF WHICH OPENS WITH THE WORDS: WHERE THE CAPITAL A SSET BECAME THE PROPERTY OF THE ASSESSEE AND AFTER ENUMERATING CERTAI N SITUATIONS, PROVIDES THAT THE COST ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST OF WHICH THE PREVIOUS OWNER OF T HE PROPERTY ACQUIRED IT. THE PHRASE THE ASSET USED IN THE LATER PART OF THE PROV ISION RELATES TO THE CAPITAL ASSET WHICH BECAME THE PROPERTY OF THE ASSESSEE IN THE GIVEN CIRCUMSTANCES. THE NATURAL COROLLARY WHICH, THEREFORE, FOLLOWS IS THAT THE COST TO THE PREVIOUS OWNER IS C ONSIDERED AS THE COST OF ACQUISITION ONLY OF THE CAPITAL ASSET, WHICH BECOM ES THE PROPERTY OF THE ASSESSEE IN THE MODES GIVEN IN CLAUSES (I) TO (IV). ACCORDINGLY IN VIEW OF ABOVE SUBMISSIONS, THE LD. AR HAS PRAYED FOR ACCEPTANCE OF THE INSTANT APPEAL BY SETTING ASIDE THE IMPUGNED ORDER. 10. ON THE OTHER HAND, THE LD.DR APPEARING IN REVENUE HAS RELIED ON THE IMPUGNED ORDER AND FINDINGS CONTAINED THEREIN. IN LIGHT THEREOF, HE HAS PRAYED FOR REJECTION OF THE APPEAL. 11. WE HAVE HEARD BOTH THE LD.REPRESENTAT IVES. ALSO PERUSED THE RELEVANT RECORD REFERRED TO. SO FAR AS FINDINGS RE CORDED BY THE LOWER AUTHORITIES THAT ALL PROPERTIES HAVE BEEN SOLD IS CONCERNED, IN OUR OPINION, THE SAME DOES NOT HOLD GROUND. AS ALREADY STATED HER EINABOVE, IT TRANSPIRES FROM THE RECORD THAT THE ASSESSEE HAS ONLY SOLD 2 PROPERTIES DUR ING THE RELEVANT ASSESSMENT YEAR. TWO PROPERTIES HE HAS SOLD IN THE NEXT ASSESSM ENT YEAR (PAGE 289 OF T HE RECORD). SO IN THE ABSENCE IN REBUTTAL BY THE REVENUE, WE HOLD THAT THE ASSESSEE HAD ONLY DISPOSED OF TWO PROPERTIES IN THE ASSESSM ENT YEAR IN QUESTION I.E. ONE AT SOLAPUR. ANOTHER AT BHAVNAGAR. SIMILARL Y, ONE PROPERTY AT NASIK IS STILL LYING UNSOLD. HENCE, NO CAPITAL GAINS CAN BE CO MPUTED REGARDING THE SAME. ITA NO. 2239/MUM/2009 SHRI MAHENDRA ARYA 6 12. FURTHER, SO FAR AS THE FINDINGS THAT INSTANT CASE IS COVERED BY PROVISION CONTAINED IN SECTION 45 SUB-SECTION 4 OF THE ACT ARE CONCERNED, PERUSAL OF SUB- SECTION 4 OF SECTION 45 CLARIFIES THAT THE PR OFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET IN THE EVENTUALITY STATED THER EIN ARE CHARGEABLE TO TAX AS INCOME FROM THE FIRM, ASSOCIATION AND BODY. HOWEVER, THE SAID SUB-SECTION IS NO WAY COVERS THE INDIVIDUAL CASES (OF ASSESSEE ETC.) WE HAVE BEEN INFORMED THAT THE FIRM IN QUESTION HAS ALSO NOT BEEN CHARGED TO TAX FOR T HE ABOVE SAID SETTLEMENT DATED 15.01.2005. 13. SO FAR AS ARGUMENT OF THE LD.AR THAT SECTION 49 OF THE ACT IS NOT APPLICABLE QUA THE SETTLEMENT IN QUESTION DATED 15.01.2005 IS CONCERNED. WE FIND MERIT IN THE SAME. THE BARE PERUSAL OF SECTION 49 MAKES IT AMPLY CLEAR THAT IT ONLY COVERS CASES BEFORE 01.04.1987 AND NOT THER EAFTER. CONSEQUENTLY, WE HO LD THAT THE COST OF ACQUISITION OF THE PREVIOUS OWNER AS APP LICABLE TO CATEGORIES OF TRANSFER U/S 49 CANNOT BE APPLIED IN THE INSTANT CASE. 14. IN ADDITION TO THIS, WE ALSO HOLD THAT SINCE THE ASSESSEE / APPELLANT RECEIVED THE ASSETS IN QUESTION IN LIEU OF HIS SHARES IN THEIR PARTNERSHIP FIRM, THEREFORE, COST OF ACQUISITION QUA THESE ASSETS WOULD BE VALUE OF HIS SHAR E IN FIRM. THE DATE OF ACQUISITION OF THESE ASSETS WOULD BE DEEMED TO BE THE DAT ED OF RETIREMENT OF THE ASSESSEE FROM THE FIRM CONSEQUENT TO THE SETTLEMENT IN WHICH HE HAS RECEIVED THE SIX PROPERTIES IN QUESTION IN LIEU OF HIS SHARES IN THE FIRM CAPITAL. ERGO, WE ARE OF THE OPIN ION THAT AUTHORITIES BELO W HAVE COMMITTED ILLEGALITY IN REACHING THE IMPUGNED FINDINGS. THEREFORE, WE SET ASIDE THE IMPUGNED ORDER. ALLOW THIS APPEAL. ORDER PRONOUNCED ON THIS 20 TH DAY OF APRIL, 2012. SD/- (J. SUDHAKAR REDDY ) SD/- (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20 TH APRIL, 2012 RASIKA ITA NO. 2239/MUM/2009 SHRI MAHENDRA ARYA 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX CONCERN 4. CIT(A)-2, MUMBAI 5. DEPARTMENTAL REPRESENTAT IVE, BENCH B MUMBAI 6. GUARD FILE //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI