Harinder Butalia, New Delhi V. ACIT, New Delhi

ITA 4450/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52990 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: SSH K SAMPATH ARUN KHARBANDA
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value
• Section: 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T. A. NO.4450/DEL/2010 ASSESSMENT YEAR : 2007-08 HARINDER BUTALIA, ASSTT. COMMISSIONER OF INCOME-T AX, B-307, NEW FRIENDS COLONY, VS. CIRCLE 22(1), NEW D ELHI. NEW DELHI. PAN: AAFPB7706B (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH. K. SAMPATH, ADVOCATE, ARUN KHARBANDA, CA & V. RAJA KUMAR, ADVOCATE. RESPONDENT BY: SHRI SALIL MISHRA, SR. DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE PRESENT APPEAL FILED BY THE ASSESSEE, ARISES OU T OF THE ORDER DATED 13.09.2010 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING O FFICER UNDER SEC. 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) DATED 18 TH DECEMBER, 2009, PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEA L ARE AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE AUTHORITIES BELOW ERRED IN RE-COMPUTING THE TAX ABLE LONG TERM CAPITAL GAIN AT RS.1,07,76,082/- BY MISINTERPR ETING THE 2 PROVISIONS OF SECTION 55 AND 2(42A) AND IGNORING TH E APPLICABLE PROVISIONS OF SECTION 49(1) AND SECTION 55(3) OF IN COME-TAX ACT, 1961. 2. THE METHOD AS ADOPTED BEING INCORRECT AND AGAINS T LAW MUST BE QUASHED WITH DIRECTIONS FOR ADOPTING AND ABIDING BY THE COMPUTATION AS MADE BY THE ASSESSEE. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD SOLD A PROPERTY AT PREMISE S BEARING NO.22, FRIENDS COLONY (WEST), MATHURA ROAD, NEW DELHI ADMEASURING 400 SQ. YARDS. THIS PROPERTY WAS ACQUIRED BY THE ASSESSEE PURSUANT TO A MEMORANDUM OF ORAL FAMILY SETTLEMENT WHICH WAS REDUCED TO WRITING ON 2 ND JUNE, 2006. THE ASSESSEE CALCULATED THE LONG TERM CAPITAL GAIN BY T AKING THE COST OF ACQUISITION EQUAL TO THE MARKET VALUATION AS ON 1.0 4.1981 AND THEN APPLIED THE INDEXATION THERETO. THE AO ASKED THE ASSESSEE AS TO WHY THE BENEFIT OF INDEXATION WAS TO BE GIVEN FROM F.Y. 1981-82 INSTEA D OF F.Y. 2006-07 WHEN THE ASSESSEE ACQUIRED THE PROPERTY BY WAY OF FAMILY SETTLEMENT MADE ON JUNE 2, 2006. IT WAS STATED BY THE ASSESSEE THAT ORIGIN AL OWNER OF THIS PROPERTY WAS HIS FATHER LATE SHRI SHIV CHARAN SINGH, WHO DIE D ON 14.01.1993. DUE TO FAMILY DISPUTES BETWEEN THE LEGAL HEIRS OF ASSES SEES FATHER, ALL MEMBER OF FAMILY HAD SETTLEMENT AND SIGNED MEMORANDUM OF ORAL FAMILY SETTLEMENT DATED 2.06.2006. THE ASSESSEE THEREFORE, STATED TH AT THE PROPERTY IN QUESTION BECAME THE PROPERTY OF THE ASSESSEE BY MODES SPECIF IED UNDER SEC. 49(1) OF 3 THE ACT AND, THEREFORE, THE COST OF ACQUISITION OF ASSETS SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPER TY ACQUIRED IT. HOWEVER, THE AO HAD TAKEN A VIEW THAT IN VIEW OF THE SPECIFI C PROVISIONS OF EXPLANATION (III) TO SEC. 48, INDEXATION TO THE COS T OF ACQUISITION HAS TO BE GIVEN FROM F.Y. 2006-07 I.E. THE YEAR FROM WHICH TH E PROPERTY WAS HELD BY THE ASSESSEE, AFTER THE EXPIRY OF ASSESSEES FATHER AND PURSUANT TO THE FAMILY SETTLEMENT. THE AO THEREFORE, HAS TAKEN THE COST O F ACQUISITION EQUAL TO THE FAIR MARKET VALUE OF LAND AS ON 1.04.1981 BUT APPL IED THE INDEXATION WITH REFERENCE TO THE F.Y. 2006-07 AND COMPUTED THE LONG TERM CAPITAL GAIN ACCORDINGLY. 4. ON AN APPEAL, THE LEARNED CIT(A) CONFIRMED THE A OS ACTION. 5. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 6. IN THE COURSE OF HEARING OF THIS APPEAL, THE LEA RNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT IDENTICAL ISSUE HAD ARISE N IN THE CASE OF CO-OWNER OF THE SAME PROPERTY, WHERE THE IDENTICAL CLAIM OF IND EXATION WITH REFERENCE TO 1981-82 WAS MADE, BEFORE THE ITAT, DELHI BENCH `C, DELHI IN ITA NO.4877(DEL) OF 2010 FOR THE ASSESSMENT YEAR 2007-0 8 IN THE CASE OF MS. TEJINDER PURI, (TO WHICH, ONE OF US (JM) WAS A PART Y), WHERE IT WAS HELD THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDING T HE STAND OF THE AO THAT THE INDEXED COST OF ACQUISITION SHOULD BE COMPUTED WITH REFERENCE TO F.Y. 4 2006-07 AND NOT WITH REFERENCE TO 1.04.1981. IN TH IS CASE, TRIBUNAL DIRECTED THE AO TO RECOMPUTE THE CAPITAL GAINS BY TAKING THE INDEXED COST OF ACQUISITION WITH REFERENCE TO THE DATE OF FIRST OWN ER OF THE ASSET I.E. 01.04.1981. 7. THE LEARNED DR ON THE OTHER HAND, SUPPORTED THE LEARNED CIT(A)S ORDER AND RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF DCIT VS. KISHORE KANUNGO (2006) 102 ITD 437. 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT IDENT ICAL ISSUE BASED ON THE SAME SET OF FACTS IN THE CASE OF THE CO-OWNER OF THE PRO PERTY, HAS BEEN DECIDED BY THE ITAT, DELHI BENCH `C DELHI, WHERE THE TRIBUNAL RELIED UPON THE DECISION OF ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS. MANJULA J. SHAH (2010) 35 SOT 105 (MUMBAI)(SB), WHERE THE DECI SION IN THE CASE OF KISHORE KANUNGO (SUPRA) HAS BEEN DISAPPROVED BY THE SPECIAL BENCH. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF IT AT, DELHI BENCH `C, DELHI IN THE CASE OF MS. TEJINDER PURI VS. ACIT (S UPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE, BY HOLDING THAT IN DEXED COST OF ACQUISITION SHOULD BE COMPUTED WITH REFERENCE TO F.Y. 1981-82 A ND NOT WITH REFERENCE TO F.Y. 2006-07, AS SO HELD BY THE ITAT, DELHI BENC H `C, DELHI IN THE CASE OF MS. TEJINDER PURI (SUPRA). FOR THE READY REFEREN CE, THE CONCLUDING PART OF 5 THE TRIBUNALS ORDER IN THE CASE OF MS. TEJINDER PU RI (SUPRA) IS EXTRACTED BELOW:- 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS RECEIVED THE PORTION OF THE PROPERTY BY WAY OF FAMI LY SETTLEMENT. THIS FACT HAS NOT BEEN DISPUTED BY THE AO AND HE HA S TAKEN THE PROFITS ARISING ON SALE OF THE PROPERTY AS LONG TER M CAPITAL GAINS. THE PROPERTY WAS ACQUIRED BY THE FATHER IN LAW OF THE ASSESSEE IN 1954 AND, THEREFORE, THE COST OF ACQUIS ITION HAS TO BE TAKEN AS ON 1/04/1981 FOR THE PURPOSES OF COMPUT ATION OF CAPITAL GAINS. UNDER SECTION 49 WHERE THE CAPITAL A SSET BECAME THE PROPERTY OF THE ASSESSEE BY WAY OF MODES SPECIF IED IN CLAUSE (I) TO (IV), THE COST OF ACQUISITION OF THE ASSET S HALL BE DEEM TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPER TY ACQUIRED IT AS INCREASED BY COST OF ANY IMPROVEMENT OF THE A SSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR BY THE A SSESSEE, AS THE CASE MAY BE. EXPLANATION TO SECTION 49 DEFINES THE EXPRESSION `PREVIOUS OWNER IN RELATION TO ANY CAPI TAL ASSET OWNED BY AN ASSESSEE AND MEANS THE LAST PREVIOUS OW NER OF THE CAPITAL ASSET, WHO ACQUIRED IT BY A MODE OF ACQUISI TION OTHER THAN THAT REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (III) OR CLAUSE (IV) OF SECTION 49 OF THE ACT. THE ASSESSEE HAD RECEIVED THE PROPERTY BY SUCCESSION, INHERITANCE OR DEVOLUTI ON AS SPECIFIED IN CLAUSE (IIIA). THEREFORE, THE PREVIOU S OWNER IN RELATION TO THE CAPITAL ASSET WOULD MEAN BAKSHI SHI V CHARAN SINGH. IN THIS CASE THE PROPERTY CAME TO BY WAY OF WILL TO THE ASSESSEES HUSBAND AND FINALLY AS PER THE TERMS OF THE WILL A PORTION OF THE PROPERTY CAME TO THE SHARE OF THE AS SESSEE BY WAY OF FAMILY SETTLEMENT. NOW QUESTION ARISES AS TO WH ETHER THE BENEFIT OF INDEXATION WILL BE ALLOWABLE WITH REFERE NCE TO 1/04/1981 OR FROM THE YEAR IN WHICH SETTLEMENT WAS ARRIVED AT. IN THE INSTANT CASE, THE FAMILY SETTLEMENT WAS ARRI VED AT ON 2 ND JUNE, 2006 I.E. IN THE FINANCIAL YEAR 2006-07. WHE N THE ASSESSING OFFICER TREATS THE PROPERTY AS LONG TERM CAPITAL ASSET IN THE HANDS OF THE ASSESSEE, IT WILL BE ILLOGICAL TO APPLY THE INDEXATION FROM FINANCIAL YEAR 2006-07 AS IT WILL R ENDER THE CAPITAL GAINS AS SHORT TERM CAPITAL GAINS. ITAT, S PECIAL BENCH MUMBAI IN THE CASE OF MANJULA J. SHAH (SUPRA) HAS H ELD THAT 6 FOR THE PURPOSE OF COMPUTING LONG TERM CAPITAL GAIN IN THE HANDS OF THE ASSESSEE, WHO HAS ACQUIRED ASSET UNDER A GIFT, INDEX COST OF ACQUISITION OF SUCH CAPITAL ASSET IS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH PREVIOUS OWNER FIRST HELD THE ASSET. THEREFORE, ON APPLYING THE RATIO OF THE DEC ISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF MANJULA J. SHA H (SUPRA) THE INDEX COST OF THE ACQUISITION HAS TO BE APPLIED WITH REFERENCE TO THE PREVIOUS OWNER I.E. (LATE) BAKSHI SHIV CHARAN SINGH. THEREFORE, IN OUR CONSIDERED OPINION THE LD . CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE STAND OF THE ASSESSI NG OFFICER THAT THE INDEX COST OF THE ACQUISITION SHOULD BE COMPUTE D WITH REFERENCE TO FINANCIAL YEAR 2006-07 AND NOT WITH RE FERENCE TO 1/04/1981. IN VIEW OF THE ABOVE, THE ASSESSING OFF ICER IS DIRECTED TO RE-COMPUTE THE CAPITAL GAINS BY TAKING THE INDEX COST OF THE ACQUISITION WITH REFERENCE TO THE DATE OF FIRST OWNER OF THE ASSET I.E. 1/04/1981. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 10. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 13 TH OCTOBER, 2011. SD/- SD/- (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 TH OCTOBER, 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT