ITO 19(2)(5), MUMBAI V. PRIITENDRA C. JHAVERI, MUMBAI

ITA 354/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0258 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 22-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Capital asset; Gift; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO.354 /MUM/2016 (ASSESSMENT YEAR: 2011-12) INCOME TAX OFFICER - 19(2)(5) VS. SHRI PRITENDRA C. JHAVERI 2ND FLOOR, MATRU MANDIR TARDEO ROAD MUMBAI 400007 NO. 66, B WING, TRIVENI CHS VALKESHWAR ROAD MUMBAI 400006 PAN ABBPJ6969K APPELLANT RESPONDENT APPELLANT BY: SHRI T.A. KHAN RESPONDENT BY: NONE DATE OF HEARING: 04.07.2017 DATE OF PRONOUNCEMENT: 04.07.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-30, MUMBAI DATED 12.11.2015 FOR A.Y. 2011-12 . 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND IN THE APPEAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWIN G THE APPEAL FILED BY THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE CAPITAL GAINS BY ADOPTING YEAR FOR THE INDEXED COST OF ACQUISITION OF THE CAPITAL ASSET IN QUESTION WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSESSEE AND NOT THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE EVENTHOUGH NOTICES WERE DULY SENT. WE, THEREFORE, DECIDED TO DISPOSE OFF TH E APPEAL AFTER HEARING THE LEARNED D.R. AFTER HEARING THE LEARNED D.R. AND GOI NG THROUGH THE ORDERS OF THE AUTHORITIES BELOW WE NOTED THAT THE ONLY DIS PUTE ARISING IN THIS APPEAL RELATES TO THE DETERMINATION OF INDEXED COST OF ACQUISITION. THE ASSESSEE DURING THE YEAR SOLD A PLOT OF LAND ON MAL ABAR HILL DIVISION FOR A ITA NO. 354/MUM/2016 SHRI PRITENDRA C. JHAVERI PAGE 2 OF 6 CONSIDERATION OF ` 54 CRORES, THE STAMP VALUE OF WHICH WAS ` 54,51,78,000/- ALONGWITH OTHER OWNERS. THE ASSESSEES SHARE IN THE PROPERTY WAS 1/12. SIMILARLY THE ASSESSEE HAS SOLD ITS RIGHTS IN RESPE CT OF ROOM NO. 4 AT 97, BUNGALOW WALKESHWAR ROAD, FOR A CONSIDERATION OF ` 17,25,500/- MARKET VALUE OF WHICH WAS ` 22,04,000/-. THE ASSESSEE HAS ALSO SOLD HIS SHARE (BEING 1/6 TH ) IN ROOM NO. 5 AT 97, BUNGALOW WALKESHWAR ROAD FOR A CONSIDERATION OF ` 1,03,70,000/-, MARKET VALUE OF WHICH COMES TO ` 1,32,45,000/-. THE AO ALSO NOTED THAT THE ASSESSEE HAS CLAIMED INDEXED COST OF ACQUISITION TAKING THE BASE PERIOD ON 01.04 .1981. WHEN QUESTIONED THE ASSESSEE EXPLAINED THAT SHRI CHANDRAKANT JHAVER I WAS THE 50% OWNER. HE EXPIRED ON 12.03.2005. AFTER HIS DEATH THE ASSES SEE INHERITED THE PROPERTY. THE AO NOTED THAT SINCE THE ASSESSEE HAS INHERITED THE PROPERTY IN THE FINANCIAL YEAR 2004-05 THEREFORE HE TOOK THE COST OF INDEXATION FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN WHEN THE PROPERTY WAS INHERITED BY THE ASSESSEE. THE ASSESSEE WENT IN APP EAL BEFORE THE CIT(A). THE CIT(A) DIRECTED THE AO TO TAKE THE INDEXED COST OF ACQUISITION WHEN THE PROPERTY WAS ACQUIRED IN THE PREVIOUS YEAR AS LATE SHRI CHANDRAKANT JHAVERI ACQUIRED THE PROPERTY PRIOR TO 1981, THEREF ORE HE DIRECTED THE AO TO TAKE THE INDEXED COST OF ACQUISITION TAKING THE BASE YEAR FOR A.Y. 1981- 82 BY OBSERVING AS UNDER: - 8.3 I HAVE CAREFULLY PERUSED THE MATERIAL AVAILABL E ON RECORD AND LEGAL POSITION AS APPLICABLE TO THE YEAR UNDER CONS IDERATION THE APPELLANT BECAME THE OWNER OF THE SUBJECT PROPERTY BY WAY OF NON- TESTAMENTARY SUCCESSION AFTER DEMISE OF HIS FATHER. IT IS NOT IN DISPUTE THAT LATE CHANDRAKANT JHAVERI, FATHER OF THE APPELL ANT HAD PURCHASED THE SAID PROPERTY PRIOR TO 1981. HE WAS EXPIRED ON 12/03/2005 AFTER WHICH THE APPELLANT AND OTHER LEGAL HEIRS BECAME TH E OWNERS OF THIS PROPERTY BY SUCCESSION/INHERITANCE. THE SHARE OF PR OPERTY WAS SOLD BY THE APPELLANT ALONG WITH THE OTHER CO-OWNERS IN THE YEAR 2010. THE LONG TERM CAPITAL GAIN WAS CALCULATED BY THE APPELLANT B Y TAKING THE COST INFLATION INDEX FOR THE YEAR 1981-82 I.E. 100. HOWEVER, THE ASSESSING OFFICER IS OF THE OPINION THAT THE INDEXED COST OF ACQUISITION IS TO BE COMPUTED TAKING THE YEAR OF ACQUISITION AS 2004-05 I.E. THE YEAR WHEN THE APPELLANT INHERITED THE SUBJECT PROPERTY. THUS, THE SOLE CONTROVERSY IS THAT WHETHER FOR THE PURPOSE OF COMPUTING LONG T ERM CAPITAL GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET WHICH HAD BECOME PROPERTY OF THE APPELLANT BY SUCCESSION, INHERITANCE THE IND EXED COST OF ACQUISITION OF SUCH CAPITAL ASSET HAS TO BE COMPUTE D WITH REFERENCE TO ITA NO. 354/MUM/2016 SHRI PRITENDRA C. JHAVERI PAGE 3 OF 6 THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET, IN THE PRESENT CASE 1981-82, OR WITH REFERENCE TO THE YEAR I.E. F.Y. 20 04-05 IN WHICH THE APPELLANT FIRST HELD THE ASSET IN QUESTION. IN OTHER WORDS, THE DISPUTE IS ABOUT THE' YEAR OF HOLDING OF THE PROPER TY FOR INDEXED COST OF ACQUISITION ACCORDING TO THE APPELLANT, UNDER CLAUS E (III) OF EXPLANATION TO SEC 48, THE INDEXED COST OF ACQUISITION OF THE C APITAL ASSET HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PR EVIOUS OWNER FIRST HELD THE ASSET. IT IS THE CASE OF THE ASSESSING OFF ICER THAT GOING BY THE EXPRESSION THE FIRST YEAR IN WHICH THE ASSET WAS HE LD BY THE ASSESSEE USED IN THE SAID CLAUSE OF EXPLANATION TO SEC 48, INDEXED COST OF ACQUISITION IS TO BE COMPUTED WITH REFERENCE TO THE FINANCIAL YEAR 2004- 05 WHEN THE APPELLANT BECAME THE OWNER OF THE CAPIT AL ASSET AND NOT THE F.Y. 1981-82. HOWEVER, AS ON DATE, THIS ISSUE IS SQUARELY COVERED IN FAVOR OF THE APPELLANT BY THE DECISION OF BOMBAY HIGH COURT IN T HE CASE OF MAINJULA. J SHAH (355 ITR 474), WHEREIN THE HON'BLE HIGH COURT HELD AS UNDER: - IT IS THE CONTENTION OF THE REVENUE THAT SINCE THE INDEED COST OF ACQUISITION AS PER CLAUSE (III) OF THE EXPLANATION TO SECTION 48 HAS TO BE DETERMINED WITH REFERENCE TO THE COST INFLATION IND EX FOR THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE AND IN THE PRESENT CASE, AS THE ASSESSEE HELD THE ASSET WITH EFFECT FROM 1-2 -2003, THE FIRST YEAR OF HOLDING THE ASSET WOULD BE FINANCIAL YEAR 2 002-03 AND, ACCORDINGLY, THE COST INFLATION INDEX FOR 2002-03 W OULD HE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUISITION [PAR A 16] THERE IS NO MERIT IN THE ABOVE CONTENTION. AS RIGHT LY CONTENDED BY THE ASSESSEE, THE INDEXED COST OF ACQUISITION HAS TO BE DETERMINED WITH 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 UNDER SECTION 48, THAT EXPRESSION HAS TO BE UNDERSTOOD AS DEFINED UNDER SECTION 2 EXPLANATIO N 1(I)(B) TO SECTION 2(424) PROVIDES THAT IN DETERMINING THE PER IOD FOR WHICH AN ASSET IS HELD BY AN ASSESSEE UNDER A GIFT, THE PERI OD FOR WHICH THE SAID ASSET VAS HELD BY THE PREVIOUS OWNER SHALL BE INCLUDED. AS THE PREVIOUS OWNER HELD THE CAPITAL ASSET FROM 29-1-199 3 , AS PER EXPLANATION 1(I)(B) TO SECTION 2(42A), THE ASSESSEE IS DEEMED TO HAVE HELD THE CAPITAL ASSET FROM 29-2-1993. BY REASON OF THE DEEMED HOLDING OF THE ASSET FROM 29-1-1993, THE ASSESSEE I S DEEMED TO HAVE HELD THE ASSET AS A LONG TERM CAPITAL ASSET. IF THE LONG TERM CAPITAL GAINS LIABILITY HAS TO BE COMPUTED UNDER SECTION 48 BY TREATING THAT THE ASSESSEE HELD THE CAPITAL ASSET FROM 29-1-1993, THEN, NATURALLY IN DETERMINING THE INDEXED COST OF ACQUISITION UNDER S ECTION 48, THE ASSESSEE MUST BE TREATED TO HAVE HELD THE ASSET FRO M 29-1-1993 AND, ACCORDINGLY, THE COST INFLATION INDEX FOR 1992- . 93 WOULD BE APPLICABLE IN DETERMINING THE INDEXED COST OF ACQUISITION [PAR A 17] IF THE ARGUMENT OF THE REVENUE THAT THE DEEMING FIC TION CONTAINED IN EXPLANATION L(I)(B) TO SECTION 2(42A) CANNOT BE APP LIED IN COMPUTING THE ITA NO. 354/MUM/2016 SHRI PRITENDRA C. JHAVERI PAGE 4 OF 6 CAPITAL GAINS UNDER SECTION 48 IS ACCEPTED, THEN, T HE ASSESSEE WOULD NOT BE LIABLE FOR LONG TERM CAPITAL GAINS TAX, BECA USE, IT IS ONLY BY APPLYING THE DEEMED FICTION CONTAINED IN EXPLANATIO N 1(I)(B) TO SECTION 2(42A) AND SECTION 49(1)(II) THE ASSESSEE IS DEEMED TO HAVE HELD THE ASSET FROM 29-1-2993 AND DEEMED TO HAVE INCURRED TH E COST OF ACQUISITION AND ACCORDINGLY, MADE LIABLE FOR THE LO NG TERM CAPITAL GAINS TAX. THEREFORE, WHEN . THE LEGISLATURE BY INTRODUCING THE DEEMING FICTION SEEKS TO TAX THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL AND THE CAPITAL GAINS UNDER SECTION 48 HAS TO BE COMPUTED BY APPLYING THE DEEMED FICTION, IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF REVENUE THAT THE FICTIO N CONTAINED IN EXPLANATION 1(I)(B) TO SECTION 2(42A) CANNOT HE. AP PLIED IN DETERMINING THE INDEXED COST OF ACQUISITION UNDER SECTION 48 [P ARA 18] IN THE INSULT, THAT THE TRIBUNAL WAS JUSTIFIED IN H OLDING THAT WHILE COMPUTING THE CAPITAL GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED BY THE ASSESSEE UNDER A GIFT, THE INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WH ICH THE PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE ASSET [PARA 24]' 8.4 THUS THE BOMBAY HIGH COURT CLEARLY HELD THAT T HE INDEXED COST OF ACQUISITION OF SUCH CAPITAL ASSET ACQUIRED UNDER A GIFT HAS 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. THOUGH THE DECISION WAS REN DERED IN THE CONTEXT OF GIFT, THE RATIO IS EQUALLY APPLICABLE WH ERE THE CAPITAL ASSETS BECAME THE PROPERTY OF AN ASSESSEE BY SUCCESSION OR INHERITANCE AS ENVISAGED IN CLAUSE (III)(A) TO SEC. 49 (1) OF THE I.T. ACT. THE DECISION IN THE CASE OF MANJULA SHAH WAS REAFFIRMED BY THE BOMB AY HC IN THE RECENT DECISION IN THE CASE OF CIT VS. NITA KAMLESH TANNA (220 TAXMANN 165), WHEREIN THE PROPERTY WAS ACQUIRED BY THE ASSESSEE BY INHERITANCE FROM HER MOTHER. IN THE PRESENT CASE , THE ASSESSING OFFICER HAS NOT DOUBTED THAT THE PROPERTY IN QUESTI ON WAS NOT ACQUIRED BY THE PREVIOUS OWNER I.E. LATE CHANDRAKAN T JHAVERI IN THE YEAR PRIOR TO 1981-82. THE ONLY OBJECTION OF THE AS SESSING OFFICER IS THAT INDEXED COST OF ACQUISITION SHOULD BE RECKONED WITH REFERENCE TO THE YEAR IN WHICH THE APPELLANT ACQUIRED THE PROPER TY BY SUCCESSION I.E. IN THE YEAR 2004-05 AND NOT WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER ACQUIRED THE PROPERTY. IN SUCH C IRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE BOMBAY HIGH COURT QUOTED SUPRA, THE AO IS DIRECTED TO RE-COMPUTE THE CAPITAL GAINS BY ADOPTING YEAR FOR THE INDEXED COST OF ACQUISITION OF THE CAP ITAL ASSET IN QUESTION WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OW NER FIRST HELD THE ASSET. IN OTHER WORDS, IN THE FORMULA FOR CALCULATION OF I NDEXED COT OF ACQUISITION OF THE PROPERTY, THE DENOMINATOR HAS TO BE TAKEN AS 100 I.E. COST INFLATION INDEX OF THE YEAR 1981-82 AS AGAINST 480 CONSIDERED BY THE ASSESSING OFFICER GRO UND NO 7 OF THE APPEAL IS THUS ALLOWED . ITA NO. 354/MUM/2016 SHRI PRITENDRA C. JHAVERI PAGE 5 OF 6 4. THE LEARNED D.R., EVENTHOUGH VEHEMENTLY RELIED ON T HE ORDER OF THE AO, BUT COULD NOT BRING TO OUR KNOWLEDGE ANY CONTRA RY DECISION TAKING DIFFERENT VIEW ON THE STAND TAKEN BY THE HON'BLE JU RISDICTIONAL HIGH COURT. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A). 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JULY, 2017. SD/ - SD/ - (SANDEEP GOSAIN) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 4 TH JULY, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -30, MUMBAI 4. THE CIT - 19, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.