INCOME TAX OFFICER (INTERNATIONAL TAXATION) 4(2)(1), MUMBAI V. RUSTEM HOMI SETHNA, MUMBAI

ITA 304/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3312 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 12-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT SAMAIYA
• Assessee Lawyers: M GOLVALA
• Keywords: Capital asset; Gift; Cost of acquisition; Tax effect
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 304/MUM/2018 ASSESSMENT YEAR: 2013 - 14 ITO (IT) - 4(2)(1), ROOM NO. 1728, 17 TH F LOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021. VS. SHRI RUSTEM HOMI SETHNA J - 8 , CURSOW BAUG, SAHID BHAGAT SINGH ROAD, FORT, MUMBAI MAHARASHTRA - 400001 PAN NO. AAIPS7464A APPELLANT RESPONDENT REVENUE BY : MR. NISHANT SAMAIYA, DR ASSESSEE BY : MR. M. GOLVALA , AR DATE OF HEARING : 31 / 0 1/201 9 DATE OF PRONOUNCEMENT: 18/02/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE . THE RELEVANT ASSESSMENT YEAR IS 2013 - 1 4 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 58 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT WHILE COMPUTING THE CAPITAL GAIN ON THE SALE OF INHERITED PROPERTY, THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED SHRI RUSTEM HOMI ITA NO. 304/MUM/2018 2 WITH REFERENCE TO THE YEAR IN WHICH THE PREVI OUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT ADOPTING A LITERAL INTERPRETATION IN THE CASE OF TAX STATUTE W HEREAS THE EXPLANATION (III) TO SECTION 48 OF THE ACT CLEARLY MENTIONS THAT FOR COMPUTING THE INDEXED COST OF ACQUISITION, THE BASE YEAR HAS TO BE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE AND NOT THE PREVIOUS OWNER OF THE ASSET AND THUS GOI NG AGAINST THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S VODAFONE INDIA SERVICES PVT. LTD. V. UNION OF INDIA & ORS. (W.P. NO. 871 OF 2014) (BOM) WHEREIN IT HAS BEEN STATED THAT THERE IS NO INTENDMENT IN TAX LAWS. 3. BRIEFLY STAT ED, THE FACTS ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2013 - 14 ON 31.07.2013 DECLARING TOTAL INCOME AT RS.9,45,80,067/ - . IN THE RETURN OF INCOME, THE ASSESSEE HAD OFFERED INCOME FROM LONG TERM CAPITAL GAINS (LTCG) AMOUN TING TO RS.9,02,91,640/ - IN RESPECT OF SALE OF A HALF SHARE IN A RESIDENTIAL FLAT SITUATED AT 203, PANORAMA, WALKESHWAR ROAD, MUMBAI, WHICH HE HAD RECEIVED AS A BEQUEST FROM HIS DECEASED FATHER, LATE DR. HOMI SETHNA. THE SAID FLAT WAS PURCHASED BY THE ASSE SSEES DECEASED FATHER IN MARCH 1973. THIS FACT HAS BEEN REFERRED TO IN THE SALE DEED. ACCORDINGLY, WHILE COMPUTING THE CAPITAL GAINS, THE INDEXED COST OF ACQUISITION WAS CALCULATED BY THE ASSESSEE BY CONSIDERING INDEXATION BENEFIT FROM 01.04.1981, AS HIS FATHER HAD ACQUIRED THE FLAT PRIOR TO 01.04.1981. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN AS TO WHY THE CLAIM OF INDEXATION BENEFIT FROM 01.04.1981 BE ALLOWED, THE ASSESSEE RELIED ON THE DECISION IN C IT V. SHRI RUSTEM HOMI ITA NO. 304/MUM/2018 3 MANJULA J. SHAH (BOM) 355 ITR 474, ARUN SHUNGLOO TRUST V. CIT (DELHI) 249 CTR 294 AND CIT V. GAUTAM MANUBHAI AMIN (GUJ) 218 TAXMAN 319. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE REPLY OF THE ASSESSEE FOR THE REASON THAT THE FACTS IN THE CASE O F MANJULA J. SHAH ARE DISTINGUISHABLE, BECAUSE, IN THAT CASE THE ASSET WAS REQUIRED BY WAY OF A GIFT, WHEREAS IN THE ASSESSEES CASE IT IS RECEIVED AS A REQUEST. ALSO THE D EPARTMENT IS AN APPEAL BEFORE THE SUPREME COURT AGAINST THE DECISION OF THE BOMBAY H IGH COURT IN THE ABOVE CASE. ALSO THE AO RELIED ON A LITERAL READING OF EXPLANATION (III) TO SECTION 48 OF THE ACT AND DECIDED THE ISSUE AGAINST THE ASSESSEE BY ADOPTING INDEXATION OF FINANCIAL YEAR 2010 - 11 AS THE DENOMINATOR, AS AGAINST THE CONTENTION OF THE ASSESSEE THAT DENOMINATOR ADOPTED BE THE INDEX FOR THE FINANCIAL YEAR 1981 - 82. THUS THE AO ARRIVED AT THE LTCG OF RS.11,36,00,805/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) RE LYING ON THE DECISION IN MANJULA J. SHAH (SUPRA) ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO, WHEREAS THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE DECISION IN MANJULA J. SHAH (SUPRA) AND THUS SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE ABOVE ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN MANJULA J. SHAH (SUPRA). IN THAT CASE THE ASSESSEES DAUGHTER, THE PREVIOUS OWNER, ORIGINALLY ACQUIRED THE CAPITAL ASSET (FLAT) ON JANUARY 29, 1993, AND THE ASSESSEE ACQUIRED THE FLAT UNDER A GIFT DEED DATED JANUARY 02, 2003, WITHOUT INCURRING ANY COST. SHRI RUSTEM HOMI ITA NO. 304/MUM/2018 4 THE ASSESSEE SOLD THE CAPITAL ASSET ON JUNE 30, 2003, FOR RS.1.10 CRORES. ACCORDING TO THE AO, THE ASSET WAS HELD BY THE ASSESSEE FROM FEBRUARY 01, 2003, AND, THEREFORE, THE COST INFLATION INDEX FOR 2002 - 03 WOULD BE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUISITION FOR THE AY 2004 - 05. THE COMMISSIONER (APPEALS) HELD THAT THE LTCG HAD TO BE DETERMINED BY COMPUTING THE INDEXED COST OF ACQUISITION WITH REFERENCE TO THE COST INFLATION INDEX FOR 1993 - 94 INSTEAD OF THE COST INFLATION INDEX FOR THE AY 2002 - 03 AS HELD BY TH E AO. THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL, THE HONBLE HIGH COURT HELD THAT: BY APPLYING THE DEEMING PROVISIONS CONTAINED IN EXPLANATION 1(I)(B) TO SECTION 2(42A) THE ASSESSEE WAS DEEMED TO HAVE HELD THE ASSET FROM JANUARY 29, 1993, TO JUNE 30, 2003, BY INCLUDING THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER AND, ACCORDINGLY, HELD LIABLE FOR LONG - TERM CAPITAL GAINS TAX. WHILE COMPUTING THE CAPITAL GAINS, THE INDEXED COST OF ACQUISITION HAD TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET. 6.1 THE SLP FILED BY THE REVENUE AGAINST THE DECISION IN MANJULA J. SHAH (SUPRA) HAS BEEN DISMISSED, THOUGH ON TAX EFFECT, BY THE HONB LE SUPREME COURT VIDE ORDER DATED 18.09.2018. FURTHER, THE HONBLE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST (SUPRA), HAS ALSO HELD THAT THE BENEFIT OF INDEXATION COST OF IMPROVEMENT BY PREVIOUS OWNERS IN CASES COVERED BY SECTION 49 WOULD BE AL LOWED. SHRI RUSTEM HOMI ITA NO. 304/MUM/2018 5 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE DECISION S AND UPHOLD THE ORDER OF THE LD. CIT(A). 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/02/2019. SD/ - SD/ - (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 18/02/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI