ITO-19(2)(4), MUMBAI V. MS. PALMIRA B. MENEZES, MUMBAI

ITA 272/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79523 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 09-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDEO
• Assessee Lawyers: INDIRA ANAND
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 272/MUM/2013 (ASSESSMENT YEAR:2009-10) INCOME TAX OFFICER - 19(2)(4) ROOM NO. 310, 3 RD FLOOR PIRAMAL CHAMBERS, PAREL MUMBAI-400 012. VS. MS. PALMIRA B. MENEZES FLAT NO.11, PRICEL HOME CHURCH AVENUE, SANTACRUZ(W) MUMBAI-400 054. (APPELLANT) (RESPONDENT) P ERMANENT ACCOUNT N O. : AAXPM 3241 N ASSESSEE BY : SHRI MS. INDIRA ANAND REVENUE BY : SHRI SHRIKANT NAMDEO DATE OF HEARING : 10/07/2014 DATE OF PRONOUNCEMENT : 23/07/2014 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10/10/2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2009-1 0. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- 1) 'ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING TO ADOPT COST INF LATION INDEX FROM THE YEAR 1981-82 IN WHICH THE PREVIOUS OWNER FIRST HELD THE PROPERTY WITHOUT APPRECIATING THE FACTS THAT THE AS SESSEE BECAME THE OWNER OF THE PROPERTY IN THE YEAR 1999 AFTER TH E DEATH OF HER MOTHER IN 1999. (2) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT E XPLANATION (III) TO SECTION 48 CLEARLY STATES THAT THE COST INFLATION I NDEX SHALL BE ITA NO.272/M/13 AY:09-10 2 ADOPTED FROM THE FIRST YEAR IN WHICH THE ASSETS WAS HELD BY ASSESSEE. (3) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT T HE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF MANJULA J. SH AH[35 SOT 105(MUM) SB) HAS NOT BEEN ACCEPTED BY THE DEPARTMEN T. (4) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND BE SET SIDE AND THAT OF THE AO BE RESTORED. 2. THE ONLY ISSUE THAT ARISES FROM THE APPEAL OF TH E REVENUE IS REGARDING INDEXED COST OF ACQUISITION OF PROPERTY T HROUGH INHERITANCE AS PER EXPLANATION-(III) TO SECTION-48 OF THE INCOME T AX ACT. 3. WE HAVE HEARD THE LD. DR AS WELL AS THE LD. AR A ND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE INHERITED THE PROPERTY IN QUESTION IN THE YEAR 1999 AFTER THE DEATH OF HER MO THER. THE ASSESSEE WORKED OUT THE LONG TERM CAPITAL GAIN BY TAKING IND EXED COST OF ACQUISITION FROM 01/04/1981 BECAUSE THE PROPERTY WA S ACQUIRED BY HER MOTHER PRIOR TO 01/04/1981. THE AO DENIED THE BENEF IT OF INDEXATION FROM 01/04/1981 ON THE GROUND THAT THE ASSESSEE ACQ UIRED PROPERTY ONLY IN THE YEAR 1999 AFTER THE DEATH OF HER MOTHER AND, THEREFORE, THE ASSESSEE IS ENTITLED TO CLAIM INDEXATION ONLY FROM THE YEAR 1999. ON APPEAL CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISIONS OF THE SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF MANJULA J. SHAH (35 SOT 105) WHICH HAS BEEN UPHELD BY HON'BLE JURISDICTIONAL HIGH COURT (2013) 355 ITR 474 . 3.1 THERE IS NO DISPUTE THAT THE PROPERTY IN QUESTI ON HAS BEEN ACQUIRED BY THE ASSESSEE BY WAY OF INHERITANCE, THE REFORE, IN VIEW OF SECTION 49 OF THE INCOME TAX ACT THE COST OF ACQUIS ITION OF THE ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWN ER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY THE COST OF ANY IMPROV EMENT OF ASSETS ITA NO.272/M/13 AY:09-10 3 INCURRED OR BORNE BY PREVIOUS OWNER OR THE ASSESSEE AS THE CASE MAY BE. THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE S PECIAL BENCH OF THIS TRIBUNAL IN CASE OF DCIT VS. MANJULA J. SHAH WHICH HAS BEEN UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN (355 ITR 4 74) IN PARA 18 TO 19 AND 22 AS UNDER :- 18. WE SEE NO MERIT IN THE ABOVE CONTENTION. AS RI GHTLY CONTENDED BY MR.RAI, LEARNED COUNSEL FOR THE ASSES SEE, THE INDEXED COST OF ACQUISITION HAS TO BE DETERMINED W ITH REFERENCE TO THE COST INFLATION INDEX FOR THE FIRST YEAR IN WHI CH THE CAPITAL ASSET WAS 'HELD BY THE ASSESSEE'. SINCE THE EXPRESSION ' HELD BY THE ASSESSEE' IS NOT DEFINED UNDER SECTION 48 OF THE AC T, THAT EXPRESSION HAS TO BE UNDERSTOOD AS DEFINED UNDER SE CTION 2 OF THE ACT. EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE ACT PROVIDES THAT IN DETERMINING THE PERIOD FOR WHICH AN ASSET IS HEL D BY AN ASSESSEE UNDER A GIFT, THE PERIOD FOR WHICH THE SA ID ASSET WAS HELD BY THE PREVIOUS OWNER SHALL BE INCLUDED. AS THE PR EVIOUS OWNER HELD THE CAPITAL ASSET FROM JANUARY 29, 1993, AS P ER EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE ACT, THE ASSESSEE IS DEEMED TO HAVE HELD THE CAPITAL ASSET FROM JANUARY 29, 1993. BY RE ASON OF THE DEEMED HOLDING OF THE ASSET FROM JANUARY 29, 1993, THE ASSESSEE IS DEEMED TO HAVE HELD THE ASSET AS A LONG-TERM CA PITAL ASSET. IF THE LONG-TERM CAPITAL GAINS LIABILITY HAS TO BE CO MPUTED UNDER SECTION 48 OF THE ACT BY TREATING THAT THE ASSESSE E HELD THE CAPITAL ASSET FROM JANUARY 29, 1993, THEN, NATURALLY IN DE TERMINING THE INDEXED COST OF ACQUISITION UNDER SECTION 48 OF TH E ACT, THE ASSESSEE MUST BE TREATED TO HAVE HELD THE ASSET FRO M JANUARY 29, 1993, AND, ACCORDINGLY THE COST INFLATION INDEX FOR 1992-93 WOULD BE APPLICABLE IN DETERMINING THE INDEXED COST OF A CQUISITION. 19. IF THE ARGUMENT OF THE REVENUE THAT THE DEEMING FICTION 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 N OT BE LIABLE FOR LONG-TERM CAPITAL GAINS TAX BECAUSE IT IS ONLY BY APPLYING THE DEEMED FICTION CONTAINED IN EXPLANATION 1(I)(B) TO SECTION 2(42A) AND SECTION 49(1)(II) OF THE ACT, THE ASSESSEE IS D EEMED TO HAVE HELD THE ASSET FROM JANUARY 29, 1993, AND DEEMED TO HAVE INCURRED THE COST OF ACQUISITION AND, ACCORDINGLY, MADE LIABLE FOR THE LONG-TERM CAPITAL GAINS TAX. THEREFORE, WHEN TH E LEGISLATURE BY INTRODUCING THE DEEMING FICTION SEEKS TO TAX THE G AINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL AND THE CAPITAL GAINS UNDER SECTION 48 OF THE ACT HAS TO B E COMPUTED BY APPLYING THE DEEMED FICTION, IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF REVENUE THAT THE FICTION CONTAINED IN EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE ACT CANNOT BE APP LIED IN ITA NO.272/M/13 AY:09-10 4 DETERMINING THE INDEXED COST OF ACQUISITION UNDER SECTION 48 OF THE ACT. .....22. APART FROM THE ABOVE, SECTION 55(1)(B)(2) (II) OF THE ACT PROVIDES THAT WHERE THE CAPITAL ASSET BECAME THE P ROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED UNDER SECTI ON 49(1) OF THE ACT, NOT ONLY THE COST OF IMPROVEMENT INCURRED BY THE ASSESSEE BUT ALSO THE COST OF IMPROVEMENT INCURRED BY THE P REVIOUS OWNER SHALL BE DEDUCTED FROM THE TOTAL CONSIDERATION RECE IVED BY THE ASSESSEE WHILE COMPUTING THE CAPITAL GAINS UNDER S ECTION 48 OF THE ACT. THE QUESTION OF DEDUCTING THE COST OF IMPR OVEMENT INCURRED BY THE PREVIOUS OWNER IN THE CASE OF AN AS SESSEE COVERED UNDER SECTION 49(1) OF THE ACT WOULD ARISE ONLY IF THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER IS INCLUDED IN DETERMINING THE PERIOD FOR WHICH THE ASSET WAS HEL D BY THE ASSESSEE. THEREFORE, IT IS REASONABLE TO HOLD THAT IN THE CASE OF AN ASSESSEE COVERED UNDER SECTION 49(1) OF THE ACT, TH E CAPITAL GAINS LIABILITY HAS TO BE COMPUTED BY CONSIDERING THAT TH E ASSESSEE HELD THE SAID ASSET FROM THE DATE IT WAS HELD BY THE PRE VIOUS OWNER AND THE SAME ANALOGY HAS ALSO TO BE APPLIED IN DETERMI NING THE INDEXED COST OF ACQUISITION. 3.2 FOLLOWING THE DECISION OF THE HON'BLE JURISDICT IONAL HIGH COURT WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR TO THE ASSESSEE. THE IMPUGNED ORDER OF THE CIT(A) IS UPHELD. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2014. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 23/07/2014. JV. ITA NO.272/M/13 AY:09-10 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.