ACIT, New Delhi V. Sh. Suresh Verma, Gurgaon

ITA 3732/DEL/2010

• Counselvise Citation: 373220114 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 17-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 04-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY
• Assessee Lawyers: SM MATHUR
• Keywords: Capital asset; Cost of acquisition; Fair market value
• Section: 27; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `G: NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T. A. NO.3732/DEL/2010 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, SHRI SURESH VER MA, CIRCLE 33(1), NEW DELHI. VS. C-602, ARDEE CITY, RE SIDENCY, SECTOR-52, GURGAON. PAN: AAEPV8185D (APPELLANT) (RESPONDEN T) APPELLANT BY : SMT. S. MOHANTHY, DR. RESPONDENT BY : SHRI S.M. MATHUR, CA. O R D E R PER K.D. RANJAN, ACCOUNTAT MEMBER: THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2007 -08 ARISES OUT OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS)-XXVI, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON MADE BY THE AO BY ADMITTING THE ASSESSEES CLAIM WITH REGAR D TO BENEFIT OF INDEXATION AVAILABLE TO HIM FROM THE YEAR IT WAS ACQUIRED BY THE 1 ST OWNER AS AGAINST THE YEAR IT WAS HELD BY THE ASSES SEE. 2. THE LD. CIT(A) HAS FURTHER ERRED IN ALLOWING DEDUCT ION U/S 54 IN RESPECT OF THE WHOLE OF THE AMOUNT INVESTED B Y THE 2 ASSESSEE IN PURCHASE OF RESIDENTIAL HOUSE IN THE AB SENCE OF NO PROVISION IN LAW TO ALLOW DEDUCTION U/S 54 TO THE A SSESSEE FOR THE PORTION OF THE NEW RESIDENTIAL PROPERTY OWNED B Y HIS WIFE. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION MADE BY THE ASSESSING OFFICER WITH REGARD TO BENEFIT OF INDEXATION. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE DECL ARED LONG TERM CAPITAL GAIN OF RS.1,37,02,500/- ON SALE OF RESIDENTIAL PROPERTY AT CHANDIGARH ( SHARE) AND AFTER CLAIMING DEDUCTION OF RS.80,00,000/- UNDE R SEC. 54 AND RS.40,00,000/- UNDER SEC. 54EC, DECLARED TAXABLE LO NG TERM CAPITAL GAIN AT RS.17,02,500/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE BECAME OWNER OF THE SHARE OF PROPERTY ALONG WITH HIS BROTHER AS PER WI LL OF HIS FATHER DATED 4.04.1988. LATER ON, THE FATHER OF THE ASSESSEE EX PIRED ON 6.04.1990, WHEN THE ASSESSEE BECAME OWNER OF THE PROPERTY TO THE EX TENT OF SHARE. SINCE THE ABOVE PROPERTY WAS BUILT BY HIS FATHER IN 1965 AND WAS EXPANDED IN 1971, THE ASSESSEE TOOK COST OF ACQUISITION AT RS.2 ,50,000/- BEING THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1.04.1981. THE ASSESSEE ACCORDINGLY WORKED OUT THE INDEXED COST OF ACQUISITION WITH REF ERENCE TO THE ACQUISITION OF PROPERTY AS ON 1.04.1981. HOWEVER, THE ASSESSIN G OFFICER INTERPRETED THE PROVISIONS OF EXPLANATION (III) TO SECTION 48 OF TH E ACT IN SUCH A WAY THAT THE ASSESSEE COULD GET BENEFIT OF INDEXATION ONLY FROM THE DATE WHEN THE ASSET 3 WAS FIRST HELD BY HIM. THE AO ALLOWED BENEFIT OF I NDEXATION WITH REFERENCE TO F.Y. 1990-91 AND NOT FOR F.Y. 1980-81 AS CLAIMED BY THE ASSESSEE. THE AO RELIED ON THE DECISION OF ITAT, DELHI BENCH IN T HE CASE OF ARUN SHUNGLOO TRUST IN ITA NO.1336/DEL/2005 DATED 25 TH JANUARY, 2008. THE AO COMPUTED THE COST OF ACQUISITION AT RS.7,12,912/ -. 4. THE SECOND ISSUE FOR CONSIDERATION IS IN RELATIO N TO ALLOWING DEDUCTION UNDER SEC. 54 OF THE ACT IN RESPECT OF THE WHOLE OF THE AMOUNT INVESTED BY THE ASSESSEE IN THE PURCHASE OF RESIDENTIAL HOUSE. THE ASSESSEE PURCHASED RESIDENTIAL PROPERTY AT C-602, THE RESIDENCY, ARDEE CITY, GURGAON IN JOINT NAME WITH HIS WIFE SMT. RITU VERMA AND CLAIMED DEDU CTION UNDER SEC. 54 OF THE ACT IN RESPECT OF AMOUNT OF RS.80,00,000/- INVE STED IN RESIDENTIAL PROPERTY. HOWEVER, THE AO RESTRICTED THE DEDUCTION UNDER SEC. 54 TO THE EXTENT OF RS.40,00,000/- AS THE PROPERTY WAS JOINTL Y HELD BY THE ASSESSEE WITH HIS WIFE. 5. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE EXPL ANATION 1 TO SEC. 2(42A) FOR THE PURPOSE OF DETERMINATION OF PERIOD F OR WHICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE IN THE CASE OF A CAPI TAL ASSET WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN THE CIRCUMSTANCES MENTI ONED IN SUB-SEC.(1) OF SEC. 49, THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER REFERRED TO IN SECTION 49(1) OF THE ACT IS TO BE IN CLUDED. IT WAS, THEREFORE, 4 SUBMITTED THAT IN TERMS OF PROVISIONS OF SEC. 2(42A ), THE PERIOD OF HOLDING BY THE PREVIOUS OWNER HAS TO BE INCLUDED FOR THE PURPO SE OF WORKING OUT COST OF INDEXATION. THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISION OF ITAT IN THE CASE OF DCIT VS. MANJUL A J. SHAH, 318 ITR 417 (MUMBAI)(SB). AS REGARDS SECOND GROUND, IT WAS SUB MITTED THAT THE WHOLE PURCHASE CONSIDERATION IN RESPECT OF PROPERTY AT C- 602, THE RESIDENCY, ARDEE CITY, GURGAON, WAS PAID BY THE ASSESSEE ONLY OUT OF SALE PROCEEDS OF THE PROPERTY. THE NAME OF HIS WIFE IN THE AGREEMEN T TO TRANSFER WAS INCLUDED ONLY TO AVOID FUTURE HASSLE DUE TO OLD AGE OF THE A SSESSEE. HIS WIFE HAS NOT CONTRIBUTED TOWARDS PURCHASE OF PROPERTY NOR DOES H ER NAME GET REFLECTED IN THE POSSESSION CERTIFICATE. IT WAS FURTHER SUBMITT ED THAT THE ASSESSEE HAD FULFILLED THE CONDITIONS OF SEC. 54 BEFORE MAKING T HE CLAIM OF EXEMPTION. HIS ATTENTION WAS ALSO DRAWN TO THE PROVISIONS OF S EC. 27 AND SEC. 64 BY SUBMITTING THAT IF THERE WAS ANY CAPITAL GAIN ON TR ANSFER OF SUCH HOUSE PROPERTY, SUCH CAPITAL GAIN SHALL FIRST BE COMPUTED IN THE HANDS OF TRANSFEREE AND THEREAFTER, THE SAME WILL BE CLUBBED WITH THE I NCOME OF TRANSFEROR IN VIEW OF PROVISIONS OF SEC. 27(I) AND SEC. 64(1)(IV) . THE LEARNED AR OF THE ASSESSEE RELIED ON SEVERAL DECISIONS TO SUPPORT HIS CONTENTION. 6. THE LEARNED CIT(A) AS REGARDS THE FIRST GROUND O F APPEAL, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, O BSERVED THAT THE 5 ASSESSEE HELD THE PROPERTY UPON THE DEATH OF HIS FA THER WITH EFFECT FROM 6.04.1990. EXPLANATION 1 TO SEC. 2(42A) PROVIDES THAT IN DETERMINING THE PERIOD OF HOLDING WHERE SUCH AN ASSET WAS ACQUIRED IN THE CIRCUMSTANCES MENTIONED UNDER SEC. 49(1), THE PERIOD OF HOLDING B Y PREVIOUS OWNER SHALL BE INCLUDED. SINCE FATHER OF ASSESSEE ACQUIRED TH E PROPERTY PRIOR TO 1.04.1981 AND THE PERIOD OF PREVIOUS OWNER WAS TO B E INCLUDED, THE LEARNED CIT(A) HELD THAT COST INFLATION INDEX WAS TO BE APP LIED WITH REFERENCE TO 1.04.1981 AND NOT FROM THE DATE ON WHICH HE BECAME OWNER OF THE PROPERTY. AS REGARDS SECOND ISSUE, THE LEARNED CIT(A) OBSERVE D THAT THE ASSESSEE HAD INVESTED RS.80,00,000/- IN THE HOUSE PROPERTY, WHIC H WAS JOINTLY HELD BY HIM WITH HIS WIFE, HIS WIFE IS A JOINT OWNER AND DI D NOT HAVE ANY SOURCE OF INCOME. THE NEW PROPERTY WAS PURCHASED ONLY BY THE ASSESSEE BY DEPLOYING LONG TERM CAPITAL GAIN ON SALE OF PROPERTY, WHICH H E RECEIVED ON INHERITANCE. IT WAS ALSO CLARIFIED THAT AT THE TIME OF PURCHASE OF NEW PROPERTY, THE SAME WAS ORIGINALLY TRANSFERRED TO ASSESSEE ONLY, A FACT DULY DOCUMENTED BY AGREEMENT TO TRANSFER AND IN THE POSSESSION CERTIFI CATE. IT WAS ALSO INFORMED THAT AT A LATER STAGE, THE NAME OF THE WIFE OF ASSE SSEE WAS INCLUDED IN ORDER TO AVOID FUTURE HASSLE AS BOTH THE ASSESSEE AND HIS WI FE ARE OLD PERSONS. THE LEARNED CIT(A) IN VIEW OF ABOVE FACTS, HAS HELD THA T THE ASSESSEE MEETS ALL CONDITIONS REQUIRED UNDER SEC. 54 AS THE SALE PROC EEDS OF THE CAPITAL GAINS 6 HAVE BEEN INVESTED IN THE NEW RESIDENTIAL HOUSE WIT HIN THE PRESCRIBED TIME. THE LEARNED CIT(A) IN VIEW OF ABOVE, ALLOWED THE AP PEAL IN FAVOUR OF THE ASSESSEE ON BOTH THE POINTS. 7. BEFORE US, THE LEARNED SR. DR SUBMITTED THAT THE ASSESSEE BECAME OWNER OF THE PROPERTY ON 6.04.1990 AND THEREFORE, T HE INDEXATION BENEFIT SHOULD BE ALLOWED FROM THIS DATE AND NOT FROM 1.04. 1981. AS REGARDS SECOND ISSUE, THE LEARNED SR. DR SUBMITTED THAT THE AMOUNT OF RS.40,00,000/- OUT OF SALE PROCEEDS HAS BEEN INVESTED IN THE NAME OF SMT. RITU VERMA, WIFE OF THE ASSESSEE WHO HAS BECOME THE OWNER OF SHARE OF THE PROPERTY. THEREFORE, FOR ALL PURPOSES THE PROPERTY OWNED BY HER AND ON L ATER DATE IF THE PROPERTY IS SOLD, THE CAPITAL GAIN WHICH SHOULD BE ASSESSABLE I N THE HANDS OF THE ASSESSEE, WOULD BE ASSESSABLE IN THE HANDS OF SMT. RITU VERMA. THEREFORE, THE BENEFIT OF RS.40,00,000/- IN THE HANDS OF ASSES SEE CANNOT BE GIVEN. SHE THEREFORE, SUPPORTED THE ORDER OF THE AO. 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. U/S 49(1)(III), WHERE THE CAP ITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY SUCCESSION, INHERITANCE OR DEVALUATION, THE COST OF ACQUISITION OF ASSET SHALL BE DEEMED TO BE THE C OST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY THE COST OF ANY IMPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR THE 7 ASSESSEE, AS THE CASE MAY BE. IN THE CASE BEFORE U S, THE ASSESSEE BECAME OWNER OF PROPERTY BY INHERITANCE. THE SAID PROPERT Y WAS ACQUIRED BY HIS FATHER IN 1965 AND WAS EXPANDED IN 1971. THEREFORE , THE FAIR MARKET VALUE OF THE PROPERTY IN THE HANDS OF ASSESSEE HAS TO BE TAKEN AS WAS IN THE HANDS OF HIS FATHER I.E. AS ON 1.04.1981. FURTHER CLAUSE (B) OF EXPLANATION 1 TO SEC. 2(42A) PROVIDES THAT IN DETERMINING THE PERIOD FOR WHICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE IN THE CASE OF A CAPITAL ASSET WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN THE CIRCUMSTANCES MENTI ONED IN SEC. 49(1), THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER SHALL BE INCLUDED. SEC. 2(42A) DEFINES THE EXPRESSION SHORT-TERM CAPI TAL ASSET AND MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER. TH EREFORE, FROM THE EXPLANATION 1 TO SEC. 2(42A), IT IS CLEAR THAT FOR DETERMINATION OF PERIOD OF HOLDING IN RESPECT OF A CAPITAL ASSET, THE PERIOD F OR WHICH THE CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER HAS TO BE INCLUDED. THEREFORE, THE PERIOD FROM 1.04.1981 TILL THE DEATH OF PREVIOUS OWNER SHA LL BE INCLUDED IN THE PERIOD OF HOLDING BY THE ASSESSEE FOR THE PURPOSE O F DETERMINATION OF INDEXATION COST OF THE PROPERTY. OUR VIEW IS IN LI NE WITH THE DECISION OF ITAT, SPECIAL BENCH IN THE CASE OF MANJULA J. SHAH (SUPRA). RESPECTFULLY FOLLOWING THIS DECISION OF SPECIAL BENCH OF THE TRI BUNAL, IT IS HELD THAT 8 INDEXATION COST OF THE ASSET TRANSFERRED HAS TO BE TAKEN FROM 1.04.1981AND NOT FROM THE DATE ON WHICH THE ASSESSEE BECAME OWNE R OF THE PROPERTY. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER PASSED BY THE LEARNED CIT(A) HOLDING THAT BENEFIT OF INDEXATION COST WILL BE AVAILABLE TO THE ASSESSEE WITH REFERENCE TO FAIR MARKET VALUE OF THE ASSET AS ON 1.04.1981. 9. AS REGARDS SECOND ISSUE, THE ASSESSEE HAD INVEST ED ENTIRE AMOUNT OF RS.80,00,000/- IN THE NEW ASSET AND THE NAME OF HIS WIFE SMT. RITU VERMA HAS BEEN ENTERED IN THE SALE AGREEMENT JUST FOR THE PURPOSE OF SECURITY REASONS. UNDER SEC. 64(1)(IV) SUBJECT TO PROVISION S OF SEC. 27(I), THE INCOME AS ARISES DIRECTLY OR INDIRECTLY TO THE SPOUSE OF A N INDIVIDUAL FROM THE ASSETS TRANSFERRED DIRECTLY OR INDIRECTLY TO THE SPOUSE BY SUCH INDIVIDUAL OTHERWISE THAN FOR ADEQUATE CONSIDERATION OR IN CONNECTION WI TH THE AGREEMENT TO LIVE APART SHALL BE INCLUDED IN THE INCOME OF SUCH INDIV IDUAL. THEREFORE, IF THE NEW ASSET AS HELD BY MRS. RITU VERMA IS LET OUT AND THE INCOME IS EARNED, THE SAME WILL BE CLUBBED IN THE HANDS OF THE ASSESSEE. FURTHER, SEC. 27 ALSO PROVIDES THAT WHERE AN INDIVIDUAL WHO TRANSFERS OTH ERWISE THAN FOR ADEQUATE CONSIDERATION ANY HOUSE PROPERTY TO HIS OR HER SPOU SE, NOT BEING A TRANSFER IN CONNECTION WITH AN AGREEMENT TO LIVE APART, OR TO A MINOR CHILD NOT BEING A MARRIED DAUGHTER, SHALL BE DEEMED TO BE THE OWNER O F THE HOUSE PROPERTY SO TRANSFERRED. THEREFORE, WITHIN THE MEANING OF PROV ISION OF SEC. 27, THE 9 ASSESSEE WILL BE THE OWNER OF THE WHOLE PROPERTY AN D THEREFORE, THE INCOME WILL BE ASSESSABLE IN THE HANDS OF ASSESSEE. ONCE THE ASSESSEE IS OWNER, THE CAPITAL GAIN, IF ANY, ON SALE WILL BE ASSESSABLE IN THE HANDS OF THE ASSESSEE ONLY. THEREFORE, THE APPREHENSION OF THE LEARNED S R. DR IS WITHOUT ANY BASIS THAT SMT. RITU VERMA HAS BECOME OWNER OF THE PROPER TY. SINCE SHRI SURESH VERMA, THE ASSESSEE FOR THE PURPOSE OF SEC. 22 TO 2 6 IS THE OWNER OF THE NEW PROPERTY, IN OUR CONSIDERED OPINION THE ASSESSEE WI LL BE ELIGIBLE FOR BENEFIT OF ENTIRE AMOUNT SPENT ON ACQUISITION OF NEW ASSET, WHICH IS JOINTLY HELD BY HIM WITH HIS WIFE SMT. RITU VERMA. IN VIEW OF ABOV E FACTS, IN OUR CONSIDERED OPINION, THE LEARNED CIT(A) WAS JUSTIFIE D IN ALLOWING THE BENEFIT OF SEC. 54 IN RESPECT OF ENTIRE AMOUNT OF RS.80,00, 000/-. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 11. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 27 TH JANUARY, 2012. SD/- SD/- (DIVA SINGH) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH JANUARY, 2012. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT BY ORDER 4. CIT(A) 5. DR *MG DEPUTY REGISTRAR, ITAT.