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Income Tax Appellate Tribunal, ‘’SMC’’ BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR & Ms MADHUMITA ROY
PER Ms MADHUMITA ROY, JM:
The instant appeal preferred by the assessee is against the order dated
27.07.2011 passed by the CIT(A) XVI, Ahmedabad, arising out of the order dated
16.12.2010 passed by the Assistant Commissioner of Income Tax, Cicle-10,
Ahmedabad for A.Y. 2008-09.
The assessee, an individual filed the return of income for A.Y. 08-09 on
29.07.2008 declaring total income at Rs. 1,84,900/-. The said return was processed
under section 143(1) of the Act. Under scrutiny a notice under section 143(2) dated
25.09.2009 was issued followed by another notice dated 08.06.2010 along with a
ITA No.2111/Ahd/2011 A.Y.2008-2009 2 questionnaire issued on the same day. It appears that the assessee has shown salary
income, income from house property, loss from business and profession, long term
capital loss and income from other sources. The dispute relating to the matter is this
that the assessee has claimed long term capital loss of Rs. 86,90,445/- on the sale of
lease hold land measuring about 1891.45 square meters. By virtue of a deed of lease
dated 19.06.1924 registered with the office of the Sub-Registrar being No. 3185, the
father of the assessee acquired the lease hold right of the said property for a period
of 51 years on annual rent of Rs. 1601 upon which a building and chawl was
constructed by the father of the assessee. After the expiry of the lease agreement the
same was extended for a further period of 39 years by executing a renewal lease
agreement on 25.01.1958 duly registered by and under Registration No. 706 of
1958. The assessee herein claimed to have sold this premises for a consideration of
Rs. 41,0000/-. The valuation report submitted by the assessee determines the market
value as on 01.04.1981 at Rs. 23,19,500/-. On examination of details, including
relevant documents as furnished during the course of assessment proceeding the
cost of acquisition and the indexation cost for working out capital gain have been
questioned by the assessing officer and the assessee was given an opportunity to
substantiate its claims for deduction of index cost from the sales consideration by
issuing by show cause dated 01.12.2010 with the following contents.
“On perusal of the computation of statement of total income furnished with the return of income, it is seen that you have claimed long term capital loss of Rs. 86,80,445/- on Asarwa premises. N perusal of valuation report dated 19/04/2007 it is seen that valuation is made for leasehold land and not for leasehold rights held by you. Further, it is mentioned that the lease period of 39 years had already expired on 31/12/1996 and after expiry of lease period renewal of lease has not been taken place and lease period is also not extended.”
ITA No.2111/Ahd/2011 A.Y.2008-2009 3 3. In reply to the show cause dated 01.12.2010 the assessee submitted the following on 14.12.2010.
"On perusal of the computation of statement of total income furnished with the return of income, it is seen that you have claimed long term capital loss ofRs, 86,80,445/-on Asanva premises. N perusal of valuation report dated 19/04/2007 it is seen that valuation is made for leasehold land and not for leasehold rights held by you. Further, it is mentioned that the lease period of 39 years had already expired on 31/12/1996 and after expiry of lease period renewal of lease has not been taken place and lease period is also not extended."
Upon perusal of the submission made by the assessee and the valuation
report as well, the Learned Assessing Officer came to a finding that the assessee is
not enjoying a long term lease hold right of 99 years but only for 39 years that too
has already expired. According to the Ld. AO the assessee has not paid any
premium and therefore the cost of acquisition is to be taken at NIL. The capital
assets representing lease hold rights has been acquired by the assessee without
payment of own money and therefore the cost of acquisition of lease hold right is
NIL. Regarding the valuation report the Ld. AO further opined that the same
speaks about valuation of lease hold land as on 01.04.1981 and not the valuation of
lease hold right. The Assessing Officer observed that since there was no renewal or
extension of lease, the lease hold rights of the assessee came to an end on
31.12.1996 upon the expiry of the extended period of 39 years. It was further
contended by the Learned Assessing Officer that the property if any cost can be
allocated to the assessee it could only to with respect to the cost of super structure
owned and possessed by the assessee valuation whereof has been assessed at Rs.
1,58,998 and the index value was calculated at Rs. 8,76,078/-. With such
observation the total long term capital gain was worked out at Rs. 40,23,822/-.
ITA No.2111/Ahd/2011 A.Y.2008-2009 4
The long term capital gain of the assessee has been assessed at Rs.
40,23,822/- as against loss of Rs. 78,80,545/- as shown by the assessee in his return
of income. In appeal the said addition was confirmed. Hence, the instant appeal.
At the time of hearing of the appeal the Ld. counsel appearing for the
assessee submitted before us that the assessee before transferring the right, title and
interest in respect of the land in question paid lease rent continuously since the lease
has not been terminated by the lessor. It is the case of the assessee that by executing possession agreement (Kabja Karar) on 5th May, 2007 the assessee transferred his
rights on the land as well as the constructed properties thereon for a consideration of
Rs. 41,00,000/-. It was further submitted by the Ld. representative of the assessee
that since the property was very old, for the purpose capital gain, valuation report was obtained and the market value as on 1st April, 1981 on the land in possession as
well as the super structure thereon was estimated at Rs. 23,19,500/- on which
indexation cost of Rs. 1,27,80,445/-was claimed. The long term capital asset loss
becomes Rs. 86,84,445/- if the sale consideration of Rs. 41,00,000/- is deducted
from the said total amount of Rs. 1,27,80,445/-. Since the assessee was in
possession of the property the assessee remained the lessee as also argued by the
Ld. AR. Further that the learned AO did not consider the loss on sale of the property
as incurred by the assessee. According to the Ld. AR the Ld. AO erred in law and in
fact in relying upon the provision of Sec 52(2)(a) of the Income Tax Act by
adopting the value of lease hold right as NIL. The learned AO further erred in law
in not allowing the cost of indexation of Rs. 1,27,80,445/- of lease hold land as on 1st April, 1981 as valued by the Government approved valuer and further that Ld.
ITA No.2111/Ahd/2011 A.Y.2008-2009 5 AO also failed to allow the value of super structure owned by the tenants of Rs. 8,15,517/- as on 1st April, 1981 as also submitted by the learned AR. In fact, the Ld.
AR argued that the long term capital loss of Rs. 78,80,545/- ought to have been
accepted by the authorities below on basis of the working made by the valuer.
Taking into consideration of the provision Sec. 48 of the Act fair market value as on
01.04.1981 as determined by the valuer ought to have been considered by the Ld.
AO. He further relied upon the judgment passed by the Coordinate Bench in ITA
No. 3063/Ahd/2010 (Natraj vs. DCIT).
On the other hand the learned representatives of the department submitted
before us that since the assessee failed to extend the lease agreement by the lessor
upon expiry of the same after 39years in the year 1998 the assessee has lost the
lease hold right. He therefore, relied upon the order passed by the authorities
below.
We have heard the respective parties and perused the relevant materials on
records. As it appears from the records that the assessee is enjoying the lease hold
right by virtue of a lease deed initially executed on 19.06.1924 registered with the
office of the Sub-Registrar by and under registration No. 3185 on annual rent of Rs.
1601/- upon which the father of the assessee constructed the buildings and chawals
as mentioned in the subsequent lease deed executed on 25.01.1958 whereby and
whereunder the lease was extended for a further period of 39 years; the annual rent
has become fixed at Rs. 1800/-. On 05.05.2007 the assessee transferred all his legal
rights on the property to a third party for a consideration of Rs. 41,00,000/-. The
ITA No.2111/Ahd/2011 A.Y.2008-2009 6 claim of the assessee towards capital loss of Rs. 86,80,445/- in his return of income
has been disallowed and hence the case before us.
The moot point involved in this matter to be considered by us firstly as to
whether the assessee was having any lease hold right on the property in question at
the time of transferring his right, title and interest of the property by way of sale
agreement to the third party on 05.05.2007. If the question is affirmative meaning
thereby that the assessee was in possession of the lease hold right over the property
in question then whether the authorities below has followed the prevailing rule in
determining the capital gain of the assessee claimed in the return.
It appears from the records at page 90 of the paper book that clause 4 of the
lease deed stipulates that upon completion of the period of lease the lessor will be
entitled to take over possession of the land and the lessee would remove all the
constructions made by him at his own cost. In the event the lessor wishes to
purchase the construction made by lessee at the market value then for agreed sale
price sale deed would be executed and each of the parties would bare 50 per cent
expenses thereon. Otherwise the lessee would hand over possession of vacant land
to the lessor by execution of cancellation deed of lease on their own expenses.
Clause 11 of the said lease deed further stipulates that during the tenure of lease
period the lessee, that is the assessee herein would be entitled to make any
construction and to use the open land and to sublet the property to third party
without being objected/protested by the lessor. Further that the municipal taxes and
the land revenue was agreed to be paid by the assessee in respect of the land in
question during the lease period. It is not in dispute that even after the expiry of the
ITA No.2111/Ahd/2011 A.Y.2008-2009 7 lease deed extended on 1958 for a period of 39 years the assessee was in possession
of the property. The rent receipts issued by the lessor including the receipt dated
04.09.2001 which is after the expiry of the lease period, is also being part of the
records before us. We have also been informed by the Ld. AR at the time of
hearing of the instant appeal that no suit of eviction against the lessee pending
before any court of law, in fact, no such suit was ever filed by the lessor against the
assessee. If that be so, then the lease becomes a perpetual lease in the absence of
any objection raised by the lessor towards the lease hold right of the assessee or
execution of cancellation deed of lease in terms of Clause 4 of the lease deed. The
assessee is thus the deemed lessee at the time of sale of the property as on
05.05.2007. The first question has been thus answered in affirmative i.e. in favour
of the assessee.
In that view of the matter the denial of accepting the valuation of the super
structure owned by the tenants under the lessee to the tune of 8,15,516.80/- is not
sustainable particularly when right to sublet has been conferred by the original lease
deed upon the lessee. The main contention of the Ld. AO while rejecting the claim
of the assessee is this that though the assessee claimed to remain in possession of
the property in question as lessee, the lessor was the actual owner of the land at the
time of sale of the property. The valuation report submitted by the assessee speaks
about the valuation of lease hold land as on 01.04.1981 and not the valuation of
lease hold right. The assessee while computing capital gain on sale of land
deducted index cost of acquisition based on the fair market value as on 01.04.1981.
But the authorities below was of the opinion that since no cost of acquisition was
ITA No.2111/Ahd/2011 A.Y.2008-2009 8 incurred by the assessee in terms of the provision of sec. 55(2)(a)(ii) cost of
acquisition was to be taken at NIL. But it is a settled principle of law that as per the
scheme of sec 48 the asset hold by the assessee prior to beginning of 01.04.1981
fair market value of “asset” on 01/04/1981 has to be taken as “cost of acquisition”
of asset and further that benefit of indexed cost of acquisition has to be allowed to
the assessee while determining long term capital gain. Even if the assessee has
acquired the land for NIL value prior to 01.04.1981 sec 48 shall be applicable and
fair market value of lease hold land as on 01.04.1981 along with indexed cost of
acquisition has to be determined in order to compute long term capital gain. It is
relevant to mention that the legislature has intentionally not added the word land in
the exhaustive list of capital asset mentioned in sec. 55(2)(a) and therefore
application of sec. 55(2)(a)(ii) while valuing “cost of acquisition” of land for
computing “long term capital gain” of the assessee as done in the case in hand is not
sustainable in the eye of law. We repeat that the value of lease hold right in the
property including the land of assessee has to be determined in accordance with the
provisions of sec. 48 by valuing “fair market value” of land as on 01/04/1981 and
indexed cost of acquisition has to be determined in order to assess long term capital
gain and to be allowed. In this particular case in hand before us the index cost was
also determined on that basis.
Such proposition of law has been affirmed by the judgment passed by the
Coordinate Bench in the case of the Natraj vs. DCIT by the Coordinate Bench in
ITA NO. 3063/Ahd/2010 has also been carefully considered by us relevant portion
is whereof:-
ITA No.2111/Ahd/2011 A.Y.2008-2009 9
“NATRAJ vs. DEPUTY COMMISSIONER OF INCOME TAX ITA No.3063/Ahd/2010 "Capital gains—Leasehold land—Assessee acquired lease hold rights in a property for 98 years in 1966 and constructed a Cinema Hall at minimum cost of Rs,4 lakhs- Said land was sold in 2006— Assessee in computing capital gain on sale of land deducted indexed cost of acquisition based on the fair market value of land as on I April 1981 — AO and CIT(A) held that no cost of acquisition was incurred by assessee as per terms and conditions of registered lease deed, and therefore in accordance with provision of section 55(2)(a)(ii), cost of acquisition was taken at NIL-Held, as per scheme of Section 48, for asset held by assessee prior to beginning of 1st day of April, 1981, fair market value of "asset" on first day of April, 1981 has to be taken as "cost of acquisition" of asset and benefit of indexed cost of acquisition has to be allowed to the assessee while determining long term capital gain—In a case where assessee has acquired land for NIL value prior to 1.4.1981, even then section 48 shall be applicable and fair market value of lease hold land as on 1.4,1981 along with indexed cost of acquisition has to be determined in order to compute "long term capital gain"— Exhaustive list of capital assets are mentioned in Section 55(2)(a) and legislature has intentionally not added word "land", therefore, section 55(2)(a)(ii) would not be applicable while valuing "cost of acquisition" of land for computing "long term capital gain" of assessee— Value of lease-hold rights in land of assessee has to be determined in accordance with provision of section 48 by valuing "fair market value" of land as on 1.4.1981 and index cost of acquisition has to be determined in order to assess long term capital gains—Approved valuer has estimated fair market value of land as on 1.4.81 at Rs. 1,200/- per square yard without making suitable deduction on account of assessees right in land being only that of "lessee" for 98 years—Since assessee had acquired leasehold rights only for 98 years and assessee not being owner thereof, Fair market value is determined at Rs.800/per square yard—AO is directed to determine "long term capital gain" after taking value of lease hold rights of assessee at Rs. 800/- per square yard as on 01.04.81-Appeal filed by assessee is allowed partly".
"We have considered rival submissions and have perused the orders of the AO and the CIT(A) and copies of the various documents filed in the compilation before us including the copy of the lease deed dated 15.09.1966 and also copy of the valuation report dated 11.09.2006 for fair market value as on 1.4.1981. We find that the Revenue Authorities in this case have been influenced and have based their decision on the fact that the assessee has not paid any "cash" at the time of execution of lease deed on 15.09.1966 and has only committed to invest in the construction of cinema building at a minimum cost ofRs.4 lakhs. We find that in accordance with the scheme of the Act and in particular the provision of Section 48, for the asset held by the assessee for the year prior to beginning of 1st day of April, 1981, the fair market value of the "asset" in question as on the first day of April, 1981 has to be taken as "cost of acquisition" of the asset and the benefit of indexed cost of acquisition has to be allowed to the assessee while determining the long term capital gain of the assessee. In this case, the assessee has acquired lease hold rights for a long term period of 98 years in the year 1966, which is clearly prior to 01.04.1981, and therefore for the purpose of determining the "long term capital gain", the fair market value of the leasehold rights of the assessee in the land as on 01.04.1981 has to be calculated and the indexed cost of acquisition has
ITA No.2111/Ahd/2011 A.Y.2008-2009 10 to be determined. In this case, plea of the assessee was that it was bound by the terms of lease deed dated 15.09.1996 to spend a sum ofRs.4 lakhs in the construction of Cinema hall, and this amount should be taken as cost of acquisition of the plot of land. This plea of the assessee in our considered opinion, is not acceptable for the reason that building of cinema hall as per terms of the lease deed dated 15.09.1966 had to remain with the ownership of the assessee (lessee) and also for the reason that the cinema building itself was demolished before the date of sale of leasehold rights in the plot of land. However having rejected this plea of the assessee as not acceptable and the value of the land in question as on the date of execution of lease agreement i.e. 15.09.1966 is not taken at Rs.4 lakhs, the fair market value of the land as on 01.04.1981 of the leasehold rights of the assessee in the land still has to be decided and determined. In a case where the assessee has acquired some land for NIL value prior to a year starting from 1.4.1981, even then the provision of section 48 shall be applied and the fair market value of the land in question as on 1.4.1981 along with the indexed cost of acquisition has to be determined in order to arrive at the figure of "long term capital gain". In our considered view, the value for which the assessee has acquired the land in question prior to 1.4.1981 is not relevant for the determination of the "fair market value" of the land as on 1.4.1981. "
We find that the important issue before us for adjudication is whether the provision of section 55(2)(a)(ii) of the Act relied upon by the Revenue is applicable to the case of the assessee to value the land in question as on 1.4.1981, even though the land was acquired by the assessee for NIL value. We have already held in the foregoing paras of this order that where the assessee has acquired some land for NIL value prior to a year starting from 1.4.1981, even then the provision of section 48 shall be applicable and the fair value of the land in question as on 1.4.1981 along with indexed cost of acquisition has to be determined in order to arrive at the figure of "long term capital gain" and the value for which the assessee has acquired the land in question prior to 11,4.1981 is not relevant for determining the "fair market value" of the land as on 1.4.1981. However, the Revenue has relied on the amended provision of Section 55(2)(a)(ii) and have submitted that in accordance with this amended provision of law, in such a case as that of the assessee, the cost of acquisition shall be taken at NIL. None of the parties could cite any decision ofHon'ble Court or the Tribunal in their favour on this issue. Thus, important law point before us for adjudication is that whether in view of amended provision of Section 55(2) (a)(ii) of the Act, where the assessee has acquired a piece of land at NIL value in a year prior to 1.4.81, the "fair market value" of the land in question as on 11.4.81 for the purpose of determination of "cost of acquisition" as per provision of section 48 and 49 of the Act shall be taken at NIL. For the sake of ready reference we reproduce the provision of Section 55 (2) (a) of the Act as under:
For the purposes of sections 48 and49, "cost of acquisition",— (a) in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours, —
ITA No.2111/Ahd/2011 A.Y.2008-2009 11 (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not being a case falling under sub- clauses (i) to (iv) of sub-section of section 49, shall be taken to be nil;
A plain reading of this provision of law makes it clear that the for the purpose of sections 48 and 49, the cost of acquisition shall be taken at "NIL", in the case not falling under the provision of Section 55(2)(a)(i) or any other case not being case falling under sub-clause (i) to (iv) of subsection (!) of section 49, and shall apply only in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours. The case falling under sub-clause (i) to (iv) of Section 49(1) are with regard to the case where the capital asset became the property of the assessee on the distribution of assets on partition of a Hindu undivided family or under a gift or will or by succession, inheritance or devolution, or any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or on any distribution of assets on the liquidation of a company, or under a transfer to a revocable or an irrevocable trust, or under any such transfer as is referred to in certain clauses of section 47 or in the case ofHUF by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969, and in this type of cases, the cost of acquisition of the asset shall be cost for which the previous owner of the property acquired it as increased by the cost in improvement of the assets etc. We find that the provision of section 55(2)(a) shall apply in relation to the capital assets mentioned in Section 55(2)(a) of the Act only. The capital assets as mentioned in Section 55(2)(a) are exhaustive and all inclusive of capital assets, such as goodwill, trade mark brand name, right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours, and being an exhaustive list of capital assets, any other capital asset such as land etc. could not be included for the purpose of valuation of "cost of acquisition" for sections 48 and 49 of the Act. It is well settled that when certain provision of law has clear language and leaves no room for ambiguity, there should be no violence to the provision as enacted by the Legislature and no words should be added or omitted while reading a specific provision of law. We find that the Legislature has intentionally not added word "land" in the provision of Section 55(2(a) of the Act, and therefore, the provision of section 55(2)(a)(ii) of the Act would not be applicable while valuing the "cost of acquisition" of the land for the purpose of computation of "long term capital gain" of the assessee. Accordingly, we hold that the value of the lease-hold rights in the land in question of the assessee. has to be determined in accordance with the provision of section 48 of the Act by valuing "far market value" of the land as on 1.4.1981 and the index cost of acquisition has to be determined in order to assess long term capital gains in the hands of the assessee.”
In the light of the observation made by us hereinabove and in view of the
ratio laid down by the judgment as cited above we do not find any reason for not
ITA No.2111/Ahd/2011 A.Y.2008-2009 12 allowing the indexed cost claimed on the basis of the valuation report as made by
the authorities below. The valuation made by the valuer in terms of Se. 48 of the
Act taking into consideration the market value of the property as on 01.04.1981 and
the computed loss of long term capital gain on that basis cannot be negated
ultimately the resultant computation of capital gain on the basis of such valuation
report as worked out by the assessee demands positive consideration by the
Revenue.
In that view of the matter we do not find any merit in making addition by the
authorities below. Thus, the addition is hereby deleted.
In the result, assessee’s appeal is allowed.
Order pronounced in the Court on 25/02/2019 at Ahmedabad.
Sd/- Sd/- (PRAMOD KUMAR) (MADHUMITA ROY) VICE PRESIDENT JUDICIAL MEMBER
Ahmedabad; Dated 25/02/2019 आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad