M/s Kashyap Metal & Allied Industries Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5102/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81972 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Question of law; Cost of acquisition

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5102 /DEL/ 2011 (ASSESSMENT YEAR: 2008 - 09 ) KASHYAP METAL & ALLIED INDUSTRIES LTD. , 49, FOUR SQUARE HOUSE, COMMUNITY CENTRE, FRIENDS COLONY, NEW DELHI, PAN:AAACK1822B VS. ADDL. CIT RANGE - 5, NEW DELHI (APPELLANT) (RESPONDENT) O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS APPEAL ARISING FROM AN ORDER DATED 08 TH SEPTEMBER 2011 OF THE LD CIT(A) - VIII, NEW DELHI AND RELATES TO ASSESSMENT YEAR 2008 - 09. 2. ALL THE GROUNDS RAISED IN THE INSTANT APPEAL RELATE TO COMPUTATION OF CAPITAL GAIN ON TRANSFER OF LAND AND BUILDING BY THE APPELLANT COMPANY IN THE YEAR UNDER CONSIDERATION. 3. BRIEF LY STATED THE FACTS ARE THAT THE APPELLANT COMPANY ACQUIRED LEASEHOLD IND USTRIAL LAND IN THE YEAR 1973 MEASURING 4067 SQ YARDS (APPROX) AT MOHAN COOPERATIVE INDUSTRIAL ESTATE. ON THE SAID LAND, CONSTRUCTION OF OFFICE PREMISES WAS UNDERTAKEN BY THE APPELLANT, WHICH GOT COMPLETED DURING FINANCIAL YEAR 1998 - 99 AS EVIDENT FROM THE COMPLETION CERTIFICATE, DATED 26.03.1999, ISSUED BY THE DDA. AFTER COMPLETION OF CONSTRUCTION OF OFFICE PREMISES IN 1999, THE APPELLANT UNDERTOOK VARIOUS IMPROVEMENTS WHICH WERE APPELLANT BY : AJAY VOHRA, ADV. RESPONDENT BY : VIVEK NANGIA, SR. DR PAGE 2 OF 12 FINALLY COMPLETED DURING THE FINANCIAL YEAR 2005 - 06. IN THE YEAR 2003, THE APP ELLANT APPLIED TO DDA FOR CONVERSION OF LEASEHOLD LAND, INTO FREEHOLD LAND. ON 25.01.2007, DDA EXECUTED CONVEYANCE DEED IN FAVOUR OF THE APPELLANT CONVERTING THE LAND INTO FREEHOLD LAND. THE APPELLANT PAID RS.3,89,89,196/ - TO DDA FOR SUCH CONVERSION FROM L EASEHOLD LAND TO FREEHOLD LAND, WHICH COMPRISES OF THE FOLLOWING COMPONENTS: - A) CONVERSION CHARGES RS.53,21,759/ - B) OTHER DUES RS.20,24,316/ - C) UEI CHARGES RS.3,12,17,381/ - D) STAMP DUTY RS.4,25,740/ - THE APPELLANT, THEREAFTER, ON 07.04.2007, SOLD THE ENTIRE LAND ALONG WITH SUPERSTRUCTURE FOR A CONSIDERATION OF RS.30 CRORES AND OFFERED FOR TAX LONG TERM CAPITAL GAINS OF RS.4,07,35,010/ - , WHICH WERE COMPUTED AS UNDER: - TOTAL SALES CONSIDERATION RS.30, 00,00,000/ - LESS: INDEXED COST OF ACQUISITION AND IMPROVEMENT ON LAND & BUILDING - RS.25,58,52,290/ - LESS: SELLING EXPENSES (PROFESSIONAL FEES) (RS.34,12,700) LTCG RS.4,07,35,010/ - 4. HOWEVER THE AO, IN THE ORDER OF THE ASSESSMENT DATED 30 TH DEC EMBER 2010, DETERMINED THE LONG TERM CAPITAL GAIN AT RS.5,08,54,387/ - AS AGAINST RS.4,07,35,010/ - DECLARED BY THE ASSESSEE. IN ARRIVING AT THE ABOVE CONCLUSION THE AO HAS HELD THAT THE FREE - HOLD RIGHTS WERE ACQUIRED BY THE ASSESSEE ONLY DURING THE FINANCIA L YEAR 2006 - 07. AND AS SUCH TRANSFER THEREOF CONSTITUTED, TRANSFER OF A SHORT - TERM CAPITAL ASSET, SINCE THREE YEARS HAVE NOT ELAPSED FROM THE DATE OF ACQUISITION OF THE FREE - HOLD RIGHTS. HE FURTHER HELD THAT THE TRANSFER OF FREE - HOLD RIGHTS WAS AT THE COST OF THE CONSIDERATION PAID FOR ACQUISITION OF THE PAGE 3 OF 12 RIGHT I.E. RS.3,89,89,186/ - . IN OTHER WORDS, IN AOS OPINION THERE WAS NO SHORT - TERM CAPITAL GAIN ON TRANSFER OF THE FREE - HOLD RIGHTS. FURTHER HE HELD THE BALANCE CONSIDERATION OF RS.26,10,10,804/ - (RS.30,0 0,00,000/ - RS.3,89,89,186/ - ) AS CONSIDERATION RECEIVED FOR TRANSFER OF LONG - TERM CAPITAL ASSET COMPRISING OF COST OF LAND, COST OF CONSTRUCTIONS, COST OF INTEREST AND OTHER CHARGES. AND THEREFORE COMPUTED THE LONG - TERM CAPITAL GAIN AS UNDER: - 15. IN VIEW OF THE ABOVE DISCUSSION, THE TOTAL COST OF THE LONG TERM CAPITAL ASSET TRANSFERRED BY ASSESSEE WOULD BE THE SUM OF: - A. INDEXED COST OF LAND RS.1,25,25,589/ - B. INDEXED COST OF CONSTRUCTION/ IMPROVEMENT RS.16,16,75,673/ - C. COST OF INTEREST PAYMENT RS.3,25 ,42,455/ - D. OTHER CHARGES RELATED TO TRANSFER ` RS.34,12,700/ - HENCE TOTAL COST OF LONG TERM ASSET TRANSFERRED IS A+B+C+D=21,01,56,417/ - THEREFORE, LONG TERM CAPITAL GAIN ACCRUING TO ASSESSEE IS RS.26,10,10,804/ - - RS21,01,56,417/ - =RS. 5,08,54,387/ - 5. IN N UT - SHELL, THE AO MADE AN ADDITION OF RS.1,01,19,377/ - TO THE DECLARED LONG - TERM CAPITAL GAIN OF THE ASSESSEE. 6. ON APPEAL, THE LD CIT(A) ON CONSIDERATION OF THE FACTS AND AFTER HEARING THE SUBMISSION OF THE ASSESSEE HELD THAT THE ESTATE ACQUIRED BY THE A SSESSEE COMPANY IN TERMS OF THE LEASE DATED 09 TH MAY 1973, HAD MERGED WITH THE GREATER ESTATE ACQUIRED BY THE ASSESSEE COMPANY IN TERMS OF THE CONVEYANCE DEED EXECUTED ON 25 TH JANUARY 2007. HE OBSERVED THAT NO BENEFIT OF INDEXATIONS REGARDING COST OF LAND HAS TO BE GRANTED TO THE ASSESSEE, SINCE THE LAND SOLD WAS A SHORT - TERM CAPITAL ASSET, WHICH RESULTED INTO ENHANCEMENT OF CAPITAL GAIN. 7. IN THE APPEAL BEFORE US, THE LD SR. COUNSEL FOR THE ASSESSEE, SHRI AJAY VOHRA, CONTENDED THAT THE LD CIT(A) ERRED IN HOLDING THAT THE LAND SOLD WAS A PAGE 4 OF 12 SHORT - TERM CAPITAL ASSET. HE SUBMITTED THAT ON CONVERSION THAT THERE WAS ONLY QUALITATIVE IMPROVEMENT IN T HE RIGHT EXISTING OF THE ASSESSEE. AND THERE WAS NO CHARGE WHATSOEVER IN THE NATURE AND CHARACTER OF THE LAND IN QUESTION. IN SUPPORT OF THIS SAID SUBMISSION HE REFERRED TO THE JUDGEMENT OF THE ALLAHABAD HIGH COURT IN THE CASE OF CIT(A) VS. SMT. RAMA RANI KALIA 358 ITR 499 AND JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CIT VS. FRIC INDIA LTD IN ITA NO. 146 OF 2002 DATED 2 ND SEPTEMBER, 2014. 8. THE LD DR SUPPORTED THE VIEW OF THE LD CIT(A) THAT IN TERMS OF THE LEASE DEED THE ASSESSEE WAS INCORRECT IN CONTENDING THAT THERE WAS ONLY A QUALITATIVE CHANGE IN THE TITLE. HE REFERRED TO THE DECISION IN THE CASED OF CIT VS. MODI (KARNATAKA) 218 ITR 01 AND CIT VS. IRANI 234 ITR 850 (MUM). THE LD SR. COUNSEL SHRI VOHRA IN HIS REJOINDER SUBMITTED THAT PERUSAL O F THE LEASE AGREEMENT WILL REVEAL THAT ASSESSEE ACQUIRED THE INDUSTRIAL PLOT WITH ALL THE TRAPPINGS OF THE OWNER AND THE PROPERTY WAS TO REMAIN WITH THE ASSESSEE IN PERPETUITY. HE SUBMITTED THAT THE RIGHTS CANNOT BE COMPARE D WITH THE ORDINARY RIGHTS OF A LESSEE UNDER THE LEASE WHO IS A MERE TENANT. IT WAS SUBMITTED BY THE SR. COUNSEL MR. AJAY VOHRA, THAT T HE CONVERSION OF PROPERTY FROM PERPETUAL LEASE TO FREEHOLD IS JUST AN IMPROVEMENT AND BETTERMENT OF THE ALREADY EXISTING RIGHTS OF THE LESSEE, BY REMOVI NG THE REQUIREMENT OF SEEKING PRIOR WRITTEN CONSENT OF THE LESSOR AND PAYMENT OF UNEARNED INCREASE. IN VIEW OF THE AFORESAID , IT WA S SUBMITTED THAT THE APPELLANT CONTINUED TO OCCUPY AND ENJOY THE INDUSTRIAL PLOT AS AN OWNER FROM THE YEAR 1973 AND CONVERSI ON OF LEASEHOLD TO FREEHOLD MERELY HAD THE EFFECT OF IMPROVEMENT/ BETTERMENT OF THE APPELLANTS RIGHTS OVER THE PLOT, WITHOUT BRINGING INTO EXISTENCE AN ALTOGETHER PAGE 5 OF 12 NEW CAPITAL ASSET. THEREFORE THE LD. SR. COUNSEL PRAYED THAT THE IMPUGNED ORDER MAY BE SET A SIDE. 9 . WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORDS OF THE CASE AND GONE THROUGH THE CASE LAWS BEFORE US . DURING THE YEAR CONSIDERATION, THE ASSESSEE HAD SOLD THE FREE - HOLD PLOT SITUATED AT MOHAN CO - OPERATIVE INDUSTRIAL ESTATE, MADHURE ROAD, NEW DELHI, IN TERMS OF SALE DEED DATED 27 TH APRIL 2007 FOR AN AGGREGATE CONSIDERATION OF RS.30 CRORES. THE ASSESSEE, ON SUCH TRANSFER OF THE LAND COMPUTED LONG - TERM CAPITAL GAIN AT RS.4,07,35,010/ - . THE AO, HOWEVER DETERMINED THE LONG TERM CAPITAL GA IN AT RS.5,08,54,387/ - ON THE GROUND THAT THERE WAS TRANSFER OF FREE - HOLD RIGHTS. AS REGARDS TRANSFER OF FREE - HOLD RIGHTS HE CONCLUDED THAT THERE WAS NO SHORT - TERM CAPITAL GAIN , SINC E SALE CONSIDERATION DEEMED TO B E EQUIVALENT TO COST OF FREE - HOLD RIGHTS O F RS.3,89,89,196/ - . FURTHER AS REGARDS THE ASSETS OTHER THAN FREE - HOLD RIGHTS HE COMPUTED LONG - TERM CAPITAL GAIN AT RS.5,08,54,387/ - BY CONCLUDING THAT NO INDEXATION WOULD BE ALLOWABLE ON BORROWING COST. THUS THE DETERMINATION OF CAPITAL GAIN BY THE AO WA S CHALLENGED BY THE ASSESSEE ON FOLLOWING TWO COUNTS (A) THAT F R EE - HOLD RIGHTS IS NOT AN INDEPENDENT ASSET AND THEREFORE NO SHORT - TERM CAPITAL GAIN SHOULD HAVE BEEN VALIDITY COMPUTED (B) THAT BORROWING COST ARE ALSO ELIGIBLE FOR INDEXATION. THE LD CIT(A) O N EXAMINATION OF THE SAID CONTENTIONS CAME TO THE CONCLUSION THAT THERE WAS TERMINATION OF LEASE - HOLD RIGHTS ON CONVERSION OF LEASE - HOLD LAND INTO FREE - HOLD LAND. AND AS SUCH THE CAPITAL GAIN ACCRUING TO THE ASSESSEE WAS SHORT - TERM CAPITAL GAIN. CONSEQUENT LY HE ALSO HELD THAT NO INDEXATION WAS AVAILABLE TO THE ASSESSEE ON THE COST INCURRED FOR THE LAND. FURTHERMORE HE ALSO HELD THAT THE ASSESSEE IS NOT PAGE 6 OF 12 ENTITLED TO INDEXATION BENEFIT ON THE BORROWING COST WHILE COMPUTING LONG TERM CAPITAL GAIN ON SALE OF BUI LDING. NO APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE SAID CONCLUSION OF THE LD CIT(A). THE CHALLENGE OF THE ASSESSEE IS FIRSTLY CONFINED TO THE NATURE OF THE ASSET TRANSFERRED IN THE YEAR UNDER CONSIDERATION I.E. WHETHER THE LAND SOLD IS A SHORT - TERM CAPITAL ASSET OR A LONG - TERM CAPITAL ASSET. ADMITTEDLY THE LAND SOLD WAS INITIALLY HELD BY THE ASSESSEE AS A LEASE - HOLD LAND AND TRANSFERRED AS A FREE - HOLD LAND IN THE INSTANT YEAR. THE LD DR SUBMITTED THAT THE PERIOD OF HOLDING AS A LEASE - HOLD LAND I S NOT TO BE CONSIDERED WHILE DETERMINING THE PERIOD OF HOLDING OF THE FREE HOLD LAND. WE FIND THAT THIS ISSUE CAME UP RECENTLY BEFORE THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FRICK INDIA LTD. (SUPRA). IN THE SAID CASE THE HONBLE DELHI HIGH COU RT HELD AS UNDER: - 8. ASSUMING THAT THERE WAS A REGISTERED INSTRUMENT UNDER WHICH THE LEASE WAS FIRST CREATED ON 15TH MARCH, 1973, THE ASSESSEE UPON END OF THE TERM OF THE LEASE WOULD BE A TENANT BY HOLDING OVER UNDER SECTION 116 OF THE TRANSFER OF PROPERTY ACT. THE SAID SECTIO N PROVIDES THAT WHERE A TENANT AFTER END OR DETERMINATION OF THE LEASE, REMAINS IN POSSESSION OF THE PROPERTY AND RENT IS ACCEPTED BY THE LESSOR (THE LANDLORD), IN THE ABSENCE OF AN AGREEMENT TO THE CONTRARY, THE LEASE IS TREATED AS RENEWED FROM YEAR TO YE AR OR FROM MONTH TO MONTH, AS THE CASE MAY BE. IN SUCH CASES ALSO WHEN RENT IS PAID AND ACCEPTED SECTION 106 OF THE TRANSFER OF PROPERTY ACT WOULD APPLY AND NOTICE OF CASE MAY BE. IN SUCH CASES ALSO WHEN RENT IS PAID AND ACCEPTED TERMINATION HAS TO BE ISSU ED. SECTION 116 OF THE TRANSFER OF PROPERTY ACT ALSO, THEREFORE, MAKES SECTION 106 APPLICABLE ONCE RENT IS ACCEPTED AFTER DETERMINATION OR END OF THE TENURE OF THE LEASE. THE EFFECT THEREOF ON APPLICABILITY OF SECTION 106 OF THE TRANSFER OF PROPERTY ACT IS THE SAME IN EITHER CASE. MONTH - TO - MONTH TENANCY CANNOT BE CONFUSED WITH THE RIGHT TO OCCUPY AS A TENANT AS A NOTICE UNDER SECTION 106 OF THE TRANSFER OF PROPERTY ACT IS REQUIRED TO BE ISSUED BEFORE EJECTMENT PROCEEDINGS ARE INITIATED. 9. 'LONG - TERM ASSE T' HAS BEEN DEFINED IN SECTION 2(29B) OF THE ACT AS AN ASSET WHICH IS NOT A SHORT - TERM CAPITAL ASSET AND THE EXPRESSION 'SHORT - PAGE 7 OF 12 TERM CAPITAL ASSET' HAS BEEN DEFINED IN SECTION 2(42A) OF THE ACT TO MEAN THE CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN 36 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSF1THE EXPRESSION 'HELD BY THE ASSESSEE' MEANS THE DATE FROM WHEN THE ASSESSEE ACQUIRED THE RIGHT, GOT HOLD OF AND START~ ENJOYING THE SAID ASSET. IN THE PRESENT CASE, THE ASSESSEE HAD ACQUIRED TENANCY R IGHTS ON 15TH MARCH, 1973 AND SINCE THEN THEY HAD HELD THE SAID TENANCY RIGHTS TILL THE SURRENDER WAS MADE ON 18TH FEBRUARY, 1997. THE TRANSFER OF PROPERTY HAD TAKEN PLACE ON 18TH FEBRUARY, 1977 AND NOT BEFORE. THE PERIOD OF HOLDING, THEREFORE, WAS FROM 15 TH MARCH, 1973 TILL 18TH FEBRUARY, 1997. NO THIRD PERSON, WHO HAD COME INTO POSSESSION OF THE PROPERTY DURING THE PERIOD AND IT IS NOT A CASE OF THE REVENUE THAT RESPONDENT - ASSESSEE DID NOT HOLD THE PROPERTY DURING THE ENTIRE PERIOD OF OVER 14 YEARS. 10. WE WOULD LIKE TO ELUCIDATE AND EXPLAIN THE EXPRESSION, 'HELD BY THE ASSESSEE' IN SOME DETAIL. GENERAL WORDS SHOULD NORMALLY RECEIVE PLAIN AND ORDINARY CONSTRUCTION BUT THIS PRINCIPLE IS SUBJECT TO THE CONTEXT IN WHICH THE WORDS ARE USED AS THE WORDS REFLE CT THE INTENTION OF THE LEGISLATURE. THE WORDS HAVE TO BE CONSTRUED AND INTERPRETED TO EFFECTUATE THE OBJECT AND PURPOSE OF THE PROVISION, WHEN THEY ARE CAPABLE OF MULTIPLE MEANINGS OR ARE AMBIGUOUS. ISOLATED READING OF WORDS CAN ON OCCASIONS NEGATE THE VE RY PURPOSE. LORD DIPLOCK HAD REFERRED TO THE TERM, 'BUSINESS' AS AN 'ETYMOLOGICAL CHAMELEON', WHICH SUITS ITS MEANING TO THE CONTEXT IN WHICH IT IS FOUND. THE BACKGROUND, THEREFORE, HAS TO BE GIVEN DUE REGARD AND NOT TO BE IGNORED, TO AVOID ABSURDITIES. TH IS PRINCIPLE IS APPLICABLE WHEN WE INTERPRET THE WORD, 'HELD' IN SECTION 2(42A) OF THE ACT, FOR THE SAID WORD IS CAPABLE OF DIVERGENT AND DIFFERENT CONNOTATIONS AND UNDERSTANDING. 11. THE WORD, 'HELD' AS USED IN SECTION 2(42A) OF THE ACT IS WITH REFERENC E TO A CAPITAL ASSET AND THE TERM, 'CAPITAL ASSET' IS NOT CONFINED AND RESTRICTED TO OWNERSHIP OF A PROPERTY OR AN ASSET. CAPITAL ASSETS CAN CONSIST OF RIGHTS OTHER THAN OWNERSHIP RIGHT IN AN ASSET, LIKE LEASEHOLD RIGHTS, ALLOTMENT RIGHTS, ETC. THE SEQUITU R, THEREFORE, IS THAT WORD HELD OR HOLD IS NOT SYNONYMOUS WITH RIGHT OVER THE ASSET AS AN OWNER AND HAS TO BE GIVEN A BROADER AND WIDER MEANING. IN BLACK'S LAW DICTIONARY, SIXTH EDITION, THE WORD 'HOLD' HAS BEEN GIVEN A VARIETY OF MEANINGS UNDER NINE D IFFERENT HEADINGS. FOUR OF THEM, I.E, 1, 4, 8 AND 9 READ AS UNDER: '1. TO POSSESS IN VIRTUE OF A LAWFUL TITLE; AS IN THE EXPRESSION, COMMON IN GRANTS, 'TO HAVE AND TO HOLD,' OR IN THAT APPLIED TO NOTES, ''THE OWNER AND HOLDER.' XXX PAGE 8 OF 12 4. TO MAINTAIN OR SUS TAIN; TO BE UNDER THE NECESSITY OR DUTY OF SUSTAINING OR PROVING; AS WHEN IT IS SAID THAT A PARTY 'HOLDS THE AFFIRMATIVE' OR NEGATIVE OF AN ISSUE IN A CAUSE. XXX 8. TO POSSESS; TO OCCUPY; TO BE IN POSSESSION AND ADMINISTRATION OF; AS TO HOLD OFFICE. 9. TO KEEP; TO RETAIN; TO MAINTAIN POSSESSION OF OR AUTHORITY OVER.' AS PER CLAUSE 8, THE WORD 'HOLD' MEANS TO POSSESS OR OCCUPY, TO BE IN POSSESSION AND WOULD ALSO INCLUDE TO KEEP, RETAIN AND MAINTAIN POSSESSION OR AUTHORITY OVER AN ASSET. 12. THE WORD 'H ELD' THUS CAN BE INTERPRETED TO EMBRACE THE IDEA OF ACTUAL POSSESSION OF THE ASSESSEE. IN BUDHAN SINGK VERSUS BABI BUX, AIR 1970 SC 1880 (AT PAGE 1884) THE WORD 'HELD' WAS INTERPRETED TO MEAN 'LAWFULLY HELD, TO POSSESS BY LEGAL TITLE'. THE TERM 'LEGAL TITL E' HERE NOT ONLY INCLUDES OWNERSHIP, BUT ALSO TITLE OR RIGHT OF A TENANT WHICH WILL MEAN ACTUAL POSSESSION OF THE LAND AND A RIGHT TO HOLD THE SAME AND CLAIM POSSESSION THEREOF AS A TENANT (WE ARE NOT EXAMINING RIGHTS OF A RANK TRESPASSER IN THE PRESENT DE CISION AND WE EXPRESS NO OPINION IN THAT REGARD). 13. THE TRIBUNAL IN OUR OPINION HAS RIGHTLY RELIED UPON THE DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN CIT VERSUS VED PRAKASH & SONS (HUF), (1994) 207 ITR 148 (P&H) IN WHICH IT HAS BEEN HELD AS UNDE R: - 'AS IS CLEAR FROM A BARE READING OF SECTION 2( 42A) OF THE ACT, THE WORD 'OWNER' HAS DESIGNEDLY NOT BEEN USED BY THE LEGISLATURE. THE WORD 'HOLD', AS PER DICTIONARY MEANING, MEANS TO POSSESS, BE THE OWNER, HOLDER OR TENANT OF (PROPERTY, STOCK, LAND.). THUS , A PERSON CAN BE SAID TO BE HOLDING THE PROPERTY AS AN OWNER, AS A LESSEE, AS A MORTGAGEE OR ON ACCOUNT OF PART PERFORMANCE OF AN AGREEMENT, ETC. CONVERSELY, ALL SUCH OTHER PERSONS WHO MAY BE TERMED AS LESSEES, MORTGAGEES WITH POSSESSION OR PERSONS IN POS SESSION AS PART PERFORMANCE OF THE CONTRACT WOULD NOT IN STRICT PARLANCE COME WITHIN THE PURVIEW OF 'OWNER'. AS PER THE SHORTER OXFORD DICTIONARY. EDITION 1985, 'OWNER' MEANS ONE WHO OWNS OR HOLDS SOMETHING; ONE WHO HAS THE RIGHT TO CLAIM TITLE TO A THING' (EMPHASIS SUPPLIED) 14. THE SAID DECISION WAS FOLLOWED BY THE PUNJAB AND HARYANA HIGH COURT SUBSEQUENTLY IN MADHU KAUL VERSUS CIT & ANOTHER, (2014) 363 11R 54 (P&H). THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX VERSUS K. RAMAKRISHNAN, (2014) 209 DLT 14 HAS HELD THAT FOR THE PURPOSE OF CALCULATING PERIOD OF HOLDING WE HAVE TO LOOK AND TAKE INTO ACCOUNT THE DATE SINCE THE ASSESSEE GOT 'BENEFICIAL INTEREST' IN THE PROPERTY. THE PAGE 9 OF 12 ALLAHABAD HIGH COURT IN CIT VERSUS RAMA RANI KALIA, (2013) 358 11R 499 (A LL) HAS DRAWN DISTINCTION BETWEEN HOLDING OF AN ASSET AND THE NATURE OF TITLE OVER THE PROPERTY AND IT HAS BEEN OBSERVED THAT PERIOD OF HOLDING WILL DETERMINE WHETHER THE CONSIDERATION SHOULD BE TAXED AS A SHORT - TERM CAPITAL GAINS OR LONG - TERM CAPITAL GAIN S. THUS, CONVERSION OF LEASEHOLD RIGHT INTO FREEHOLD BY WAY OF IMPROVING THE TITLE OVER THE PROPERTY WOULD NOT AFFECT THE TAXABILITY OF THE GAIN FROM SUCH PROPERTY, WHICH IS RELATABLE FO THE PERIOD OVER WHICH THE PROPERTY YEARS AND CONSIDERATION RECEIVED O N SURRENDER HAS BEEN RIGHTLY TREATED AS A LONG TERM CAPITAL GAIN. 15. IN VIEW OF THE AFORESAID DISCUSSION, THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE APPELLANT - REVENUE. COSTS WILL E PAYABLE BY THE APPELLANT AS PER THE DELHI HIGH COURT RULES. 10. APPLYING THE AFORESAID JUDGEMENT TO THE FACTS OF THE INSTANT CASE, WE HAVE NO HESITATION TO HOLD THAT THE CAPITAL GAIN ACCRUING ON SALE OF THE LAND IN QUESTION WAS A LONG - TERM CAPITAL GAIN AS THE LAND HELD AND TRANSFERRED WAS A LONG TERM CAPITAL ASSET, SINCE THE SAID LAND WAS HELD FOR A PERIOD OF MORE THAN 3 YEARS. THE NATURE OF RIGHTS I.E. LEASE - HOLD OR FREE HOLD IS NOT A RELEVANT CONSIDERATION ONCE THE ASSET HAS BEEN HELD BY THE ASSESSEE FOR A PERIOD OF MORE THAN 3 YEARS PRIOR TO TH E DATE OF TRANSFER. THUS WE SET ASIDE THE FINDING OF THE LD CIT(A), THAT THE ASSET SOLD WAS A SHORT - TERM CAPITAL ASSET AND FURTHER HOLD THAT THE LAND SOLD WAS A LONG - TERM CAPITAL ASSET AND ENTIRE GAIN ACCRUING ON SUCH TRANSFER IS TAXABLE AS A LONG - TERM CAP ITAL GAIN ONLY. 11. THE NEXT ISSUE RELATES TO NON - GRANT OF INDEXATION ON THE INTEREST PAID ON BORROWED FUNDS. 12. THE AO REJECTED THE CLAIM OF INDEXATION ON THE GROUNDS THAT : - (A) THE CONSTRUCTION OF THE PREMISES HAD NOT BEEN CARRIED OUT BY THE APPELLAN T COMPANY ON A CONTINUOUS BASIS, (B) ACCOUNTING STANDARD - 16 PROVIDES THAT CAPITALIZATION OF BORROWING COST SHOULD BE SUSPENDED DURING EXTENDED PERIODS PAGE 10 OF 12 IN WHICH ACTIVE DEVELOPMENT IS INTERRUPTED AND (C) THE APPELLANT COMPANY ITSELF HAD CAPITALIZED THE INTER EST COST IN THE BOOKS OF ACCOUNTS DURING THE F.Y. 2006 - 07 ONLY AND THEREFORE, THERE WAS NO BASIS OF CLAIMING INDEXATION OF THE BORROWING COST OF THE PURPOSES OF COMPUTATION OF CAPITAL GAINS. 13. THE LD CIT(A) DEALT WITH THE SAME AND HELD AS UNDER: - 5.8 0N A CAREFUL CONSIDERATION, I FIND THAT THE ID. AO HAS RECORDED CERTAIN FINDINGS IN PARA 3 OF THE IMPUGNED ASSESSMENT ORDER WHEREIN THE ISSUE OF GRANTING OF LEASE HOLD RIGHTS, CANCELLATION AND RESTORATION THEREOF ETC. HAS BEEN DISCUSSED. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS BEING EXTRACTED AS BELOW: - '3. ASSESSEE, HAS CALCULATED LONG TERM CAPITAL GAINS ON THE SALE OF OFFICE PREMISES. ASSESSEE HAD ACQUIRED LEASEHOLD RIGHT SINCE 1973 IN AN INDUSTRIAL PLOT MEASURIN G 4067 SQ. YARDS (APPROX) AT THE MOHAN COOPERATIVE INDUSTRIAL ESTATE. THE LEASEHOLD RIGHT OF THE ASSESSEE WAS CANCELLED BY THE LESSOR (LT. GOVERNOR) VIDE ORDER DATED 29.03.1998 .ASSESSEE FILED WRIT PETITION IN HIGH COURT AGAINST THIS ORDER. SUBSEQUENTLY, T HE LEASE HOLD RIGHT WAS RESTORED VIDE LETTER NO. F - 15(30 - MSC LE) 73/LS8(1)/1298 DATED 06.08.2004 AND ASSESSEE PAID RS. 10,20,582/ - TOWARDS RESTORATION CHARGES AND RS. 10,01,080/ - TOWARDS UNAUTHORIZED SUB - LETTING CHARGES CUM COMPLETION CERTIFICATE. CONSTRUC TION OF OFFICE PREMISES WAS STARTED ON' THIS PLOT 1AMI AND, AS PER THE ASSESSEE, IT WAS COMPLETED IN FINANCIAL YEAR. 1998 - 99. ASSESSEE HAS SUBMITTED COMPLETION CERTIFICATE DATED 26.03.1999 FROM DDA. HOWEVER, IT IS NOT CLEAR FROM THE CERTIFICATE AS TO WHAT THE CONSTRUCTED AREA. THERE I MENTION OF MAP SUBMITTED BY THE ASSESSEE VIDE LETTER NO /93 DATED 02.02.1994. ASSESSEE WAS ASKED TO SUBMIT THIS MAP AND THE LETTER TO GET A CLEAR PICTURE OF THE EXTENT OF CONSTRUCTION OF THIS PLOT. HOWEVER, VIDE LETTER DATED 1 3 12 2010, ASSESSEE HAS INFORMED THAT A FIRE HAD BROKEN OUT IN HIS OFFICE ON 06.12.2000 AND MOST OF THE RECORDS GOT BURNT IN FIRE. HENCE THEY HAVE EXPRESSED THEIR INABILITY IN PRODUCING THE PAPERS SUBMITTED. FO'R1HEPURPOSE OF OBTAINING THE OCCUPANCY.' 5.9 THE AFORESAID FINDING OF THE ID. AO HAS NOT BEEN REBUTTED BY THE APPELLANT COMPANY AND THUS, REMAINS UN - ASSAILED. THE FACT THAT THE LEASE HOLD RIGHTS OF THE APPELLANT 11 COMPANY WERE CANCELLED BY THE LESSOR ON 29.03.1998 AND WERE RESTORED ONLY ON 06.08.2 004 GOES AGAINST THE CLAIM OF THE APPELLANT COMPANY THAT THE DEVELOPMENT WORK, PAGE 11 OF 12 NAMELY, CONSTRUCTION OF OFFICE PREMISES HAS CONTINUOUSLY AND UNINTERRUPTEDLY CONTINUED DURING THE FYS 1998 - 99 TO 2005 - 06. FURTHER, AS RECORDED BY THE AO, THE COST OF INTEREST WA S NOT FORMING PART OF WORK - IN - PROGRESS PRIOR TO THE FY 2005 - 06 AND THEREFORE, THERE IS NO CREDIBLE/INDEPENDENT EVIDENCE TO SUPPORT THE CLAIM OF THE APPELLANT THAT THE CONSTRUCTION HAD BEEN CARRIED OUT IN A SYSTEMATIC MANNER. IN THIS FACT SITUATION, I DO NO T FIND ANY SUBSTANCE IN THE CLAIM OF THE APPELLANT COMPANY THAT THE PROVISIONS OF AS - 16 MANDATING SUSPENSION OF CAPITALIZATION OF BORROWING COST DO NOT APPLY TO THE FACTS OF THE PRESENT CASE. THERE IS ALSO NO MATERIAL PLACED BEFORE ME BY THE APPELLANT CO MPANY THAT DURING THE PERIOD OF CANCELLATION AND RESTORATION OF LEASE HOLD RIGHTS, THE CONSTRUCTION ACTIVITY HAD BEEN CARRIED OUT UNINTERRUPTEDLY. IN VIEW OF THE AFORESAID, I DO NOT FIND ANY INFIRMITY IN THE ACTION OF THE AO AND THE SAME IS BEING UPHELD. 14. FROM THE AFORESAID, IT IS EVIDENT THAT THE AUTHORITIES BELOW HAVE DENIED THE INDEXATION BENEFIT ON THE GROUND THAT THERE WAS TERMINATION OF LEASE HOLD RIGHTS ON 29 TH MARCH 1998, WHICH WAS RESTORED ONLY ON 06 TH AUGUST 2004. IN OUR CONSIDERED OPINION, T HIS IS AN IRRELEVANT CONSIDERATION. THE BORROWING COSTS ARE RECORDED IN THE BOOKS OF ACCOUNTS, YEAR AFTER YEAR WHICH HAVE BEEN ACCEPTED AS SUCH. IT WOULD BE THUS A FALLACY TO SUGGEST THAT SUCH BORROWING COST IN THE SHAPE OF INTEREST WAS NOT INCURRED FOR TH E DEVELOPMENT OF THE PROPERTY. FURTHER THE YEAR OF CAPITALIZATION UNDER THE BUILDING IS ALSO NOT A RELEVANT CONSIDERATION. THE INTEREST COST ON YEAR TO YEAR BASIS WAS CAPITALIZED UNDER THE HEAD CAPITAL WORK IN PROGRESS WHICH WAS LATER TRANSFERRED TO BUIL DING ACCOUNTS. IT IS NOT IN DISPUTE THAT THE BORROWING COSTS HAVE BEEN INCURRED TOWARDS BUILDING AS THE AO HAS ALLOWED THE SAME AS COST INCURRED WHILE COMPUTING THE CAPITAL GAIN. THUS THERE IS NO JUSTIFICATION TO CONTEND THAT THE INDEXATION BENEFIT WILL NO T BE ALLOWED ON THE BORROWING COST. IN THE RESULT THE GROUND RAISED BY THE ASSESSEE ARE ALLOWED. PAGE 12 OF 12 15. GROUND NO.5 RELATES TO INITIATION OF PENALTY PROCEEDING WHICH IS DISMISSED BEING PREMATURE. 16. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRON OUNCED IN THE OPEN COURT ON 3 1 . 10 .2014. - S D / - - S D / - ( S.V. MEHROTRA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 1 / 10 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI