ACIT, Circle - 29, Kolkata, Kolkata V. Aditya Kumar Jajodia, Kolkata

ITA 362/KOL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75010 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2011
• Court: TRIBUNAL
• Department Lawyers: VARINDER MEHTA
• Assessee Lawyers: A K TULSIYAN
• Keywords: Capital asset; Cost of acquisition; Date of conversion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [BEFORE HONBLE SRI ABRAHAM P.GEORGE, AM & HONBL E SRI GEORGE MATHAN, JM] ITA NO.362/KOL/2011 ASSESSMENT YEAR : 2006-07 ( APPELLANT ) (RESPONDENT) A.C.I.T., CIRCLE-29, -VS- ADITYA KUMAR JAJODIA. KOLKATA KOLKATA (PAN: AFBPJ 1520 J) FOR THE APPELLANT SHRI VARINDER MEHTA, CIT(DR) FOR THE RESPONDENT: SHRI A.K.TULSIYAN, FCA DATE OF HEARING : 30.01.2014 DATE OF PRONOUNCEMENT : 14 .02.2014. ORDER PER SHRI GEORGE MATHAN, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. C.I.T(A)-XVI,.- KOLKATA- IN APPEAL .NO.62/CIT(A)-XVI/IT/CIR.29/09-1 0 DATED 29.11.2010 FOR ASSESSMENT YEAR 2006-07. 2. SHRI VARINDER MEHTA, C.I.T..(DR) REPRESENTED O N BEHALF OF THE REVENUE AND SHRI A.K.TULSIYAN, FCA REPRESENTED ON BEHALF OF T HE ASSESSEE. 3. IN THE REVENUES APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A)HAS ERRED IN HOLDING THAT THE PROPERTY SOLD BY THE APPELLANT WAS LONG TERM CA PITAL ASSET AND THE PROFIT DERIVED THERE FROM WAS LONG TERM CAPITAL GAIN IGNORING THE FACT BROUGHT ON RECORD BY THE A.O. THAT THE SAID PROPERTY WAS CONVERTED TO FREEHOLD LA ND IN FAVOUR OF THE ASSESSEE BY DDA ON 17.05.2005 AND SOLD ON 21.07.2005. THE CIT(A) HA S FAILED TO APPRECIATE THE RATIONALE OF THE CASE OF CIT VS DR.V.V.MODI 218 ITR 1 WHERE IT IS HELD THAT THE DATE OF CONVERSION OF THE PROPERTY FROM LEASEHOLD TO FREEHO LD IS THE RELEVANT DATE FOR CONSIDERING THE DATE FOR CONSIDERING THE DATE OF CO MMENCEMENT OF OWNERSHIP OF THE PROPERTY. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) CIT(A) HAS FAILED TO APPRECIATE THE FACTS BROUGHT ON RECORD BY THE ASSES EE THAT BOTH PASHUPATI NATH HOLDING AND PARAS HOLDINGS WERE SITUATED AT THE SAME PLACE I.E. AT 22, VANANT LOK AND THE ITA NO.362/KOL/2011 ADITYA KUMAR JAJODIA A.YR.2006-07 2 ASSESSEE HAD A SUBSTANTIAL INTEREST IN THESE COMPAN IES AND THEPAYMENTS MADE TO THE COMPANIES ARE A PART OF A DEVICE TO REDUCE THE CAPI TAL GAINS TAX. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EXPENSES INCURRED ON PAYMENT TO JAGATDHATR I MATA TRUST AND PASHUPATHI NATH HOLDING P.LTD. OF RS.5,05,00,000/- AND RS.5,50,00,0 00/- RESPECTIVELY, WERE WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE SAID PROPERTY WITHIN THE MEANING OF SECTION 48(I) AND 48(II) OF THE I.T.ACT AND DID NOT APPRECIATE THE FACTS BROUGHT ON RECORD BY THE A.O. THAT ASSESSEE HIMSELF HAD SUBSTANTIAL I NTEREST IN THESE ENTITIES. FURTHER, THE BONAFIDE OF SUCH CLAIM OF THE ASSESSEE WAS NEVER SU BJECT TO VERIFICATION OF ANY AUTHORITY. 4. ANY OTHER GROUND TO BE TAKEN AT THE TIME OF HEAR ING. 4. IT WAS SUBMITTED BY THE LD. DR THAT GROUND NO.1 WAS AGAINST THE ACTION OF THE LD. CIT(A) IN HOLDING THAT THE PROPERTY SOLD BY THE ASSESSEE WAS LONG TERM CAPITAL ASSET AND THE PROFIT DERIVED THERE FROM WAS LONG TE RM CAPITAL GAIN. IT WAS THE SUBMISSION THAT THE ASSESSEE IS AN INDIVIDUAL WHO H AD RECEIVED A PROPERTY BEARING PLOT NO.15, PALAM MARG, VASANT VIHAR, NEW DELHI. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD RECEIVED THIS PROPERTY THROUGH WILL FROM RANI P USPA KUMARI DEVI. IT WAS THE SUBMISSION THAT SUBSEQUENTLY THE ASSESSEE HAD THE P ROPERTY MUTATED TO THE ASSESSEES NAME AS FREE HOLD PROPERTY ON 31.03.2005 BY PAYING THE STAMP DUTY ON 17.05.2005 AND THE FREE HOLD CONVERSION CHARGES ON 04.08.2005. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD SOLD THE PROPERTY IN FAVOUR OF AWAZ BU ILDERS ON 13.10.2005. CONSEQUENTLY THE SAME RESULTED IN SHORT TERM CAPITA L GAIN IN THE HANDS OF THE ASSESSEE. IT WAS THE SUBMISSION THAT THE ORDER OF T HE LD. CIT(A) MAY BE REVERSED. 4.1. . IT WAS FURTHER SUBMITTED THAT IN RESPECT OF GROUND NOS.2 AND 3, THE ASSESSEE HAD CLAIMED THAT HE HAD PAID RS.5,05,00,000/- TO M/ S.JAGATDHATRI MATA TRUST AND AN AMOUNT OF RS.5,50,00,000/- TO PASHUPATI NATH HOLDIN G PVT.LTD. FOR REMOVING ENCUMBRANCES ON THE TITLE OF THE PROPERTY. IT WAS T HE SUBMISSION THAT THESE WERE AFTER THOUGHTS AND THE SAME WAS NOT LIABLE TO BE ALLOWED FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS EITHER LONG TERM OR SHORT TERM. THE L D. DR VEHEMENTLY SUPPORTED THE ORDER OF AO. 5. IN REPLY THE LD. AR SUBMITTED AS FOLLOWS :- DR.NAGENDRA SINGH AND HIS WIFE RANI PUSHPA KUMARI D EVI HAD OBTAINED THE PERPETUAL LEASE DEED OF THE SAID PROPERTY FROM DELHI DEVELOPM ENT AUTHORITY ON 04.11.1968. ITA NO.362/KOL/2011 ADITYA KUMAR JAJODIA A.YR.2006-07 3 ON 11.12.1988 DR.NAGENDRA SINGH EXPIRED. ON 29.05.1 989 THE PROPERTY WAS MUTATED BY DDA IN THE NAME OF RANI PUSHPA KUMARI DEVI WHO T HUS BECOME SOLE, ABSOLUTE AND EXCLUSIVE OWNER OF THE SAID PROPERTY. ON 15.12. 1994 RANI PUSHPA KUMARI DEVI EXECUTED AN AGREEMENT TO SELL THE SAID PROPERTY TO PARAS HOLDINGS PVT. LTD. FOR WHICH PARAS HOLDINGS PVT. LTD. HAD PAID RS.4 CRORES. THE SALE DEED OF THE PROPERTY WAS TO BE EXECUTED AFTER THE PROPERTY WAS VACATED OF THE TENA NTS. NECESSARY APPROVAL UNDER CHAPTER XX HAS ALSO BEEN OBTAINED IN 27.03.1995. ON 24.05.1995 RANI PUSHPA KUMARI DEVI EXECUTED AND REGISTERED A WILL GIVING T HE PROPERTY TO THE ASSESSEE. ON 18.08.1996 RANI PUSHPA KUMARI DEVI EXPIRED. IN THE MEANTIME ON 06.03.2003 PARAS HOLDINGS PVT. LTD. TRANSFERRED ITS RIGHT IN THE SAI D PROPERTY IN THE AGREEMENT TO SELL DT.15.12.1994 TO PASHUPATINATH HOLDINGS PVT. LTD. U NDER MERGER SCHEME APPROVED BY DELHI HIGH COURT. FURTHER A WILL OF DR.NAGENDRA SIN GH, HUSBAND OF RANI PUSHPA KUMARI DEVI WAS FOUND. THIS WILL WAS DATED 15.02.19 87 AND THIS WILL FOUND BY DR.NAGENDRA SINGH WAS INTIMATED TO THE TRUSTEES OF JAGATDHATRI MATA TRUST NO.6, AKBAR ROAD, NEW DELHI. THIS WAS VIDE A LETTER DATED 11.03.2001. ON 20.11.2001 JAGATDATHRI MATA TRUST ON THE BASIS OF THE WILL OF DR.NAGENDRA SINGH FILED A SUIT FOR DECLARATION AND RENDITION OF ACCOUNTS. IN THE MEANT IME ON 07.03.2005 THE ASSESSEE NEGOTIATED WITH M/S. AWAZ BUILDERS PVT. LTD. TO SEL L THE SAID PROPERTY FOR RS.12 CRORES AND TOOK AN ADVANCE OF RS.50,00,000/-. ON 21.07.200 5, THE ASSESSEE EXECUTED THE FORMAL AGREEMENT WITH AWAZ BUILDERS PVT. LTD. IN OR DER TO SETTLE THE DISPUTE WITH PARAS HOLDINGS PVT.LTD. WHO HELD AN AGREEMENT OF S ALE WITH RANI PUSHPA KUMARI DEVI DATED 15.12.1994.THE ASSESSEE PAID RS.5.5 CRO RES ON 22.07.2005. THE ASSESSEE SETTLED THE DISPUTE WITH JAGATDHATRI MATA TRUST FOR AN AMOUNT OF RS.5,05,00,000/- WHEREUPON THE TRUST ASSIGNED ALL ITS RIGHTS IN THE SAID PROPERTY IN FAVOUR OF THE ASSESSEE AND ON 13.10.2005 THE ASSESSEE EXECUTED SA LE DEED IN FAVOUR OF AWAZ BUILDERS, WITH WHOM HE HAD ENTERED INTO AN AGREEMEN T FOR SALE OF THE PROPERTY ON 21.07.2008. IT WAS THE SUBMISSION THAT THE ASSESSEE HAVING RECEIVED THE PROPERTY THROUGH BEQUEATH THROUGH WILL THE DATE OF OWNERSHIP OF THE PROPERTY WOULD REVERT BACK TO THE DATES OF ACQUISITION BY THE ORIGINAL OWNERS BEING DR.NAGENDRA SINGH AND HIS WIFE RANI PUSHPA KUMARI DEVI. IT WAS THE SUBMISSION THAT THE TRANSACTION OF THE SALE OF BEQUEATHED PROPERTY GIVES RISE TO ONLY LONG TERM CAPITAL GAIN AS THE ASSET IS A ITA NO.362/KOL/2011 ADITYA KUMAR JAJODIA A.YR.2006-07 4 LONG TERM CAPITAL ASSET. IT WAS THE FURTHER SUBMISS ION THAT AS PER THE WILL OF DR.NAGENDRA SINGH AND THE LITIGATION ENSUED WITH JA GATDHATRI MATA TRUST. THIS WAS A LITIGATION AND THE LIABILITY ON THE PROPERTY CREATE D BEFORE THE ASSESSEE RECEIVED THE PROPERTY. IT WAS THE SUBMISSION THAT WITHOUT SETTLI NG THIS DISPUTE IT WAS IMPOSSIBLE FOR THE ASSESSEE TO SELL THE PROPERTY. IT WAS THE FURTH ER SUBMISSION THAT AS PER THE WILL OF DR.NAGENDRA SINGH THE TRUST WAS MAKING A CLAIM IN T HE OWNERSHIP OF THE PROPERTY. THIS LIABILITY WAS NOT THE ONE WHICH IS CREATED BY THE ASSESSEE. IT WAS THE FURTHER SUBMISSION THAT AS RANI PUSHPA KUMARI DEVI HAD ALRE ADY ENTERED INTO AN AGREEMENT FOR SALE ON 15.12.1994 OF THE SAID PROPERTY TO M/S. PARAS HOLDINGS PVT. LTD. WHICH WAS SUBSEQUENTLY MERGED WITH PASHUPATHINATH HOLDINGS PV T. LTD, THE ASSESSEE HAD TO CLEAR THIS LIABILITY ALSO TO SELL THE PROPERTY FREE FROM ALL ENCUMBRANCES. IT WAS THE SUBMISSION THAT THIS WAS ALSO NOT A LIABILITY CREAT ED BY THE ASSESSEE ON THE PROPERTY. IT WAS THE SUBMISSION THAT THE PROPERTY THAT HAS BEEN RECEIVED BY THE ASSESSEE WAS A PROPERTY WHICH HAD SUBSTANTIAL LITIGATION AND IT WA S ONLY FOR THE PURPOSE OF MAKING THE ASSET FREE FROM ALL ENCUMBRANCES THE ASSESSEE HAD P AID RS.5.5 CRORES TO M/S.PASHUPATINATH HOLDINGS PVT. LTD. AND RS.5.05 CR ORES TO SHRI JAGATDHATRI MATA TRUST. IT WAS THE SUBMISSION THAT THESE PAYMENTS WE RE REQUIRED FOR MAKING THE PROPERTY CLEAR OF ALL ENCUMBRANCES AND CONSEQUENTLY THE SAME WAS LIABLE TO BE TREATED AS EXPENDITURE INCURRED FOR IMPROVING HIS TITLE IN THE PROPERTY AND THE SAME WAS LIABLE TO BE TREATED AS EXPENDITURE FOR THE PURPOSE OF COM PUTING THE LONG TERM CAPITAL GAIN. THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. ADMITTEDLY THE ASSESSEE HAS NOT PURCHASED ANY PROPERTY IN 2005. THE PROPERTY RECEIV ED BY THE ASSESSEE IS BY WILL. A PERUSAL OF THE PROVISION OF SECTION 47(III) OF THE ACT SHOWS THAT ANY TRANSFER OF CAPITAL ASSET UNDER WILL IS NOT TREATED AS A TRANSFER. CONS EQUENTLY THE PERIOD OF HOLDING IN THE HANDS OF THE ASSESSEE WOULD HAVE TO BE CONSIDERED R IGHT FROM THE TIME WHEN THE ORIGINAL OWNERS WHO BEQUEATH THE PROPERTY TO THE AS SESSEE BECAME THE OWNERS OF THE PROPERTY. HERE IN THIS CASE DR.NAGENDRA SINGH AND H IS WIFE RANI PUSHPA KUMARI DEVI BECAME THE OWNER OF THE PROPERTY ON 04.11.1968. THE ASSESSEE HAS BECOME THE OWNER ONLY AS A CONSEQUENCE OF THE WILL OF RANI PUSHPA KU MARI DEVI DATED 24.05.1995. JUST ITA NO.362/KOL/2011 ADITYA KUMAR JAJODIA A.YR.2006-07 5 BECAUSE THE PROPERTY HAS BEEN MUTATED IN THE HANDS OF THE ASSESSEE IN 2005 THE QUESTION OF HOLDING OF THE PROPERTY CANNOT BE TREAT ED TO BE FROM 2005. CONSEQUENTLY WE ARE OF THE VIEW THAT THE FINDINGS OF THE LD. CIT (A) IN HOLDING THAT THE PROPERTY UNDER QUESTION IS A LONG TERM CAPITAL ASSET AND THE PROFITS DERIVED ON THE SALE THEREOF IS LIABLE TO BE TREATED AS ONLY LONG TERM CAPITAL G AIN IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. 6.1. COMING TO THE ISSUE OF THE PAYMENTS MADE TO TH E TRUST NAMELY JAGATDHATRI MATA TRUST AS ALSO THE PAYMENTS MADE TO M/S.PASHUPA THINATH HOLDINGS PVT. LTD., A PERUSAL OF THE PROVISION OF SECTION 48 OF THE ACT C LEARLY SHOWS THAT IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS THE EXPENDITURE INCURRED IN CONNECTION WITH SUCH TRANSFER AS ALSO THE COST OF ACQUISITION OF THE ASSET AND THE COST OF IMPROVEMENT THEREOF IS LIABLE TO BE REDUCED. THE MA IN WORD IS COST OF IMPROVEMENT THEREOF FOR THE PURPOSE OF THIS CASE. ADMITTEDLY A PERUSAL OF THE WILL OF DR.NAGENDRA SINGH CLEARLY SHOWS THAT HE HAD WANTED TO DEVOLVE T HE PROPERTY IN QUESTION MORE SPECIFICALLY HIS SHARE IN THE HUF PROPERTY IN QUEST ION TO JAGATDHATRI MATA TRUST. ADMITTEDLY THE WILL WAS NOT FOUND TILL IT WAS TOO L ATE. ADMITTEDLY THE LITIGATION WAS STARTED BY JAGATDHATRI MATA TRUST AND THE ASSESSEE HAVING BECOME THE OWNER OF THE SAID PROPERTY ON ACCOUNT OF THE WILL OF RANI PUSHPA KUMARI DEVI, HE HAD TO LIQUIDATE ALL LIABILITIES IN RESPECT OF THE SAID PROPERTY IN SO FAR THE TRUST HAD MADE A CLAIM OF THE PROPERTY. CONSEQUENTLY THE SETTLEMENT MADE BY THE A SSESSEE WITH JAGATDHATRI MATA TRUST IS NOT A LIABILITY CREATED BY THE ASSESSEE BU T IT WAS A LIABILITY ON THE PROPERTY AND IT CAME WITH THE PROPERTY TO THE ASSESSEE. A SETTLE MENT OF SUCH LIABILITY IS IN FACT AN IMPROVEMENT TO THE TITLE OF THE PROPERTY AND CONSEQ UENTLY THE COST THEREOF IS LIABLE TO BE ALLOWED IN THE COMPUTATION OF LONG TERM CAPITAL GAIN. 6.2. COMING TO THE ISSUE OF THE LIABILITY SETTLED W ITH M/S. PASHUPATINATH HOLDINGS PVT. LTD. IT IS NOTICED THAT THIS LIABILITY WAS CRE ATED ON THE PROPERTY BY RANI PUSHPA KUMARI DEVI WHEN SHE ENTERED INTO AN AGREEMENT OF S ALE WITH M/S.PARAS HOLDING PVT. LTD. ON 15.12.1994. THIS LIABILITY IS ALSO NOT CREA TED BY THE ASSESSEE BUT ONE WHICH HAS COME WITH THE PROPERTY TO THE ASSESSEE,. THE SETTLI NG THE LIABILITY IS NOTHING BUT AN ITA NO.362/KOL/2011 ADITYA KUMAR JAJODIA A.YR.2006-07 6 IMPROVEMENT TO THE TITLE OF THE PROPERTY WHICH ADMI TTEDLY IS AN ALLOWABLE EXPENDITURE. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE FI NDINGS OF THE LD. CIT(A) ON ALL THESE THREE ISSUES RAISED IN THE REVENUES APPEAL ARE ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. 7. IN THE RESULT THE APPEAL OF THE REVENUE STAND DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 14.02.2014. SD/- SD/- [ABRAHAM P.GEORGE] [ GEORGE MATHAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 14.02.2014. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. ADITYA KUMAR JAJODIA, 24/3, ALIPORE ROAD, KOLKATA-7 00027. 2 A.C.I.T., CIRCLE-29, KOLKATA 3 . CIT(A)- XVI, KOLKATA 4. CIT - KOLKATA. 5. CIT(A)DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES