ITO, CHENNAI V. Sulaiman Shaikh Mohamed, CHENNAI

ITA 357/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95899 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 04-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 12-02-2015
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value
• Section: 54; 15

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUD ICIAL MEMBER I.T.A.NO. 355 /MDS/2015 ASSESSMENT YEAR :200 6 - 07 THE INCOME TAX OFFICER , INTERNATIONAL TAXATION - 2 (2 ), NO. 121, M.G. ROAD, CHENNAI 600 034. VS. SHRI ABDUL SAMAD KHANARUZZAMAN, NO. 1629, J. BLOCK, ANNA NAGAR WEST, CHENNAI 600 040. [PA N : A A GPZ7214D ] ( / APPELLANT ) ( / RESPONDENT ) I.T.A.NO. 356/MDS/2015 ASSESSMENT YEAR :2006 - 07 THE INCOME TAX OFFICER , INTERNATIONAL TAXATION - 1(2), NO. 121, M.G. ROAD, VII FLOOR, ANNEXE BUILDING, CHENNAI 34. VS. SHRI ABDUL SAMAD KHALIQUZZAMAN, NO. 1629, J. BLOCK, ANNA NAGAR WEST, CHENNAI 600 040. [PAN : AQMPK0336P] ( / APPELLANT ) ( / RESPONDENT ) I.T.A.NO. 357/MDS/2015 ASSESSMENT YEAR :2006 - 07 THE INCOME TAX OFFICER , INTERNATIONAL TAXATION - 1(2), NO. 121, M.G. ROAD, VII FLO OR, ANNEXE BUILDING, CHENNAI 34. VS. SHRI SULAIMAN SHAIKH MOHAMED NO. 1629, J. BLOCK, ANNA NAGAR WEST, CHENNAI 600 040. [PAN : AMWPM7214J] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : DR. B. NISCHAL, JCI T / RESPONDENT BY : NONE / DATE OF HEARING : 04 . 08 .201 5 / DATE OF P RONOUNCEMENT : 19 .08 .201 5 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : I.T.A. NO. 355 - 357 /M/ 1 5 2 TH E S E THREE APPEAL S FILED BY THE REVENUE PE RTAINING TO THREE DIFFERENT ASSESSEES ARE DIRECTED AGAINST DIFFERENT ORDER S OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 16 , C HENNAI ALL DATED 2 6 . 1 2 .201 4 RELEVANT TO THE ASSESSMENT YEAR 200 6 - 07 . SINCE ISSUE INVOLVED IN THESE APPEALS ARE COMMON , HEARD TO GETHER AND BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . I.T.A. NO. 355/MDS/2015 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NON - RESIDENT. DURING THE RELEVANT ACCOUNTING PERIOD, THE ASSESSEE HAS SOLD HIS SHARE OF PROPERTY SITUATED AT NUNGAMBAKKAM, CHENNAI GIVING RISE TO CAPITAL GAINS IN HIS HANDS. THE SHARE OF THE ABOVE MENTIONED PROPERTY DEVOLVED ON THE NON - RESIDENT ASSESSEE ON THE BASIS OF INHERITANCE, ON THE DEMISE OF MRS. NAZNEEN AHMED ALI. THE PROPERTY WAS PREVIOUSLY OWNED BY MRS. NAZNEEN. SHE GOT THE PROPERTY BY WAY OF GIFT FROM HER MOTHER IN THE YEAR 1953. AS PER THE LETTER OF THE ADMINISTRATION GRANTED BY THE HIGH COURT OF MADRAS, ALL THE 7 CLAUSE III LEGAL HEIRS HAD TO SHARE 75% OF THE ESTATE. AFTER THE DEATH OF MR S. NAZNEEN AHMED ALI ON 06.06.2005, THE ASSESSEE ALONG WITH THE OTHER CO - OWNERS INHERITED THE PROPERTY AND SOLD THE SAME DURING THE ASSESSMENT YEAR 2006 - 07. 3. THE PROPERTY CONSISTING OF LAND AND BUILDING WAS SOLD ON 18.01.2006 FOR A TOTAL CONSIDERATION OF .14,25,00,000/ - . THE SHARE BELONGING TO THE III I.T.A. NO. 355 - 357 /M/ 1 5 3 CLASS LEGAL HEIRS AFTER DEDUCTING THE SHARE OF OTHER CLAIMANTS WAS .10,68,75,000/ - . THE PROPORTIONATE SHARE OF THE ASSESSEE AFTER DEDUCTING EXPENSES WAS ARRIVED AT .1,14,35,640/ - , AFTER CLAIMING EXEMPTION UNDER SECTION 54 OF THE INCOME TAX ACT, THE ASSESSEE DISCLOSED TAXABLE INCOME OF .7,35,640/ - . WHILE CALCULATING THE INCOME FROM LONG TERM CAPITAL GAINS, THE ASSESSEE APPLIED THE COST INFLATION INDEX RELATING TO THE FINANCIAL YEAR 1981 - 82 TO ARRIVE AT THE INDEXED VALUE OF THE COST OF ACQUISITION, WHEREAS THE PROPERTY WAS FIRST HELD BY THE ASSESSEE ONLY AFTER 06.06.2005 I.E., FINANCIAL YEAR 2005 - 06. THE ASSESSEE HAS CLAIMED INDEXATION BENEFIT UNDER SECTION 48 OF THE ACT ON THE FAIR MARKET VALUE AS ON 01.04.1 981. THE ASSESSING OFFICER HAS DISALLOWED THE INDEXATION BENEFIT CLAIMED BY THE ASSESSEE WITH EFFECT FROM 01.04.1981 AND ASSESSED THE LONG TERM CAPITAL GAINS OF .1,36,07,518/ - , THEREBY ADDED AN ADDITIONAL CAPITAL GAINS OF .21,71,878/ - . 4. ON APPEAL, THE LD. CIT(A), BY CONSIDERING THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. MANJULA J. SHAH 355 ITR 474, HAS OBSERVED THAT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS, INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESSEE BECAME OWNER OF ASSET BY WAY OF AN INHERITANCE AND DIRECTED THE A SSESSING OFFICER TO RECOMPUTE THE CAPITAL GAINS ACCORDINGLY. I.T.A. NO. 355 - 357 /M/ 1 5 4 5. THE REVENUE IS IN APPEAL BEFORE US AND THE LD. DR HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. 6. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. HENCE, WE PROCEE D TO DECIDE THE ISSUE ON MERITS AFTER HEARING THE LD. DR. 7. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN THESE APPEALS IS WHETHER, FOR THE PURPOSE OF COMPUTATI ON OF CAPITAL GAINS, INDEXED COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER WAS HELD THE ASSESSEE OR THE YEAR IN WHICH THE ASSESSEE BECOME OWNER BY WAY OF INHERITANCE? THE VERY SAME ISSUE HAS BEEN CONSIDERED B Y THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. MANJULA J. SHAH (SUPRA), WHEREIN THE HON BLE HIGH COURT HAS OBSERVED AS UNDER: 19) IT IS TRUE THAT THE WORDS OF A STATUTE ARE TO BE UNDERSTOOD IN THEIR NATURAL AND ORDINARY SENSE UNLESS THE OBJECT OF T HE STATUTE SUGGESTS TO THE CONTRARY. THUS, IN CONSTRUING THE WORDS ASSET WAS HELD BY THE ASSESSEE IN CLAUSE (III) OF EXPLANATION TO SECTION 48 OF THE ACT, ONE HAS TO SEE THE OBJECT WITH WHICH THE SAID WORDS ARE USED IN THE STATUTE. IF ONE READS EXPLANATI ON 1(I)(B) TO SECTION 2(42A) TOGETHER WITH SECTION 48 AND 49 OF THE ACT, IT BECOMES ABSOLUTELY CLEAR THAT THE OBJECT OF THE STATUTE IS NOT MERELY TO TAX THE CAPITAL GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED BY AN ASSESSEE BY INCURRING THE COST OF ACQUISITION, BUT ALSO TO TAX THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET INTER ALIA ACQUIRED BY AN ASSESSEE UNDER A GIFT OR WILL AS PROVIDED UNDER SECTION 49 OF THE ACT WHERE THE ASSESSEE IS DEEMED TO HAVE INCURRED THE COST OF ACQUISITION. THEREFO RE, 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 PERIOD FOR WHICH THE SAID ASSET WAS I.T.A. NO. 355 - 357 /M/ 1 5 5 HELD BY THE PREVIOUS OWNER IN DETERMINING THE PERIOD FOR WHICH THE SAID ASSET WAS H ELD BY THE ASSESSEE, THEN THAT OBJECT CANNOT BE DEFEATED BY EXCLUDING THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS OWNER 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 THE ACT THAT THE WORDS ASSET WAS HELD BY THE ASSESSEE HAS TO BE CONSTRUED DIFFERENTLY, THE SAID WORDS SHOULD BE CONSTRUED IN ACCORDANCE WITH THE OBJECT OF THE STATUTE, THAT IS, IN THE MANNER SET OUT IN EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE ACT. 20. 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 T HE ACT RUNS COUNTER TO THE ENTIRE SCHEME OF THE ACT. SECTION 2 OF THE ACT EXPRESSLY PROVIDES THAT UNLESS THE CONTEXT OTHERWISE REQUIRES, THE PROVISIONS OF THE ACT HAVE TO BE CONSTRUED AS PROVIDED UNDER SECTION 2 OF THE ACT. IN SECTION 48 OF THE ACT, THE EX PRESSION ASSET HELD BY THE ASSESSEE IS NOT DEFINED AND, THEREFORE, IN THE ABSENCE OF ANY INTENTION TO THE CONTRARY THE EXPRESSION ASSET HELD BY THE ASSESSEE IN CLAUSE (III) OF THE EXPLANATION TO SECTION 48 OF THE ACT HAS TO BE CONSTRUED IN CONSONANCE W ITH THE MEANING GIVEN IN SECTION 2(42A) OF THE ACT. IF THE MEANING GIVEN IN SECTION 2(42A) IS NOT ADOPTED IN CONSTRUING THE WORDS USED IN SECTION 48 OF THE ACT, THEN THE GAINS ARISING ON TRANSFER OF A CAPITAL ASSET ACQUIRED UNDER A GIFT OR WILL BE OUTSIDE THE PURVIEW OF THE CAPITAL GAINS TAX WHICH IS NOT INTENDED BY THE LEGISLATURE. THEREFORE, THE ARGUMENT OF THE REVENUE WHICH RUNS COUNTER TO THE LEGISLATIVE INTENT CANNOT BE ACCEPTED. 21. APART FROM THE ABOVE, SECTION 55(1)(B)(2)(II) OF THE ACT PROVIDES THAT WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED UNDER SECTION 49(1) OF THE ACT, NOT ONLY THE COST OF IMPROVEMENT INCURRED BY THE ASSESSEE BUT ALSO THE COST OF IMPROVEMENT INCURRED BY THE PREVIOUS OWNER SHALL BE DEDUCTED FROM THE TOTAL CONSIDERATION RECEIVED BY THE ASSESSEE WHILE COMPUTING THE CAPITAL GAINS UNDER SECTION 48 OF THE ACT. THE QUESTION OF DEDUCTING THE COST OF IMPROVEMENT INCURRED BY THE PREVIOUS OWNER IN THE CASE OF AN ASSESSEE COVERED UNDER SECTI ON 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 HELD BY THE ASSESSEE. THEREFORE, IT IS REASONABLE TO HOLD THAT IN THE CASE OF AN ASSESSEE CO VERED UNDER SECTION 49(1) OF THE ACT, THE CAPITAL GAINS LIABILITY HAS TO BE COMPUTED BY CONSIDERING THAT THE ASSESSEE HELD THE SAID ASSET FROM I.T.A. NO. 355 - 357 /M/ 1 5 6 THE DATE IT WAS HELD BY THE PREVIOUS OWNER AND THE SAME ANALOGY HAS ALSO TO BE APPLIED IN DETERMINING THE INDEXED COST OF ACQUISITION. 22. THE OBJECT OF GIVING RELIEF TO AN ASSESSEE BY ALLOWING INDEXATION IS WITH A VIEW TO OFFSET THE EFFECT OF INFLATION. AS PER THE CBDT CIRCULAR NO.636 DATED 31/8/1992 [SEE 198 ITR 1 (ST)] A FAIR METHOD OF ALLOWING RELIEF BY WAY OF INDEXATION IS TO LINK IT TO THE PERIOD OF HOLDING 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 INDEXED COST OF IMPROVEMENT A ND THEN DEDUCT THE SAME FROM THE SALE CONSIDERATION TO ARRIVE AT THE LONG TERM CAPITAL GAINS. IF INDEXATION IS LINKED TO THE PERIOD OF HOLDING THE ASSET AND IN THE CASE OF AN ASSESSEE COVERED UNDER SECTION 49(1) OF THE ACT, THE PERIOD OF HOLDING THE ASSET HAS TO BE DETERMINED BY INCLUDING THE PERIOD FOR WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS OWNER, THEN OBVIOUSLY IN ARRIVING AT THE INDEXATION, THE FIRST YEAR IN WHICH THE SAID ASSET WAS HELD BY THE PREVIOUS OWNER WOULD BE THE FIRST YEAR FOR WHICH THE SAID ASSET WAS HELD BY THE ASSESSEE. 8. WHILE CONCURRING WITH THE DECISION IN THE CASE OF MANJULA J. SHAH, THE HON BLE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST V. CIT [2012] 205 TAXMAN 456 (DELHI) HAS HELD AS UNDER: 15. NORMALLY LITERAL RU LE OF CONSTRUCTION IS APPLIED AND THE WORDS OF THE STATUTE ARE TO BE UNDERSTOOD IN THEIR ORDINARY AND POPULAR SENSE, BUT THIS IS SUBJECT TO THE RIDER THAT THIS SHOULD NOT LEAD TO ABSURDITY, CONTRADICTION OR STULTIFICATION OF THE STATUTORY OBJECTIVE. LITERA L CONSTRUCTION SHOULD BE AVOIDED, IF IT LEADS TO UNWARRANTED REPUGNANCE OR INCONSISTENCIES. IN SUCH CIRCUMSTANCES THE EXPRESSION/WORDS CAN BE INTERPRETED BY THE COURTS TO AVOID ABSURDITIES AND INCONSISTENCIES BETWEEN THE PROVISIONS. IN THE PRESENT CASE, AS NOTICED ABOVE, THE CONSTRUCTION PLACED BY THE REVENUE WILL LEAD TO INCONSISTENCY AND INCONGRUITIES, WHEN WE REFER TO SECTION 49 AND CLAUSE (IV) TO EXPLANATION (1) TO SECTION 48 . THIS WILL RESULT IN ABSURDITIES BECAUSE THE HOLDING OF PREDECESSOR HAS TO BE ACCOUNTED FOR THE PURPOSE OF COMPUTING THE COST OF ACQUISITION, COST OF IMPROVEMENT AND INDEXED COST OF IMPROVEMENT BUT AS PER THE REVENUE NOT FOR THE PU RPOSE OF INDEXED COST OF ACQUISITION. AS NOTICED BELOW, EVEN FOR THE PURPOSE OF DECIDING WHETHER THE TRANSACTION IS A SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN, THE HOLDING BY THE PREDECESSOR IS TO BE TAKEN INTO CONSIDERATION. I.T.A. NO. 355 - 357 /M/ 1 5 7 16. BENEFIT OF INDEXE D COST OF INFLATION IS GIVEN TO ENSURE THAT THE TAXPAYER PAYS CAPITAL GAIN TAX ON THE 'REAL' OR ACTUAL GAIN AND NOT ON THE INCREASE IN THE CAPITAL VALUE OF THE PROPERTY DUE TO INFLATION. THIS IS THE OBJECT OR PURPOSE IN ALLOWING BENEFIT OF INDEXED COST O F IMPROVEMENT, EVEN IF THE IMPROVEMENT WAS BY THE PREVIOUS OWNER IN CASES COVERED BY SECTION 49 . ACCORDINGLY THERE IS NO JUSTIFICATION OR REASON TO NOT ALLOW THE BENEFIT OF INDEXATION TO THE COST OF ACQUISITION IN CASES COVERED BY SECTION 49 . THIS IS NOT THE LEGISLATIVE INTENT BEHIND CLAUSE (III) TO EXPLANATION TO SECTION 48 OF THE A CT. 17. THERE IS NO REASON AND JUSTIFICATION TO HOLD THAT CLAUSE (III) OF THE EXPLANATION INTENTS TO REDUCE OR RESTRICT THE 'INDEXED COST OF ACQUISITION' TO THE PERIOD DURING WHICH THE ASSESSEE HAS HELD THE PROPERTY AND NOT THE PERIOD DURING WHICH THE PR OPERTY WAS HELD BY THE PREVIOUS OWNER. THE INTERPRETATION RELIED BY THE ASSESSEE IS REASONABLE AND IN CONSONANCE WITH THE OBJECT AND PURPOSE BEHIND SECTIONS 48 AND 49 OF THE ACT. 18. THE EXPRESSION 'HELD BY THE ASSESSEE' USED IN EXPLANATION (III) TO SECTION 48 HAS TO BE UNDERSTOOD IN THE CONTEXT AND HARMONIOUSLY WITH OTHER SECTIONS. THE COST OF ACQUISIT ION STIPULATED IN SECTION 49 MEANS THE COST FOR WHICH THE PREVIOUS OWNER HAD ACQUIRED THE PROPERTY. THE TERM 'HELD BY THE ASSESSEE' SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WA S HELD BY THE PREVIOUS OWNER. 9. THE LD. CIT(A), BY FOLLOWING THE ABOVE DECISIONS, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE DECISIONS OF THE HON BLE HIGH COURT S OR FILED ANY HIGHE R COURT DECISION HAVING MODIFIED OR REVERSED THE ABOVE DECISION OF THE HON BLE HIGH COURT S . THE LD. CIT(APPEALS) HAS RIGHTLY FOLLOWED THE ABOVE JUDGEMENT S AND WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(APPEALS). THUS, ALL T HE APPEAL S FILED BY THE REVENUE IN RESPECT OF ALL THE ASSESSEES ARE DISMISSED. I.T.A. NO. 355 - 357 /M/ 1 5 8 10 . IN THE RESULT, ALL THE APPEAL S FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 19 TH OF AUGUST, 2015 AT CHENNAI. SD/ - SD/ - ( A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( V. DURGA RAO ) JUDICIAL MEMBER CHENNAI, DATED, THE 19 . 08 .201 5 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.