Roshan David, CHENNAI V. ITO, CHENNAI

ITA 43/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4864 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2017
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G BASKAR
• Keywords: Capital asset; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.43/MDS./2017 / ASSESSMENT YEAR : 2013-14 SHRI ROSHAN DAVID , C/O.BUPATHY & CO., CHARTERED ACCOUNTANTS, ROSY TOWER, FIRST FLOOR, 7,NUNGAMBAKKAM HIGH ROAD, CHENNAI -34. VS. THE ITO, INTERNATIONAL TAXATION WARD 1(1), CHENNAI 600 034. [PAN BORPD 3355 P ] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ./ I.T.A.NO.44/MDS./2017 / ASSESSMENT YEAR : 2013-14 SHRI DEEP DAVID , C/O.BUPATHY & CO., CHARTERED ACCOUNTANTS, ROSY TOWER, FIRST FLOOR, 7,NUNGAMBAKKAM HIGH ROAD, CHENNAI -34. VS. THE ITO, INTERNATIONAL TAXATION WARD 1(1), CHENNAI 600 034. [PAN BORDPD 3357 R] ( #$ / APPELLANT) ( % &#$ /RESPONDENT) ITA NOS.43 & 44 /MDS./2017 :- 2 -: / APPELLANT BY : MR.G.BASKAR,ADVOCATE /RESPONDENT BY : MR.A.V.SREEKANTH, JCIT, D.R / DATE OF HEARING : 22 .03.2017 !' / DATE OF PRONOUNCEMENT : 19 .04 .2 017 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS ARE FILED BY THE DIFFERENT ASSESS EE ARE DIRECTED AGAINST THE DIFFERENT ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-I6, CHENNAI DATED 03-10.2016 PERTA INING TO THE ASSESSMENT YEAR 2013-14. SINCE THE ISSUES ARE COMM ON NATURE, THESE TWO APPEALS ARE CLUBBED TOGETHER, HEARD TOGET HER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 2. THE COMMON ISSUES RAISED IN THESE TWO APPEALS AR E AS UNDER:- 2. THE CIT(A) ERRED IN ENHANCING THE ASSESSMENT WI THOUT ANY JUSTIFIABLE REASON. 3.1. THE CIT(A) ERRED IN HOLDING THAT WHAT WAS TRAN SFERRED BY THE ASSESSEE IS ONLY A SHORT TERM CAPITAL ASSET, THEREB Y WITHDRAWING THE DEDUCTION U.SS.54F AND 54EC OF THE ACT. 4.1 THE CIT(A) FAILED TO NOTE THAT THE ASSESSEE AC QUIRED THE SAID PROPERTY AS PER THE TERMS OF THE DEED SETTLEMENT DA TED 10.10.2005 AND AS SUCH HE IS ENTITLED FOR BENEFIT OF INDEXATIO N FROM THE DAY THE PREVIOUS OWNER ACQUIRED IT. ITA NOS.43 & 44 /MDS./2017 :- 3 -: 3. THE FACTS OF THE CASE ARE THAT IN BOTH THE ABO VE ASSESSEES CASE, THE ASSESSEES GRAND FATHER MR.JA DAVID ACQUIRED PROPERTY FROM TNHB THROUGH ALLOTMENT ON 31 .10.1969 AND HE HAD CONSTRUCTED A RESIDENTIAL BUILDING WITH HIS OWN FUNDS IN 1985-86. ON 10.10.2005, MR.JA DAVID EXECUTED A SETTLEMENT DEED IN FAVOUR OF HIS YOUNGER SON ROOPAN RAJNOOKANT DAVID (ASSESSEES FATHER) AS PER WHICH: A) THE ASSESSEES FATHER CAN ENJOY ALL BENEFITS DE RIVED FROM THE PROPERTY WITHOUT POWER OF ALIENATION B) THE ASSESSEE AND HIS BROTHER (DEEP DAVID) CAN E NJOY ALL BENEFITS DERIVED FROM THE PROPERTY ALONG WITH POWER OF ALIENATION AFTER THE LIFETIME OF THEIR FATHER. C) THE ASSESSEE AND HIS BROTHER HOWEVER SOLD THE P ROPERTY WITH THE CONSENT OF THEIR FATHER ON 12.09.2012 FOR ` 4.57 CRORES AND SALE CONSIDERATION WAS OFFERED IN THEIR HANDS A S FOLLOWS:- ROOPAM DAVID 49.98 LAKHS ROSHAN DAVID 2.03 CRORES DEEP DAVID 2.03 CRORES ITA NOS.43 & 44 /MDS./2017 :- 4 -: WHILE COMPUTING THE CAPITAL GAINS, THE ASSESSEE T OOK THE BENEFIT OF COST OF ASSET TO THE PREVIOUS OWNER AND INDEXED COST OF ASSET TO THE PREVIOUS OWNER AND ALSO CLAIMED DEDUCTION U/ S.54 & 54EC OF THE ACT. THE AO EXAMINED THE SETTLEMENT DEED AND OBSERVED THAT THE SETTLEMENT DEED DATED 10.10.2005 WAS MADE BY THE SETTLOR JA DAVID, ASSESSEES GRAND FATHER, WHO WAS MADE A SETTLEMENT IN FAVOUR OF HIS YOUNGER SON SHRI ROOPAN RAJNOOKANT DAVID,THE SETTLEE WHEREAS HIS ELDER SON SHRI CHARLE S VINUKANT DAVID WILL HAVE NO RIGHT OVER THE PROPERTY. THE SE TTLER SHRI J A DAVID RESERVE HIS RIGHT SAYING THAT AFTER THE LIFET IME OF THE SETTLOR AND HIS WIFE, SHRI ROOPAN RAJNOOKANT DAVID CAN TAK E POSSESSION OF THE SAID PROPERTY AND CAN ENJOY THE PROPERTY DUR ING HIS LIFETIME WITHOUT ANY POWER OF ALIENATION. FURTHER AFTER THE LIFETIME OF SHRI ROOPAN RAJNOOKANT DAVID, THE SETTLEE, SHRI DEEP DAV ID AND SHRI ROSHAN DAVID (SONS OF SETTLEE AND THE GRANDSONS OF SETTLOR) CAN JOINTLY TAKE POSSESSION OF THE SUBJECT PROPERTY AND CAN ENJOY THE PROPERTY IN EQUAL SHARE ABSOLUTELY WITH ALL POWERS O ALIENATION. HOWEVER, DURING THE LIFETIME OF SHRI ROOPAN RAJNOOK ANT DAVID TH PROPERTY WAS SOLD BY SHRI DEEP DAVID AND SHRI ROSHA N DAVID. WHILE DOING SO, THE CONSENT OF SHRI ROOPAN RAJNOOKA NT DAVID WAS ITA NOS.43 & 44 /MDS./2017 :- 5 -: ALSO TAKEN. AO BY CONSIDERING THE FACT THAT SHRI RO OPAN RAJNOOKANT DAVID HAD NO RIGHT TO ALIENATE THE PROPE RTY, THEREFORE, SALE CONSIDERATION TAKEN BY THE ASSESSEE IN THE NAM E OF SHRI ROOPAN RAJNOOKANT DAVID AT 10.94% NOT ACCEPTABLE. T HEREFORE, THE AO CONSIDERED THE 50% OF SALE CONSIDERATION EQU ALLY IN THE HANDS OF SHRI DEEP DAVID AND SHRI ROSHAN DAVID. THE AO RELIED ON EXPLANATION (III) TO PROVISO OF SEC.48 OF THE AC T DENYING THE ASSESSEES CLAIM FOR COST OF INDEXATION TO THE PREVI OUS OWNER, I.E. AS ON 01.04.1981. THE AO RELYING ON EXPLANATION (II I) TO PROVISO OF SEC.48 OF THE ACT ALLOWED INDEX COST OF ACQUISIT ION TO THAT OF F.Y 2005-06, I.E. THE DATE O SETTLEMENT DEED DT. 10 .10.2005 AND CALCULATED LTCG AT RS.2,18,17,142/-. THE ASSESSEE H AS MADE A INVESTMENT INTO PURCHASE OF RESIDENTIAL PROPERTIES IN THE NAME OF HIMSELF ALONG WITH FATHER SHRI ROOPAN RAJNOOKANT DA VID AND BROTHER SH ROSHAN DAVID FOR TOTAL OF ` 2,09,98,430/-. THE AO CONSIDERED 50% ` 2,18,17,142/- OF SUCH INVESTMENT AMOUNTING TO ` 1,04,99,215/- AS DEDUCTION AND ASSESSEE HAS ALSO MA DE INVESTMENT U/S 54EC OF THE ACT FOR 50,00,000/-. THE SAME WAS ALLOWED AND ARRIVED TO A TAXABLE LTCG AT ` 63,17,927/-. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE T HE LD.CIT(A). ITA NOS.43 & 44 /MDS./2017 :- 6 -: 3.1 ON APPEAL, LD.CIT(A) OBSERVED THAT THE SETTLEM ENT DEED BECOMES ABUNDANTLY CLEAR THAT THE ASSESSEES FATHER HAS NO RIGHT OR POWER TO ALIENATE THE PROPERTY. FURTHER, CIT(A) OBSERVED THAT IN THE LIFE TIME OF THE FATHER, PROPERTY CANNOT PAS S TO THE SON THROUGH INHERITANCE. THUS, THE ASSESSEE IS NOT ABLE TO PROVE THE CLAIM THAT PROPERTY IS CONVEYED TO THROUGH INHERITA NCE. THE ASSESSEE RELIED ON THE CASE LAWS LIKE BOMBAY HIGH C OURT, CIT VS. MANUJULA J IN 16 TAXMANN.COM.40(2011) AND OTHER CAS E LAWS WILL NOT BE APPLICABLE AS IN THIS CASE, THE TRANSFER OF ASSET FROM GRANDFATHER TO FATHER AND TO GRANDSON IS NOT THROUG H INHERITANCE. AND ON SUCH SALE OF ASSET, WHERE ASSET IS NOT ACQUI RED BY INHERITANCE, THE BENEFIT OF SEC.49(L) OF THE ACT WI LL NOT BE AVAILABLE. THUS, THE ASSET IS OWNED BY DEEP DAVID A ND ROSHAN DAVID WHICH WAS ACQUIRED BY THEM, NOT THROUGH INHER ITANCE WITHOUT INCURRING ANY COST TO THE ASSET. HENCE, IN THIS CASE, THE TRANSFER OF PROPERTY WILL NOT BE COVERED BY SEC.49( 1) OF THE ACT. THEREFORE, ASSESSEE WILL NOT BE ELIGIBLE TO COST OF ASSET TO THAT OF THE PREVIOUS OWNER IN VIEW OF EXPLANATION 1, TO SEC .2(42A)(B) OF THE ACT. ITA NOS.43 & 44 /MDS./2017 :- 7 -: 3.2 ACCORDING TO LD.CIT(A), THE PROPERTY IN QUESTI ON HAS BEEN SOLD BY THE SHRI DEEP DAVID AND SHRI ROSHAN DAVID B Y TAKING CONSENT OF THEIR FATHER, THE BENEFIT OF COST TO THE PREVIOUS OWNER WILL BE LOST AND FOR SHRI DEEP DAVID AND SHRI ROSHA N DAVID THE COST OF ACQUISITION WILL BE NIL. MOREOVER, AS THE PROVISION OF SEC. 49(1) R.W.S. 2(42A) THE PERIOD OF ONLY SHRI DEEP DA VID AND SHRI ROSHAN DAVID WILL BE A SHORT TERM PERIOD AS THE TRA NSFER OF ASSET DOES NOT GET THE BENEFIT OF PERIOD OF HOLDING TO TH AT OF PREVIOUS OWNER IN VIEW OF SEC. 49(1) AS THE ASSET IS NOT INH ERITED TO SHRI DEEP DAVID AND SHRI ROSHAN DAVID. CONSIDERING THIS FACTUAL ASPECT, FATHER OF SHRI DEEP DAVID AND SHRI ROSHAN D AVID HAD NO RIGHT TO ALIENATE THE PROPERTY. THEREFORE, THOUGH H E IS SHOWN AS CONFIRMING PARTY IN THE SALE DEED, DO NOT GET SHARE IN THE PROPERTY. ACCORDINGLY, THE SALE CONSIDERATION OF TH E PROPERTY BECOMES TAXABLE ONLY IN THE HANDS OF SHRI DEEP DAVI D AND SHRI ROSHAN DAVID IN THE RATIO OF 50% OF ` 4,57,00,000/-. THE IMPUGNED ASSET LOSES THE CORRECT TERM AS TO THAT OF THE PREVIOUS OWNER, BECAUSE THE PROPERTY IS NOT CONVEYED TO SHRI DEEP DAVID AND SHRI ROSHAN DAVID BY WAY OF INHERITANCE. THE LD .CIT(A) FURTHER OBSERVED THAT THE PERIOD OF HOLDING IS NOT A LONG TERM ITA NOS.43 & 44 /MDS./2017 :- 8 -: PERIOD AND THEREFORE IT WILL BE TREATED AS SHORT TE RM PERIOD. HENCE, THE AO IS DIRECTED TO CALCULATE CAPITAL GAIN ARISING ON SUCH PROPERTY AS SHORT TERM CAPITAL GAIN ONLY. 3.3 THE LD.CIT(A) ARRIVED AT A CONCLUSION THAT AS THE PERIOD OF HOLDING IS TREATED AS SHORT TERM PERIOD, THE BENEFI T OF INDEXED COST AND INFLATION COST TO THE ASSET TO THE PREVIOU S OWNER IS NOT APPLICABLE BECAUSE THE TRANSFER OF ASSET IS NOT CO VERED BY SEC. 49(1) R.W.S. 2(42A). THE AO IS ACCORDINGLY, DIRECT ED TO WITHDRAW THE COST OF INDEXATION GIVEN IN THE ASSESSMENT ORDE R. 3.4 AS PER SEC.54, THE BENEFIT WILL BE AVAILABLE O NLY IF THE ASSET IS HAPPENED TO BE A LONG TERM CAPITAL ASSET SINCE I N VIEW OF THE ABOVE FACT FINDING, THE ASSET IS TREATED AS SHORT T ERM CAPITAL ASSET. THEREFORE, DEDUCTION U/S.54 OF THE ACT WILL NOT BE AVAILABLE TO THE ASSESSEE. THEREFORE, LD.CIT(A) DIRECTED THE AO TO W ITHDRAW THE DEDUCTION GRANTED TO THE ASSESSEE U/S.54 OF THE ACT . 3.5 AS PER SEC.54EC, THE BENEFIT WILL BE AVAILABLE ONLY IF THE ASSET IS HAPPENED TO BE A LONG TERM CAPITAL ASSET S INCE IN VIEW OF THE ABOVE FACT FINDING, THE ASSET IS TREATED AS SHORT TERM CAPITAL ASSET. THEREFORE, DEDUCTION U/S.54EC OF TH E ACT WILL NOT BE AVAILABLE TO THE ASSESSEE. IN VIEW OF THE ABOVE, AO IS DIRECTED ITA NOS.43 & 44 /MDS./2017 :- 9 -: TO WITHDRAW THE DEDUCTION GRANTED TO THE ASSESSEE U /S.54EC OF THE ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL B EFORE US. 4. AT THE TIME OF HEARING, ASSESSEE MADE A PLEA THA T PROVISIONS OF THE SECTION 46 OF TRANSFER OF PROPERT Y ACT, 1882 IS APPLICABLE IN THIS CASE. AS SUCH, THE LD.CIT(A) IS NOT JUSTIFIED IN ENHANCING THE ASSESSMENT BY WITHDRAWING THE COST O F INDEXATION TO THE PREVIOUS OWNER AND EXEMPTION U/S.54 OF THE A CT. LD.A.R SUBMITTED THAT COMPUTATION OF CAPITAL GAINS AS SHOR T TERM CAPITAL GAINS AND ALSO WITHDRAWAL OF THE EXEMPTION U/S.54E C IS NOT JUSTIFIED. 5. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE AS SESSEE TOOK A NEW PLEA WITH REGARD TO APPLICABILITY OF SEC.46 O F TRANSFER OF PROPERTY ACT, 1882, WHICH WAS NOT RAISED BEFORE THE LOWER AUTHORITIES. HENCE, IT MAY BE REMITTED TO THE FILE OF LD.CIT(A) FOR FRESH CONSIDERATION. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THERE WAS NO ISSUE OF APPLIC ABILITY OF SEC.46 OF TRANSFER OF PROPERTY ACT, 1882 WAS RAISED BEFORE THE LOWER AUTHORITIES AND THIS IS A NEW PLEA TAKEN BY T HE LD.A.R BEFORE US. THE LOWER AUTHORITIES HAVE NO OCCASION T O CONSIDER THIS ITA NOS.43 & 44 /MDS./2017 :- 10 - : PLEA. BEING SO, IN THE INTEREST OF JUSTICE, WE REM IT THE ISSUE BACK TO THE FILE OF LD.CIT(A) FOR DENOVO CONSIDERATION A ND DECIDE AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. BEFO RE THE LD.CIT(A), THE ASSESSEE IS AT LIBERTY TO PRESENT N ECESSARY DOCUMENTS IN SUPPORT OF CLAIM MADE BY THE ASSESSEE. AT THIS STAGE, WE REFRAIN FROM ADJUDICATING ANY OTHER GROUN DS RAISED BEFORE US. 7. IN THE RESULT, THE APPEALS OF THE ASSESSEES IN RESPECT OF SHRI ROSHAN DAVID , AND SHRI DEEP DAVID ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 19 TH APRIL, 2017, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 19 TH APRIL, 2017. K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF