DCIT 19(3), MUMBAI V. DAYAL TAHILRAM PARWANIAN ENTERPRISES, MUMBAI

ITA 3194/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101289 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASBIR S CHAUHAN LOVE KUMAR
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Cost of acquisition; Valuation report; Capital expenditure
• Section: 50C; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . , , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA , AM ./ I .T.A. NO. 3194/MUM/2013 ( / ASSESSMENT YEAR: 2009 - 10 ) DY. CIT - 19(3), ROOM NO. 305, 3 RD FLOOR, PIRAMAL CHAMBERS, PAREL, MUMBAI - 400 012 / VS. DAYAL TAHILRAM PARWANI 4 TH FLOOR, BRIJBALA BUILDING, 21 ST ROAD, BANDRA (W), MUMBAI - 400 050 ./ ./ PAN/GIR NO. AACPP 6013 C ( / REVENUE ) : ( / ASSESSEE ) & ./ I.T.A. NO. 3545/MUM/2013 ( / ASSESSMENT YEAR: 2009 - 10 ) DAYAL TAHILRAM PARWANI MUMBAI - 400 050 / VS. DY. CIT - 19(3), MUMBAI - 400 012 ( / ASSESSEE ) : ( / REVENUE ) / R EVENUE BY : SHRI JASBIR S. CHAUHAN LOVE KUMAR / A SSESSEE BY : SHRI SANJAY R. PARIKH / DATE OF HEARING : 18 .0 9 .2015 / DATE O F PRONOUNCEMENT : 09 .10 .2015 / O R D E R PER SANJAY ARORA, A. M.: THESE ARE THE CROSS APPEALS, I.E. , BY THE A SSESSEE AND R EVENUE , ARISING OUT OF THE O RDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 30, MUMBAI ( CIT(A) FOR SHORT) DATED 26 - 2 - 201 3 , PARTLY ALLOWING THE ASSESSEES APPEAL CONTEST ING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (AY) 2009 - 10 VIDE ORDER DATED 26 - 12 - 2011. 2 ITA NOS. 3194/MUM/2013 & 3545/MUM/2013 (A.Y. 2009 - 10) DAYAL TAH ILRAM PARWANI 2. THE SHORT QUESTION ARISING IN THE INSTANT CASE IS THE TAXABI LITY OF THE CAPITAL GAIN ARISING TO THE ASSESSEE ON THE TRANSFER, BY WAY OF ASSIGNMENT , OF LEASE - HOLD RIGHTS IN LAND , TOGETHER WITH STRUCTURE THEREON, DURING THE RELEVANT YEAR. 3. 1 THE ASSESSEE , AN INDIVIDUAL , ACQUIRED LEASE - HOLD RIGHTS IN 3404 SQ. MTRS. OF LAND AT KALWA , TOGETHER WITH STRUCTURE THEREON, COVERING, AS STATED, 641.88 SQ. MTRS. , FROM ONE, SHRI RAM ES H TAHILRAM PARWANI, VI DE ASSIGNMENT DATED 02.04.19 9 0 (WHO HAD IN F ACT ACQUIRED THE SAME FROM MIDC VIDE LEASE DEED DATED 26.10.2008 , FOR RS.5 LAKHS , INCURRING A FURTHER EXPENDITURE OF RS.15,000/ - (PB PGS. 4 - 11) . THE ENTIRE BUNDLE OF RIGHTS , SO ACQUIRED , W AS ASSIGNED FOR A CONSIDERATION OF RS.395 LAKHS DURING THE RELEVANT PREVIOUS YEAR (PB PGS. 12 - 38) . THE ENTIRE CAPITAL GAIN ARISING THUS , WAS RETURNE D AS LONG - TERM CAPITAL GAIN AT RS.3,24,02,482/ - , FURTHER CLAIMING DEDUCTION U/S.54EC AT RS.100 LAKHS TOWARD INVESTMENT THEREOF IN ELIGIBLE BONDS. THE SAID TREATMENT, HOWEVER, DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER (AO) FOR THE FOLLOWING REASONS : - (A) W HAT THE ASSESSEE HAD TRANSFERRED WAS ONLY THE SUPERSTRUCTURE AS THE LAND DID NOT BELONG TO THE ASSESSEE; (B) THAT , IN ANY CASE OF THE MATTER, W HAT HA D BEEN TRANSFERRED WAS ONE COMPOSITE ASSET, SO THAT IT IS A SINGLE ASSET, RELYING ON THE DECISION BY THE TRIBUNAL DELHI (C B ENCH ) IN THE CASE OF CIT V. ALPS THEATRE [1967] 65 ITR 377 (SC) ; (C) THAT NO DEPRECIATION WAS CLAIMED ON THE RELEVANT ASSET WAS, IN VIEW OF THE EXPLANATION TO SECTION 32(1), INSERTED BY THE FINANCIAL ACT, 2001 W.E.F. 1 - 4 - 2000 , O F LITT L E CONSEQUENCE. AS SUCH , WHE THE R ANY DEPRECIATION WAS CLAIMED WAS NOT PER THE RETURN OF INCOME AS FILED , THE SAME IS TO BE ALLOWED THEREUNDER; (D) THAT THE CAPITAL ASSET BEING AN IMMOVABLE PROPERTY, SECTION 50C WOULD APPLY, SO THAT THE VALUE AS PER TH E S T AM P VALUATION, AT RS.4,51,61,500/ - , BEING I N EXCESS OF THE DISCLOSED SALE CONSIDERATION, SHALL PREVAIL. HOWEVER, THERE WAS NO OCCASION OR PURPOSE IN ALLOCATING THE SAID DEEMED CONSIDERATION AS BETWEEN THE CONS TITUENT ASSETS , I.E. , THE LAND AND BUILDING ; (E) THAT THE CAPITAL ASSET TRANSFERRED BEING A DEPRECIABLE ASSET, SECTION 50 SHALL APPL Y , SO THAT IRRESPECTIVE OF PERIOD OF HOLDING , THE CAPITAL GAIN SHALL BE 3 ITA NOS. 3194/MUM/2013 & 3545/MUM/2013 (A.Y. 2009 - 10) DAYAL TAH ILRAM PARWANI COMPUTED IN THE MANNER PROVIDED THEREBY , TREATING THE GAIN AS A SHORT TERM CAPITAL GAIN; AND (F) SECTION 54EC SHALL CONSEQUENTLY NOT APPLY IN - AS - MUCH AS THE CAPITAL GAIN ARISING IS DEEMED U/S. 50 AS ARISING ON TRANSFER OF A SHORT TERM CAPITAL ASSET, WHILE S. 54EC ADMITTEDLY APPLIES QUA CAPITAL GAINS WHERE THE CAPITAL (ORIGINAL) ASSET TRANSFERRED IS A LONG TERM CAPITAL ASSET. HE, ACCORDINGLY, COMPUTED THE SHORT TERM CAPITAL GAIN AT RS.4,35,34,350/ - , AS UNDER : - MARKET VALUE U/S.50C 4,51,61,500 LESS BROKERAGE PAID 8,51,000 4,43,10,500 LESS: COST OF PROPERTY 5,15,000 4,37,95,500 LESS : STAMP DUTY & REGISTRATION 2,61,150 SHORT TERM CAPITAL GAIN 4,35,34,350 3.2 IN APPEAL, THE LD. CIT(A) WAS OF THE VIEW THAT THE COMPOSITE ASSET , COMPRISING LAND AND BUILDING , FELL UNDER DIFFERENT CATEGOR IES OF ASSETS. THE DEEMED CONSIDERATION OF RS.451 . 615 LAK HS WOULD, THEREFORE, REQUIRE BEING APPORTIONED AS UNDER: - I) VALUE OF LAND : RS.4,08,48,000/ - II) VALUE OF FACTORY BUILDING : RS. 43,13,500/ - AGGRIEVED , BOTH THE R EVENUE AND THE A SSESSEE ARE IN APPEAL. WHILE THE R EVENUE SEEKS THE RESTORATION OF THE A SSESSMENT ORDER, THE ASSESSEE CLAIMS INDEXATION BENEFIT IN THE COMPUTATION OF LONG TERM CAPITAL GAIN, BESIDES EXEMPTION U/S.54EC, I.E. , AGAINST SHORT TERM CAPITAL GAINS, ASSESSED UNDER S ECTION 50. 4. WE HAVE HEARD BOTH THE PARTIES , AND PERUSED THE MATERIA L ON RECORD. 4.1 L AND , INCLUDING RIGHTS THEREIN, AND B UILDING O R THE SUPERSTRUCTURE THEREON, ARE TWO SEPARATE AND DISTINCT ASSETS UNDER THE ACT. THE LEASE - HOLD RIGHTS REPRESENT CAPITAL EXPENDITURE, EVEN AS HELD BY THE HONBLE HIGH COURT IN THE CASE OF CIT VS. KHIMLINE P UMPS LTD. [2002] 258 ITR 459 (BOM) . AS SUCH , EVEN WHERE TRANSACT ED UNDER ONE TRANSFER AGREEMENT, IN - AS - MUCH AS IT IS ONLY A SINGLE COMPOSITE COMMERCIAL ASSET THAT 4 ITA NOS. 3194/MUM/2013 & 3545/MUM/2013 (A.Y. 2009 - 10) DAYAL TAH ILRAM PARWANI IS BEING ACQUIRED BY THE TRANSFEREE, THESE WOULD CONSTITUTE TRANSFERS OF TWO S EPARATE CAPITAL ASSET S UNDER THE ACT. THE LAW IN THE MATT ER IS WELL SETTLED, AND TOWARD WHICH WE MAY CITE THE DECISION BY THE HONBLE APEX COURT IN THE CASE OF CIT V. ALPS THEATRE [1967] 65 ITR 377 (SC) , THE TRIBUNAL DECISION IN WHICH CASE STANDS RELIED UP ON BY THE AO; AND CIT V. CITI BANK N.A . [2003] 261 ITR 570 (BOM) , BESIDES THAT DECIDED BY THE TRIBUNAL, AS FOR EXAMPLE IN OUR LADY OF BAND ENGG. PVT. LTD. VS. ASST. CIT (IN ITA NO. 3109/MUM/2012 DATED 29.06.2015). A S A COROLLARY, THE SALE CONSIDERATION ACC RUING ON THE ASSIGNMENT/TRANSFER W OULD REQUIRE BEING ALLOCATED , ON SOME REASONABLE BASIS, BETWEEN THE TWO CAPITAL ASSETS. THE AO HAS CAUSED THE SAME T H ROUGH THE VALUATION REPORT BY A REGISTERED VALUER, AS NOTED BY THE LD. CIT(A) IN HIS ORDER. THE R EVENUE HAS NOT DISPUTED THE SAID VALUATION, WHICH, THEREFORE, STANDS CRYSTALLIZED , AND WOULD STAND TO BE ADOPTED FOR COMPUTING THE CAPITAL GAINS ON THE SAID TRANSFER, WHICH IS OTHERWISE PATENT. WE MAY THOUGH ADD THAT THE BROKERAGE (OF RS.8.51 LAKHS), DEDUCTIBLE F ROM THE SALE CONSIDERATION, WOULD REQUIRE BEING APPORTIONED BETWEEN THE TWO ASSETS AND , BEING ON THE CONSOLIDATED AMOUNT, IS DIRECTED TO BE APPORTIONED ON THE BASIS OF INDIVIDUAL SALE CONSIDERATION , I.E., AS ALLOCATED. 4.2 THE NEXT ISSUE IS THE MANNER OF COMPUTATION OF CAPITAL GAINS. WITH REGARD TO LAND, OR RIGHTS THEREIN, WE ARE UNABLE TO SEE AS TO WHY, WHAT IS TRANSFERRED BEING A LONG - TERM CAPITAL ASSET (LTCA), THE COST OF ACQUISITION SHALL NOT BE SUITABLY INDEXED IN TERMS OF S ECTION 48 OF THE ACT. WE D IRECT ACCORDINGLY. AS REGARD S BUILDING, WE FIRSTLY OBSERVE THAT THE C OST OF BUILDING , STATED TO BE A FACTORY SHED, HAS NOT BEEN SEPARATELY ARRIVED AT IN COMPUTING THE CAPITAL GAINS (PB PG S . 1 - 3 ) . T HERE BEING NO ESTOPPEL AGAINST LAW, WE DIRECT THE ALLOWANC E OF THE SAME AS REFLECTED IN THE ASSESSEES ACCOUNT S . IF, HOWEVER, THE ASSESSEE DOES NOT LEAD ANY MATERIAL TOWARD BIFURCATING TH E TOTAL COST OF RS. 5.15 LACS BETWEEN LAND AND BUILDING, AS APPEARS TO BE THE CASE ( PB PG. 39, 40 ), THE VALUE OF THE BUILDING B E TAKEN ON THE 5 ITA NOS. 3194/MUM/2013 & 3545/MUM/2013 (A.Y. 2009 - 10) DAYAL TAH ILRAM PARWANI BASIS OF THAT DETERMINED ON SALE, I.E., BY APPLYING THE RATE ( S ) AS OBTAINING AS ON THE DATE OF ACQUISITION, DISCOUNTING THE VALUE FOR DEPRECIATION. FURTHER, FOR THE PURPOSE OF S ECTION 50 , W HAT IS REQUIRED IS THAT THE CAPITAL ASSET TRANSFERRE D FO RM S PART OF A BLOCK OF ASSETS ON WHICH DEPRECIATION HAS BEEN ALLOWE D. THAT NO DEPRECIATION H AS BEEN EITHER CLAIMED OR ALLOWED, WHICH IS A PRECONDITION FOR THE APPLICABILITY OF SECTION 50 OF THE ACT, IS ADMITTED. HOW COULD THEN, WE WONDER, THE REVENUE S EEK TO INVOKE SECTION 50, AND DENY THE ASSESSEE THE BENEFIT OF INDEXATION U/S.48 IN COMPUTING THE CAPITAL GAINS CHARGEABLE U/S. 45 OF THE ACT ? TRUE, BUILDING IS A DEPRECIABLE ASSET AND , FURTHER , DEPRECIATION IS LIABLE TO BE ALLOWED EVEN WHERE NOT CLAIMED B Y THE ASSESSEE PER ITS RETURN OF INCOME . H OWEVER, THE SAME HAS TO BE ALLOWED IN ASSESS ING THE INCOME UNDER CHAPTER IV - D, WHICH ADMITTEDLY HAS NOT BEEN FOR ANY OF THE INTERVENING YEARS, I.E., SINCE THE ACQUISITION OF THE ASSET. AS SUCH, DENIAL OF THE INDEXA TION BE NEFIT ON BUILDING, BEING A LONG - TERM CAPITAL ASSET U/S. 2(29A) R/W S. 2(42A) , IS NOT PROPER IN LAW AND, ACCORDINGLY, DIRECTED FOR BEING ALLOWED. 4.3 THE NEXT ISSUE IS WITH REGARD TO THE ALLOCATION OF DEDUCTION U/S.54EC AGAINST THE CAPITAL GAINS AR ISING ON THE TRANSFER OF THE SUPERSTRUCTURE , DENIED BY THE REVENUE ON THE GROUND OF IT BEING SHORT - TERM CAPITAL GAIN (STCG) IN TERMS OF S. 50. THE ASSESSEE , ON THE OTHER HAND, CLAIMS TO HAVE THE RIGHT TO APPORTION THE DEDUCTION U/S.54EC UNDER EITHER CAPITA L GAIN, I.E., QUA LAND AND /OR QUA BUILDING. THE ASSESSEE IS ENTITLED TO BENEF IT OF EXEMPTION U/S. 54C ON LONG - TERM CAPITAL GAIN . WE HAVE ALREADY FOUND S. 50 AS NOT APPLICABLE TO THE BUILDING UNDER REFERENCE (PARA 4.2) . THE ASSESSEE, THUS, CLEARLY HAS A RIG HT TO APPORTION , IN WHATEVER MANNER IT CHOOSES TO, THE EXEMPTI ON U/S.54EC AGAINST EITHER LONG - TERM CAPITAL GAIN, I.E., AGAINST LAND AS WELL AS QUA BUILDING, WHICH WE CONSIDER AS PARA MATERIA , I.E., WITHOUT DIFFERENCE IN THE IR NATURE AND, THUS, WITH NO DIFF ERENCE. THE FACT OF THE BUILDING BEING A DEPRECIABLE ASSET WOULD, WE MAY FURTHER ADD , ONLY IMPACT ITS VALUATION, WHICH HAS BEEN DETERMINED AT RS.43.135 LACS (REFER PARA 3.2) , AND ON WHICH WE OBSERVE NO DISPUTE. THE SAID VALUE, WE BELIEVE , WOULD HAVE BEEN A RRIVED AT ONLY BY FACTORING IN THE AGE OF THE BUILDING , BEI NG DEPRECIABLE, 6 ITA NOS. 3194/MUM/2013 & 3545/MUM/2013 (A.Y. 2009 - 10) DAYAL TAH ILRAM PARWANI WITH A LIMITED LIFE, FOR WHICH THERE ARE SPECIFIC R ATES IN THE VALUE GUIDELINES. WE, ACCORDINGLY, CONFIRM THE APPLICABILITY OF SECTION 5 4 EC ON THE CAPITAL GAIN ARISING ON THE BUILDI NG (S UPER - STRUCTURE), BEING O NLY A LTCA U/S. 2(29A) . IN FACT, THE HONBLE HIGH COURT IN CIT VS. ACE BUILDERS P. LTD. [2005] 281 ITR 210 (BOM) HAS HELD THAT SECTION 54EC BENEFIT SHALL BE AVAILABLE EVEN ON DEPRECIATED ASSETS, I.E., ON THE SHORT - TERM CAPITAL GAIN COMPUTED U/S. 50 OF THE ACT , WHERE THE ASSET UNDER RE FERENCE OTHERWISE SATISF IES THE TEST OF BEING A LONG - TERM CAPITAL ASSET. THE SAID DECISION , RELIED UPON BY THE LD. CIT(A) , IS NOTED ONLY BY WAY OF ABUNDANT CAUTION IN - AS - MUCH AS WE HAVE FOUND SECTIO N 50 AS NOT APPLICABLE IN THE FACTS OF THE CASE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS OCTO BER 09, 2015 SD/ - SD/ - ( D. MANMOHAN ) (S ANJAY ARORA) / VICE PRESIDENT / A CCOUNTANT MEMBER MUMBAI ; DATED : 09 . 10 .201 5 PKM , . / PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI