Sanjay Harichand Kumar, CHENNAI V. ITO, CHENNAI

ITA 549/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9256 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 11-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BAUSEKAR
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 549/MDS/2016 / ASSESSMENT YEAR : 2006-07 SANJAY HARICHAND KUMAR, NO.110, GENERAL PATTERS ROAD, CHENNAI 600 002. PAN AACPK6858J APPELLANT) V. THE INCOME-TAX OFFICER, NON-CORPORATE WARD-9(4), CHENNAI 600 034. RESPONDENT) / APPELLANT BY : SHRI T. BAUSEKAR, FCA / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 11.05.2016 '# ! / DATE OF PRONOUNCEMENT: 27.05.2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 9. 2.2016 FOR THE ASSESSMENT YEAR 2006-07. - - ITA 549/16 2 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO PERIOD OF HOLDING OF PROPERTY, WHICH IS I NHERITED BY THE ASSESSEE FROM HIS FATHER AND THEREBY WRONGLY APPLYI NG THE COST OF ACQUISITION IN TERMS OF SEC.49(1)(III)(A) OF THE ACT AND DETERMINING THE CAPITAL GAINS ON THE SALE OF CAPITA L ASSET AS SHORT TERM CAPITAL GAINS INSTEAD OF LONG TERM CAPITAL GAI NS AND REFUSING THE EXEMPTION U/S.54 OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER RECEIVED THE INFORMATION THAT THE ASSESSEE HAD SOLD IMMOVABLE PROPERTY MEASURING AN EXTENT OF THREE GROUNDS AND 8 58 SQ.FT. FOR ` 5,50,00,000/- OUT OF WHICH 1/6 TH SHARE OF THE ASSESSEE BEING ` 91,66,667/-. THE ASSESSEE HAD NOT FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07. IN ORDER TO VERIFY WHETHER THE ASSESSEE HAD PAID TAX ON THE CAPITAL GAINS ARISING OUT OF THE ABOVE TRANSACTION, NOTICE U/S.148 DT.12.3.201 WAS I SSUED AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE NOTICE, THE ASSESSEE HAS STATED THAT THE PROPERTY WAS ORIGINALL Y PURCHASED BY HIS FATHER, SHRI HARICHAND ALONG WITH HIS BROTHE R, SHRI VASHDEV AND THEIR FATHER LATE KESHAVDAS IN THE YEAR 1971. ON THE DEATH OF THEIR FATHER I.E. KESHEVDAS ON 24.6.20 01, ASSESSEES FATHER AND HIS BROTHER BECAME ENTITLED T O SHARE - - ITA 549/16 3 EACH IN THE PROPERTY. OUT OF HIS SHARE IN THE PR OPERTY, THE ASSESSEES FATHER, I.E. SHRI HARICHAND GIFTED 1/3 RD SHARE IN THE PROPERTY BY DEED OF SETTLEMENT DATED 20.11.2005. T HE ASSESSEE BECAME ENTITLED TO 1/6 TH SHARE IN THAT PROPERTY. IN THE COMPUTATION OF TOTAL INCOME SUBMITTED BY THE ASSESS EE, HE HAS ADOPTED THE COST INFLATION INDEX OF 100 RELEVANT FO R THE FINANCIAL YEAR 1981-82 FOR ARRIVING AT THE INDEXED COST BUT T HE PROPERTY HAS BEEN TRANSFERRED TO ASSESSEE BY SETTLEMENT DEED DAT ED 20.11.2005. THEREFORE, THE COST INFLATION INDEX OF 497 WAS ADOPTED BY THE ASSESSING OFFICER. THE ASSESSEE HAS COMPUTED CAPITAL GAINS BY TAKING THE COST OF ACQUISITION OF THE PREVIOUS OWNER WHICH IS THE FMV ON 1.4.1981 AND INDEXED IT T O THE YEAR OF SALE. AS THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTABLE, THE AO ISSUED SHOW CAUSE NOTICE AND RE-OPENED THE ASSESSMENT. THE ASSESSMENT WAS COMPLETED U/S.143(3 ) R.W.SEC.147 OF THE ACT ON 24.3.2014 ASSESSING THE I NCOME OF ` 48,88,895 BY TAKING THE COST OF INFLATION INDEX OF 497 RELEVANT FOR THE FINANCIAL YEAR 2005-06 BEING THE YEAR OF PO SSESSION OF THE ASSET AND THEREBY REWORKED THE LONG TERM CAPITAL GA INS AND ARRIVED AT A TAX DEMAND OF ` 11,71,780/-. AGGRIEVED, THE - - ITA 549/16 4 ASSESSEE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME- TAX(APPEALS). 4. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEAL S) OBSERVED THAT THE ASSESSEES FATHER GOT THE SAID PR OPERTY AFTER THE DEMISE OF HIS FATHER ON 24.6.2001. THE GIFT SE TTLEMENT DEED DOES NOT MENTION WHETHER THE ASSESSEES FATHER HAS GOT THIS PROPERTY THROUGH WILL OR OTHERWISE. THE ASSESSEES FATHER GOT THE PROPERTY THROUGH WILL, WHETHER THE SAME WILL WA S PROBATED AFTER THE DEMISE OF THE ASSESSEES GRANDFATHER, IS NOT BROUGHT ON RECORD. THEREFORE, THE COMMISSIONER OF INCOME-TAX( APPEALS) OBSERVED THAT THERE IS NO DOCUMENT TO STATE WHEN TH E ASSESSEES FATHER BECAME THE OWNER OF THE ANCESTRAL PROPERTY. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS ), IT IS NOT POSSIBLE TO ACCEPT THAT THE PERIOD OF HOLDING THE P ROPERTY BY THE ASSESSEES GRANDFATHER SHOULD ALSO BE TAKEN INTO AC COUNT. BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), THE ASSESSEE COULD NOT ESTABLISH WITH A TITLE DEED OR ENCUMBRANC E CERTIFICATE WHEN THE ASSESSEES FATHER BECAME THE OWNER OF THE SAID ANCESTRAL PROPERTY. IN THE ABSENCE OF THE SAME, TH E COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT I T IS NOT - - ITA 549/16 5 ACCEPTABLE THAT THE ASSESSEES FATHER WAS HOLDING T HE SAID PROPERTY TO TAKE ADVANTAGE OF EXPLANATION 1(I)(B) T O SEC.2(42A) OF THE ACT. ACCORDING TO THE COMMISSIONER OF INCOM E- TAX(APPEALS), THE ASSESSEE ACQUIRED THE PROPERTY UN DER CONSIDERATION ON 20.11.2005 WHICH WAS SOLD WITHIN 2 MONTHS ON 2.2.2006. THEREFORE, THE ASSESSEE SOLD THE PROP ERTY UNDER CONSIDERATION FOR LESS THAN 36 MONTHS AND HENCE CAP ITAL GAINS SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS AND THE ASSESSEE IS NOT ENTITLED FOR CORRESPONDING DEDUCTIO N U/S.54 OF THE ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL B EFORE US. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. IN THIS CASE, THE ASSESSEES GRANDFATHE R ACQUIRED THE PROPERTY ALONG WITH HIS TWO SONS JOINTLY IN THE YEA R 1971. AFTER THE DEMISE OF THE ASSESSEES GRANDFATHER ON 24.6.20 01, THE ASSESSEES FATHER AND HIS UNCLE BECAME LEGAL HEIRS OF THE SAID PROPERTY. THEREAFTER, THE ASSESSEES FATHER THROUG H A GIFT/ SETTLEMENT DEED, GIFTED TO THE ASSESSEES SHARE OF PROPERTY ON 20.11.2005. THE ASSESSEE SOLD HIS SHARE IN THE SAI D PROPERTY ON 2.2.2006 WITHIN A GAP OF 2 MONTHS FROM THE DAT E OF THE ASSESSEE BECAME OWNER OF THE PROPERTY. THE ASSESSE ES - - ITA 549/16 6 CONTENTION IS THAT THE COST OF INFLATION INDEX OF T HE SAID PROPERTY TO BE COMPUTED FROM 1.4.1981 AND THEREAFTER INDEXAT ION COST TO BE DONE. ON THE OTHER HAND, THE CONTENTION OF THE LD. DR., IS THAT THE ASSESSEES FATHER BECAME LEGAL HEIR OF THE IMPU GNED PROPERTY AFTER THE DEMISE OF HIS GRANDFATHER ON 24. 6. 2001 . THE SETTLEMENT DEED DOES NOT MENTION WHETHER THE ASSESS EES FATHER GOT THE PROPERTY THROUGH WILL OR OTHERWISE. IF THE ASSESSEES FATHER GOT THE PROPERTY THROUGH WILL, WHETHER THE S AME WILL WAS PROBATED AFTER THE DEMISE OF THE ASSESSEES GRANDFA THER, IS NOT BROUGHT ON RECORD AND THE WILL, WHICH WAS PRODUCED BEFORE THE TRIBUNAL WAS NOT AT ALL BEFORE THE LOWER AUTHORITIE S. AS SUCH, IT IS NOT POSSIBLE TO ACCEPT THAT THE PERIOD OF HOLDING O F THE PROPERTY BY THE ASSESSEES GRANDFATHER SHOULD ALSO BE TAKEN INTO ACCOUNT. 6. AS DISCUSSED EARLIER, THE PROPERTY WAS ACQUIRED IN THE YEAR 1971 BY THE ASSESSEES GRANDFATHER AND HIS TWO SONS. THE ASSESSEES GRANDFATHER DIED ON 24.6.2001 AND AFTER THE DEATH, ASSESSEES FATHER AND HIS UNCLE BECAME ENTITLED TO HALF SHARE EACH IN THE SAID PROPERTY. OUT OF THIS HALF SHARE IN THE PROPERTY, THE ASSESSEES FATHER GIFTED 1/3 RD SHARE IN THE PROPERTY BY DEED OF SETTLEMENT DATED 20.11.2005. THE ASSESSEE BECAM E ENTITLED - - ITA 549/16 7 TO 1/6 TH SHARE IN THAT PROPERTY. AS PER SEC.49(1)(III)(A) OF THE ACT, WHEREAS THE CAPITAL ASSET BECAME THE PROPERTY OF TH E ASSESSEE BY SUCCESSION, INHERITANCE OR DEVOLUTION, THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST FOR WHI CH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INCR EASED BY THE COST OF ANY IMPROVEMENT INCURRED BY THE PREVIOUS OW NER OF THE ASSESSEE, AS THE CASE MAY BE. FOR THE PURPOSE OF C OMPUTATION OF CAPITAL GAINS, THE COST OF ASSET SHOULD BE REVIS ED UPWARDS BY APPLYING THE APPROPRIATE COST OF INFLATION INDEX. IF THE ASSET WAS ACQUIRED PRIOR TO 1 ST APRIL, 1981, THE COST OF INFLATION INDEX RELATING TO THE FINANCIAL YEAR 1981-82 IS REQUIRED TO BE APP LIED FOR THE PURPOSE OF ARRIVING AT THE INDEX COST OF ASSET. T HE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT T HE ASSESSEE BECAME THE OWNER OF THE PROPERTY UNDER CON SIDERATION ONLY ON 20.11.2005, WHICH WAS SOLD ON 2.2.2006 WIT HIN A GAP OF 2 MONTHS AND IT IS RESULTED IN SHORT TERM CAPITAL GAINS. ACCORDING TO THE COMMISSIONER OF INCOME-TAX(APPEALS ), THE ASSESSEE BECAME THE OWNER OF THE PROPERTY ONLY ON 2 0.11.2005 AND THERE IS NO QUESTION OF CONSIDERATION OF COST O F ASSET IN TERMS OF SEC.49(1)(III)(A) OF THE ACT. - - ITA 549/16 8 7. IT IS TO BE NOTED THAT THIS TRIBUNAL IN THE CASE OF SMT. MINA DEOGUN V. ITO(19 SOT 183)(KOL.), AFTER CONSIDERING THE MEMORANDUM EXPLAINING THE FINANCE BILL 1992 AND CBD T CIRCULAR NO.636 DATED 13.8.1992 (107 CTR(ST.), HELD THAT INDEXATION IS TO BE ALLOWED IN RESPECT OF PERIOD OF HOLDING OF THE ASSET AND NOT IN RELATION TO THE INDIVIDUALITY OF T HE ASSESSEE. ACCORDINGLY, IT WAS HELD THAT FOR THE PURPOSE OF DE TERMINING THE PERIOD OF HOLDING, INTERMEDIATE TRANSFERS ON ACCOUN T OF SUCCESSION ARE TO BE IGNORED. SIMILARLY, IN THE CA SE OF SMT. PUSHPA SOFAT V. ITO (81 ITD 1), CHANDIGARH BENCH OF THIS TRIBUNAL HAS EXPRESSED SIMILAR VIEW. WE ALSO NOTI CED THAT AS PER THE PROVISIONS OF SEC.2(42A), EXPLANATION I(B), IT IS STIPULATED THAT IN DETERMINING THE PERIOD FOR WHICH ANY CAPITA L ASSET IS HELD BY THE ASSESSEE, IN THE CASE OF A CAPITAL ASSET WHI CH BECOMES THE PROPERTY OF THE ASSESSEE BY WAY OF SUCCESSION, INHERITANCE ETC., THE PERIOD FOR WHICH THE ASSET WAS HELD BY TH E PREVIOUS OWNER SHALL ALSO BE INCLUDED. 8. IT IS ALSO TO BE NOTED THAT IN THE CASE OF DCIT V. KISHORE KANUNGO (102 ITD 437), THE MUMBAI BENCH OF THIS TRI BUNAL, HELD THAT INDEXATION IS TO BE ALLOWED ONLY FROM THE YEAR IN WHICH THE - - ITA 549/16 9 ASSESSEE BECAME THE OWNER OF THE PROPERTY. CONTRAR Y TO THIS, VISHAKHAPATNAM BENCH IN THE CASE OF M. SIVAPARVATH I & OTHERS V. ITO (7 ITR (TRIB) 468) HELD THAT, THE ASSESSEE H AVING INHERITANT PROPERTY PURCHASED BY THE PREVIOUS OWNER IN THE YEAR 1974, THE COST OF ACQUISITION FOR THE PURPOSE OF CO MPUTATION OF CAPITAL GAINS ON THE SALE OF SUCH PROPERTY HAD TO B E COMPUTED BY APPLYING THE COST OF INFLATION INDEX BY FINANCIAL Y EAR 1981-82 AND NOT BY FINANCIAL YEAR 1989-90 I.E. THE YEAR OF INHE RITANCE BY THE ASSESSEE. THUS, IT IS A SETTLED PROPOSITION THAT W HEN TWO VIEWS ARE POSSIBLE, A VIEW WHICH IS IN FAVOUR OF THE ASSE SSEE, HAS TO BE ADOPTED. IN THIS REGARD, WE MAKE REFERENCE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE P RODUCTS LTD. (88 ITR 192). IN VIEW OF THIS, WE HOLD THAT IN THE PRESENT CASE, THE ASSESSEE INHERITED THE PROPERTY ON 20.11.2005. HOWEVER, THE SAID PROPERTY WAS PURCHASED BY THE ASSESSEES A NCESTORS I.E. GRAND- FATHER, LATE KESHAVDAS ON 14.6.1971 AND AFTER THAT IT WAS BEQUEATHED TO THE ASSESSEES FATHER, SHRI HARIC HAND ON THE DEATH OF HIS GRANDFATHER ON 24.6.2001. THEREAFTER, THE PROPERTY WAS GIFTED TO THE ASSESSEE ON 20.11.2005. ACCORDIN GLY, THE COST OF INDEXATION TO BE APPLIED AS ON 1.4.1981, AFTER F IXING THE VALUE - - ITA 549/16 10 OF ASSET AS ON 1.4.1981 AND IT CANNOT BE SAID THAT THE ASSESSEE ACQUIRED PROPERTY UNDER DISPUTE ON 20.11.2005 SO AS TO COMPUTE THE CAPITAL GAINS AS SHORT TERM CAPITAL GAINS. IN OTHER WORDS, CAPITAL GAINS HAS TO BE ASSESSED AS LONG TERM CAPIT AL GAINS BY FIXING THE COST OF ASSET AS ON 1.4.1981 AND THEREAF TER APPLYING THE COST OF INFLATION INDEX IN TERMS OF SEC.49(1)(I II)(A) OF THE ACT AND CONSEQUENTLY, THE ASSESSEE IS ALSO ENTITLED FOR EXEMPTION U/S.54 OF THE ACT. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON FRIDAY, THE 27 TH OF MAY, 2016 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 27 TH MAY, 2016. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.