Mr. Rajendera Kumar Gollapudi, CHENNAI V. ITO, CHENNAI

ITA 2322/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3984 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 10-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO.2322/MDS/2016 / ASSESSMENT YEAR : 2012-2013 SHRI. RAJENDRA KUMAR GOLLAPUDI, NO.17/9, SRIRAM NAGAR, NORTH STREET, ALWARPET, CHENNAI 600 018. [PAN BGFPF 2783N] VS. THE INCOME TAX OFFICER, WARD 1(1) INTERNATIONAL TAXATION, CHENNAI. ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : NONE /RESPONDENT BY : SHRI. A.V.SREEKANTH, IRS, JCIT /DATE OF HEARING : 15-11-2016 ! /DATE OF PRONOUNCEMENT : 23-11-2016 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ASSESSEE IN THIS APPEAL IS AGGRIEVED THAT BENEFIT S OF INDEXATION WHILE WORKING OUT CAPITAL GAINS WAS NOT ALLOWED TO IT, FROM THE YEAR IN WHICH IT INHERITED THE PROPERTY. ITA NO. 2322/MDS/2016. :- 2 -: 2. FACTS APROPOS ARE THAT ASSESSEE ALONGWITH HIS FATHE R, BROTHER AND SISTER HAD SOLD A PROPERTY WHEREIN BEARING DOOR NO.199, NEW NO.90, GOVINDAPPA NAICKEN STREET, CHENNAI MEASURIN G ONE GROUND AND 334 SQ.FT ON 18.04.2011 FOR A CONSIDERATION OF E87,00,000/-, ASSESSESS SHARE OF SALE CONSIDERATION E21,75,000/- . WHILE COMPUTING LONG TERM CAPITAL GAINS, ASSESSEE TOOK THE COST OF LAND AND BUILDING WITH THE BASE PRICE OF FINANCIAL YEAR 1981-82 AND C OST INFLATION INDEX WAS ACCORDINGLY APPLIED. ASSESSEE HAD INHERITED TH E SAID PROPERTY THROUGH A WILL DATED 21.07.2001 OF HIS GRANDMOTHER SMT. DURGAMBAL GOLLAPUDDI. SMT DURGAMBAL GOLLAPUDDI HAD EXPIRED O N 05.09.2001. IT SEEMS SMT. DURGAMBAL GOLLAPUDDI HAD HELD THIS LAND SINCE LONG. LD. ASSESSING OFFICER WAS OF THE OPINION THAT BY VIRTUE OF DEFINITION INDEXED COST OF ACQUISITION GIVEN TO EXPLANATION (I II) TO SECTION 48 OF THE ACT, COST INFLATION INDEX THAT COULD BE CONSIDE RED WAS ONE WHICH WAS RELATABLE TO 2001-2002, WHEN ASSESSEE BECAME TH E OWNER OF THE PROPERTY. ACCORDING TO HIM, ASSESSEE HAD CLAIMED C OST INFLATION INDEX RELEVANT TO FINANCIAL 1981-82 WHICH WAS NOT IN ACCO RDANCE WITH LAW. HE REWORKED LONG TERM CAPITAL GAINS AGAINST THE ORI GINAL LONG TERM CAPITAL GAINS OF E6,40,363/- ADMITTED BY THE ASSESS EE. ASSESSING OFFICER WORKED OUT LONG TERM CAPITAL GAINS AS E18,0 0469/- RESULTING AN ADDITION OF E11,60,106/-. ITA NO. 2322/MDS/2016. :- 3 -: 3. ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) BUT DID NOT MEET WITH ANY SUCC ESS. 4. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MANJULA J. SHAH 355 ITR 474 SUBMITTED THAT WORDS ASSET WAS HELD BY THE ASSESSEE APPEARING IN EXPLANATIO N TO CLAUSE (III) TO SEC. 48 OF THE ACT HAD TO BE CONSTRUED IN ACCORDAN CE WITH OBJECT OF THE STATUTE. AS PER LD. AUTHORISED REPRESENTATIVE WHEN THE PROPERTY WAS ACQUIRED BY THE ASSESSEE BY GIFT DEED, ASSESSE E WOULD BE DEEMED TO HAVE HELD THE CAPITAL ASSET FROM THE DATE ON WHICH THE DONOR ACQUIRED THE PROPERTY IN SO FAR AS INDEXATION BENEFIT WAS CONCERNED. 5. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE OR DERS OF THE AUTHORITIES BELOW. HONBLE BOMBAY HIGH COURT I N THE CASE MANJULA J. SHAH (SUPRA) HELD AS UNDER :- 16. FOR BETTER APPRECIATION OF THE DISPUTE, WE QUOT E THE RELEVANT PART OF SECTION 48 HEREIN : '48. MODE OF COMPUTATION.THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTIN G FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT ITA NO. 2322/MDS/2016. :- 4 -: OF THE RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER ; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO : . . . PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET, OTHER TH AN CAPITAL GAIN ARISING TO A NON-RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY REFERRED TO IN THE FIRST PROVISO, THE PROVISIONS OF CLAUSE (II) SHALL HAVE E FFECT AS IF FOR THE WORDS 'COST OF ACQUISITION' AND 'COST OF ANY IM PROVEMENT', THE WORDS 'INDEXED COST OF ACQUISITION' AND 'INDEXE D COST OF ANY IMPROVEMENT' HAD RESPECTIVELY BEEN SUBSTITUTED : . . . EXPLANATION.FOR THE PURPOSES OF THIS SECTION, . . . . (III) 'INDEXED COST OF ACQUISITION' MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTIO N AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR THE FIRST YEA R IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGI NNING ON THE 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER; (IV) 'INDEXED COST OF ANY IMPROVEMENT' MEANS AN AMO UNT WHICH BEARS TO THE COST OF IMPROVEMENT THE SAME PRO PORTION AS COST INFLATION INDEX FOR THE YEAR IN WHICH THE A SSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR T HE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE ; (V) 'COST INFLATION INDEX', IN RELATION TO A PREVIO US YEAR, MEANS SUCH INDEX AS THE CENTRAL GOVERNMENT MAY, HAVING RE GARD TO SEVENTY-FIVE PER CENT. OF AVERAGE RISE IN THE CONSU MER PRICE INDEX FOR URBAN NON MANUAL EMPLOYEES FOR THE IMMEDI ATELY PRECEDING PREVIOUS YEAR TO SUCH PREVIOUS YEAR, BY N OTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY, IN THIS BEHALF.' 17. IT IS THE CONTENTION OF THE REVENUE THAT SINCE TH E INDEXED COST OF ACQUISITION AS PER CLAUSE (III) OF THE EXPL ANATION TO SECTION 48 OF THE ACT HAS TO BE DETERMINED WITH REFER ENCE TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHIC H THE ASSET ITA NO. 2322/MDS/2016. :- 5 -: WAS HELD BY THE ASSESSEE AND, IN THE PRESENT CASE, AS THE ASSESSEE HELD THE ASSET WITH EFFECT FROM FEBRUARY 1, 2003, THE FIRST YEAR OF HOLDING THE ASSET WOULD BE THE FI NANCIAL YEAR 2002-03 AND, ACCORDINGLY, THE COST INFLATION INDEX FOR 200 2- 03 WOULD BE APPLICABLE IN DETERMINING THE INDEXED COS T OF ACQUISITION. 18. WE SEE NO MERIT IN THE ABOVE CONTENTION. AS RIGHT LY CONTENDED BY MR.RAI, LEARNED COUNSEL FOR THE ASSESS EE, THE INDEXED COST OF ACQUISITION HAS TO BE DETERMINED WI TH REFERENCE TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS 'HELD BY THE ASSESSEE'. SINCE THE EXPRESSION 'HELD BY THE ASSESSEE' IS NOT DEFINED UN DER SECTION 48 OF THE ACT, THAT EXPRESSION HAS TO BE UNDE RSTOOD AS DEFINED UNDER SECTION 2 OF THE ACT. EXPLANATION 1(I)( B) TO SECTION 2(42A) OF THE ACT PROVIDES THAT IN DETERMININ G THE PERIOD FOR WHICH AN ASSET IS HELD BY AN ASSESSEE UN DER A GIFT, THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS OWNER SHALL BE INCLUDED. AS THE PREVIOUS OWNER HELD THE CAPITAL ASSET FROM JANUARY 29, 1993, AS PER EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE ACT, THE ASSESSEE IS D EEMED TO HAVE HELD THE CAPITAL ASSET FROM JANUARY 29, 1993. BY REASON OF THE DEEMED HOLDING OF THE ASSET FROM JANU ARY 29, 1993, THE ASSESSEE IS DEEMED TO HAVE HELD THE ASSET AS A LONG-TERM CAPITAL ASSET. IF THE LONG-TERM CAPITAL G AINS LIABILITY HAS TO BE COMPUTED UNDER SECTION 48 OF THE ACT BY TRE ATING THAT THE ASSESSEE HELD THE CAPITAL ASSET FROM JANUA RY 29, 1993, THEN, NATURALLY IN DETERMINING THE INDEXED COST O F ACQUISITION UNDER SECTION 48 OF THE ACT, THE ASSESSEE MUST BE TREATED TO HAVE HELD THE ASSET FROM JANUARY 29, 1993, AND , ACCORDINGLY THE COST INFLATION INDEX FOR 1992-93 WOULD B E APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUI SITION. 19. IF THE ARGUMENT OF THE REVENUE THAT THE DEEMING F ICTION CONTAINED IN EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE ACT CANNOT BE APPLIED IN COMPUTING THE CAPITAL GAINS UN DER SECTION 48 OF THE ACT IS ACCEPTED, THEN, THE ASSESSEE WOULD NOT BE LIABLE FOR LONG-TERM CAPITAL GAINS TAX BECAU SE IT IS ONLY BY APPLYING THE DEEMED FICTION CONTAINED IN EXPLANA TION 1(I)(B) TO SECTION 2(42A) AND SECTION 49(1)(II) OF THE AC T, THE ASSESSEE IS DEEMED TO HAVE HELD THE ASSET FROM JANU ARY 29, 1993, AND DEEMED TO HAVE INCURRED THE COST OF ACQUISITI ON AND, ACCORDINGLY, MADE LIABLE FOR THE LONG-TERM CAP ITAL 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 SECTION 48 OF THE ACT HAS TO BE COMPUTED BY APP LYING THE DEEMED FICTION, IT IS NOT POSSIBLE TO ACCEPT TH E CONTENTION ITA NO. 2322/MDS/2016. :- 6 -: OF REVENUE THAT THE FICTION CONTAINED IN EXPLANATIO N 1(I)(B) TO SECTION 2(42A) OF THE ACT CANNOT BE APPLIED IN DETERM INING THE INDEXED COST OF ACQUISITION UNDER SECTION 48 OF T HE ACT. 20. IT IS TRUE THAT THE WORDS OF A STATUTE ARE TO BE UNDERSTOOD IN THEIR NATURAL AND ORDINARY SENSE UNLESS THE OBJE CT OF THE STATUTE SUGGESTS TO THE CONTRARY. THUS, IN CONSTRUI NG THE WORDS 'ASSET WAS HELD BY THE ASSESSEE' IN CLAUSE (I II) OF EXPLANATION TO SECTION 48 OF THE ACT, ONE HAS TO SEE THE OBJECT WITH WHICH THE SAID WORDS ARE USED IN THE ST ATUTE. IF ONE READS EXPLANATION 1(I)(B) TO SECTION 2(42A) TOGETHE R WITH SECTIONS 48 AND 49 OF THE ACT, IT BECOMES ABSOLUTELY CL EAR THAT THE OBJECT OF THE STATUTE IS NOT MERELY TO TAX THE CAPITAL GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIR ED BY AN ASSESSEE BY INCURRING THE COST OF ACQUISITION, BUT ALSO TO TAX THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET, I NTER ALIA, ACQUIRED BY AN ASSESSEE UNDER A GIFT OR WILL AS PRO VIDED UNDER SECTION 49 OF THE ACT WHERE THE ASSESSEE IS DEEMED TO HAVE INCURRED THE COST OF ACQUISITION. THEREFORE, IF THE OBJECT OF THE LEGISLATURE IS TO TAX THE GAINS ARISING ON TRANSFER OF A CAPITAL ACQUIRED UNDER A GIFT OR WILL BY INCLUDING THE PERI OD FOR WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS OWNER IN DE TERMINING THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE ASSESSEE, THEN THAT OBJECT CANNOT BE DEFEATED BY EXCLUDING TH E PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS O WNER WHILE DETERMINING THE INDEXED COST OF ACQUISITION OF THAT ASSET TO THE ASSESSEE. IN OTHER WORDS, IN THE ABSENCE OF ANY INDICATION IN CLAUSE (III) OF THE EXPLANATION TO SECTION 48 OF T HE ACT THAT THE WORDS 'ASSET WAS HELD BY THE ASSESSEE' HAS TO B E CONSTRUED DIFFERENTLY, THE SAID WORDS SHOULD BE CON STRUED IN ACCORDANCE WITH THE OBJECT OF THE STATUTE, THAT IS, IN THE MANNER SET OUT IN EXPLANATION 1(I)(B) TO SECTION 2(42 A) OF THE ACT. 21. TO ACCEPT THE CONTENTION OF THE REVENUE THAT THE WORDS USED IN CLAUSE (III) OF THE EXPLANATION TO SECTION 48 OF THE ACT HAS TO BE READ BY IGNORING THE PROVISIONS CONTAINED IN SECTION 2 OF THE ACT RUNS COUNTER TO THE ENTIRE SCHEME OF TH E ACT. SECTION 2 OF THE ACT EXPRESSLY PROVIDES THAT UNLESS THE CONTEXT OTHERWISE REQUIRES, THE PROVISIONS OF THE A CT HAVE TO BE CONSTRUED AS PROVIDED UNDER SECTION 2 OF THE ACT. IN SECTION 48 OF THE ACT, THE EXPRESSION 'ASSET HELD BY THE ASSESSEE' IS NOT DEFINED AND, THEREFORE, IN THE ABS ENCE OF ANY INTENTION TO THE CONTRARY THE EXPRESSION 'ASSET HEL D BY THE ASSESSEE' IN CLAUSE (III) OF THE EXPLANATION TO SEC TION 48 OF THE ACT HAS TO BE CONSTRUED IN CONSONANCE WITH THE MEAN ING GIVEN IN SECTION 2(42A) OF THE ACT. IF THE MEANING G IVEN IN SECTION 2(42A) IS NOT ADOPTED IN CONSTRUING THE WORDS USED IN ITA NO. 2322/MDS/2016. :- 7 -: SECTION 48 OF THE ACT, THEN THE GAINS ARISING ON TRAN SFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL BE OUTS IDE THE PURVIEW OF THE CAPITAL GAINS TAX WHICH IS NOT INTEN DED BY THE LEGISLATURE. THEREFORE, THE ARGUMENT OF THE REVENUE WHICH RUNS COUNTER TO THE LEGISLATIVE INTENT CANNOT BE AC CEPTED. 22. APART FROM THE ABOVE, SECTION 55(1)(B)(2)(II) OF T HE ACT PROVIDES THAT WHERE THE CAPITAL ASSET BECAME THE PR OPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED UNDER SE CTION 49(1) OF THE ACT, NOT ONLY THE COST OF IMPROVEMENT INC URRED BY THE ASSESSEE BUT ALSO THE COST OF IMPROVEMENT IN CURRED BY THE PREVIOUS OWNER SHALL BE DEDUCTED FROM THE TOTAL CONSIDERATION RECEIVED BY THE ASSESSEE WHILE COMPUT ING THE CAPITAL GAINS UNDER SECTION 48 OF THE ACT. THE QUESTI ON OF DEDUCTING THE COST OF IMPROVEMENT INCURRED BY THE P REVIOUS OWNER IN THE CASE OF AN ASSESSEE COVERED UNDER SECT ION 49(1) OF THE ACT WOULD ARISE ONLY IF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER IS INCLUDED IN DETER MINING THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE ASSESSEE . THEREFORE, IT IS REASONABLE TO HOLD THAT IN THE CAS E OF AN ASSESSEE COVERED UNDER SECTION 49(1) OF THE ACT, THE CAPITAL GAINS LIABILITY HAS TO BE COMPUTED BY CONSIDERING T HAT THE ASSESSEE HELD THE SAID ASSET FROM THE DATE IT WAS H ELD BY THE PREVIOUS OWNER AND THE SAME ANALOGY HAS ALSO TO BE APPLIED IN DETERMINING THE INDEXED COST OF ACQUISITION. 23. THE OBJECT OF GIVING RELIEF TO AN ASSESSEE BY ALL OWING INDEXATION IS WITH A VIEW TO OFFSET THE EFFECT OF I NFLATION. AS PER CBDT CIRCULAR NO. 636, DATED AUGUST 31, 1992 (SEE [1992] 198 ITR (ST.) 1 ) A FAIR METHOD OF ALLOWING RELIEF B Y WAY OF INDEXATION IS TO LINK IT TO THE PERIOD OF HO LDING THE ASSET. THE SAID CIRCULAR FURTHER PROVIDES THAT THE COST OF ACQUISITION AND THE COST OF IMPROVEMENT HAVE TO BE INFLATED TO ARRIVE AT THE INDEXED COST OF ACQUISITION AND THE I NDEXED COST OF IMPROVEMENT AND THEN DEDUCT THE SAME FROM THE SA LE CONSIDERATION TO ARRIVE AT THE LONG-TERM CAPITAL GA INS. IF INDEXATION IS LINKED TO THE PERIOD OF HOLDING THE A SSET AND IN THE CASE OF AN ASSESSEE COVERED UNDER SECTION 49(1) O F THE ACT, THE PERIOD OF HOLDING THE ASSET HAS TO BE DETE RMINED BY INCLUDING THE PERIOD FOR WHICH THE SAID ASSET WAS H ELD BY THE PREVIOUS OWNER, THEN OBVIOUSLY IN ARRIVING AT THE I NDEXATION, THE FIRST YEAR IN WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS OWNER WOULD BE THE FIRST YEAR FOR WHICH THE SAID AS SET WAS HELD BY THE ASSESSEE. 24. SINCE THE ASSESSEE, IN THE PRESENT CASE, IS HELD LIABLE FOR LONG-TERM CAPITAL GAINS TAX BY TREATING THE PERIOD FOR WHICH THE CAPITAL ASSET IN QUESTION WAS HELD BY THE PREVI OUS OWNER ITA NO. 2322/MDS/2016. :- 8 -: AS THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE ASSESSEE, THE INDEXED COST OF ACQUISITION HAS ALSO TO BE DETERMINED ON THE VERY SAME BASIS. IT HAS BEEN CLEARLY HELD BY THEIR LORDSHIP THAT FOR THE PURPOSE OF INDEXATION, THE PERIOD OF HOLDING OF THE DONOR HAS ALSO TO BE CONSIDERED. WE ARE THEREFORE, OF THE OPINION THAT ASSESSEE WAS ELIGIBLE FOR THE CLAIM. GROUNDS RAISED BY THE ASSE SSEE ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 23 RD DAY OF NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:23RD NOVEMBER, 2016 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF