CIT, FARIDABAD vs. SATISH KUMAR ARORA GURGAON

PDF · subscribers
ITA/633/2009HC Punjab & HaryanaPHHC01084762200920 September 2010Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the argument raised by the Revenue could not be accepted. It referred to Section 49(1) of the Act, which stipulates that where a capital asset becomes the property of the assessee by succession, inheritance, or devolution, the cost of acquisition shall be deemed to be the cost for which the previous owner acquired it, increased by the cost of any improvement. The Explanation to Section 49(1) defines the 'previous owner' as the last previous owner who acquired the asset by a mode other than those specified in clauses (i) to (iv) of Section 49(1). In this case, the assessee inherited the property from his father, who purchased it in 1965. Therefore, 1965 was the date of acquisition by the previous owner. After applying Sections 48 and 49, the fair market value on 01.04.1981 would be considered, and thereafter, the indexed cost of acquisition would be determined. The Tribunal was thus correct in taking the date of acquisition as 01.04.1981 and not the year of inheritance (1992-93). The High Court found no infirmity in the Tribunal's view and concluded that no substantial question of law arose.

What were the facts?

The Revenue appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2004-05. The assessee, Shri Satish Kumar Arora, had inherited a property in 1992-93 and subsequently sold it. The Assessing Officer (AO) made an addition to the assessee's income by indexing the cost of the property from the date of inheritance. The Commissioner of Income Tax (Appeals) upheld the AO's order. However, the ITAT allowed the assessee's plea, directing the AO to consider the cost of acquisition based on the previous owner's purchase date. The Revenue's appeal to the High Court challenged the ITAT's interpretation of Section 48 and Explanation (iii) of the Income Tax Act, 1961.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in upholding that the fair market value of the property was to be ascertained on 01.04.1981 and then the indexed cost had to be found out in the year of sale by the assessee, disregarding Explanation (iii) to Section 48 of the Income Tax Act, 1961, which provides that the indexed cost of acquisition will be adopted from the year in which the asset was first held by the assessee and not by the previous owner? Assessee's Contention: The assessee argued that the cost of acquisition should be based on the purchase date by the previous owner, as per Section 49(1) read with Section 55(1)(b) of the Act, not the date of inheritance. The ITAT relied on the case of Smt. Mina Deogun Vs. ITO (2008) 117 TTJ 121. Revenue's Contention: The Revenue contended that Explanation (iii) to Section 48 mandates that the indexed cost of acquisition is to be calculated using the Cost Inflation Index for the year the asset is transferred, bearing the same proportion as the Cost Inflation Index for the first year the asset was held by the assessee or April 01, 1981, whichever is later. Therefore, the date of inheritance could be relevant for calculating the cost.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 48,Section 49(1),Section 55(1)(b),Section 54EC

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.

Date of decision: 20.9.2010 The Commissioner of Income Tax. -----Appellant. Vs. Shri Satish Kumar Arora -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Ms. Urvashi Dhugga, Standing Counsel for the appellant. --- ADARSH KUMAR GOEL, J. This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order dated 10.10.2008 of the Income Tax Appellate Tribunal, Delhi in I.T.A. No.3580/Del)/2007 for the assessment year 2004-05 proposing to raise the following substantial question of law:- “Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding that the fair market value of the property was to be ascertained on 01.04.1981 and then the index cost has to be found out in the year of sale by the assessee disregarding the explanation (iii) to section 48 of the Income Tax Act, 1961 which provides that indexed cost of acquisition will be adopted from the year in which the asset was first held by the assessee and not by the previous owner?”

2.

During the assessment, the Assessing Officer made addition to the declared income of the assessee on account of sale of property which the assessee had inherited in the year 1992-93. The addition was by indexing the cost as on the date of inheritance. The assessee objected to the addition on the ground that it is not the date of inheritance on which the cost of the property is to be seen but on the date of purchase by the previous owner, as increased by the cost of improvements, in forms of Section 49(1) read with Section 55(1)(b) of the Act. The CIT(A) affirmed the order of the Assessing Officer but the Tribunal upheld the plea of the assessee. The observations made by the Tribunal are as under:- “It was contended that the issue stands covered by the order of “E” Bench of Kolkata Tribunal in the in the financial year 2003-04 was to be computed by applying cost inflation index of financial year 1981-82 and not financial year 1998-99. It may be pointed out that the finding was that it would be improper to apply only the cost inflation index with reference to previous owner when the property was actually acquired by previous to previous owner in the year 1958 and the property passed by inheritance first to the wife of the purchaser and on her death to the daughter of the purchaser. In this case, the assessee acquired the property from her father by way of inheritance, who had purchased the property in the year 1965. Therefore, the fair market value of the property has to be ascertained on 1.4.1981 and then the indexed cost has to be found out in the year of sale by the assessee. In this view of the matter, ground nos.1 to 4 are allowed. The AO is directed to examine whether the whole of capital gains so computed become deducible because of investment made in the capital gains bonds, mentioned in section 54EC of the Act.”

3.

We have heard learned counsel for the appellant.

4.

Contention raised on behalf of the appellant is that as per Explanation (iii) to Section 48 of the Act, “indexed cost of acquisition” is the amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or April 01, 1981, whichever is later. Therefore, date of inheritance could be relevant for the purpose of calculation of cost.

5.

The argument raised cannot be accepted. Section 48 of the Act deals with computation of capital gains. Section 49(1) of the Act provides for cost with reference to certain modes of acquisition. It stipulates as under:-

49.

(1) Where the capital asset became the property of the assessee— (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; (iii) (a) by succession, inheritance or devolution, or (b) on 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] (c) on any distribution of assets on the liquidation of a company, or (d) under a transfer to a revocable or an irrevocable trust, or (e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (vicb) of section 47; (iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.

Explanation attached to the aforesaid provision gives the meaning to the expression ‘previous owner of the property’ and it reads thus:- Explanation.—In this sub-section the expression “previous owner of the property” in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section.”

6.

In the present case, the assessee had inherited the property from his father in the year 1992-93. The father of the assessee had purchased the property in the year 1965 which would be the date of acquisition in his hands, as the same was acquired by the previous owner by means other than those specified in clause (i) to (iv) of Section 49(1). After applying the provisions of Sections 48 and 49 of the Act, it shall be the fair market value of the property on 1.4.1981 and thereafter, the ‘indexed cost of acquisition’ will be determined. The Tribunal had, thus, rightly taken the date of acquisition by the assessee as 1.4.1981 and not of the year 1992-93. There is, thus, no infirmity in the view so taken.

7.

No substantial question of law arises.

8.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE September 20, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 5

More judgments on Section 260-A

All 2,570 judgments and leading authorities on Section 260-A →

Recent GST High Court judgments

Search GST case law →