Ramalingam Balaji, CHENNAI V. DCIT, CHENNAI

ITA 86/CHNY/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7613 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 18-01-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTHJCIT
• Assessee Lawyers: D ANAND
• Keywords: Capital asset; Gift; Cost of acquisition
• Section: 54F

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! . ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.86 /MDS./2016 ( / ASSESSMENT YEAR :2011-12) MR.RAMALINGAM BALAJI , 67-A,7 TH AVENUE, ASHOK NAGAR,CHENNAI. VS. DEPUTY COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-III, CHENNAI. PAN AFIPB 8707 Q ( %& / APPELLANT ) ( '(%& / RESPONDENT ) / APPELLANT BY : MR.D.ANAND,ADVOCATE / RESPONDENT BY : MR.A.V.SREEKANTH,JCIT, D.R / DATE OF HEARING : 08.03.2016 !' /DATE OF PRONOUNCEMENT : 24.03.2016 ) / O R D E R PER G.PAVAN KUMAR, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-14, CH ENNAI IN ITA ITA NO.86/MDS/2016 2 NO.165/CIT(A)-14/2014-15 DATED 14.10.2015 PASSED U /S.143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED ONLY SUBSTANTIVE GROUND THAT LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO DENYING THE INDEXATION FROM THE PERIOD OF HOLDING OF PREVIOUS O WNER WERE THE PROPERTY DEVOLVED ON THE ASSESSEE AND CERTAIN MODE S OF ACQUISITION AS PER SECTION 49(1) OF THE ACT. 3.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS AN INDIVIDUAL, AND FILED E-RETURN ON 30.09.2011 WITH T OTAL INCOME OF ` 54,62,079/-. THE RETURN WAS PROCESS U/S.143(1) OF THE ACT AND WS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) WAS ISS UED TO THE ASSESSEE. THE AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS CALLED FOR DURING ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER FOUN D THAT THE ASSESSEE HAS DISCLOSED LONG TERM CAPITAL GAINS OF ` 43,72,592/- AND INCOME FROM OTHER SOURCES OF ` 12,12,895/- THE ASSESSEE, HIS MOTHER ITA NO.86/MDS/2016 3 AND SISTER BEING THE CO-OWNERS OF THE TWO IMMOVABLE PROPERTIES HOLD EQUAL SHARE AND 1/3 RD SHARE OF THE ASSESSEE IN SALE CONSIDERATION OF FIRST ASSET SOLD IS ` 150 LAKHS. THE SAID PROPERTY WAS ACQUIRED BY THE ASSESSEES FATHER IN THE FINANCIAL YEAR 1964-65 AND DEVOLVED ON LEGAL HEIRS ON THE DEMISE OF FATHER IN THE FINANCIA L YEAR 1995-96 AND COMPUTED THE LONG TERM CAPITAL GAINS BY ADOPTING TH E COST INFLATION INDEX FROM 1981 BUT THE LD. AO ADOPTED COST OF INF LATION INDEX OF FINANCIAL YEAR 1995-96 AND AS COMPUTED LONG TERM CA PITAL GAINS OF ` 1,41,95,589/-. 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO EXAMINED THE MATERIAL ON RECORD AND SUBMISSIONS OF LD.A.R ,FOUND THAT THE SAID PROPERTY WAS NOT INHERITED AND WAS BR OUGHT BY THE ASSESSEES FATHER IN THE YEAR 1964 AS ABSOLUTE OWNE R. THE SAID PROPERTY WAS NOT TRANSFERRED TILL THE FATHERS DEAT H AND THE ASSESSEE CANNOT BE CONSIDERED AS THE OWNER OF THE PROPERTY P RIOR TO THE FINANCIAL YEAR1995-96. THE AO OPINED THAT FOR THE P URPOSE OF DETERMINING THE INDEXED COST OF ACQUISITION, COST O F INFLATION INDEX OF THE FINANCIAL YEAR 1995-96 SHOULD BE ADOPTED BECAUS E IT WAS THE YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE AS OWNER ON DEATH ITA NO.86/MDS/2016 4 OF FATHER. THE LD.AO CALCULATED THE INDEXED COST OF ACQUISITION WITH BASE YEAR 1995-96 ` 5,37,744/-. THE LD. AO FOUND THAT THE ASSESSEE CLAIMED EXEMPTION U/S.54 OF THE ACT ON TRANSFER OF THE PROPERTY AND DEPOSITED THE SALE CONSIDERATION BEFORE DUE DATE OF FILING OF THE RETURN U/S.139(1) ON 30.09.2011 IN THE CAPITAL GAINS SAVIN GS SCHEME. AND IN THE YEAR, 2012, THE ASSESSEE PURCHASED A RESIDEN TIAL PROPERTY ON 12.04.2012 FOR CONSIDERATION OF ` 180 LAKHS AND CALCULATED NIL CAPITAL GAINS. IN RESPECT OF SECOND PROPERTY AT CU DDALORE WERE LAND AND BUILDINGS USED FOR COMMERCIAL PURPOSE FOR RUNNI NG CINEMA THEATRE WAS SOLD BY THREE SEPARATE DOCUMENTS AS SL. NO. DOC. NO. LAND AREA SQ.FT. /VALUE BUILDING AREA SQ.FT/ VALUE MACHINERY VALUE TOTAL VALUE 1 3034/10 15990/1,23,47,775 1937.5/14,03,225 1,37,51,000 2 3033/10 17967/1,38,81,893 7104.2/85,67,107 2,00,000 2,26,49,000 3 3035/10 8028/62,00,000 -- 62,00,000 THE LD.A.R OF THE ASSESSEE SUBMITTED THAT THE CUDD ALORE PROPERTY WAS PURCHASED BY THE FATHER OF THE ASSESSEE ALONG W ITH HIS BROTHERS IN 1965 AND SUBSEQUENTLY IN 1979 THERE WAS A PARTIT ION AND THE PROPERTY WAS SETTLED IN FAVOUR OF ASSESSEES FATHER AS ABSOLUTE ITA NO.86/MDS/2016 5 OWNER. AFTER THE DEATH OF THE ASSESSEES FATHER ON 11.02.1996, THE CUDDALORE PROPERTY WAS DEVOLVED ON THE LEGAL HEIRS BY SUCCESSION. THE ASSESSEE SOLD THE PROPERTY AND MOTHER & SISTER HOLD EQUAL SHARES. THE SALE CONSIDERATION RECEIVED FOR 1/3 RD SHARE OF THE ASSESSEE IS ` 142 LAKHS. THE ASSESSEE CALCULATED THE COST OF ACQUISITION OF THE PROPERTY AT 7,97,054/- BY ADOPTI NG THE COST OF INFLATION INDEX BASE AS ON 01.04.1981. THE LD.A.O FOUND THAT THE SAID PROPERTY WAS NOT INHERITED PROPERTY, AS THE A SSESSEES FATHER AND HIS BROTHERS PURCHASED ASSET IN FINANCIAL YEAR 1964-65. SUBSEQUENTLY, ASSESSEES FATHER BECAME ABSOLUTE OW NER AS PER THE PARTITION IN THE YEAR 1979-80. THE ASSESSEES FATHE R HOLD THE POSSESSION OF THE PROPERTY AS A RIGHTFUL OWNER TILL DEATH ON 11.02.1996. THE LD. ASSESSING OFFICER OBSERVED THA T THE ASSESSEE DOES NOT HAVE ANY RIGHT IN PROPERTY PRIOR TO 01.04 .1981 AND INDEXATION HAS TO BE ALLOWED AS CO-OWNER ALONG WITH HIS MOTHER AND SISTER FROM 11.02.1996 AND CALCULATED INDEXATION OF YEAR 1995-96 AT ` 20,16,745/- . THE ASSESSEE CLAIMED EXEMPTION OF ` 40,52,023/- U/S.54F OF THE ACT IN THE INCOME RETURNED AND BECAU SE OF CHANGE OF INDEXATION VALUE, THE DEDUCTION U/S.54F OF THE ACT WAS RECALCULATED. ITA NO.86/MDS/2016 6 DUE TO CHANGE IN BASE YEAR, LONG TERM CAPITAL GAINS RECALCULATED AT 75,06,495/- AND SUBJECTED TO TAX. AGGRIEVED BY TH E ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A). 3.3. IN APPELLATE PROCEEDINGS, THE AUTHORISED REPR ESENTATIVE OF ASSESSEE APPEARED ON THE DATE OF HEARING, ARGUED TH E CASE AND FILED WRITTEN SUBMISSIONS AND ALSO EXPLAINED THE CIRCUMST ANCES AND CALCULATIONS OF LONG TERM CAPITAL GAINS, WERE THE A SSESSEE HAD INVESTED THE LONG TERM CAPITAL GAINS IN THE RESIDEN TIAL HOUSE AND CLAIMED U/S.54 & 54F OF THE ACT. THE LD.A.R REITER ATED THE SUBMISSIONS MADE BEFORE THE LD. ASSESSING OFFICER O N INHERITANCE AND SPECIAL MODE OF ACQUISITION, BUT THE LD. ASSESS ING OFFICER HAS UNILATERALLY CALCULATED THE INDEXATION FROM THE YEA R 1995-96, THOUGH AS PER THE CERTAIN MODE OF ACQUISITION IN COMPUTING THE CAPITAL GAINS U/S.48 OF THE ACT AND SEC.49(1)(II & (III)) WERE TH E ASSESSEE ACQUIRED ANY ASSET UNDER GIFT OR WILL, AND BY SUCCESSION, IN HERITANCE OR DEVOLUTION ITA NO.86/MDS/2016 7 THE COST TO ACQUISITION OF ASSET SHALL BE THE COST OF THE PREVIOUS OWNER, INCREASED BY THE COST OF IMPROVEMENT BORNE BY THE PREVIOUS OWNER. THE PROVISIONS OF THE SECTION 2(42A)(B) DET ERMINE THE PERIOD FOR WHICH THE ASSET IS HELD BY THE ASSESSEE AND THE PERIOD OF HOLDING OF THE PREVIOUS OWNER SHALL ALSO BE INCLUDED. THE ASSESSEES FATHER PURCHASED THE PROPERTY IN THE YEAR 1964-65 AND PART ITION WAS EFFECTED IN THE YEAR 1979 AND THE CAPITAL ASSET IS HELD PRIO R TO 1981. AS PER THE EXPLANATIONS THE ASSESSEE IS ENTITLED TO OPT TH E COST OF ASSET PRIOR TO 1981 OR THE VALUE AS ON 01.04.1981 AT THE OPTION OF THE ASSESSEE AND INDEXATION HAS TO BE ALLOWED. THE LD.A.R PLACE D RELIANCE ON THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE O F MANJULA J.SHAH VS. DCIT REPORTED IN 355 ITR 474(BOM.) WHEREIN THE LORDSHIPS HELD THE CAPITAL GAINS ARISING UNDER A GIFT, THE INDEX C OST OF ACQUISITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH THE PREVIOUS OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHIC H THE ASSESSEE BECOMES THE OWNER OF THE ASSET. THE ASSESSEE HAS B ECOME THE RIGHTFUL OWNER ON THE DEMISE OF HIS FATHER AS A LEG AL HEIR IN 1995-96. THOUGH THE PROPERTY WAS HELD BY THE FATHER FROM THE YEAR1965-66, THE PROVISIONS OF THE ACT ALLOW THE ASSESSEE TO CLAIM INDEXATION FROM THE ITA NO.86/MDS/2016 8 PERIOD 01.04.1981. LD.CIT(A) CONSIDERED THE SUBMIS SIONS AND ARGUMENTS ADVANCED BY THE LD.A.R AND PERUSING THE F INDINGS OF AO ON A TECHNICAL GROUNDS, OBSERVED THAT THE ASSESSEE S FATHER HAD NOT INHERITED THE PROPERTY, BUT HE HAS PURCHASED IN TH E YEAR 1965-66, THEREFORE, THE ABOVE PROVISIONS ARE NOT APPLICABLE AND THE DISTINGUISHED THE DECISION OF THE BOMBAY HIGH COURT AND CONCURRED WITH THE FINDINGS OF THE AO AND UPHELD THE SAME. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFO RE US. 4. BEFORE US, LD.A.R REITERATED THE SUBMISSIONS MA DE IN THE ASSESSMENT AND IN FIRST APPELLATE PROCEEDINGS ON P ROVISIONS OF INHERITANCE, SUCCESSION AND GIFT. LD.A.R EXPLAINED THAT THE PROPERTY WAS DEVOLVED UPON THE ASSESSEE ON SUCCESSION AFTER DEATH OF ASSESSEES FATHER AND THE INDEX COST OF ACQUISITION HAS TO BE DETERMINED WITH REFERENCE TO THE COST OF INFLATION INDEX OF THE FIRST YEAR IN WHICH THE CAPITAL ASSET WAS HELD BY THE PREVIOUS OWNER. THE LD.CIT(A) HAS ERRED IN DISTINGUISHING THE DECISION AND OBSERVED THAT ASSESSEES FATHER HAS PURCHASED THE PROPERTY ALONG WITH HIS BROTHERS AND NOT INHERITED. THE ASSESSEE BECOME THE OWNER ON THE DEMISE ITA NO.86/MDS/2016 9 OF HIS FATHER, THOUGH THERE IS NO WILL OR ANY DEED TO SHOW THE ASSESSEES SHARE, BUT BY PROCESS OF LAW, ASSESSEE BECOME ONE THIRD OWNER ALONG WITH HIS MOTHER AND SISTER, WHICH IS NO T DISPUTED BY THE AO. THE PROPERTY PURCHASED BY ASSESSEES FATHER AN D NOT INHERITED OBSERVED BY CIT(A) DOES NOT HAVE ANY SANTITY AS THE ASSESSEES FATHER WAS HOLDING THE PROPERTY AS ON 01.04.1981 AN D AS PER THE PROVISIONS OF THE SECTION 48 & 49(I) OF THE ACT, TH E COST OF PREVIOUS OWNER AND HOLDING PERIOD HAS TO BE CONSIDERED FOR I NDEXATION AND SUPPORTED WITH THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. MANJULA J.SHAH (SUPRA) AND PRAYED FOR THE DELET ION OF CAPITAL GAINS. PER CONTRA, LD.D.R RELIED ON THE ORDER OF T HE LOWER AUTHORITIES AND VEHEMENTLY OPPOSED THE SUBMISSIONS OF LD.A.R. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD AND JUDICIAL DECISION CITED. THE LD.A.R HAS EMPHASIZED ON THE DISPUTED ISSUE ON HOLDING PERIOD OF THE ASSESSEE ON WHOM THE ASSETS ARE DEVOLVED ON THE DEATH OF ASSESSEES FATHER, THE PROVISIONS OF SECTIONS 48 & 49(I) OF THE ACT ALLOW SPECIAL MODE O F TRANSFER IN GIFT AND SUCCESSION. THE ACTION OF THE AO THAT THE PROP ERTY WAS ACQUIRED ITA NO.86/MDS/2016 10 BY ASSESSEES FATHER AND NOT INHERITED AS PER THE P ROVISIONS OF THE ACT CANNOT BE ACTED UPON WERE ASSESSEE BECAME A RIGHT FUL OWNER AS PER EXPLANATION 1(I)(B) TO SECTION 2(42A) OF THE AC T AND IN THE PRESENT CASE, ASSESSEE DEEMED TO HOLD THE PROPERTY AS ON 19 81 AND INDEXED COST OF ACQUISITION HAS TO BE CALCULATED FROM 01.04 .1981 WITH THE BASE YEAR AS 100. THE ASSESSEES FATHER ACQUIRED PROPERT Y IN 1965-66 ALONG WITH HIS BROTHERS AND ON PARTITION IN 1979, H E BECAME THE ABSOLUTE OWNER OF ENTIRE ASSET AND ASSESSEE HAS COM PLIED WITH THE CONDITIONS OF THE PREVIOUS OWNER AS ON 01.04.1981 AND RIGHTFULLY CLAIMED THE COST IN INFLATION INDEXATION FROM THE B ASE YEAR I.E. 01.04.1981 AND THE ARGUMENTS OF THE LD.A.R ARE SUP PORTED BY THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF ITO VS. SHRI SYED ALI SHIRAZHI IN ITA NO.1998/MDS./2014 VID E ORDER DATED 30.10.2014 FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF MANJULA J SHAH VS. DCIT (2009) 318 ITR (AT) 417, WH ICH HAS BEEN CONFIRMED BY THE HONBLE BOMBAY HIGH COURT REPORTE D IN (2013) 355 ITR 474. THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. MANJULA J.SHAH (SUPRA) HELD THAT WHEN THE ASSESSEE SELLS HIS IMMOVABLE PROPERTY WHICH IS ACQUIRED UNDER GIFT OR WILL, WHILE ITA NO.86/MDS/2016 11 COMPUTING THE CAPITAL GAIN THE INDEX COST OF ACQUIS ITION HAS TO BE COMPUTED WITH REFERENCE TO THE YEAR IN WHICH PREVIO US OWNER FIRST HELD THE ASSET AND NOT THE YEAR IN WHICH THE ASSESS EE BECAME THE OWNER OF THE ASSET. THEREFORE, THE RATIO OF THIS D ECISION IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE OF THE ASSESSEE. 6. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDIN ATE BENCH, WE DIRECT THE AO TO ALLOW THE COST INFLATION INDEXATIO N TO THE ASSESSEE FROM 01.04.1981FOR COMPUTATION OF CAPITAL GAINS. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THURSDAY, THE 24 TH OF MARCH,2016 AT CHENNAI. SD/- SD/- ( #$ % ) ) & CHANDRA POOJARI ' ( . ) (G.PAVAN KUMAR) ( ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 24 TH MARCH,2016 . K S SUNDARAM. )*((+,(-, /COPY TO: ( 1. /APPELLANT 2. /RESPONDENT 3. ( .(&' /CIT(A) 4. ( . /CIT 5. ,/0 (1 /DR 6. 02(3 /GF