SHRI BINDIGANAVALE RAVI ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-5(2)(1), BANGALORE

Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order of CIT(Appeals) dated 22.8.2018 for the assessment year 2015-16.

“1) The learned CIT( A) erred in passing the order in the manner which he did. 2) The learned CIT(A) erred in confirming the addition of Rs. 42,28,768/- as capital gain without appreciating the submission of the Appellant.

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3) The learned CIT(A) ought to have appreciated that the agreement to sell the undivided share and also the agreement for determination of value of the property were executed on 09.06.2006 and the Appellant had constructive possession of the land from that date as contemplated under Section 53A of the Transfer of Property Act read with Section 2(47)(v) of the IT Act and the construction of the apartment was for and on behalf of the Appellant for which the cost was incurred from time to time as per the scheme of payment provided in the agreement and accordingly the Appellant had rightly computed the Cost Inflation Index while computing the capital gain and the same should have been accepted. 4) The learned CIT(A) failed to appreciate that the apartment was constructed on behalf of the Appellant and it was not a case of purchase when the property stood registered. 5) The learned CIT(A) ought to have appreciated that the apartment was deemed to have been held by the Appellant from the date of execution of Joint Development Agreement (JDA) which has been honored and the payment schedule has been made accordingly without default and consequently the apartment is deemed to have been held by the Appellant from 09.06.2006 and the Cost Inflation Index as computed by the Appellant was correct and complete and the impugned disallowance as made by the CIT(A) is opposed to law and liable to be deleted. 6) The learned CIT(A) ought to have appreciated that there are judicial precedence supporting the claim of the Appellant and he ought to have accepted the explanation and refrained from disallowing the claim of the Appellant. 7) The learned CIT(A) ought to have allowed the cost of improvement of Rs.5,72,000/- claimed by the Appellant. 8) The learned CIT(A) ought to have appreciated that though bills were not provided, the Appellant had given corroborative evidence and the cost of improvement claimed was also in accordance with the fair market value and no inflation could be contemplated to justify the disallowance as made.

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9) The learned CIT(A) ought to have accepted the explanation offered by the Appellant and refrained from disallowing the cost of improvement as claimed by the Appellant. 10) Without prejudice, the addition as confirmed by the learned CIT(A) is arbitrary, excessive and ought to be deleted in toto. 11) The learned CIT(A) erred in confirming interest under Section 234D of the Act. 12) For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.” 3. The facts of the case are that the assessee during the relevant year has sold a residential property for a consideration of Rs. 2,01,24,000 vide sale deed dated 23.06.2014 and computed the long term capital gain at Rs. 41,08,845 and offered the same for taxation. The property sold was an apartment constructed by Brigade Enterprises Pvt Ltd. in pursuance of the agreement executed on 29.06.2006 Subsequently a sale deed was executed on 17.05.2010 In Accordance with the agreement dated 09.06.2006 the land value was fixed at Rs. 17,20,000 and construction value was fixed at Rs. 43,35,800. In addition the Appellant had to pay towards VAT Service Tax and also for all other charges payable. Thus the totaI cost incurred was Rs. 7,72,4934 besides stamp duty charges and registration charges totaling to Rs.8034964. The consideration was paid between 31st January 2006 and 5" May 2010. The cost of improvement of Rs. 1,10,080 was paid on 14.08.2010 and while computing the capital gain the Appellant has taken the cost Inflation Index on the rates provided for the year 2006 onwards and the cost Inflation Index was proportionately determined on the dates of payment made. Thus the Appellant determined the cost as inflated by indexed cost at Rs. 1,58,00,924. Also the improvement cost of Rs. 11000 was inflated to Rs. 1,32,303 and thus the

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net capital gain of Rs. 41,08,845 was offered for taxation. The assessee also claimed deduction for the improvement made to the interest for expenditure of Rs. 5,72,000 was incurred.

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to law and liable to be deleted. The assessee placed reliance on the ITAT Delhi order in the case of Praveen Gupta Vs ACIT dated 13.08.2010.

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which payments have been made. As such, Cost Inflation Index as computed by the Appellant was correct and the impugned disallowance is liable to be deleted. Further, reliance was placed on the order of the Tribunal in the case of L. Vivekananda in ITA No.1087/Bang/2018 dated 18.11.2020.

“10. `We have heard the rival submissions and perused the materials available on record and gone through the orders of the authorities below. In the present case, assessee got allotment letter for site No.S-4, Siddharth Layout, Mysore on 20.5.1986. Payment of consideration was paid by assessee by 29.5.1986 and the possession certificate issued by the authorities on 23.6.1998. The sale deed was executed by MUDA in favour of the assessee on 6.1.2004. The said property was sold by assessee on 9.5.2012. The assessee’s contention is that for the purpose of computation of capital gain, indexation cost of acquisition to be made from the date of allotment of the site i.e. 20.5.1986. Contrary to this, A.O. considered date of grant of possession certificate as 23.6.1998 to determine the cost of inflation indexation so as to compute the capital gains. Now, the issue before us is whether the date of allotment of site or date of issue of possession certificate to be

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considered to determine the cost of inflation indexation. The Hon’ble Karnataka High Court in the case of CIT Vs. A. Suresh Rao 223 Taxman 228 (Karn) has analysed and explained at length. Hon’ble High Court analysed various provisions of the Act pertaining to computation of capital gain under various situations and also circulars issued by the CBDT on this issue. Relevant portion of the observation wherein the issue before us has been properly analysed is reproduced hereunder: "The definition as contained in Section 2 (42A) of the Act, though uses the words, "a capital asset held an assessee for not more than thirty-six months immediately preceding the date of its transfer", for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer. No registered deed of sale is required to constitute a transfer. Similarly, any transaction whether by way of becoming a member of or acquiring shares in a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of any immovable property, also constitutes transfer and the assessee is said to hold the said property for the purpose of the definition of 'short-term capital gain'. In fact, the Circular No.495 makes it clear that transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are common mode of acquiring flats particularly in multistoried constructions in big cities. The aforesaid new subclauses (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liability by recourse to transfer of rights in the manner referred to above. A person holding the Power of Attorney is authorized the powers of owner, including that of making construction though the legal ownership in such

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cases continues to be with the transferor. The intention of legislature is to treat even such transactions as transfers and the capital gain arising out of such transactions are brought to tax. Further, the Circular No.4 71 goes to the extent of clarifying that for the purpose of Income-tax Act, the allottee gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow up action and taking the delivery of possession is only a formality. In case of construction agreements, the tentative cost of construction is already determined and the agreement provides for payment of cost of construction in installments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position. Therefore, in construing such taxation provisions, what should be the approach of the courts and the interpretation to be placed is clearly set out by the Apex Court in the case of Smt. Saroj Aggarwal vs CIT 156 ITR 497 wherein it is held as under:- “"Facts should be viewed in natural perspective, having regard to the compulsion of the circumstances of a case. Where it is possible to draw two inferences from the facts and where there is no evidence of any dishonest or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hyper-technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered Courts should, whenever possible unless prevented by the express language by any section or compelling circumstances of any particular case, make a benevolent and justice oriented inference. Facts must be viewed in the social milieu of a country." Therefore, keeping the aforesaid principles in mind, when we look at Section 48, the language employed is unambiguous. The intention is very clear. When a capital asset is transferred, in order to determine the capital gain

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from such transfer, what is to be seen is, out of full value of the consideration received or accruing, the cost of acquisition of the asset, the cost of improvement and any expenditure wholly or exclusively incurred in connection with such transfer is to be deducted. What remains thereafter is the capital gain. It is not necessary that after payment of cost of acquisition, a title deed is to be executed in favour of the assessee. Even in the absence of a title deed, the assessee holds that property and therefore, it is the point of time at which he holds the property, which is to be taken into consideration in determining the period between the date of acquisition and date of transfer of such capital gain in order to decide whether it is a shortterm capital gain or a long term capital gain.” 10.1 Further, in the case of Richa Bagrodia in ITA No.3601/Mum/2012 dated 22.4.2014, the Tribunal considered similar issue and observed as under: 4. We heard both the parties and perused the orders of the Revenue Authorities as well as the judgments of the Hon'ble High Court and the decisions of the Tribunal cited by learned representatives of both the parties. The only issue that is to be decided is whether the date of allotment of the flat or the date of possession of the flat by the assessee should be considered as the date for computing the holding period of 36 months. On perusal of the cited orders of the Tribunal (supra), we find that an identical issue came up for adjudication before the Tribunal in the case of Meena A Hemnani (supra), order dated 17th January, 2014 wherein one of us (AM) is a party and the issue was decided in favour of the assessee by relying on various decisions of the Tribunal as well as the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj). Relevant discussion is given in paras 3 & 4 of the said order of the Tribunal which read as under: 3. There are couple of issues raised in this appeal. Rest of the grounds raised in the appeal are either consequential or general in nature. Accordingly, they are dismissed as general or consequential. The issues, which need to be adjudicated in this appeal are (0 if the capital gains earned by the assessee are

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in the nature of the short term as held by the AO or long term capital gains as offered by the assessee in the return. At the outset, Ld Counsel for the assessee mentioned that the assessee purchased a flat vide the allotment letter dated 9.9.2003 from the builder namely Prestige Estates Projects Pvt. Ltd. There was a construction agreement between the parties dated 1.12.2003 and the registered deed of the same was dated on 22.9.2006. The said flat was sold by the assessee to Bennet Coleman & Company on 10.11.2006. The assessee earned capital gains on this transaction and offered the same as long term capital gains reckoning the date of allotment i.e., 9.9.2003 for the purpose of determining the holding period of three years relevant for the long term capital gains. However, in the assessment proceedings, AO considered the date of registration i.e., 22.9.2006 the date of registration and determined the short term capital gains. Therefore, now the issue to be decided by the Tribunal relates to if the date of allotment should be considered for the purpose of computing the said long term capital gains. In this regard, Ld Counsel filed various decisions to suggest that the date of allotment must be considered for the purpose of computing the long term capital gains instead of date of registration. Ld Counsel filed the order of the Tribunal in the case of ACIT vs. Smt Vandana Rana Roy vide ITA No. 6173/M/2011 (A Y 2007-2008) dated 7.11.2012, wherein one of us (AM) is a party, and stated that the "date of allotment" should be reckoned as relevant date for computing the holding period for the purpose of computing the capital gains. In this regard, Ld Counsel brought our attention to para 7 and 8 of the said order of the Tribunal to support his case. The said judgment was decided considering the judgment of the Gujarat High Court in the case of CIT vs. Anilaben Upendra Shah (2003) 262 ITR 657 (Guj) apart from other decisions of the Tribunal in the case of Jitendra Mohan vs. ITO (2007) 11 SOT 594 (Del) and also another decision of the ITA T in the case of Pravin Gupta vs. ACIT and the relevant propositions

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are extracted in para 7 of the Tribunal's order dated 7.11.2012. The said paras 7 and 8 from the order of the Tribunal in the case of Smt Vandana Rana Roy read as under: 7. We have heard both the parties, perused the cited decisions and we find that there is no dispute on the facts The only issue that is to be decided is whether date of allotment of the flat or the date of possession of the fiat by the assessee should be considered as date of holding for computing the holding period of 36 moths. In alternative, the "date of registration" should be the relevant date. On perusal of the said decisions relied upon by the Ld Counsel, we find that the decisions are relevant and applicable to the facts of the present case. The conclusion of the Hon’ble Gujarat High Court judgement in the case of CIT Vs. Jindas Panchand Gandhi reads as under: "Assessee having sold the fiat allotted to him by a co- operative housing society after a period of 36 months from the date of allotment, capital gains arising to him were long-term capital gains despite the fact that the physical possession of the flat was given to the assessee much later and, therefore he was entitled to deduction from such gains as per law" 7.1 The conclusion of the Hon'ble Gujarat High Court judgment in the case of CIT vs. Anilaben Upendra Shah reads as under: "Assessee having held the shares and allotment of a flat in a co-operative housing society for a period of more than 36 moths the capital gain arising from sale of said flat was longterm capital gain and assessee was entitled to benefit of section 80T irrespective of the fact that the assessee did not get possession of the fiat in question at the time of allotment and it was constructed later on."

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7.2 The conclusion of Hon'ble ITA T, Delhi Bench in the case of Jitendra Mohan vs. ITO reads as under: On the facts of the case, assessee held the capital asset (shed) allotted to it on installment basis from 2e December, 1994, the date of payment of second installment and sale thereof on 1.5°7 December, 2000, gave rise to long term capital loss even though possession of shed was handed over by DSIDC to assessee on 28m May, 1998." 7.3 The conclusion of Hon'ble ITA T, Delhi Bench in the case of Praveen Gupta vs. ACIT reads as under: "Assessee can be said to have held the flat when he made the payment to the builder and received the allotment letter, and therefore, benefit of indexation of cost of acquisition of the fiat has to be granted to the assessee from the date (1995) when he started making payment to the builder and not from the date of execution of conveyance deed in 2001." 8. All the above decisions are uniform in concluding that the "date of allotment" is reckoned as the date for computing the holding period for the purpose of capital gains. The date of allotment in this case being 19.11.2001 and the date of sale is 23.8.2006, therefore, the holding period is much more than 36 months. In this case, the gains earned by the assessee on the sale of flat have to be computed as capital gains. Without prejudice, even if the date of possession, being 14.8.2003, is considered; the assessee is still entitled to the benefits of the Long Term Capital Gains. Therefore, in our opinion, order of the CIT (A) does not call for any interference. Accordingly, the grounds raised by the Revenue are dismissed." 4. Considering the above settled nature of this issue, we are of the opinion that the assessee must succeed on this issue. Accordingly, the relevant grounds of appeal are allowed."

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allotment of property i.e. 20.5.1986 for the purpose of determining the cost of inflation of the assets, while computing the cost of acquisition of property in terms of section 49 of the Act. This ground of the assessee is allowed.” 10. Similar view was taken by the Hon’ble jurisdictional High Court in the case of Smt. Daisy Devaiah in ITA No.109/2014, judgment dated 22.7.2014 wherein it was held as follows:-

“6. The appeal is admitted to consider the following Substantial question of law: "Whether on the facts and in the circumstances of the case, the tribunal is right in law in concluding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee through succession, the indexed cost 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 which the assessee actually became the owner of the asset through succession?" 7. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income tax under the head "Capital gains". Capital Gains is of two types. Short-term capital gains and long term capital gains. Depending upon the nature of capital gains the liability of the tax is determined. The mode and manner of computing the capital gains is provided under Section 48 of the Act. The income chargeable under the head capital gain shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereon. The 2nd proviso to Section 48 provides where long term capital gain arises from the transfer of a long term capital asset, the cost of acquisition of the asset has to be read as "indexed cost of acquisition". Indexed cost of acquisition has been defined in the explanation to the said Section, it means an 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

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assessee or for the year beginning on the 1st day of April 1981, whichever is later. 8. Section 49 deals with the cost with reference to certain modes of acquisition. One such mode is, if the assessee acquires a capital asset by way of succession, inheritance or devolution, then 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. Therefore, when an asset is acquired by way of inheritance, the cost of acquisition of the asset should be calculated on the basis of the cost of acquisition by the previous owner and the said cost of acquisition of the previous owner has to be calculated on the basis of indexed cost of acquisition as provided in explanation (3) to Section 48 9. Though in the definition of 'indexed cost of acquisition', the word used are, "in which the asset was held by the assessee" a harmonious reading of Sections 48 and 49 makes it clear that, for the purpose of 'Indexed Cost of Acquisition', it has to be understood as the first year in which the previous owner held the said property. Otherwise, if the date of inheritance is taken into consideration, then the cost of acquisition of the asset on that date corresponding to the market value is to be taken into consideration. Otherwise, take the cost of acquisition on the day the previous owner acquired it and apply the "Indexed Cost of Acquisition" and then calculate the capital gains and the tax payable. That is precisely what has been held by the Bombay High Court in the aforesaid Judgment which in our view is the correct legal decision.” 11. Accordingly we direct the AO to recompute the cost of acquisition in the light of above discussion.

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According to the ld. counsel for the assessee it was misplaced. Even before us the assessee has not produced an iota of evidence to suggest that the cost of improvement incurred on the interiors. In the absence of requisite details, we are not in a position to appreciate the argument of the assessee to allow such claim. Therefore, this ground of the assessee is dismissed.

Pronounced in the open court on this 29th day of July, 2021.

Sd/- Sd/- ( N V VASUDEVAN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER

Bangalore, Dated, the 29th July, 2021.

/Desai S Murthy /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order

Assistant Registrar ITAT, Bangalore.