Stewarts & Lloyds of India Limited, Kolkata V. Commissioner of Income Tax, Kol - I, Kolkata

ITA 372/KOL/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4949 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 22-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-03-2009
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Assessee Lawyers: SOUMEN ADAK ACA; PR AKASH SINGHACA
• Keywords: Capital asset; Gift; Depreciation; Cost of acquisition; Fair market value; Valuation report; Assessment record
• Section: 143(3); 2(14); 32; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A, KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM] ITA NO.372/KOL/2009 ASSESSMENT YEAR : 2004-05 STEWARTS & LLOYDS OF INDIA LTD. -VERSUS- C.I.T., C IRCLE-1, KOLKATA KOLKATA (PAN:AAECS 0445G) (APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI SOUMEN ADAK, ACA & SHRI PR AKASH SINGH,ACA FOR THE RESPONDENT : SHRI RADHEY SHYAM, CIT.DR DATE OF HEARING : 04.02.2016. DATE OF PRONOUNCEMENT : 02.03.2016. ORDER PER SHRI N.V.VASUDEVAN, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.01.2009 OF CIT, CIRCLE-1, KOLKATA PASSED U/S 263 OF THE INCOME TAX ACT, 1961, (ACT) RELATING TO A.Y.2004-05. 2. THE ASSESSEE IS A COMPANY. FOR A.Y.2004-05, ASS ESSE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,15,82,920/-. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE ASSESSEE HAD DECLARED LONG TERM CAPIT AL LOSS ON SALE OF ITS PROPERTY LOCATED AT AMBATTUR INDUSTRIAL ESTATE, PLOT NO.40-A (NP) IN SAIDAPET TALUK AND CHINGLEPUT M.G.R. DISTRICT IN THE STATE OF TAMIL NA DU, HEREINAFTER REFERRED TO AS THE PROPERTY. THE PROPERTY WAS A VACANT PLOT MEASURIN G ABOUT 3.44 ACRES WITH COMPOUND WALL. THE COMPUTATION OF LONG TERM CAPITAL LOSS AS GIVEN BY THE ASSESSEE WAS AS FOLLOWS :- PARTICULARS A MOUNT (RS.) A.LONG TERM CAPITAL GAIN ON SALE OF LAND LOCATED AT AMBATTUR INDUSTRIAL ESTATE, PLOT NO.40-A(NP) IN SAIDAPET TAL UK AND ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 2 CHINGLEPUT M.G.R. DISTRICT IN THE STATE OF TAMILNAD U SALE CONSIDERATION (AS PER ENCLOSED AGREEMENT FOR S ALE LESS : COMMISSION PAID ON THE SALE OF AFORESAID LAN D 32,325,000 1,073,926 LESS :- INDEXED COST OF ACQUISITION (NOTE 1) LONG-TERM CAPITAL GAIN/(LOSS) 31,251,074 34,419,420 (3,168,346) NOTE-1 INDEXED COST OF ACQUISITION IS DETERMINED AS UNDER :- ESTIMATED FAIR MARKET VALUE OF LAND AS O N 01-04-1981 (YEAR OF ACQUISITION 1971) [AS PER VALUATION REPORT ATTACHED] INDEXED COST OF ACQUISITION[74,34,000*463/1 00] 7,434,000 34,419,420 3. THE ASSESSEE SOLD THE PROPERTY TO RELIANCE INFOCOM LTD., UNDER A SALE DEED DATED 02.12.2003 FOR A TOTAL CONSIDERATION OF RS.3,25,00, 000. THE SALE CONSIDERATION TOWARDS THE VALUE OF THE LAND AND THE COMPOUND WALL WAS APPORTIONED AT RS.3,23,25,000 FOR THE VALUE OF LAND AND RS.1,75,00 0 TOWARDS COMPOUND WALL. IN THE COMPUTATION OF LONG TERM CAPITAL LOSS, THE ASSESSEE CLAIMED THAT IT HAD PAID RS.10,73,926 AS COMMISSION FOR SALE OF THE SAID PLO T. THE ASSESSEE DEDUCTED THE INDEXED COST OF ACQUISITION I.E.,RS.3,41,19,420 CAL CULATED ON THE FAIR MARKET VALUE OF THE LAND AS ON 01.04.1981 OF RS.74,34,000 FROM THE SAID NET SALE CONSIDERATION OF RS.3,23,25,000 AND COMPUTED THE LONG TERM CAPITAL LOSS AT RS.31,68,346 AND CLAIMED CARRIED FORWARD THE SAME TO THE A. Y. 2005-06. 4. THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF T HE ACT BY HIS ORDER DATED 05.12.2006. IN THE SAID ORDER, THE AO HAD ACCEPTED LONG TERM CAPITAL LOSS AS DECLARED BY THE ASSESSEE. 5. AO THEREAFTER MOVED A PROPOSAL TO THE C.I.T. RE QUESTING HIM TO EXERCISE POWERS U/S 263 OF THE ACT AS THE ASSESSMENT ORDER DATED 05.12. 2006 PASSED U/S 143(3) OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E REVENUE. THE CIT AFTER CONSIDERING ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 3 THE PROPOSAL OF THE AO AND AFTER PERUSING THE RECOR DS WAS OF THE VIEW THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE. HE ACCORDINGLY ISSUED A SHOW CAUSE NOTICE DATED 11.08. 2008. 6. IT WAS THE CASE OF THE CIT IN THE SHOW CAUSE NO TICE THAT ON 3RD MARCH, 1971, THE GOVERNMENT OF TAMILNADU ASSIGNED THE PROPERTY TO TH E ASSESSEE BY AN INDENTURE FOR CONSTRUCTION OF BUILDING AND ERECTION OF MACHINERY AND EQUIPMENTS FOR THE MANUFACTURE OF FABRICATED PIPE WORKS AND TUBULAR ST RUCTURES. THE ASSIGNMENT WAS SUBJECT TO MANY CONDITIONS INCLUDING THE CONDITION THAT THE ASSIGNEE I.E., THE ASSESSEE (I) SHALL NOT USE THE PLOT FOR ANY PURPOSE OTHER TH AN THAT FOR WHICH IT WAS ASSIGNED; (II) SHALL COMMENCE CONSTRUCTION WITHIN SIX MONTHS FROM THE DATE OF TAKING POSSESSION OF THE SAID PLOT AND COMPLETE THE CONSTRUCTION WITHIN TWO YEARS FROM THE SAID DATE; (III) SHALL COMPLY WITH THE BUILDING REGULATION AND OTHER CONDITIONS AS SPECIFIED IN THE INDENTURE OF ASSIGNMENT. THE CONSIDERATION FOR ASSI GNMENT WAS RS.20,000 PER ACRE AND THE TOTAL CONSIDERATION WAS RS.68,800 FOR 3.44 ACRES OF LAND. IN THE INDENTURE OF ASSIGNMENT THERE WERE 19 CONDITIONS TO BE OBSERVED BY THE ASSESSEE. ACCORDING TO CIT FROM THE ABOVE MENTIONED CONDITIONS IN THE INDE NTURE OF ASSIGNMENT IT WAS VERY MUCH CLEAR THAT THE GOVERNMENT OF TAMILNADU ASSIGNE D THE DEVELOPED PLOT OF LAND TO THE ASSESSEE FOR ITS USE AND THE ASSESSEE WAS NOT C ONFERRED THE ABSOLUTE RIGHT OVER THE LAND BY VIRTUE OF THE INDENTURE. THEREFORE, ACCORDI NG TO CIT THE ASSESSEE WAS NOT THE OWNER OF THE PROPERTY BUT A USER OF THE PROPERTY AN D RIGHT OF THE ASSESSEE OVER THE PROPERTY WAS LIMITED TO USE OF PLOT OF LAND FOR BUS INESS PURPOSES. LATER, BY A G.O. MS.N-959 DTD. 23.7.76, THE GOVERNMENT OF TAMILNADU HANDED OVER THE MANAGEMENT AND MAINTENANCE OF THE INDUSTRIAL ESTATE AT AMBATTU R TO TAMILNADU SMALL INDUSTRIES DEVELOPMENT CORPORATION LTD. AND TRANSFERRED THE OW NERSHIP OF THE INDUSTRIAL ESTATE AT AMBATTUR TO THE SAID CORPORATION BY G..O.MS.N-78 5 DTD.7.8.88 AND THE SAID CORPORATION BECAME THE ABSOLUTE OWNER OF THE INDUST RIAL ESTATE. THEREAFTER, AT THE REQUEST OF THE ASSESSEE, THE SAID CORPORATION SOLD THE PROPERTY TO THE ASSESSEE AS PER THE SALE DEED DTD. 19.04. 1994 FOR A CONSIDERATION OF 68,800 ALREADY PAID BY THE ASSESSEE AS PER THE TERMS OF THE DEED OF ASSIGNMENT. IN THE SALE DEED, CERTAIN CONDITIONS WERE ALSO IMPOSED UPON THE ASSESSEE. ONE OF THE CONDITIO NS WAS THAT THE PURCHASER SHALL NOT ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 4 TRANSFER, SELL OR MORTGAGE THE PROPERTY OR CHANGE T HE OWNERSHIP/CONSTITUTION/PARTNERS/SHAREHOLDERS OR DIR ECTORS WITHIN FIVE YEARS FROM THE DATE OF ALLOTMENT WITHOUT THE PRIOR APPROVAL OF VEN DOR I.E., TAMILNADU SMALL INDUSTRIES DEVELOPMENT CORPORATION LTD.. BUT, HOWEVER, BEYOND FIVE YEARS FROM THE DATE OF ALLOTMENT, THE PURCHASER WAS GIVEN THE RIGHT TO EFF ECT THE CHANGES AFTER INFORMING THE VENDOR SUBJECT TO COMPLIANCE OF THE COVENANTS CONTA INED IN THE SALE DEED. THEREFORE, ACCORDING TO CIT, FROM THE LANGUAGE OF THE SALE DEE D IT WAS CLEAR THAT THE ASSESSEE BECAME THE OWNER OF THE PROPERTY ONLY IN APRIL, 199 4 AND FURTHER HAD RIGHT TO DISPOSE OF THE LAND ONLY AFTER FIVE YEARS FROM THE DATE OF THE SAID SALE DEED DTD. 19.04.1994. 7. THE PROPERTY WAS SOLD BY THE ASSESSEE TO M/S.RE LIANCE INFOCOM LTD., UNDER A SALE DEED DATED 2.12.2003. IT IS ONLY ON THIS TRANSFER CAPITAL LOSS IN QUESTION WAS CLAIMED IN THE RETURN OF INCOME FOR AY 2004-05. ACCORDING TO CIT IN THE COMPUTATION OF LONG TERM CAPITAL LOSS, THE ASSESSEE ESTIMATED THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1/4/1981 AT RS.74,34,000 AND CALCULATED THE COST OF ACQUISITION AT RS.3,44.19,420. THE ASSESSEE CLAIMED THAT THE YEAR OF ACQUISITION OF TH E SAID PLOT WAS 1971 AT A CONSIDERATION OF RS.68,800 ONLY. THIS ACCORDING TO CIT WAS WRONG BECAUSE ACCORDING TO CIT THE YEAR OF ACQUISITION WAS 19.4.1994 WHEN A REGISTERED CONVEYANCE WAS OBTAINED BY THE ASSESSEE IN RESPECT OF THE PROPERTY . ACCORDING TO CIT, IN COURSE OF THE REGULAR ASSESSMENT PROCEEDINGS, FOR THE A. Y. 2 004-05, THE ASSESSING OFFICER DID NOT EXAMINE THE LONG TERM CAPITAL LOSS CALCULATED A S ABOVE BY THE ASSESSEE AND ALSO HE DID NOT MAKE ANY ENQUIRY RELATING TO THE CLAIM OF T HE ASSESSEE THAT THERE WAS LONG TERM CAPITAL LOSS ON SALE OF THE PROPERTY. THE A.O. ALSO DID NOT MAKE ANY ENQUIRY AS TO WHETHER THE PAYMENT OF COMMISSION ON SALE OF THE PR OPERTY AMOUNTING TO RS.10,73,926 WAS GENUINE AND WHETHER THE ASSESSEE H AD CONSTRUCTED ANY FACTORY BUILDING ON THE PROPERTY AND SOLD THE FACTORY BUILD ING WITH THE PROPERTY TO RELIANCE LNFOCOM LTD. ON 02.12.2003. THE ASSESSING OFFICER A LSO DID NOT EXAMINE THE ISSUE WHETHER THE FAIR MARKET VALUE OF THE LAND AS ON 01. 04.1981 ESTIMATED IN THE VALUATION REPORT FILED WITH THE RETURN WAS AT ALL APPLICABLE FOR CALCULATION OF LONG TERM CAPITAL LOSS SINCE THE ASSESSEE BECAME THE OWNER OF THE LAN D ONLY IN APRIL, 1994 WHEN TAMILNADU SMALL SCALE INDUSTRIES DEVELOPMENT CORPOR ATION HAD SOLD THE PROPERTY TO ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 5 THE ASSESSEE BY A REGISTERED DEED AND THE ASSESSEE WAS ONLY AN ASSIGNEE OF THE PROPERTY TILL THEN AND USED THE LAND AS TENANT/USER BY VIRTUE OF THE INDENTURE OF ASSIGNMENT DTD. 03.03.1971. THE CIT WAS THEREFORE O F THE VIEW THAT THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND WAS LIABLE TO BE REVISED IN EXERCISE OF HIS POWERS OF REVISION U/S.2 63 OF THE ACT. 8. IN REPLY TO THE SHOW CAUSE NOTICE AS ABOVE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE BECAME OWNER OF THE PROPERTY BY VIRTUE OF ASSIGNMENT DEED DATED 3.3.1971 AND COMPLIED WITH ALL THE CONDITIONS OF THE ASSIGNM ENT AND THUS BECAME DE FACTO OWNER OF THE PROPERTY MUCH BEFORE 1.4.1981 AND IN T ERMS OF SEC.55(2)(B)(I) OF THE ACT, IT WAS ENTITLED TO ADOPT THE FAIR MARKET VALUE OF T HE PROPERTY AS ON 1.4.1981. IN THIS REGARD THE ASSESSEE POINTED OUT THAT THE DEFINITION OF TRANSFER FOR THE PURPOSE OF SEC.2(47) OF THE ACT UNDER CLAUSE (V) OF SEC.2(47) OF THE ACT ALSO INCLUDES ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSIO N OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882. THE AS SESSEE POINTED OUT THAT SEC.2(14) OF THE ACT DEFINES CAPITAL ASSET TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE. THE EXPRESSION HELD BY AN ASSESSEE ON LY MEANS THAT DE JURE OWNERSHIP IS NOT A CONDITION PRECEDENT FOR REGARDIN G A PERSON AS OWNER OF A CAPITAL ASSET. THE ASSESSEE PLACED RELIANCE ON THE DECISIO N OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MADATHIL BROTHERS VS. DCIT 301 ITR 345 (MAD) WHEREIN IT WAS HELD AS FOLLOWS: .THE DEFINITION OF 'CAPITAL ASSET' REFERS TO PROP ERTY OF ANY KIND 'HELD' BY AN ASSESSEE. IN CONTRADISTINCTION TO THE WORD 'OWNER' OR 'OWNED', THE DEFINITION USES THE PHRASE 'HELD'. A READING OF S. 45 AS IT STANDS TODA Y, SHOWS THAT CAPITAL GAIN IS CHARGEABLE ON 'ANY PROFITS OR GAINS ARISING FROM TH E TRANSFER OF THE CAPITAL ASSET...'. READ IN THE CONTEXT OF THE DEFINITIONS OF 'CAPITAL ASSET' AND 'TRANSFER' THE SECTION CARRIES NO WORDS OF LIMITATION TO READ THAT A TRANS FER EFFECTED BY A PERSON BACKED UP WITH A TITLE PASSED ON UNDER A REGISTERED DEED ALON E COULD BE CONSIDERED AS RESULTING IN A PROFIT OR GAIN ASSESSABLE UNDER S. 45. ALL THA T THE PRESENT SECTION LOOKS AT IS THE TRANSFER OF A CAPITAL ASSET HELD AS UNDERSTOOD UNDE R S. 2(14) AND UNDER S. 2(47). THE QUESTION THEN IS, WHAT WILL BE THE EFFECT OF THE AM ENDMENT BROUGHT FORTH TO S. 2(47) BY THE INSERTION OF SUB-CL. (V) TO S. 2(47) RELATING T O THE DEFINITION OF 'TRANSFER' UNDER THE FINANCE ACT, 1987 W.E.F. 1ST APRIL, 1988. THE DEFIN ITION UNDER S. 2(47) IS AN INCLUSIVE ONE WHICH STARTS BY SAYING 'TRANSFER IN RELATION TO THE CAPITAL ASSET INCLUDES ....'; AS SUCH, IT IS NOT POSSIBLE TO ACCEPT THE STAND OF THE RESPONDENT THAT THE TRANSACTIONS ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 6 FALLING UNDER S. 53A OF THE TRANSFER OF PROPERTY AC T FOR THE PURPOSE OF CONSIDERING THE CAPITAL GAINS WOULD FALL FOR CONSIDERATION FOR THE PURPOSE OF CONSIDERING THE SAME AS FALLING UNDER LONG-TERM CAPITAL ASSET ONLY ON AND F ROM THE AMENDMENT INSERTED UNDER THE FINANCE ACT, 1987, W.E.F. 1ST APRIL, 1988. THE INSERTION IS ONLY DECLARATORY OF THE LAW ALREADY THERE BY REASON OF INCLUSIVE TERMS UNDE R S. 2(47) WHICH IS A WIDE DEFINITION IN ITS IMPORT. THE CAPITAL GAIN ARISING ON THE TRANSFER OF CAPITAL ASSETS HAS TO BE WORKED OUT FROM THE DATE OF THE AGREEMENT UNDER WHICH THE ASSESSEE WAS PUT IN POSSESSION OF THE PROPERTY... THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOWING OTHER DECISIONS LAYING DOWN IDENTICAL PROPOSITION AS LAID DOWN BY THE HONBLE M ADRAS HIGH COURT REFERRED TO ABOVE, VIZ., CIT VS. VED PRAKSH & SONS (HUF) 207 IT R 148 (P & H) AND GRIIPWELL INDUSTRIES LTD. VS. ITO 99 ITD 368 (MUM). 9. THE CIT HOWEVER DID NOT AGREE WITH THE AFORESAI D CONTENTION PUT FORTH BY THE ASSESSEE. HE HELD THAT THE WORDS HELD BY AN ASSESS EE WOULD MEAN DE JURE OWNERSHIP AND SUCH OWNERSHIP WAS ACQUIRED BY THE AS SESSEE ONLY ON 19.4.1994 WHEN A REGISTERED CONVEYANCE WAS EXECUTED IN ITS FAVOUR. IN COMING TO THE ABOVE CONCLUSION, THE CIT PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DR.VV MODY 218 ITR 1 ( KARN.) WHEREIN THE FACTS WERE THAT THE ASSESSEE, AN INDIVIDUAL, WAS ALLOTTED A SI TE BY THE BANGALORE DEVELOPMENT AUTHORITY ON THE 25TH MAY, 1972 IN ACCORDANCE WITH THE RELEVANT RULES OF ALLOTMENT. A LEASE-CUM-SALE AGREEMENT WAS EXECUTED ACCORDING TO WHICH THE ASSESSEE WAS REQUIRED TO PAY A CERTAIN AMOUNT TO THE BANGALORE DEVELOPMEN T AUTHORITY AND AT THE END OF THE 10TH YEAR, SECURE A CONVEYANCE IN HIS FAVOUR UPON P AYMENT OF THE ENTIRE SALE CONSIDERATION. CONSEQUENTLY, A SALE-DEED WAS EXECUT ED IN FAVOUR OF THE ASSESSEES BY THE BANGALORE DEVELOPMENT AUTHORITY ON THE 29TH MAR CH, 1982, REGISTERED ON THE 13TH MAY, 1982. SHORTLY, THEREAFTER, ON 27TH NOV., 1982, THE ASSESSEE SOLD THE SITE TO A THIRD PERSON FOR A TOTAL CONSIDERATION OF RS. 1,69,200. THE QUESTION BEFORE THE COURT WAS AS TO WHETHER IT CAN BE SAID THAT THE ASSESSEE HELD T HE PROPERTY FROM THE YEAR 1971 OR ONLY WHEN THE REGISTERED CONVEYANCE WAS EXECUTED IN HIS FAVOUR. THE HONBLE KARNATAKA HIGH COURT HELD AS FOLLOWS: 12. THE TERM CAPITAL ASSET AS DEFINED BY S. 2(14) OF T HE ACT MEANS PROPERTY OF ANY KIND HELD BY THE ASSESSEE WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE THE SPECIFIED ITEMS OF PROPERT Y. LEASEHOLD RIGHTS HELD BY AN ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 7 ASSESSEE DO NOT FALL UNDER ANY ONE OF THE EXCLUSION S CONTEMPLATED BY THE DEFINITION. THE EXPRESSION 'PROPERTY' IS OF THE WIDEST IMPORT A ND SUBJECT TO ANY LIMITATIONS WHICH THE CONTEXT MAY REQUIRE, IT SIGNIFIES EVERY POSSIBL E INTEREST WHICH A PERSON CAN ACQUIRE, HOLD AND ENJOYREFER AHMED G.H. ARIF & ORS . VS. CWT (1970) 76 ITR 471 (SC). IT IS, THEREFORE, TRUE THAT IF ANY ONE OF SUC H INTERESTS WAS ALIENABLE BY THE HOLDER OF THE SAME, IT COULD GIVE RISE TO A CAPITAL GAIN S HORT OR LONG-TERM DEPENDING UPON THE PERIOD FOR WHICH THE INTEREST WAS HELD BY THE PERSO N CONCERNED. 13. THE QUESTION, HOWEVER, IS NOT WHETHER THE LEASEHOL D RIGHT HELD BY THE ASSESSEE COULD INDEPENDENT OF THE SALE IN FAVOUR OF THE ASSE SSEE HAVE BEEN TREATED AS A PROPERTY RIGHT CAPABLE OF GENERATING A CAPITAL GAIN IN THE HANDS OF THE ASSESSEE. THE QUESTION REALLY IS AS TO WHETHER ANY SUCH RIGHT EXI STED AND COULD BE TRANSFERRED BY THE ASSESSEE AFTER THE SAME HAD MERGED IN THE LARGER ES TATE ACQUIRED BY THE ASSESSEE. THIS IS PARTICULARLY SO BECAUSE WHAT IS TRANSFERRED BY T HE ASSESSEE IS NOT THE LESSER INTEREST HELD BY HIM EARLIER TO HIS BECOMING THE ABSOLUTE OW NER BUT THE TOTAL INTEREST ACQUIRED BY HIM IN THE FORM OF ABSOLUTE TITLE TO THE PROPERT Y, TRANSFERRED. IN THE CIRCUMSTANCES, UNLESS IT WAS POSSIBLE FOR THE ASSESSEE TO HOLD THE TWO ESTATES SIMULTANEOUSLY AND INDEPENDENT OF EACH OTHER, THE TRANSFER OF THE TITL E IN THE PROPERTY COULD NOT BE DEEMED TO BE TRANSFERRING THE LESSER AND THE LARGER ESTATE S BOTH SO AS TO MAKE THEM AMENABLE TO A PROCESS OF SPLITTING FOR PURPOSE OF TAXING THE CAPITAL GAIN ARISING AS A SHORT-TERM OR LONG-TERM GAIN. THIS, HOWEVER, WAS NOT SO IN THE PRESENT CASE. AS FROM THE 29TH MARCH, 1982, THE ASSESSEE HELD ONLY ONE ESTATE REPR ESENTING THE TITLE TO THE PROPERTY IN QUESTION AND ANY CAPITAL GAIN ARISING FROM THE TRAN SFER OF THE SAID ESTATE MADE ON 27TH NOV., 1982, COULD ONLY BE GIVING RISE TO A SHO RT-TERM GAIN. THE TRIBUNAL WAS IN THESE CIRCUMSTANCES IN ERROR IN HOLDING OTHERWISE. 10. THE CIT ALSO HELD THAT THE PAYMENT OF PROPERTY TAX BY THE ASSESSEE WAS ONLY FOR THE PURPOSE OF LEVY AND RECOVERY OF PROPERTY TAX IN VIEW OF CLAUSE-7 OF THE DEED OF ASSIGNMENT DATED 3.3.1971 AND THAT DID NOT CONFER A NY OWNERSHIP RIGHTS OVER THE PROPERTY IN FAVOUR OF THE ASSESSEE. WITH REGARD TO THE ARGUMENT OF THE ASSESSEE BY PLACING RELIANCE ON SEC.2(47)(V) OF THE ACT, THE CI T WAS OF THE VIEW THAT THOSE PROVISIONS ARE NOT APPLICABLE WHEN ONE OF THE CONTR ACTING PARTIES WAS GOVERNMENT. HE ALSO HELD THAT EVEN OTHERWISE THE CONDITIONS NEC ESSARY FOR APPLICATION OF SEC.53A OF THE TRANSFER OF PROPERTY ACT, 1887 WERE NOT PRES ENT IN THE CASE OF THE ASSESSEE. 11. FOR THE ABOVE REASONS, THE CIT SET ASIDE THE O RDER OF THE AO IN SO FAR AS IT RELATES TO ACCEPTANCE OF CAPITAL LOSS ON SALE OF THE PROPER TY AND DIRECTED THE AO TO FRAME ASSESSMENT ON THE ABOVE ISSUE BY CONSIDERING THE DA TE OF ACQUISITION OF THE PROPERTY AS 19.4.1994 AND FURTHER DIRECTED THE AO TO ENQUIRE IN TO THE ACTUAL COST OF ACQUISITION AND EXPENDITURE IN CONNECTION WITH THE TRANSFER CLA IMED BY THE ASSESSEE. ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 8 12. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSE E HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 13. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED C OUNSEL FOR THE ASSESSEE AND THE LEARNED DR. THE FIRST ARGUMENT OF THE LEARNED COUN SEL FOR THE ASSESSE WAS THAT U/S.263 OF THE ACT IT IS ONLY THE CIT WHO CAN SUO M OTTO INITIATE PROCEEDINGS AND IN THIS CASE THE AO HAS MOOTED THE PROPOSAL FOR REVISION U/ S.263 OF THE ACT AND THEREFORE THE ORDER U/S.263 OF THE ACT HAS TO BE HELD TO BE INVAL ID, ILLEGAL. WE ARE OF THE VIEW THAT THIS ARGUMENT IS LIABLE TO BE REJECTED. IT IS NO D OUBT TRUE THAT THE CIT IN THE SHOW CAUSE NOTICE U/S.263 OF THE ACT HAS SET OUT THE PRO POSAL OF THE AO THAT HIS ORDER SUFFERED FROM AN ERROR AND BY REASON OF SUCH ERROR HIS ORDER WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN PARA 3 OF THE SHOW CAU SE NOTICE THE CIT HAS CLEARLY SET OUT THAT HE HAS PERUSED THE PROPOSAL AND THE ASSESSMENT RECORD AND HAS ALSO EXPRESSED SATISFACTION THAT THE AO HAS FAILED TO MAKE PROPER VERIFICATION AND THAT THERE WAS AN ERROR IN HIS ORDER WHICH WAS PREJUDICIAL TO THE INT EREST OF THE REVENUE. THERE IS NO PROHIBITION U/S.263 OF THE ACT FOR THE CIT TO ACT O N THE BASIS OF PROPOSAL BY THE AO AND THAT THE CIT HAS TO INITIATE ACTION U/S.263 OF THE ACT ONLY SUO MOTTO. SO LONG AS THERE IS APPLICATION OF MIND ON ERRORS BROUGHT TO H IS NOTICE AND THE OTHER CONDITIONS U/S.263 OF THE ACT ARE SATISFIED, THERE CAN BE NO G RIEVANCE WHATSOEVER TO THE ASSESSEE. WE THEREFORE REJECT THIS ARGUMENT MADE ON BEHALF OF THE ASSESSEE. 14. THE NEXT CONTENTION OF THE LEARNED COUNSEL F OR THE ASSESSEE WAS THAT PROPERTY 'HELD' BY THE ASSESSEE IS RELEVANT IN COMPUTING CAP ITAL GAIN AND NOT 'OWNED'. ACCORDING TO HIM IN ALL SECTIONS DEALING WITH THE COMPUTATION OF CAPITAL GAIN VIZ., SEC. 2(14) CAPITAL ASSETS, SEC. 2(42A) SHORT TERM CAPITAL ASSE TS AND EXPLANATION (III) TO SEC. 48 INDEXED COST OF ACQUISITION, THE TERM USED IS 'HELD ' AND NOT' OWNER' OR 'OWNED'. ACCORDING TO HIM THEREFORE, FOR THE PURPOSE OF DETE RMINING DATE OF ACQUISITION IN COMPUTING LONG TERM CAPITAL GAIN, ABSOLUTE OWNERSHI P IS NOT RELEVANT. HE AGAIN PLACED RELIANCE ON THE DECISION OF THE HON'BLE MADRAS HC I N MADATHIL BROTHERS -VS.-DCIT (2008) 301 ITR 345 (MAD) WHEREIN IT WAS HELD THAT THE DEFINITION OF 'CAPITAL ASSET' U/ S 2(14) REFERS TO PROPERTY OF ANY KIND 'HELD' BY AN A SSESSEE AS DISTINGUISHED FROM THE WORD' OWNER' OR 'OWNED'. HE ALSO PLACED RELIANCE O N AN IDENTICAL VIEW TAKEN BY ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 9 HON'BLE KOLKATA ITAT IN ANINDYA DUTTA -VS.- DCIT (2 013)[ITA NO. 473/KOL./2012]. HIS FURTHER SUBMISSION WAS THAT THE ONLY DIFFERENCE BETWEEN 'SHORT TERM CAPITAL ASSET' AND 'LONG TERM CAPITAL ASSET' IS THE PERIOD OVER WH ICH THE PROPERTY HAS BEEN HELD BY THE ASSESSEE AND NOT THE NATURE OF THE TITLE OF THE PRO PERTY. IT WAS HIS SUBMISSION THAT IN THE CASE OF THE ASSESSEE, POSSESSION OF LAND WAS GIVEN TO THE ASSESSEE IN 1970 AND BY WAY OF SALE DEED EXECUTED IN 1994, ONLY IMPROVEMENT OF THE EXISTING RIGHT IN THE SAID LAND HAS TAKEN PLACE. THE SAID IMPROVEMENT WILL NOT HAVE ANY IMPACT ON DETERMINATION OF HOLDING PERIOD. HE PLACED RELIANCE UPON THE DECISION OF HON'BLE ALLAHABAD HC IN CIT -VS.- RAMA RANI KALIA 358 ITR 4 99 (ALL). IT WAS FURTHER SUBMITTED THAT DEPRECIATION U/ S 32 OF THE ACT IS A LLOWABLE, INTER-ALIA, IF THE ASSETS ARE WHOLLY OR PARTLY OWNED BY AN ASSESSEE. EVEN IN SUCH CASES, IT HAS BEEN HELD THAT LEGAL OWNERSHIP IS NOT NECESSARY AND POSSESSION OF ASSETS WOULD SUFFICE FOR ALLOWANCE OF DEPRECIATION. REFERENCE WAS MADE TO THE DECISION OF THE HON'BLE APEX COURT IN MYSORE MINERALS LTD. -VS.- CIT (1999) 239 ITR 775 ( SC) WHEREIN IT WAS HELD THAT ANYONE IN POSSESSION OF PROPERTY FOR THE TIME BEING IN HIS OWN TITLE AND HAVING RIGHT TO USE OR OCCUPY IT AND/ OR TO ENJOY IT IN HIS OWN RIG HT FOR THE PURPOSE OF BUSINESS OR PROFESSION WOULD BE THE OWNER OF THE PROPERTY THOUG H A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED AND REGISTERED. IT WAS ARGUED TH AT IF POSSESSION AND CONTROL OVER THE PROPERTY WAS SUFFICIENT TO BE OWNER OF THE ASSE T FOR THE PURPOSES OF SEC. 32 IT CAN BE SAID THAT SAME WOULD BE MORE THAN SUFFICIENT TO TREAT THAT THE ASSESSEE AS OWNER OF THE PROPERTY FROM 1970 FOR THE PURPOSES OF COMPUTAT ION OF CAPITAL GAINS/LOSS. IT WAS FURTHER SUBMITTED THAT ENABLING ENJOYMENT OF ANY I MMOVABLE PROPERTY FALLS WITHIN THE DEFINITION OF 'TRANSFER' AS PER SEC. 2(47)(VI) OF T HE ACT. SEC. 2(47)(VI) OF THE ACT, DEFINES 'TRANSFER', AS TRANSACTIONS, WHICH INTER-AL IA, HAVE THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF ANY IMMOVABLE PROPERTY BY WAY OF ANY AGREEMENT OR ARRANGEMENT OR IN ANY OTHER MANNER. IT WAS POINTED OUT THAT IN THE CASE OF THE ASSESSEE, IN TERMS OF AGREEMENT DATED 03-03-1971, T HE ASSESSEE WAS ENJOYING THE POSSESSION OF IMMOVABLE PROPERTY FROM 08-04-1970 ON WARDS. ACCORDINGLY IN TERMS OF CLAUSE (VI) OF SEC. 2(47) THE PLOT OF LAND WAS TRAN SFERRED TO THE ASSESSEE ONLY ON 08-04- 1970. IT WAS SUBMITTED THAT THE DECISION RELIED UPO N BY THE LD. CIT IN CIT -VS.- DR. V.V. MODY (1996) 218 ITR 1 (KAR) DOES NOT HOLD GOOD SINCE THE SAME WAS RENDERED ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 10 WITHOUT CONSIDERING THE AMENDMENTS MADE VIDE FINANC E ACT 1987 IN SEC. 2(47) BY WAY OF INSERTION OF CLAUSE (V) & (VI) AS HELD IN TH E CASE OF CIT -VS.- SMT. C. SHAKUNTALA (ITA NO. 117 OF 2006) (KAR) & SMT. ANITA VENUGOPALCHAR -VS.- ITO (ITA NO. 3667/MUM/2010). WITHOUT PREJUDICE, IT WAS SUBMI TTED THAT IN VIEW OF EXPLANATION 2 TO SEC. 2(47) INSERTED BY FINANCE ACT, 2012 W.E.F . 01-04-1962 THE IMPUGNED PROPERTY HAS TO BE REGARDED AS TRANSFERRED TO THE A SSESSEE ON 08- 04-1970 I.E. THE DATE ON WHICH THE POSSESSION OF LAND WAS HANDED OVER. IT WAS ALSO POINTED OUT THAT, EXPLANATION 1 TO SEC. 2(47) R.W.S. 269UA(D)(I) ADOP TS DEFINITION OF 'TRANSFER' FROM CLAUSE (F) OF SEC. 269UA WHICH PROVIDES THAT THE TE RM 'TRANSFER' INCLUDES LEASE FOR A TERM NOT LESS THAN 12 YEARS. IT WAS ARGUED THAT IN THE CASE OF THE ASSESSEE, POSSESSION OF IMMOVABLE PROPERTY HAS BEEN TRANSFERRED FOR AN I NDEFINITE PERIOD (CERTAINLY FOR MORE THAN 12 YEARS) SINCE 1971 AND HENCE THE SAME C ONSTITUTES TRANSFER U/S 2(47)(VI) OF THE ACT. 15. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF THE CIT AND THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. DR.V.V.MODI (SUPRA). 16. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. SEC.45 OF THE ACT LAYS DOWN THAT ANY PROFIT OR GAIN ARISING F ROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL BE CHARGABLE TO INCOME TAX UNDER THE HEAD CAPITAL GAINS AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. SEC.2(47) OF THE ACT DEFINES TRANSFER FOR THE PURPOSE OF THE ACT AND IT READS THUS: (47) 'TRANSFER', IN RELATION TO A CAPITAL ASSET, IN CLUDES, (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASS ET; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN ; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW ; OR (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK-IN TRADE OF A BUSINESS CAR RIED ON BY HIM, SUCH CONVERSION OR TREATMENT ; OR (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON B OND; OR ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 11 (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER O F PROPERTY ACT, 1882 (4 OF 1882) ; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN AN Y OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING, O R ENABLING THE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. EXPLANATION[1]: FOR THE PURPOSES OF SUB-CLAUSES (V) AND (VI), 'IMMOVABLE PROPERTY' SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 269UA; EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT 'TRANSFER' INCLUDES AND SHALL BE DEEMED TO HAVE ALW AYS INCLUDED DISPOSING OF OR PARTING WITH AN ASSET OR ANY INTEREST THEREIN, O R CREATING ANY INTEREST IN ANY ASSET IN ANY MANNER WHATSOEVER, DIRECTLY OR IND IRECTLY, ABSOLUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY WAY OF AN AGREEMENT (WHETHER ENTERED INTO IN INDIA OR OUTSIDE INDIA) OR OTHERWIS E, NOTWITHSTANDING THAT SUCH TRANSFER OF RIGHTS HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDENT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES O F A COMPANY REGISTERED OR INCORPORATED OUTSIDE INDIA;. 17. SEC.48 LAYS DOWN THE METHOD OF COMPUTATION OF LONG TERM CAPITAL GAIN AND IT READS AS FOLLOWS: SEC.48: THE INCOME CHARGEABLE UNDER THE HEAD 'CAP ITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: PROVIDED THAT IN THE CASE OF AN ASSESSEE, WHO IS A NON-RESIDENT, CAPITAL GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET BEING SHARES I N, OR DEBENTURES OF, AN INDIAN COMPANY SHALL BE COMPUTED BY CONVERTING THE COST OF ACQUISITION, EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET INTO THE SAME FOREIGN CURRENCY AS WAS INITIALLY UTI LISED IN THE PURCHASE OF THE SHARES OR DEBENTURES, AND THE CAPITAL GAINS SO COMPUTED IN SUCH FOREIGN CURRENCY SHALL BE RECONVERTED INTO INDIAN CURRENCY, SO HOWEVER, THAT THE AFORESAID MANNER OF COMPUTATION OF CAPITAL GAINS SHALL BE APPLICABLE IN RESPECT OF CAPITAL GAINS ACCRUING OR ARISING FROM EVERY REINVESTMENT THEREAFTER IN, A ND SALE OF, SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY: ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 12 PROVIDED FURTHER THAT WHERE LONG-TERM CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG- TERM CAPITAL ASSET, OTHER THAN CAPITAL GAIN ARISING TO A NON-RESIDENT FROM THE TRANSFER OF SHARES IN, OR DEBENTURES OF, AN INDIAN COMPANY R EFERRED TO IN THE FIRST PROVISO, THE PROVISIONS OF CLAUSE (II) SHALL HAVE EFFECT AS IF F OR THE WORDS 'COST OF ACQUISITION' AND 'COST OF ANY IMPROVEMENT', THE WORDS 'INDEXED COST OF ACQUISITION' AND 'INDEXED COST OF ANY IMPROVEMENT' HAD RESPECTIVELY BEEN SUBSTITUT ED : PROVIDED ALSO THAT NOTHING CONTAINED IN THE SECOND PROVISO SHALL APPLY TO THE LONG- TERM CAPITAL GAIN ARISING FROM THE TRANSFER OF A LO NG-TERM CAPITAL ASSET BEING BOND OR DEBENTURE OTHER THAN CAPITAL INDEXED BONDS ISSUED B Y THE GOVERNMENT : PROVIDED ALSO THAT WHERE SHARES, DEBENTURES OR WARR ANTS REFERRED TO IN THE PROVISO TO CLAUSE (III) OF SECTION 47 ARE TRANSFERRED UNDER A GIFT OR AN IRREVOCABLE TRUST, THE MARKET VALUE ON THE DATE OF SUCH TRANSFER SHALL BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T RANSFER FOR THE PURPOSES OF THIS SECTION: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED IN COMPUTING, THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' IN RESPEC T OF ANY SUM PAID ON ACCOUNT OF SECURITIES TRANSACTION TAX UNDER CHAPTER VII OF THE FINANCE (NO. 2) ACT, 2004.'.'. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, (I) 'FOREIGN CURRENCY' AND 'INDIAN CURRENCY' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN SECTION 2 OF THE FOREIGN EXCHAN GE MANAGEMENT ACT, 1999 (42 OF 1999); (II) THE CONVERSION OF INDIAN CURRENCY INTO FOREIGN CURRENCY AND THE RECONVERSION OF FOREIGN CURRENCY INTO INDIAN CURRENCY SHALL BE AT T HE RATE OF EXCHANGE PRESCRIBED IN THIS BEHALF; (III) 'INDEXED COST OF ACQUISITION' MEANS AN AMOUNT WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FO R THE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON T HE 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER; (IV) 'INDEXED COST OF ANY IMPROVEMENT' MEANS AN AMO UNT WHICH BEARS TO THE COST OF IMPROVEMENT THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION IN DEX FOR THE YEAR IN WHICH THE IMPROVEMENT TO THE ASSET TOOK PLACE; (V) 'COST INFLATION INDEX', IN RELATION TO A PREVIO US YEAR, MEANS SUCH INDEX AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO SEVENTY-FI VE PER CENT OF AVERAGE RISE IN THE CONSUMER PRICE INDEX (URBAN) FOR THE IMMEDIATELY PR ECEDING PREVIOUS YEAR TO SUCH PREVIOUS YEAR, BY NOTIFICATION IN THE OFFICIAL GAZE TTE, SPECIFY, IN THIS BEHALF. 18. FROM A READING OF SEC.48 OF THE ACT IT IS CLEA R THAT FROM THE FULL VALUE OF CONSIDERATION RECEIVED ON TRANSFER THE COST OF ACQU ISITION OF THE CAPITAL ASSET AND THE COST OF ITS IMPROVEMENT ARE ONE OF THE PERMISSIBLE DEDUCTION TO ARRIVE AT THE CAPITAL ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 13 GAIN/LOSS. THE EXPRESSION COST OF ACQUISITION HA S BEEN DEFINED IN SEC.55 (2) OF THE ACT. THE CLAUSE OF SEC.55(2) OF THE ACT WHICH IS R ELEVANT IN THE PRESENT CASE IS CLAUSE (B)(I) WHICH READS THUS: (2) FOR THE PURPOSES OF SECTIONS 48 AND 49, 'COST OF ACQUISITION', (B) IN RELATION TO ANY OTHER CAPITAL ASSET, (I) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BEFORE THE 1ST DAY OF APRIL, 1981, MEANS THE COST OF ACQUISITION OF THE A SSET TO THE ASSESSEE OR THE FAIR MARKET VALUE OF THE ASSET AS ON THE 1ST DAY OF APRI L, 1981, AT THE OPTION OF THE ASSESSEE; 19. IT CAN BE SEEN THAT CLAUSE (B)(I) OF SEC.55(2) (B) WOULD BE ATTRACTED ONLY WHEN THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BEFORE 1 ST APRIL, 1981. IT WAS THE PLEA OF THE ASSESSEE THAT THOUGH A REGISTERED CONVE YANCE IN RESPECT OF THE PROPERTY WAS OBTAINED BY THE ASSESSEE ONLY ON 19.4.1994, IT BECAME THE OWNER OF THE PROPERTY BY PAYING THE ENTIRE CONSIDERATION AS SET OUT IN TH E DEED OF ASSIGNMENT DATED 3.3.1971 AND BY COMPLYING WITH THE CONDITIONS OF ASSIGNMENT MUCH BEFORE 1.4.1981 AND THEREFORE UNDER CLAUSE (B)(I) OF SEC.55 OF THE ACT, IT WAS ENTITLED TO ADOPT THE FAIR VALUE MARKET VALUE AS ON 1.4.1981 AS COST OF ACQUISITION WHILE COMPUTING CAPITAL GAIN/LOSS. 20. THE UNDISPUTED FACTS ARE THAT THE PROPERTY WAS ASSIGNED BY THE TAMIL NADU GOVERNMENT THROUGH GOVERNOR BY A DEED OF ASSIGNMENT DATED 3.3.1970. THE CONSIDERATION PAYABLE BY THE ASSESSEE FOR THE ASSIG NMENT OF THE PROPERTY WAS A SUM OF RS.34,400/-. THE ASSSESSEE PAID RS.17,200/- ON THE DATE OF ASSIGNMENT. THE REMAINING SUM WAS TO BE PAID IN TWO EQUAL INSTALMEN TS, THE 1 ST INSTALMENTS TO BE PAID WITHIN 2 YEARS FROM THE DATE OF TAKING POSSESSION O F THE PROPERTY AND THE SECOND INSTALLMENT WAS TO BE PAID WITHIN ONE YEAR FROM THE DATE ON WHICH THE SECOND INSTALMENT IS DUE. IT IS ALSO NOT IN DISPUTE THAT THE MONIES PAYABLE BY THE ASSESSEE AS PER THE DEED OF ASSIGNMENT HAVE BEEN DULY PAID WELL BEFORE 1 ST APRIL, 1981. IT IS NOT IN DISPUTE THAT THE ASSSESSEE TOOK POSSESSION OF THE P ROPERTY ON 8.4.1970. 21. IT IS IMPORTANT TO UNDERSTAND WHAT IS THE INTE REST IN THE PROPERTY CREATED BY THE DEED OF ASSIGNMENT DATED 3.3.1970 IN FAVOUR OF THE ASSESSEE. THE PREAMBLE TO THE ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 14 DEED OF ASSIGNMENT REFERS TO THE GOVERNMENT HAVING FORMULATED A SCHEME FOR THE LAYING OF DEVELOPED PLOTS FOR INDUSTRIES AT AMBATTU R AND THE LAYOUT PLAN IN RESPECT THEREOF HAVING BEEN APPROVED BY THE TOWN PLANNING A UTHORITIES. IT THEREAFTER REFERS TO THE ASSESSEE HAVING APPLIED FOR ASSIGNMENT TO THEM OF THE PROPERTY. THEREAFTER THERE IS A REFERENCE TO THE CONSIDERATION FOR THE ASSIGNM ENT AND THE MODE IN WHICH IT HAS TO BE PAID. THEREAFTER THE DEED OF ASSIGNMENT RECITES THAT THE GOVERNMENT ASSIGNS TO THE ASSIGNEE THE PROPERTY ON THE TERMS AND CONDITIONS S ET FORTH. THERE ARE ABOUT 19 CLAUSES THEREAFTER. IT WILL BE USEFUL TO REFER TO CERTAIN CLAUSES WHICH ARE RELEVANT FOR THE PRESENT CASE '12. THE ASSIGNEE SHALL NOT, WITHOUT THE PREVIOUS S ANCTION OF THE DIRECTOR, TRANSFER THE WHOLE OR ANY PART OF HIS INTEREST IN T HE SAID PLOT OR IN ANY SUPERSTRUCTURES CONSTRUCTED THEREON, OR PART WITH T HE POSSESSION OF THE SAID PLOT OR SUPERSTRUCTURE OR ANY PORTION THEREOF. '15. NOTWITHSTANDING ANYTHING HEREINBEFORE CONTAIN ED, IN THE EVENT OF A BREACH OF ANY OF THE THESE CONDITIONS BY THE ASSIGNEE, THE DIRECTOR MAY AFTER GIVING REASONABLE NOTICE, CANCEL THIS ASSIGNMENT AND RESUM E THAT PLOT AND ON SUCH RESUMPTION, THE SAID PLOT SHALL VEST ABSOLUTELY IN THE GOVERNMENT FREE FROM ALL ENCUMBRANCES AND THE ASSIGNEE SHALL BE PAID FOR THE LAND ONLY THE PRICE ACTUALLY PAID BY THE ASSIGNEE AFTER DEDUCTING THE PENAL INTE REST, IF PAYABLE UNDER CLAUSE 14 ABOVE. ' 16. IF FOR ANY REASON, THE ASSIGNEE DESIRES TO RELI NQUISH HIS RIGHT OVER THE SAID PLOT, THE DIRECTOR MAY RESUME THE LAND AND THE ASSI GNEE SHALL BE PAID/OR THE LAND ONLY THE PRICE AS ACTUALLY PAID BY THE ASSIGNEE AFT ER DEDUCTING PENAL INTEREST. IF ANY, PAYABLE UNDER CLAUSE 14 ABOVE. ' 22. THE DEED OF ASSIGNMENT DOES NOT SAY WHAT INTER EST OVER THE PROPERTY THAT IS ASSIGNED TO THE ASSIGNEE. NEVERTHELESS SOME INTERE ST IS CREATED IN FAVOUR OF THE ASSIGNEE AND THAT IS CLEAR FROM CLAUSE-12 OF THE DE ED OF ASSIGNMENT. THE DEED OF ASSIGNMENT CANNOT BE CONSTRUED AS CONVEYING ABSOLUT E OWNERSHIP/INTEREST OVER THE PROPERTY IN FAVOUR OF THE ASSESSEE BECAUSE SUCH OWN ERSHIP/ABSOLUTE INTEREST IS CONVEYED ONLY BY DEED OF SALE DATED 19.4.1994. THE DEED OF ASSIGNMENT DOES NOT CONFER ANY RIGHT ON THE ASSESSEE TO DEMAND CONVEYAN CE FROM THE ASSIGNOR NOR WAS THERE ANY AGREEMENT TO CONVEY THE PROPERTY TO THE A SSESSEE. THE ASSESSEE WAS THEREFORE NOT AN AGREEMENT HOLDER IN POSSESSION OF THE PROPERTY. IN SUCH ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 15 CIRCUMSTANCES, WE FAIL TO SEE AS TO HOW THE ASSESSE E CAN LAY CLAIM ON THE BASIS OF SEC.2(47)(V) OF THE ACT. THE ASSESSEE IN THE PRES ENT CASE WAS NEITHER A LESSEE NOR AN AGREEMENT HOLDER IN RESPECT OF THE PROPERTY. THE CA PACITY IN WHICH THE ASSESSEE WAS IN OCCUPATION OF THE PROPERTY PRIOR TO THE SALE DEE D DATED 19.4.1994 WAS AS A PERMISSIVE USER AND THAT DID CREATE INTEREST OVER T HE PROPERTY IN FAVOUR OF THE ASSESSEE. BY THE DEED OF SALE DATED 19.4.1994 SUCH POSSESSORY RIGHT GOT ENLARGED INTO AN ABSOLUTE OWNERSHIP RIGHTS. WE ARE OF THE VIEW T HAT THE SALE DEED MERELY RECOGNIZED THE ASSESSEES OWNERSHIP WITH REFERENCE TO ORIGINAL DEED OF ASSIGNMENT DATED 3.3.1970 AND PAYMENT OF FULL CONSIDERATION IN RESPE CT OF THE PROPERTY PRIOR TO 1.4.1981. THE TITLE OF THE ASSESSEE TO THE PROPERT Y CAN BE TRACED TO THE ORIGINAL ASSIGNMENT DEED DATED 3.3.1970. 23. SEC.55(2)(B)(I) OF THE ACT DEFINES COST OF AC QUISITION AND THE EXPRESSION WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESS EE BEFORE 1 ST APRIL, 1981 USED THEREIN HAS TO BE INTERPRETED KEEPING IN MIND THE P OLICY AND OBJECT OF THE STATUTE. THE BENEFIT OF INDEXATION IS ALSO GIVEN SO THAT THE INF LATION IN VALUE IS TAKEN CARE OF AND ONLY THE REAL GAIN IS BROUGHT TO TAX. THE EXPRESSIO N WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BEFORE 1 ST APRIL, 1981 IN THE CONTEXT OF SEC.55(2)(B)(I) OF THE ACT, IS RATHER AMBIGUOUS, IN THE SENSE THAT IT DOES NOT SPEAK OF THE DATE OF VESTING OF LEGAL TITLE TO THE PROPERTY. EVEN THE PROVISIONS OF SEC.2(47)(V) & (VI) OF THE ACT WHICH DEFINES WHAT IS TRANSFER FOR THE PURPOSE OF THE ACT, CONSIDERS POSSESSORY RIGHTS AS AKIN TO LEGAL TITLE. IT IS THEREFORE NECE SSARY TO LOOK INTO THE POLICY AND OBJECT OF THE PROVISIONS GIVING EXEMPTION FROM LEVY OF TAX ON CAPITAL GAIN. IN THE PRESENT CASE THE ASSESSEE HAD PAID THE ENTIRE CONSIDERATION FOR THE PROPERTY PRIOR TO 1.4.1981. THEREFORE THE CLAIM OF THE ASSESSEE THAT THE PROPER TY BECAME PROPERTY OF THE ASSESSEE BEFORE 1 ST APRIL, 1981 AS IT HELD THE PROPERTY FROM THE YEAR 1970 HAS TO BE ACCEPTED, KEEPING IN MIND THE POLICY AND OBJECT OF THE PROVIS IONS GIVING THE BENEFIT OF INFLATION BY ADOPTING FAIR MARKET VALUE AS ON 1.4.1981 IN RES PECT OF PROPERTIES ACQUIRED PRIOR TO THAT DATE. IN OUR VIEW THAT THE LEGISLATURE WOULD NOT HAVE INTENDED TO GIVE A MEANING TO THE EXPRESSION WHERE THE CAPITAL ASSET BECAME T HE PROPERTY OF THE ASSESSEE BEFORE 1 ST APRIL, 1981 USED IN SEC.55(2)(B)(I) OF THE ACT, A S REFERRING TO ONLY VESTING OF LEGAL ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 16 TITLE. IT IS UNLIKELY THAT THE LEGISLATURE WOULD WI SH TO DENY BENEFIT OF ADOPTING FAIR MARKET VALUE AS ON 1.4.1981 WHILE COMPUTING COST OF ACQUISITION FOR THE PURPOSE OF SEC.48 OF THE ACT, IN A CASE WHERE, OTHERWISE THE A SSESSEE SATISFIES ALL PARAMETERS FOR GRANT OF FAIR MARKET VALUE AS ON 1.4.1981. THE EXPR ESSION WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BEFORE 1 ST APRIL, 1981AS USED IN SEC.55(2)(B)(I) OF THE ACT SHOULD NOT BE THEREFORE BE EQUATED TO LE GAL OWNERSHIP. IN THE PRESENT CASE THE ASSESSEE HAD AN ANTECEDENT INTEREST OVER THE PR OPERTY AS EARLY AS 3.3.1970 AND A VESTED RIGHT OVER THE PROPERTY BY PAYING THE ENTIRE SALE CONSIDERATION AND COMPLYING WITH THE OTHER TERMS OF THE DEED OF ASSIGNMENT MUCH PRIOR TO 1.4.1981. WE ARE THEREFORE OF THE VIEW THAT THE CIT WAS NOT JUSTIFIE D IN DIRECTING THE AO TO ADOPT THE DATE OF ACQUISITION OF THE PROPERTY BY THE ASSESSEE FOR THE PURPOSE OF COMPUTING CAPITAL GAIN U/S.48 AS 19.4.1994. THE CLAIM OF THE ASSESSEE THAT IT WAS ENTITLED TO ADOPT FAIR MARKET VALUE OF THE PROPERTY AS ON 1.4.1 981 AS COST OF ACQUISITION AND CONSEQUENT INDEXATION BENEFIT IS CORRECT. WE REVER SE AND MODIFY THE ORDER OF THE CIT TO THIS EXTENT. 24. AS FAR AS WHAT IS THE COST OF ACQUISITION AND AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH THE TRA NSFER WERE ALLOWABLE DEDUCTION OR NOT, HAS NOT BEEN EXAMINED BY THE AO WHILE COMPLETI NG THE ASSESSMENT U/S.143(3) OF THE ACT. TO THIS EXTENT WE UPHOLD THE ORDER OF THE CIT DIRECTING THE AO TO EXAMINE THESE TWO ASPECTS AND COMPUTE CAPITAL GAIN ACCORDIN GLY. 25. IN THE RESULT THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 02.03.2016. SD/- SD/- [WASEEM AHMED] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 02.03.2016. R.G.(.P.S.) ITA NO.372/KOL/2009 STEWARTS & LLOYDS OF INDIA LTD. A.YR.2004-05 17 COPY OF THE ORDER FORWARDED TO: 1. STEWARTS & LLOYDS OF INDIA LIMITED, 41, CHOWRING HEE ROAD, KOLKATA- 700071. 2 THE C.I.T., CIRCLE-1, KOLKATA. 3. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES