ITO 14(1)(1), MUMBAI V. LEGAL HEIR OF RATANSINGH C. PETHANI, MUMBAI

ITA 687/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100609 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 30-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: SANJAY V KALWINT
• Keywords: Capital asset; Cost of acquisition
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. MANMOHAN , VICE PRESIDENT AND SHRI SANJAY ARORA , ACCOUNTANT MEMBER ITA NO . 687 / MUM./ 2014 ( ASSESSMENT YEAR : 20 10 11 ) INCOME TAX OFFICER WARD 14(1)(1), EARNEST HOUSE NARIMAN POINT, MUMBAI 400 021 .. APPELLANT V/S LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 27, SHRI KRISHNA NIWAS, NEW SAKI BAZAR B.M. ROAD, KALBADEVI, MUMBAI 400 002 PAN AABHPP3046L .... RESPONDENT REVENUE BY : S HR I LOVE KUMAR ASSESSEE BY : SH RI SANJAY V. KALWINT DATE OF HEARING 09.07.2015 DATE OF ORDER 05.08.2015 O R D E R P ER SANJAY ARORA, A.M.: TH E PRESENT APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 11 TH NOVEMBER 2013 , PASSED BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) 2 5 , MUMBAI, FOR THE ASSESSMENT YEAR 20 10 11 . THE GROUNDS RAISED BY THE REVENUE ARE REPRODUCED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DEVIATING FROM THE FINDINGS GIVEN LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 2 BY THE A.O. IN THE ASSESSMENT ORDER AFTER HAVING ACCEPTED THE SAME IN PRINCIPLE THAT THE ASSESSEE WAS NOT IN THE POSSESSION OF THE SAID FLAT PRIOR TO THE FAMILY DECLARATION / CONFIRMATION DATED 8.8.2008 AND HENCE THE ASSESSEE WAS NOT ENTITLED TO INDEXED COST OF ACQUISITION FOR WORKING OF CAPITAL GAINS. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AS WELL AS ON FACT BY NOT SUSTAINING THE ADDITION MADE ON ACCOUNT OF DENYING THE EXEMPTION CLAIMED UNDER SECTION 54 BY TREATING THE LTCG CLAIMED BY THE ASSESSEE AS STCG, A S THE ASSESSEE HAS HELD THE OWNERSHIP OF THE FLAT FOR LESS THAN 36 MONTHS. 2. THE SOLITARY ISSUE INVOLVED IN THIS APPEAL FILED BY THE REVENUE IS THAT THE HOLDING PERIOD OF THE FLAT SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, SHOULD BE COUNTED FROM WHICH DATE. ACCORDING TO THE ASSESSEE, THE HOLDING PERIOD OF THE FLAT WAS MORE THAN 36 MONTHS WHEREAS AS PER THE ASSESSING OFFICER, THE HOLDING PERIOD WAS LESS THAN 36 MONTHS AS A CONSEQUENCE OF WHICH THE ASSET UNDER CONSIDERATION WAS SHORT TERM CAPI TAL ASSET AND AS A RESULT OF WHICH THE GAIN WAS SHORT TERM CAPITAL GAIN AND, HENCE, THE EXEMPTION UNDER SECTION 54 OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) WAS NOT ALLOWABLE TO HIM. 3. ON THE BASIS OF FACTS CULLED OUT FROM THE ASSESSMENT ORDER AND T HE ORDER OF THE FIRST APPELLATE AUTHORITY, IT IS SEEN THAT THE ASSESSEE BECAME OWNER OF THE IMPUGNED FLATS JOINTLY WITH HIS BROTHERS IN THE YEAR 1996. SUBSEQUENTLY, VIDE DEED OF CONFIRMATION (FAMILY DECLARATION) DATED 8 TH AUGUST 2008, THE ASSESSEE BECAME S OLE OWNER AS A RESULT OF FAMILY SETTLEMENT. THE STAND OF THE ASSESSING OFFICER IS LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 3 THAT HOLDING PERIOD SHOULD BE COUNTED FROM THE DATE OF FAMILY SETTLEMENT I.E., 8 TH AUGUST 2008, WHEREAS THE ASSESSEES CLAIM IS THAT THE HOLDING PERIOD SHOULD BE COUNTED FROM 15 TH APRIL 1996, AS THE ASSESSEE IS IN OCCUPATION OF THE FLAT AS CO OWNER AND HAS BEEN HOLDING THE SAME AND ENJOYING THE FRUITS OF THE FLATS AS AN OWNER SINCE 15 TH APRIL 1996. THE REASONING GIVEN BY THE ASSESSING OFFICER HAS BEEN SUMMARIZED BY HIM IN THE ASSESSMENT ORDER AND SAME IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE: 6. IN VIEW OF THE FACTS THAT IN ASSESSEE SUBMISSION IT IS S TATED THAT THE PLOT WAS STANDING IN THE NAME OF FATHER LATE CHATURVEDI HASRAJ PETHANI AS ON 21.08.1980 AND THE NAME WAS DELETED AND SAME NAME OF THE LEGAL HEIRS HAVE BEEN INSERTED THERE IN WITH EFFECT FROM 19.05.1991 ( FIVE CO - OWNER AS PER BMC RECORDS). THE SAME PLOT WAS FURTHER DEVELOPED AFTER HAVING MUTUAL AGREEMENT DECLARATION OF THE FIVE OWNERS AND CONSTRUCTING OF BUILDING WITH 14 FLATS TOOK PLACE IN THE YEAR 1995 AS APPROVED PLAN BEING NO. CE/6720/BS/R/A DATED 07.01.1995, OUT OF 14 FLATS 7 FLATS WERE SOLD TO VARIOUS PURCHASERS AND 7 FLAT SOLD RETAINED AND ALLOTTED THEMSELVES IN THE MONTH OF APRIL 1996 IN THE BU ILDING OF SHRI ASHIRWAD CO - OPERATIVE HOUSING SOCIETY LTD. OUT OF 7 FLATS FLAT NO.502 GOT ALLOTTED TO ASSESSEE MR . RATANSINH C. PETHANI ADMEASURING ABOUT 1124 SQ. FT OF BUILT UP AREA AT THE TIME OF THE CONSTRUCTION IN THE YEAR 1996. BUT, TILL, THE OWNERSHI P OVER ALL THE 7 FLATS REMAINED ONLY WIT H THE 5 CO - OWNER JOINTLY, UNLESS, THE DUE DATE 23.09.2008 IN THE MUTUAL AGREEMENT WA S REGISTERED, AND ALL THE CO - OWNERS PAID STAMP DUTY SEPARATELY ON THE INDIVIDUAL FLAT ONL Y ALLOTTED TO THEM. IN OTHER WORDS, THE SO LE OWNERSHIP OVER THE INDIVIDUAL FLAT INCLUDING 50 2 ALLOTTED TO THE ASSESSEE NORMALLY HAPPENED TOOK PLACE ONLY ON 23.09.2008. BEFOR E 23.09.2008, ALL THE FLATS SOLD IN JOINTLY COMMON OWNERSHIP. ACCORDINGLY IN EYE LAW, TH E ASSESSEE BECOME OWNER OF THE PROPER TY ONLY ON THE 23.09.2008 NOT BEFORE DATE. AS LEG AL COROLLARY OF THE ABOVE FACT THE RECKONING OF THE DATE FOR THE PURPOSE OF SHORT TERM CAPITAL GAI N AND LONG TERM CAPITAL GAIN WAS ONLY ON 23:09.200. THE ASSESSEE'S REPRESENTATIVE AR G UMEN T THAT ASSESSEE GO T ALLOTTED THE SAID FLAT IN THE 1996 MAY NOT BE RELEVANT MERELY ON THE BASI S OF THE MUTUAL AGREEMENT TAKEN LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 4 BETWEEN THE OWNERS, UNLESS AND UNTIL, REGISTRATION TOOK PLAC E IN THE EYE OF LAW, THE IMMOVABLE PROPERTY DOES NOT GET OWNERSHIP RESPECTIVELY EFFECT T AK E PLACE IN THE EYE OF LAW REGARDING, THE CONFORMING OWNERSHIP OF THE PARTI CULAR PERSON CANNOT BE GIVEN MERELY BECAUSE THE STAMP DUTY PAID ON THE OLD VALUE AND PENALTY IS P AID ACCORDINGLY. IN OTHER WORD CONFERRING THE OWNERSHIP BY WAY OF REGISTRATION CAN TAKE PLAC E ONLY PROPERTIES NOT RETROSPECTIVELY IN THE EYE OF LAW. THE OWNERSHIP OF IMMOVABLE PROPER TY OF ONLY ON THE DATE OF REGISTRATION NOT ON THE RETROSPECTIVELY. FURTHER THE TAKING CLAIMED BENEF IT AND TRANSFER THE NAME OF THE SOCIETY ARE NOT RELEVANT AT A LL TO THE DECIDE THE OWNERSHIP OF P ROPERTY. ASSESSEE BECOME SOLE OWNER ONLY AFTER FAMILY DECLARATION EXECUTED ON 08.08.2008. HENCE , ASSESSEE SUBMISSION CLAIMING THE SAME AS LONG TERM CAPITAL ASSETS AN D CAPITAL GAIN ON THE SALE OF THE SAME IN LONG TERM CAPITAL GAI N IN THE HAND OF THE ASSESSEE NOT ACCEPTABLE. IN THIS REGARDS JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF MANJULA J . SHA H VIDE JUDGMENT DATED 11.10.2011 HELD THAT THE OBJECTION CANNOT BE DEFEATED BY EXCLUDING TH E PERIOD FOR WHICH THE SAID ASSETS WAS HELD BY THE PREVI OUS OWNER DETERMINING THE INDEXED COST OF ACQUISITION OF THAT ASSETS TO THE ASSESSEE. WITH DUE RESPECT TO THE ABOVE JUDGME NT AND IN VIEW OF THE FACT THAT DE P ART M ENT HAS NOT ACCE P TED THE ABOVE J UD G MENT AND SLP FILED. 4. D URING TH E FIRST APPELLATE PROCEEDINGS, THE ASSESSEE CONTENDED THAT HE HAS BEEN HOLDING THE FL A T AS AN OWNER IN POSSESSION FOR ALL LEGAL AND PRACTICAL PURPOSES SINCE 15 TH APRIL 1996 AND, THEREFORE, HOLDING PERIOD SHOULD BE COUNTED FROM THAT DATE. THE ASSESSE E SUBMITTED VARIOUS EVIDENCES BEFORE THE LEARNED CIT(A) TO SHOW POSSESSION AND USER OF THE FLAT BY HIM E.G., ELECTRICITY BILLS IN HIS NAME FROM BSES., ETC. THE LEARNED CIT(A) SENT THE SUBMISSIONS AND EVIDENCES SUBMITTED BY THE ASSESSEE TO THE ASSESSING OFF ICER FOR THE COMMENTS OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SENT HIS REMAND REPORT DATED 27 TH SEPTEMBER 2013, IN WHICH THE ASSESSING OFFICER COMMENTED THAT THE EVIDENCE S FURNISHED BY THE ASSESSEE WERE EXAMINED ON FACT S AND LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 5 NOTHING ADVERSE WAS FOUN D THEREIN AND WITH REGARD TO THE LEGAL ISSUE, THE ASSESSING OFFICER LEFT THE MATTER OPEN REQUESTING THE LEARNED CIT(A) THAT THE MATTER SHOULD BE DECIDED ON MERITS AFTER CONSIDERING THE STAND TAKEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE LEARN ED CIT(A), AFTER CONSIDERING THE ASSESSMENT ORDER, REMAND REPORT OF THE ASSESSING OFFICER AND THE SUBMISSIONS AND EVIDENCES OF THE ASSESSEE, ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: 5. I HAVE PERUSED THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT AND THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT THE A.O. HAS MADE THE ADDITION BASED ON THE FAMILY DECLARATION / CONFIRMATION DATED 08.08.2008 WHICH WAS DULY REGISTERED WITH THE REGISTRATION AUTHORITIES. ON GOING THROUGH THE COPY OF SAID DOCUMENT SUBMITTED BY THE APPELLANT, I FIND SPECIFICALLY MENTIONED THERE THAT THE CO OWNERS HAD MUTUALLY AGREED AND ALLOTTED FLAT NO.502 TO THE APPELLANT AT THE TIME OF THE CONSTRUCTION IN THE YEAR 1996, IN LIEU OF OLD PREMISES (OLD BUNGALOW) POSSESSE D AND OCCUPIED BY HIM. IT IS ALSO A FACT THAT NO CONSIDERATION HAS BEEN MENTIONED IN THE AFORESAID REGISTERED DOCUMENT. THE LETTER DATED 15.04.1996 IN FAVOUR OF THE APPELLANT ALLOTTING THE FLAT NO.502 IS A PART OF THE REGISTERED DOCUMENT. IT IS NOT DISPUTE D THAT THE APPELLANT WAS NOT IN POSSESSION OF THE FLAT NO.502 PRIOR TO THE FAMILY DECLARATION / CONFIRMATION DATED 08.08.2008. IN MY OPINION, NO TRANSFER OF PROPERTY HAD TAKEN PLACE AS ON 08.08.2008, AS THE JOINT OWNERS COUL D NOT TRANSFER THE PROPERTY TO THEMSELVES, AND THE PURPOSE OF ENTERING INTO SAID DOCUMENT SEEMS ONLY TO CONFIRM THE EXISTING POSSESSION OF SAID FLAT NO.502 BY THE APPELLANT AND FURTHER TO GIVE A CLEAR TITLE OF THE FLAT IN HIS FAVOUR BY PAYMENT OF STAMP DUTY WITH LATE PENALTY AND REGISTR ATION OF THE DOCUMENT. THIS HOWEVER DOES NOT MEAN THAT BEFORE THE REGISTRATION OF THE SAID DOCUMENT, THE APPELLANT WAS NOT THE CO OWNER OR WAS NOT IN POSSESSION OF THE PROPERTY, AS THE REGISTRATION OF DOCUMENT HAS ONLY GIVEN A CLEAR TITLE OF THE FLAT IN HI S FAVOUR. IN THESE CIRCUMSTANCES, EVEN ASSUMING THE APPELLANT WAS NOT THE SOLE OWNER OF SAID FLAT NO.502 PRIOR TO 08.08.2008 AS CONTENTED BY THE A.O. STILL HE WAS ENTITLED TO HIS SHARE IN THE CO OWNERSHIP OF THE FLAT, AND THE SAID FLAT WAS ALREADY IN HIS P OSSESSION. LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 6 THE CASE LAWS RELIED UPON BY THE APPELLANT ALSO SUPPORTS HIS CONTENTION THAT THE RIGHT IN THE PROPERTY IS CONSIDERED FROM THE DATE OF ISSUANCE OF ALLOTMENT LETTER, WHICH IN THE PRESENT CASE WAS W.E.F. 15.04.1996, WHEREIN THE FLAT NO.502 ALLOTTE D TO THE APPELLANT WAS CLEARLY SPECIFIED. THE APPELLANT HAS INDEXED THE LAND COST BY INDEX VALUE 116 (I.E., FOR FY 1983 84) AFTER THE DEATH OF HIS FATHER IN 1983, AND THE CONSTRUCTION COST BY INDEX VALUE 389 (I.E., FOR FY 1999 2000) AFTER THE COMPLETION OF CONSTRUCTION OF BUILDING, I FIND NO INFIRMITY IN THE CALCULATION OF INDEXED COST BY THE APPELLANT. 5.1 IN VIEW OF THE ABOVE, I UPHOLD THE CONTENTION OF THE APPELLANT TO TREAT THE CAPITAL GAIN AS LONG TERM CAPITAL GAIN , WHICH WAS CLAIMED EXEMPTED BY MAKIN G INVESTMENT IN NEW FLAT U/S 54 OF THE ACT. CONSEQUENTLY, THE ADDITION MADE OF ` 45,03,838, BY TREATING THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN IS DELETED AND, THEREFORE, THE GROUND OF APPEAL IS ALLOWED . AGGRIEVED BY THE AFORESAID ORDER OF THE LEARN ED CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ASSESSMENT ORDER AND CO NTENDED THAT THE IMPUGNED FLAT SOLD BY THE ASSESSEE WAS SHORT TERM CAPITAL ASSET AND, THEREFORE, THE RESULTA NT GAIN WAS SHORT TERM CAPITAL GAIN AND, CONSEQUENTLY, THE ACTION OF THE ASSESSING OFFICER IN DENYING THE EXEMPTION UNDER SECTION 54 OF THE ACT, WAS LEGALLY AND FACTUALLY JUSTIFIED. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT T HE IMPUGNED ASSET WAS A LONG TERM CAPITAL ASSET BECAUSE THE ASSESSEE HAS BEEN HOLDING THIS ASSET SINCE THE YEAR 1996. LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 7 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE I S HOLDING THE POSSESSION OF THE FLAT SINC E 15 TH APRIL 1996 AND THIS FACT IS NOT DENIED AND IS DULY SUPPORTED WITH THE EVIDENCE SUBMITTED BY THE ASSESSEE. THE EVIDENCES AVAILABLE ON RECORD CLEARLY SHOW THAT THE ASSESSEE HAS BEEN HOLDING THIS FLAT AS A USER AND AS AN OWNER SINCE BEGINNING. NO ADVER SE COMMENT HAS BEEN GIVEN BY THE ASSESSING OFFICER EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR IN THE REMAND PROCEEDINGS. THE FAMILY DECLARATION / CONFIRMATION DATED 8 TH AUGUST 2008 , IS PLACED AT PAGE S 35 TO 55 OF THE PAPER BOOK FILED BY THE ASSES SEE. PAGE 45 IN ASSESSEES PAPER BOOK IS THE ALLOTMENT LETTER DATED 15 TH APRIL 1996 IN THE NAME OF SHRI RATANSINGH C. PETHANI, SHOWING ALLOTMENT OF THE IMPUGNED FLAT I.E., FLAT NO.502, ASHIRWAD BUILDING, 55, SHANKAR LANE, KANDIWALI, MUMBAI 400 067, IN THE NAME OF THE ASSESSEE. ON A PERUSAL OF THESE DOCUMENTS AND EVIDENCES, IT IS CLEARLY ESTABLISHED THAT THE ASSESSEE HAS BEEN THE OWNER IN POSSESSION OF THE SAID FLAT SINCE 15 TH APRIL 1996. EVEN OTHERWISE, THERE CANNOT BE ANY DOUBT ON THE FACT THAT THE ASSESSE E HAS BEEN ENJOYING THIS PROPERTY AS A DEFACTO OWNER . THE CONCEPT OF DEFACTO OWNERSHIP IS NOT ALIE N TO THE INCOME TAX LAW. THUS, VIEWED FROM ANY ANGLE, THE ASSESSEE IS HOLDING THIS FLAT SINCE 15 TH APRIL 1996 AND, THEREFORE, THE LEARNED CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE FIND NO SUBSTANCE IN THE LEGAL HEIR OF SHRI RATANSINGH C. PETHANI 8 GROUNDS RAISED BY THE REVENUE. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N AUGUST 5, 2015. SD/ - SD/ - SD/ - D. M ANMOHAN V ICE PRESIDENT SD/ - S ANJAY ARORA A CCOUNTANT MEMBER MUMBAI, DATED: 05.08.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT, MUMBAI