P. Sudheer, Trivandrum V. ITO, Kollam

ITA 380/COCH/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4423 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 1999-2000
• Appeal Filed On: 26-04-2007
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: S RAJEEV
• Keywords: Capital asset; Depreciation; Cost of acquisition; Fair market value; Capital Gains
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL COCHIN BENCH, COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY ARORA , AM I.T.A. NO. 380/COCH./2007 ASSESSMENT YEAR : 1999-2000 SHRI P.SUDHEER, CHATHANNOOR [PAN: AMOPP 0826B] VS. THE ITO, WARD-3, KOLLAM. (APPELLANT-ASSESSEE) (RESPONDENT-REVENUE) ASSESSEE BY SHRI S.RAJEEV, ADVOCATE REVENUE BY SHRI T.J.VINCENT, DR O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE, ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, TRIVANDRUM DATED 16.2.200 7 FOR THE ASSESSMENT YEAR (A.Y.) 1999-2000. 2. THE ONLY ISSUE ARISING FOR ADJUDICATION PER THE PRESENT APPEAL IS WITH REGARD TO THE COST OF ACQUISITION OR THE INDEXED COST OF ACQUISIT ION, AS THE CASE MAY BE, OF THE LAND AND BUILDING, I.E., THE (TWO) CAPITAL ASSETS SOLD BY TH E ASSESSEE DURING THE RELEVANT PREVIOUS YEAR, PER TWO SALE DEEDS DATED 4.5.1998 AND 20.5.19 98 FOR AN AGGREGATE VALUE OF RS. 8,90,000/-, I.E., FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS ARISING ON THEIR TRANSFER IN TERMS OF CHAPTER IV-E OF THE INCOME-TAX ACT, 1961 ( THE ACT HEREINAFTER). 3.1 THE APPELLANT, THE LEGAL HEIR OF HIS LATE MOTHE R SMT. K. SAROJINI, THE ASSESSEE, IN SUPPORT OF HIS WORKING, WHEREBY A CAPITAL LOSS OF R S.14,24,707/- STOOD RETURNED (VIDE RETURN FILED ON 30.7.2005, IN RESPONSE TO THE NOTIC ES U/S. 148/ 3.9.2004 FOLLOWED BY ANOTHER U/S. 142(1) OF THE ACT), SUBMITTED A VALUAT ION REPORT WHEREBY THE CONSTRUCTION COST OF THE BUILDING IN 1981-82 WAS WORKED AT RS. 8.355 LAKHS. VALUING THE LAND, ADMEASURING 19 CENTS , AS ON 1.4.1981, AT RS. 10,000/- PER CENT, THE TOT AL COST STOOD INDEXED, UP TO THE RELEVANT PREVIOUS YEAR, OF COURSE, TAKING THE PROPO RTIONATE COST OF THE BUILDING, I.E., AS ITA. NO. 380/COCH//2007 2 RELATABLE TO THAT SOLD. FURTHER, A SALE INSTANCE IN RESPECT OF 4.6 CENTS OF LAND , SOLD AT RS. 10,000/- PER CENT PER A SALE DEED DATED 10.4.1980, STOOD FURNISHED IN SUPPORT OF THE ADOPTED LAND VALUE. THE ASSESSING OFFICER (AO), FOU ND THE SAME AS NOT COMPARABLE, BEING NOT ADJACENT TO THE ASSESSEES PROPERTY. ON THE BA SIS OF THREE SALE DEEDS, WHICH STOOD COLLECTED BY HIM FROM THE OFFICE OF THE SUB-REGISTR AR, CHATHANOOR HE FOUND THE OBTAINING MARKET RATE OF LAND DURING THE PERIOD 1979 TO 1983 AS VARYING FROM RS. 985 PER CENT TO RS. 5333 PER CENT. IN VIEW OF THE SAME, HE ADOPTED THE LAND RATE AS ON 1.4.1981 AT RS. 7500/- PER CENT AFTER DULY CONFRONTING THE ASSESSEE WITH T HE RELEVANT MATERIALS. AS REGARDS THE VALUE OF THE BUILDING, THE SAME WAS CONSIDERED BY H IM TO BE A SEPARATE AND DISTINCT CAPITAL ASSET, AND BEING A DEPRECIABLE ASSET, THE CAPITAL G AINS ARISING THEREON WOULD ONLY BE A SHORT-TERM ONE, ASSESSABLE U/S. 50 OF THE ACT, AND WHICH WOULD, THEREFORE, IN TERMS THEREOF, REQUIRE ITS DEPRECIATED VALUE (WRITTEN DOWN VALUE O R `WDV) TO BE TAKEN AS THE DEEMED COST. AS SUCH, THE INDEXED COST WOULD NOT BE APPLI CABLE THERETO AND, RATHER, THE BUILDING WOULD BE REQUIRED TO BE DEPRECIATED AT AN APPROPRIA TE RATE. ADOPTING THE VALUE AS ON 1/4/1981 AS RETURNED BY THE ASSESSEE (I.E., RS. 8.3 55 LAKHS), HE WORKED OUT THE WDV FOR THE RELEVANT YEAR BY DEPRECIATING IT AT THE RATE OF 5% P.A., AT RS. 3.68 LAKHS, AND COMPUTED THE CAPITAL GAINS THEREON AT A NEGATIVE SUM OF RS. 1,03,665/- BY TAKING THE PROPORTION OF THE BUILDING SOLD AT 50%. 3.2 IN APPEAL, THE LD. CIT(A) APPROVED THE CO MPUTATION OF CAPITAL GAINS ON BUILDING IN VIEW OF THE DECISION IN THE CASE OF CIT V. CITY BANK (N.A) , 261 ITR 570 (BOM.), HOLDING LAND AND THE BUILDING THEREON AS TWO SEPARATE AND D ISTINCT ASSETS, SO THAT CAPITAL GAINS IS TO BE ARRIVED AT SEPARATELY IN RESPECT OF EACH OF THEM AS PER THE APPLICABLE PROVISIONS OF LAW. WITH REGARD TO LAND, HOWEVER, HE REVISED THE MARKET RATE AS ON 1/4/1981 TO RS. 8500/- PER CENT BY AVERAGING THE RATES AS ADOPTED BY THE ASSES SEE AND THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 4. BEFORE US, LIKE CONTENTIONS STOOD RAISED BY EITH ER SIDE. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 5.1 AS REGARDS THE VALUE OF LAND, WE FIND THAT TH E ASSESSEE HAS NOT IMPUGNED THE COMPARABLE CASES CITED BY THE AO. THE SAME REVEAL A MAXIMUM RATE OF RS. 5333 PER CENT, ITA. NO. 380/COCH//2007 3 WHICH WE OBSERVE TO BE AS IN 1979 AND FOR A LAND ME ASURING 9 CENTS. THE AO, NEVERTHELESS, ADOPTED A RATE OF RS. 7500/- PER CENT . IT IS APPARENT THERE-FROM THAT HE DID NOT RESTRICT HIMSELF TO THE DATA GATHERED FROM THE SUB- REGISTRARS OFFICE, ONLY SEEKING GUIDANCE THERE-FROM, AND APPLIED HIS KNOWLEDGE AND UNDERSTANDING OF THE VARIOUS OTHER FACTORS THAT MAY IMPINGE THEREON; THE ASSESSEES PR OPERTY BEING SITUATE IN THE PRIME CENTRE OF THE TOWN. FURTHER, AS ALSO OBSERVED BY THE LD. C IT(A), THE COMPARABLE CASE CITED BY THE ASSESSEE HIMSELF IS FOR A SMALL PIECE OF LAND WHICH FETCHES A HIGHER RATE. IN SUM, THE MATERIAL ON RECORD INDICATES THE RATE AS ADOPTED BY THE AO TO BE REASONABLE. SO, HOWEVER, THE LD. CIT(A) HAS ALLOWED THE ASSESSEE A FURTHER R ELIEF OF RS. 1000/- PER CENT, AND WHICH ASSUMES FINALITY AS FAR AS THE REVENUE IS CONCERNED ; IT NOT CONTESTING THE SAME. UNDER THE CIRCUMSTANCES, WE ARE IN AGREEMENT WITH THE LD. DR THAT THE LD. CIT(A) HAS ALREADY ALLOWED SUFFICIENT RELIEF, AND NO FURTHER RELIEF IN THE MATTER IS CALLED FOR. 5.2 AS REGARDS THE VALUE OF THE BUILDING, THE BASE VALUE, I.E., AS ON 1.4.1981, IS AS FURNISHED BY THE ASSESSEE ITSELF. THE REVENUE HAS O NLY APPLIED A REASONABLE RATE OF DEPRECIATION THERETO ON THE BASIS THAT IT IS A DEPR ECIABLE ASSET, SO THAT THE GAIN ARISING THEREON IS ASSESSABLE U/S. 50 OF THE ACT. THE ASSES SEES CLAIM, AS MADE BEFORE US, STATING THAT NO DEPRECIATION STOOD ACTUALLY ALLOWED BY THE REVENUE THEREON, ONLY NEEDS TO BE REJECTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE . THE ASSESSEE HAD NOT BEEN REGULAR IN FILING THE RETURNS OF INCOME, AND EVEN THE RETURN F OR THE CURRENT YEAR STOOD FILED PURSUANT TO NOTICES ISSUED MUCH LATER. BESIDES, PER THE RETU RNS OF INCOME AS FILED, I.E., FOR SOME OF THE PRECEDING YEARS, THE INCOME FROM CINEMA THEATRE , A C CLASS CINEMA HALL, HOUSED IN THE RELEVANT BUILDING, STOOD RETURNED ON AN ESTIMAT E BASIS, SO THAT THE DEPRECIATION ON THE BUILDING IS ONLY DEEMED TO HAVE BEEN ALLOWED. IT CA N IN NO WAY BE INFERRED, IN THE ABSENCE OF ANY MATERIALS INDICATING TO THE CONTRARY, THAT T HE ESTIMATED INCOME FROM THE CINEMA THEATRE WAS SANS THE CLAIM FOR DEPRECIATION ALLOWANCE ON THE ASSETS EMPLOYED THEREIN. IN FACT, EVEN ADOPTING THE DEPRECIATED VALUE OF THE BU ILDING YIELDS A LOSS, WHICH SUBSTANTIATES THE AOS STAND OF THE SAME BEING IN A DILAPIDATED S TATE, HAVING OUTLIVED ITS LIFE, AND WHICH IS ALSO APPARENT FROM THE VALUE (RS. 0.80 LACS) IT FETCHES. THE ALTERNATE FORMULA, TAKING THE FAIR MARKET VALUE (FMV) AS ON 1.4.1981, AT THE ASSE SSEES OPTION, AS THE BASE AMOUNT, WHICH IS TO BE THEN SUITABLY SCALED UP ON THE BASIS OF AN INFLATION INDEX (FORMULATED WITH THAT DATE AS THE FIRST DAY OF THE BASE YEAR) OBTAIN ING OVER THE HOLDING PERIOD SINCE, SO AS TO ITA. NO. 380/COCH//2007 4 PROVIDE A REASONABLE MEASURE FOR INFLATION-ADJUSTED COST, SO THAT ONLY THE GAIN IN EXCESS OF THE INFLATION; THE SAME REPRESENTING ONLY A DECLINE IN THE PURCHASING POWER OF MONEY, IS SUBJECT TO TAX, IS ONLY IN RESPECT OF LONG-TERM CAP ITAL ASSETS. AS SUCH, EVEN AS THE AO WAS NOT OBLIGED TO ACCEPT THE FMV OF THE BUILDING AS ON 1/4/1981 THEREFOR, BEING ONLY A SHORT- TERM ASSET, HIS ACCEPTANCE OF THE SAME, OCCASIONED PERHAPS DUE TO THE NON-AVAILABILITY OF THE COST OF THE SAME; THE BUILDING BEING OLD, CAN O NLY BE CONSIDERED AS FAIR. SIMILARLY, THE ADOPTED PROPORTION OF THE BUILDING SOLD, I.E., 50%, MATCHES WITH THE FIGURES RETURNED BY THE ASSESSEE IN ITS RESPECT. IN THE PRESENT CASE, A S AFORE-STATED, THE RELEVANT CAPITAL ASSET, A BUILDING HOUSING A CINEMA THEATRE, BEING USED FOR T HE PURPOSE OF THE ASSESSEES BUSINESS FOR THE PAST SEVERAL YEARS, INCOME FROM WHICH STOOD RETURNED BY HER ON ESTIMATE BASIS, IS TO BE REGARDED AS A SHORT TERM ONE, DETERMINING ITS WDV (AS AT THE END OF THE IMMEDIATELY PRECEDING YEAR) AS THE COST, WHICH IS REQUIRED TO B E SET-OFF IN WORKING OUT THE CAPITAL GAINS. FURTHER, THE SHORT-TERM CAPITAL LOSS AS DETE RMINED STANDS SET-OFF AGAINST THE LTCG. WE, THEREFORE, DO NOT FIND INFIRMITY IN THE REVENUES WORKING OF THE CAPITAL GAINS ARISING ON THE TRANSFER OF THE BUILDING BY THE ASSE SSEE, AND NEITHER HAS HE SHOWN US ANY, FOR US TO INTERFERE THEREWITH. WE DECIDE ACCORDINGL Y, CONFIRMING THE SAME. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 28TH APRIL , 2010 GJ COPY TO: 1. SHRI P. SUDHEER, ATHIRUVILA VEEDU, ERAM, CHATHAN NOOR. 2. THE ITO, WARD-3, KOLLAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, TR IVANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGIST RAR) ITA. NO. 380/COCH//2007 5