Mrs. Tejinder Puri, New Delhi V. ACIT, New Delhi

ITA 4877/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4212 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHYAMA S BANSIA
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI C. L. SETHI, JM AND SHRI K. D. RAN JAN, AM I. T. A. NO. 4877 (DEL) OF 2010 ASSESSMENT YEAR : 2007-08. MS. TEJINDER PURI, ASSTT. COMM ISSIONER OF INCOME-TAX, 23 FRIENDS COLONY [WEST]; VS. C I R C L E : 22 (1), N E W D E L H I 110 025. N E W D E L H I . PAN/GIR NO. ACNPP 9828J. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI TARANDEEP SINGH, C. A.; DEPARTMENT BY : MS. SHYAMA S. BANSIA [CIT] D. R .; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 200 7-08 ARISES OUT OF THE ORDER OF THE LD. CIT (APPEALS)-XXIII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER :- 1. THAT ON FACTS AND IN LAW THE CIT (A) ERRED I N UPHOLDING THE COMPUTATION OF THE TAXABLE LONG TERM CAPITAL GAINS BY THE AO AT RS.4,94,25,000/- AS AGAINST RS.33,35,000/- SHOWN BY THE ASSESSEE IN ITS RETURN OF INCOME; 1.1 THAT ON FACTS AND IN LAW FOR THE PURPOSE OF COMPUTING THE TAXABLE LONG TERM CAPITAL GAINS THE CIT (A) ERRED IN UPHOLDING THAT THE INDEXED COST OF ACQUISITION IS TO BE CALCULATED USING COST INFLATI ON INDEX FOR AY 2006-07 AND NOT AY 1981-82; 1.2 THAT ON FACTS AND IN LAW THE CIT (A) ERRE D IN NOT APPRECIATING THAT WHILE COMPUTING THE TAXABLE LONG TERM CAPITAL GAINS IN THE HANDS OF THE ASSESSEE 2 I. T. A. NO. 4877 (DEL) OF 2010 WHO HAD ACQUIRED THE TRANSFERRED ASSET UNDER THE CI RCUMSTANCES SPECIFIED UNDER SECTION 49(1) THE INDEXED COST OF ACQUISITION WAS T O BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET; 2. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY BOTH THE ASSESSING OFFICER [HEREIN ABOVE MENTIONED AS THE AO] AND THE COMMIS SIONER OF INCOME TAX (APPEALS) [HEREIN ABOVE MENTIONED AS THE CIT (A)] ARE VOID AB INITIO AND BAD IN LAW. 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO UPHO LDING THE COMPUTATION OF LONG TERM CAPITAL GAINS BY THE ASSESSING OFFICER AT RS.4,94,25,000/- AS AGAINST RS.33,35,000/- SHOWN BY THE ASSESSEE. THE FACTS OF THE CASE STATED IN BRIEF AR E THAT THE ASSESSEE IN THE RETURN OF INCOME ADMITTED LONG TERM CAPITAL GAIN ARISING ON SALE OF RESIDENTIAL HOUSE AT RS.33,35,000/-. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SOLD PROP ERTY AT PREMISES BEARING NO. 22, FRIENDS COLONY (WEST), MATHURA ROAD, NEW DELHI, ADMEASURING 400 SQ. YDS. FOR RS.12,96,75,000/-. 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. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE AO NOTED THAT THE ASSESSEE WHILE COMPUTING LONG TERM CAPITAL GAIN HAD TAKEN COST INFLATION INDEX OF FINANCIAL YEAR 1981-82 AT 100 IN RESPECT O F THE SAID PROPERTY EVEN THOUGH THE PROPERTY WAS TRANSFERRED IN THE NAME OF THE ASSESSEE IN FINA NCIAL YEAR 2006-07. THE ASSESSING OFFICER, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS TO W HY BENEFIT OF INDEXATION SHOULD NOT BE GIVEN WITH REFERENCE TO FINANCIAL YEAR 2006-07. IN RESPO NSE TO THIS QUERY RAISED, IT WAS SUBMITTED BY THE ASSESSEE THAT THE HOUSE PROPERTY SOLD BY THE AS SESSEE WAS A LONG TERM CAPITAL GAIN ASSET WITHIN THE MEANING OF PROVISIONS OF SECTION 2(42A) OF THE INCOME-TAX ACT, 1961. AS PER THE PROVISIONS OF SECTION 49 OF THE INCOME-TAX ACT, THE COST OF AC QUISITION OF CAPITAL ASSET SHALL BE DEEM TO BE THE COST FOR WHICH THE PREVIOUS OWNER ACQUIRED IT O R IN THE CASE OF THE PROPERTY, WHICH WAS ACQUIRED BY THE PREVIOUS OWNER BEFORE 1/04/1981, TH E ASSESSEE HAD OPTION OF TAKING THE FAIR MARKET VALUE OF THE ASSET AS ON 1/04/1981. IT WAS ALSO SUBMITTED THAT IN DETERMINING THE PERIOD FOR WHICH ANY CAPITAL ASSET WAS HELD BY THE ASSESSE E IN THE CASE OF A CAPITAL ASSET, WHICH BECAME PROPERTY OF THE ASSESSEE IN THE CIRCUMSTANCES MENTI ONED IN SECTION 49(1), THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER SHALL BE I NCLUDED. 3 I. T. A. NO. 4877 (DEL) OF 2010 4. IT WAS FURTHER SUBMITTED THAT BAKSHI SHIV CHARAN SINGH DIED IN 1993 AND LEFT BEHIND, INTER ALIA, THE PROPERTY LOCATED AT 22, FRIENDS COLONY (W EST), NEW DELHI. THE SAID PROPERTY WAS ACQUIRED AND CONSTRUCTED BY HIM IN 1954. IN TERMS OF HIS WILL, THE ENTIRE PROPERTY SUBJECT TO THE ENTITLEMENTS OF OTHER HEIRS WAS BEQUEATHED TO ASSES SEES HUSBAND, LATE COL. RAVI INTER SINGH (THE TESTATOR SON) WITH FULL POWER OF DISPOSITION IN ANY MANNER DEEM FIT. SOMETIMES IN 1999 THE LATE SHRI RAVI INDER SINGH ARRIVED AT A FAMILY SETTLEMEN T WITH HIS SISTERS AND ASSURING THEM OF PLOTS ADMEASURING 400 SQ. YDS EACH IN THE PROPERTY. THIS FAMILY SETTLEMENT COULD NOT BE REDUCED IN WRITING BEFORE HIS DEATH ON 10-12-2004 AND WAS FORM ULIZED ON 2 ND MARCH, 2005 BY WAY OF A MEMORANDUM OF ORAL FAMILY SETTLEMENT REGISTERED AT THE OFFICE OF THE SUB REGISTRAR, CHANDIGARH BY WAY OF AN AGREEMENT BETWEEN THE ASSESSEE FOR AND ON BEHALF OF HER LATE HUSBAND AND REAL SISTERS OF LATE COL. RAVI INDER SINGH. FURTHER IN ORDER TO KEEP THE FAMILY HARMONY INTACT AND FOR THE SAKE OF MENTAL PEACE AND PRESERVATION OF THE HO NOR AND DIGNITY OF THE FAMILY, THE ASSESSEE ALONG WITH HER SISTER IN LAWS ARRIVED AT ANOTHER OR AL FAMILY AGREEMENT WITH THE LEGAL HEIRS OF HER LATE FATHER IN LAW IN DECEMBER, 2005, WHICH WAS RED UCED IN WRITING ON 2 ND JUNE, 2006 AS A CONSEQUENCES OF WHICH THE ASSESSEES SHARE IN THE P ROPERTY WAS SOLD ON 14-11-2006. THE AO IN VIEW OF PROVISIONS OF SECTION 2(42A) READ WITH EXPL ANATION 1(I)(B) HELD THAT PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER HAS TO BE ADDE D TO DECIDE AS TO WHETHER THE ASSET WAS SHORT TERM CAPITAL ASSET OR LONG TERM CAPITAL ASSET. HE HELD THAT THE ASSET WAS LONG TERM CAPITAL ASSET IN VIEW OF EXPLANATION 1(I)(B) TO SECTION 2(42A) OF TH E ACT. THE AO FURTHER NOTED THAT THE VERY VALIDITY AND LEGALITY OF THE WILL WAS QUESTIONABLE AS THE SAME WAS MADE UNDER COERCION. THEREFORE, THE OWNERSHIP RIGHTS WERE BESTOWED VIDE FAMILY SETTLEMENT AND THAT WOULD BE HELD AS THE YEAR IN WHICH THE PROPERTY WAS HELD BY THE ASSE SSEE. THE ASSESSING OFFICER IN VIEW OF SPECIFIC PROVISION OF EXPLANATION (III) OF SECTION 48 HELD THAT INDEXING WAS TO BE ALLOWED FROM FINANCIAL YEAR 2006-07 I.E. THE YEAR FROM WHICH THE PROPERTY WAS HELD BY THE ASSESSEE, AFTER THE EXPIRY OF ASSESSEES HUSBAND AND PURSUANT TO THE FA MILY SETTLEMENT AS ARRIVED AT. IN VIEW OF THESE FACTS THE ASSESSING OFFICER COMPUTED THE CAPITAL GA INS AFTER ALLOWING BENEFIT OF INDEXATION FROM 2006-07 AND EXEMPTION UNDER SECTION 54 OF THE ACT AT RS.4,94,25,000/-. 4 I. T. A. NO. 4877 (DEL) OF 2010 5. ON APPEAL IT WAS SUBMITTED THAT THE ASSESSEES S HARE IN THE PROPERTY WAS DEMARCATED TO HER AFTER THE FAMILY SETTLEMENT IN 2005 AND WAS TIL L THEN HELD BY ALL HEIRS OF THE ASSESSEES FATHER IN LAW JOINTLY AND IT WAS ONLY ON THE SETTLEMENT TH AT SHARES OF EACH WAS DETERMINED AND TRANSFERRED TO RESPECTIVE PERSONS. THE PROPERTY WA S JOINTLY OWNED BY ALL PARTIES TO THE SETTLEMENT EVEN THOUGH NO REGISTERED DOCUMENT EXECUTED. IT W AS FURTHER SUBMITTED THAT THE AO HAD QUOTED THE FACTS CORRECTLY BUT ARRIVED AT THE WRONG CONCL USION. THE ASSESSING OFFICER HAS HELD THAT THE ASSET SOLD WAS LONG TERM CAPITAL ASSET. HOWEVER, F OR THE PURPOSES OF INDEXATION HE HAS TAKEN THE FINANCIAL YEAR 2006-07 WHEN FAMILY SETTLEMENT WAS A RRIVED AT. THE LD. CIT (APPEALS) ON CONSIDERATION OF THE FACTS OF THE CASE OBSERVED THA T THE WORD HELD APPEARING IN EXPLANATION (III) TO SECTION 48 INDICATES TWO ASPECTS I.E. POINT OF T IME AND THE HOLDER, WHICH IN SUCH CASES WOULD BE THE TRANSFEROR AND NOT THE ORIGINAL HOLDER FROM WHOM THE ASSET WAS DEVOLVED TO THE CURRENT OWNER. THEREFORE, CLOSE READING OF THE EXPLANATION (III) TO SECTION 48 LEFT NO ROOM FOR INTERPRETATION AS TO DETERMINE THE YEAR FROM WHICH THE INDEXATION WAS TO BE APPLIED. THE AUTHORIZED REPRESENTATIVES ATTEMPT TO LINK DEFINIT ION OF COST OF ACQUISITION AS DEFINED IN SECTION 49(II) WITH THE DEFINITION OF THE LONG TERM CAPITAL ASSET AS DEFINED UNDER SECTION 2(42A) TO DERIVE HOME A PROPOSITION THAT INDEXATION TO SUCH COST OF ACQUISITION WOULD ALSO BE WITH REFERENCE TO THE PERIOD OF HOLDING OF ASSET BY THE ORIGINAL HOLDER, IS NOT WARRANTED AND WOULD AMOUNT TO GIVING MORE MEANING TO THE LEGISLATIVE INTENT. THE AO HAS SIMPLY GIVEN EFFECT TO THE SPECIFIC PROVISION TO THE CAPITAL GAINS. THE PROVISIONS REGARDING COM PUTATION OF CAPITAL GAINS AS CONTAINED IN SECTION 45 TO 55-A HAVE SPECIFICALLY ALLOWED INDEXA TION WITH REFERENCE TO THE OWNERSHIP OF THE PREVIOUS OWNER, WHEREVER DEEMED NECESSARY. FOR INS TANCE SECTION 55(1)(B) AND EXPLANATION (IV) TO SECTION 48 CLEARLY GIVE THIS ADVANTAGE OF INDEXA TION IN CLEAR TERMS WITH REFERENCE TO THE COST OF ANY IMPROVEMENT. THE LANGUAGE OF THE STATUTE IN EX PLANATIONS (III) AND (IV) TO SECTION 48 IS UNAMBIGUOUS AND, THEREFORE, THERE IS NO ROOM FOR AN Y HARMONIOUS CONSTRUCTION. ACCORDINGLY, THE LD. CIT (A) HELD THAT THERE WAS NO LOGIC IN IMPORTI NG ANY INTENT IN EXPLANATION (III) TO SECTION 48 TO MEAN THAT THE PERIOD OF HOLDING OF THE ASSET IS TO BE CONSTRUED WITH REFERENCE TO THE PERIOD OF HOLDING OF THE ORIGINAL HOLDER. THE LD. CIT (A) RE LIED ON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF DCIT VS. KISHORE KANUNGO 102 I .T.D. 437. THE LD. CIT (A) AFTER CONSIDERING THE MATTER IN DETAIL UPHELD THE STAND T AKEN BY THE ASSESSING OFFICER. 5 I. T. A. NO. 4877 (DEL) OF 2010 6. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSING OFFICER HAS ACCEPTED THE ASSET TO BE LONG TERM CAPITAL ASSET. HOWEVER, FOR THE PURPOSE OF INDEXATION HE HAS ALLOWED BENEFIT OF INDEXATION FOR FINANCIAL YEAR 2006-07 WH EN THE PROPERTY CAME TO THE SHARE OF THE ASSESSEE BY WAY OF FAMILY SETTLEMENT. HE PLACED RE LIANCE ON THE DECISION OF ITAT, MUMBAI BENCH (SPECIAL BENCH) IN THE CASE OF DCIT VS. MANJU LA J. SHAH (2010) 35 SOT 105 (MUM.) (SB). HE FURTHER SUBMITTED THAT THE DECISION RELIE D IN THE CASE OF DCIT VS. KISHORE KANUNGO (SUPRA) HAS BEEN DISAPPROVED BY THE SPECIAL BENCH. IN VIEW OF THESE FACTS IT HAS BEEN SUBMITTED THAT THE BENEFIT OF INDEXATION HAS TO BE ALLOWED WI TH EFFECT FROM 1/04/1981. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT ( APPEALS). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAS RECEIVED THE PORTION OF THE PROPERTY BY WAY OF FAMILY 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 TERM 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 COMPUTATION OF CAPITAL GAINS. UNDER SE CTION 49 WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY WAY OF MODES SPECIFIED IN CLAUSES (I) TO (IV), THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEM TO BE THE COST FOR WHICH TH E PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT AS INCREASED BY COST OF ANY IMPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR BY THE ASSESSEE, AS THE CASE MAY BE. EXPLANATION T O SECTION 49 DEFINES THE EXPRESSION PREVIOUS OWNER IN RELATION TO ANY CAPITAL ASSET OWNED BY AN ASSESSEE AND MEANS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET, WHO ACQUIRED IT BY A MODE OF ACQUISITION OTHER THAN THAT REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (III) OR CLAUSE (IV) O F SECTION 49 OF THE ACT. THE ASSESSEE HAD RECEIVED THE PROPERTY BY SUCCESSION, INHERITANCE OR DEVOLUTI ON AS SPECIFIED IN CLAUSE (IIIA). THEREFORE, THE PREVIOUS OWNER IN RELATION TO THE CAPITAL ASSET WOU LD MEAN BAKSHI SHIV CHARAN SINGH. IN THIS CASE THE PROPERTY CAME TO BY WAY OF WILL TO THE ASS ESSEES HUSBAND AND FINALLY AS PER THE TERMS OF THE WILL A PORTION OF THE PROPERTY CAME TO THE SHAR E OF THE ASSESSEE BY WAY OF FAMILY SETTLEMENT. NOW QUESTION ARISES AS TO WHETHER THE BENEFIT OF I NDEXATION WILL BE ALLOWABLE WITH REFERENCE TO1/04/1981 OR FROM THE YEAR IN WHICH SETTLEMENT WA S ARRIVED AT. IN THE INSTANT CASE, THE FAMILY 6 I. T. A. NO. 4877 (DEL) OF 2010 SETTLEMENT WAS ARRIVED AT ON 2 ND JUNE, 2006 I.E. IN THE FINANCIAL YEAR 2006-07. WH EN 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 RENDER THE CAPITAL GAINS AS SHORT TERM CAPITAL GAINS. ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF MANJULA J. SHAH (SUPRA) HAS HELD THAT FOR THE PURPOSE OF COMPUTING LONG TER M 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 PREVIO US OWNER FIRST HELD THE ASSET. THEREFORE, ON APPLYING THE RATIO OF THE DECISION OF THE SPECIAL B ENCH OF ITAT IN THE CASE OF MANJULA J. SHAH (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, I N OUR CONSIDERED OPINION THE LD. CIT (A) IS NOT JUSTIFIED IN UPHOLDING THE STAND OF THE ASSESSING O FFICER THAT THE INDEX COST OF THE ACQUISITION SHOULD BE COMPUTED WITH REFERENCE TO FINANCIAL YEAR 2006-07 AND NOT WITH REFERENCE 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 RE FERENCE TO THE DATE OF FIRST OWNER OF THE ASSET I.E. 1/04/1981. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 21 ST APRIL, 2011. SD/- SD/- [ C. L. SETHI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 21 ST APRIL, 2011. * MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 7 I. T. A. NO. 4877 (DEL) OF 2010 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.