ACIT, New Delhi V. Sh. Ravinder Nath Sondhi, New Delhi

ITA 468/DEL/2013

• Counselvise Citation: 46820114 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 11-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAGAN SOOD SENIOR
• Keywords: Capital asset; Gift; Cost of acquisition
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.468/DEL./2013 (ASSESSMENT YEAR : 2007-08) ACIT, CIRCLE 24 (1), VS. SHRI RAVINDER NATH SONDH I, NEW DELHI. A 15/28, 1 ST FLOOR, VASANT VIHAR, NEW DELHI. (PAN : AARPS5857Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. SHASHI M. KAPILA, ADVOCATE REVENUE BY : SHRI GAGAN SOOD, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XXIII, NEW DELHI DATED 16.11.2012. 2. THE ONLY ISSUE CHALLENGED BY THE REVENUE IS THAT THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO I NDEXED COST OF ACQUISITION FROM 01.04.1981 AND NOT FROM SUBSEQUENT THREE DIFFE RENT DATES ON WHICH PROPERTY DEVOLVED ON HIM BY VIRTUE OF BEING A COPAR CENER IN HUF. 3. THE ASSESSEE FILED RETURN OF INCOME DISCLOSING L ONG TERM CAPITAL GAINS OF RS.3,12,86,841/-, AFTER CLAIMING COST OF ACQUISI TION AND EXEMPTION UNDER SECTION 54 OF THE INCOME-TAX ACT, 1961, IN RESPECT OF SALE OF PROPERTY, I.E. 7, AMRITA SHERGILL MARG, NEW DELHI FOR RS.11,84,00,000 /-. THE ASSESSING OFFICER NOTICED AFTER VERIFICATION OF THE SALE DEED FILED BY THE ASSESSEE THAT THE DATE OF TRANSFER OF THE PROPERTY WAS 01.12.2006 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, T HE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148. THE ASSESSEE HAD F ILED ORIGINAL RETURN OF INCOME ON 27.03.2008 DISCLOSING TOTAL INCOME OF RS. 49,60,350/-. IN RESPONSE TO NOTICE UNDER SECTION 148, THE ASSESSEE FILED RETURN ON 20.01.2011 DISCLOSING THE INCOME FROM CAPITAL GAINS OF RS.3,12 ,86,842/-. DURING SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAD BECOME THE OWNER OF THE PROPERTY IN TH REE STAGES, 1/3RD PART IN 1984, 1/6TH PART IN 1996 & 1/2 PART IN 2003. THE AS SESSEE HAD CLAIMED THE COST OF ACQUISITION OF THE WHOLE PROPERTY BY ADOPTI NG INDEXATION WITH EFFECT FROM 01.04.1981. IT WAS EXPLAINED BEFORE THE ASSESS ING OFFICER THAT THE ASSESSEE HAD ACQUIRED 1/3RD SHARE ON PARTITION OF T HE HUF AS A COPARCENER IN THE YEAR 1984, 1/6TH SHARE WAS ACQUIRED ON DEATH OF HIS MOTHER, SMT VEENA SONDHI ON 23.2.1996, AND 1/2 SHARE DEVOLVED ON THE DEATH OF HIS FATHER, DR K.L.SONDHI ON 21.2.2003. IT WAS SUBMITTED THAT IN R ELATION TO A CAPITAL ASSET ACQUIRED BY INHERITANCE OR BY PARTITION OF AN HUF, THE COST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. THE ASSESSEE RELIED ON A NUMBER OF CASE LAWS INCLUDING THE DECISION OF THE SPECIAL BENCH OF THE MUMBAI ITAT IN THE CASE OF DCIT VS. MANJULA SHAH 318 ITR 417 (AT). THE ASSESSING OFFICE R, ON THE OTHER HAND, RELIED ON THE JUDGEMENT OF THE ITAT, DELHI IN THE O RDER DATED 25.01.2008 IN THE CASE OF ARUN SHUNGLOO TRUST, TO HOLD THAT THE I NDEXED COST OF ACQUISITION WAS TO BE CALCULATED WITH REFERENCE TO THE YEAR IN WHICH THE ASSESSEE BECAME THE OWNER OF THE PROPERTY. THE ASSESSING OFFICER RE -COMPUTED THE COST OF ACQUISITION AND THE TOTAL COST OF ACQUISITION WAS C OMPUTED AT RS.1,30,44,081/- AS AGAINST RS.3,01,13,159/- ADOPTE D BY THE ASSESSEE AND MADE AN ADDITION OF RS.1,70,69,078/-. AGGRIEVED, TH E ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). 4. THE CIT (APPEALS) GRANTED THE RELIEF TO THE ASSE SSEE BY HOLDING AS UNDER :- 4. I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUB MISSIONS AND PERUSED THE CASES LAWS RELIED ON BY THE APPELLA NT. GROUNDS OF APPEAL NO.1, 2 & 3 RELATE TO THE INDEXED COST OF ACQUISITION OF THE CAPITAL ASSET, CONCERNING WHICH THE ASSESSIN G OFFICER HAS HELD THAT THE APPELLANT HAD BECOME THE OWNER OF THE PROPERTY IN THREE STAGES, AS DISCUSSED EARLIER. THE ASSESSING O FFICER HAS ALLOWED THE INDEXATION OF THE COST OF THE PROPERTY ONLY FROM THE YEARS IN WHICH THE APPELLANT ACQUIRED OWNERSHIP BY PARTITION OF THE HUF, AND SUBSEQUENTLY ON THE DEATH OF HIS PAREN TS. I FIND THAT THIS ISSUE STANDS FULLY COVERED BY THE ORDER O F THE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF MANJULA J. SHA H [2009] 318 ITR 417. THE HON'BLE TRIBUNAL HAS REFERRED TO T HE PROVISIONS OF EXPLANATION L (B) TO SECTION 2(42A), EXPLANATION (III) TO SECTION 48, SECTION 49(1) AND SECTION 55(2 )(B)(II) TO HOLD THAT IN CASES OF CAPITAL ASSETS ACQUIRED THROUGH GI FT, INHERITANCE, ETC., FOR THE PURPOSE OF COMPUTING LONG TERM CAPITA L GAINS, THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY T HE ASSESSEE HAS TO BE DETERMINED TO WORK OUT THE INDEXED COST OF AC QUISITION AFTER TAKING INTO ACCOUNT THE PERIOD FOR WHICH THE CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. I HAVE ALSO TAKEN N OTE OF THE RECENT JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST VS CIT (2012) 205 TAXMAN 456 , WHERE IN THE MUMBAI SPECIAL BENCH ORDER HAS BEEN FOLLOWED. HENCE , THE JUDGEMENT OF THE ITAT, DELHI, IN THE SAME CASE, WHI CH HAS BEEN RELIED UPON BY THE ASSESSING OFFICER, HAS BEEN OVER RULED. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE DELHI HI GH COURT, IT IS HELD THAT THE INDEXED COST OF ACQUISITION OF THE CAPITAL ASSET ACQUIRED BY THE APPELLANT THROUGH PARTITION OF HUF AND INHERITANCE FROM PARENTS HAS TO BE COMPUTED WITH RE FERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE PROP ERTY IN QUESTION WAS OWNED BY THE HUF OF LATE SHRI K.L. SONDHI FROM PRIOR TO 01.04.1989. THE APPELLANT IS THEREFORE, ENTITLED TO COMPUTE THE INDEXED COST OF ACQUISITION FROM 01.04.1981, BEING THE YEAR THAT THE PROPERTY WAS HELD BY THE PREVIOUS OWNERS, I.E. THE HUF, AND AFTER ITS PARTITION, BY THE PARENTS OF THE APPELLAN T. ACCORDINGLY, GROUNDS OF APPEAL NOS. 1 TO 3 ARE HELD IN FAVOUR OF THE APPELLANT. 3. AT THE OUTSET OF THE HEARING, THE LD. AR SUBMITT ED THAT THIS ISSUE IS COVERED BY THE DECISION OF HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF ARUN SHUNGLOO TRUST VS. CIT REPORTED IN (2012) 249 CTR (DEL.) 294 WHEREIN THE HON'BLE DELHI HIGH COURT HAS HELD AS UN DER :- CAPITAL GAINS-COST OF ACQUISITION-RELEVANT YEAR F OR INDEXATION OF COST VIS-A-VIS PROPERTY ACQUIRED UNDE R GIFT, TRUST, ETC.-THERE IS NO REASON TO HOLD THAT CL. (III) OF T HE EXPLANATION BELOW S. 48 INTENTS TO REDUCE OR RESTRICT THE 'INDE XED COST OF ACQUISITION' TO THE PERIOD DURING WHICH THE ASSESSE E HAS HELD THE PROPERTY AND NOT THE PERIOD DURING WHICH THE PR OPERTY WAS HELD BY THE PREVIOUS OWNER-EXPRESSION 'HELD BY THE ASSESSEE' USED IN EXPLN. (III) TO S. 48 HAS TO BE UNDERSTOOD IN THE CONTEXT AND HARMONIOUSLY WITH OTHER SECTIONS - COST OF ACQU ISITION STIPULATED IN S. 49 MEANS THE COST FOR WHICH THE PR EVIOUS OWNER HAD ACQUIRED THE PROPERTY - TERM 'HELD BY THE ASSES SEE' SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH T HE PROPERTY WAS HELD BY THE PREVIOUS OWNER ASSESSEE TRUST HAV ING ACQUIRED THE PROPERTY IN TRUST ON 5 TH JAN., 1996, WHICH PROPERTY WAS ACQUIRED BY THE PREVIOUS OWNER SOMETIME BEFORE 1 ST APRIL, 1981, ON SALE OF PROPERTY BY THE ASSESSEE IN ASST. YR. 2001-02, IT WAS ENTITLED TO THE BENEFIT OF INDEXED COST OF ACQU ISITION FROM 1 ST APRIL, 1981, AND NOT FOR THE PERIOD ON OR AFTER 5T H JAN., 1996. HELD: AS PER S. 49, THE COST OF ACQUISITION IN THE HANDS OF AN ASSESSEE IS TREATED AS 'THE COST OF ACQUISITION BY THE PREVIOUS OWNER. SIMILAR BENEFIT/ADVANTAGE IS GIVEN IN RESPEC T OF COST OF IMPROVEMENT. SECS. 48 AND 49 HAVE TO BE READ HARMON IOUSLY TO GIVE FULL EFFECT TO THE LEGISLATIVE INTENT. ON READ ING OF CL. (IV) OF EXPLANATION TO S. 48, IT IS APPARENT THAT THE TERM 'COST OF IMPROVEMENT', WOULD INCLUDE THE COST OF IMPROVEMENT (S) MADE BY THE PREVIOUS OWNER. THE BENEFIT OF INDEXED COST OF IMPROVEMENT WOULD BE AVAILABLE EVEN IF THE CAPITAL ASSET IS ACQUIRED BY THE ASSESSEE UNDER ANY GIFT, WILL OR SU CCESSION, TRUST ETC. AND IMPROVEMENT WAS MADE BY THE PREVIOUS OWNER . IF THE CONTENTION OF THE REVENUE IS ACCEPTED, THEN BENEFIT OF INDEXED COST OF ACQUISITION WILL NOT BE AVAILABLE TO AN ASS ESSEE IN A CASE COVERED BY S. 49 FROM THE DATE ON WHICH THE ASSET W AS HELD BY THE PREVIOUS OWNER BUT ONLY FROM THE DATE THE CAPIT AL ASSET WAS TRANSFERRED TO THE ASSESSEE. THIS WILL LEAD TO A DI SCONNECT AND CONTRADICTION BETWEEN 'INDEXED COST OF ACQUISITION AND 'INDEXED COST OF IMPROVEMENT' IN THE CASE OF CAPITA L ASSETS WHERE S. 49 APPLIES. THIS CANNOT BE THE INTENTION B EHIND THE ENACTMENT OF S. 49 AND EXPLANATION TO S. 48. THERE IS NO REASON OR GROUND WHY THE LEGISLATIVE WOULD WANT TO DENY OR DEPRIVE AN ASSESSEE BENEFIT/ADVANTAGE OF THE PREVIOUS HOLDING FOR COMPUTING 'INDEXED COST OF ACQUISITION' WHILE ALLOW ING THE SAID BENEFIT FOR COMPUTING 'INDEXED COST OF IMPROVEMENT' . THE CONSTRUCTION PLACED BY THE REVENUE WILL LEAD TO INCONSISTENCY AND INCONGRUITIES, WHEN ONE REFERS TO S. 49 AND CL. (IV) OF EXPLN. (1) TO S. 48. THIS WILL RESULT IN AB SURDITIES BECAUSE THE HOLDING OF PREDECESSOR HAS TO BE ACCOUNTED FOR THE PURPOSE OF COMPUTING THE COST OF ACQUISITION, COST OF IMPRO VEMENT AND INDEXED COST OF IMPROVEMENT BUT AS PER THE REVENUE NOT FOR THE PURPOSE OF INDEXED COST OF ACQUISITION. EVEN FOR TH E PURPOSE OF DECIDING WHETHER THE TRANSACTION IS A SHORT-TERM CA PITAL GAIN OR LONG-TERM CAPITAL GAIN, THE HOLDING BY THE PREDECES SOR IS TO BE TAKEN INTO CONSIDERATION. BENEFIT OF INDEXED COST O F INFLATION IS GIVEN TO ENSURE THAT THE TAXPAYER PAYS CAPITAL GAIN TAX ON THE 'REAL' OR ACTUAL 'GAIN' AND NOT ON THE INCREASE IN THE CAPITAL VALUE OF THE PROPERTY DUE TO INFLATION. THIS IS THE OBJECT OR PURPOSE IN ALLOWING BENEFIT OF INDEXED COST OF IMPR OVEMENT, EVEN IF THE IMPROVEMENT WAS BY THE PREVIOUS OWNER I N CASES COVERED BY S. 49. ACCORDINGLY THERE IS NO JUSTIFICA TION OR REASON TO NOT ALLOW THE BENEFIT OF INDEXATION TO THE COST OF ACQUISITION IN CASES COVERED BY S. 49. THIS IS NOT THE LEGISLAT IVE INTENT BEHIND CL. (III) OF EXPLANATION TO S. 48. THERE IS NO REASON AND JUSTIFICATION TO HOLD THAT CL. (III) OF THE EXPLANA TION BELOW S. 48 INTENTS TO REDUCE OR RESTRICT THE 'INDEXED COST OF ACQUISITION' TO THE PERIOD DURING WHICH THE ASSESSEE HAS HELD THE P ROPERTY AND NOT THE PERIOD DURING WHICH THE PROPERTY WAS HELD B Y THE PREVIOUS OWNER. THE INTERPRETATION RELIED BY THE AS SESSEE IS REASONABLE AND IN CONSONANCE WITH THE OBJECT AND PU RPOSE BEHIND SS. 48 AND 49. THE EXPRESSION 'HELD BY THE A SSESSEE' USED IN EXPLN. (III) TO S. 48 HAS TO BE UNDERSTOOD IN THE CONTEXT AND HARMONIOUSLY WITH OTHER SECTIONS. THE COST OF A CQUISITION STIPULATED IN S. 49 MEANS THE COST FOR WHICH THE PR EVIOUS OWNER HAD ACQUIRED THE PROPERTY. THE TERM 'HELD BY THE AS SESSEE' SHOULD BE INTERPRETED TO INCLUDE THE PERIOD DURING WHICH THE PROPERTY WAS HELD BY THE PREVIOUS OWNER.-CIT VS. MA NJULA J. SHAH (2012) 249 CTR (BORN) 270 : (2012) 68 DTR (BOR N) 269 CONCURRED WITH. CONCLUSION: ASSESSEE-TRUST HAVING ACQUIRED THE PROP ERTY IN TRUST ON 5TH JAN., 1996, WHICH PROPERTY WAS ACQU IRED BY THE PREVIOUS OWNER SOMETIME BEFORE 1ST APRIL, 1981, ON SALE OF PROPERTY BY THE ASSESSEE IN 2001-02, IT WAS ENTITLE D TO THE BENEFIT OF INDEXED COST OF ACQUISITION FROM 1ST APR IL, 1981, AND NOT FOR THE PERIOD ON OR AFTER 5TH JAN., 1996. 4. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. CONSI DERING THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ARUN SHUNGL OO TRUST, CITED SUPRA, WE UPHOLD THE ORDER OF CIT (A) AND DISMISS THE REVE NUES APPEAL. 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 13 TH DAY OF JUNE, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 13 TH DAY OF JUNE, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.