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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These two appeals of Revenue are arising out of the different orders of the Commissioner of Income Tax (Appeals)]- 14, Mumbai [in short CIT(A)], in appeal No. CIT(A)-14/IT- 122&57/Rg.6(1)/09-10 & 11-12 vide dated 28.04.2010, 2 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd 17.12.2012. The Assessments were framed by the Asst. Commissioner of Income Tax, Circle-6(1), Mumbai (in short DCIT/ITO/ AO) for the A.Ys. 2006-07 & 2009-10 vide orders dated 17.12.2008, 29.11.2011 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue in ITA No. 5794/Mum/2010 is against the order of CIT(A) deleting the addition made by AO amounting to ₹17,22,43,975/- by considering the cost of acquisition by the assessee at nil and according to Revenue, the assessee has not incurred any cost in acquiring the constructed area of 41,257 sq. ft. from M/s Keshav and Co. For this assessee has raised the following ground No. 1 in the original grounds of appeal: -
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 17,22,43,975/- by considering the cost of acquisition by the assessee at market value even when the assessee has not incurred any cost of acquiring the constructed area of 41,257/- sq. ft. from M/s Kesav & Co.”
3. Subsequently, the Revenue has raised the additional grounds, which are exactly on the same issue and the grounds are also argumentative but for the sake of clarity, we are reproduced these grounds which are as under: - 3 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd “1. (i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the cost of 41,257 sq.ft. of area in the hands of the assessee to be equal to the consideration of Rs. 17,22,43,975/- received from M/s. Keshav & Co., accordingly, the capital gain would be NIL, without considering the fact that 41,257 sq.ft. of area was part of 76,752 sq.ft. of which the assessee received along with Rs. 16,30,00,000/- vide Clause 6 of the Retirement deed dated 30/04/2005 was in lieu and in full satisfaction of it. 50% share in partnership firm and the assets thereof."
(ii) On the facts & circumstances of the case and law, the Ld. CIT(A) erred in holding that cost of acquisition for 41,257 sq.ft. area should be taken 05 the market price as there is no statutory provision in the Act to take cost of acquisition to be equal to the market price of what is acquired." (iii) The Ld. CIT(A) erred in relying on the judgment in the case of CIT Vs. DC Srinivasa Shetty [1981] 128 ITR 294(SC), 4 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd as the some was rendered in the context of self-generating assets like Goodwill whereas in the present case the asset is not a self- generating.
(iv) The Ld. CIT(A) erred in ignoring the principles laid down by the Hon'ble Bombay High Court in the case of Habib Hussein v CIT, 48 ITR 859, 875 (Bom.) wherein it has been held that the dictionary meaning of the word costs is/ that what is laid out or suffered to obtain anything and therefore the cost acquisition, in the context of the provision of sec. 48(ii) is what the assessee paid or suffered to acquire the asset and not its market price."
Without prejudice to the main ground of appeal No.1 filed on 16/07/2010 and additional ground of appeal No. 1 above.
2. (i) On the facts and circumstances of the case the Ld. CIT(A) erred in holding that the cost of 41,257 sq.ft, of area in the hands of the assessee was equal to the market price as on the date of acquisition without appreciating the fact that the assessee has foregone a sum of 5 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd Rs. 2,65,83,587 (Rs.12,65,83,587/ shown in capital account Rs. 10,00,00,000 received back as per bank statement) in consideration for acquisition of 76,752 sq. ft. of constructed area. (ii) The Ld. CIT(A) erred in holding that cost of acquisition is to be taken as market price without appreciating the fact that cost of sale is to be taken as what the assessee had paid or suffered to acquire the asset and not its market price as per the principles laid down by the Bombay High Court in the case of Habib Hussein v CIT, 48 ITR 859, 875 (Bom.)”
Briefly stated facts are that the assessee company is engaged in the business of manufacturing of metal containers. The assessee company was a partner of M/s Keshav and Co. and during the year under consideration i.e. FY 2005-06, relevant to AY 2006-07, the assessee retired from the firm vide retirement deed dated 30.04.2005 and as per retirement deed he is entitled to receive certain amount in cash or certain share in property to be constructed by the firm. The following were noted by the AO in assessment order: - “1. Rs. 16,30,00,000/- inclusive of amount standing to credit.
6 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd 2. Constructed Area of 76,752 sq. ft. in the property developed by the firm.
Out of 76752, 41257 sq. ft. the continuing partner had the right to purchase for ₹17,22,47,975/-.” 5. The AO noted that in view of the retirement deed, the assessee received a sum of ₹16.30 crores as against the sum of ₹13,65,87,588/- i.e. an excess amount of ₹3,64,16,412, which was treated by the AO as capital receipt but CIT(A) deleted the same and Revenue is not in appeal against the order of the Assessing Officer. The AO assessed the amount of ₹17,22,47,975/- as a short term capital gain on account of surrender of 41,257 sq. ft of area. The facts relating to this issue are that the assessee owned a piece of land admeasuring 21,457.36 sq. mtrs at cadastral survey number 156 of Lower Parel division 95 Ganpat Rao Kadamb Marg, Lower Parel Mumbai-13. Under deed of partnership dated 13.03.1997, the above property was introduced in the partnership firm of M/s Keshav and Co. as the capital contribution of the assessee. The account of the assessee was credited by an amount of ₹19 crores in the books of the firm of M/s Keshav and Co. on 13.03.1997 for introduction of this property. Therefore, the Parel property has been transferred to M/s Keshav and Co. on 13.03.1997 and all the rights of the property were vested with M/s Keshav and Co. On retirement of assessee firm, the firm of M/s Keshav and Co. as per retirement deed dated 30.04.2005, the continue partners have the right to purchase this area of 7 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd 41,257 sq. ft. for a sum of ₹17,22,47,975/-. The AO held that such repurchase of area by the firm from the assessee is nothing but extinguishment of rights of the capital assets and therefore, transfer within the meaning of section 2(47)(ii) of the Act. The AO further held that since the date of acquisition is 30.04.2005 and sale has taken place within 36 months of property in question is a short term capital asset and therefore profit arising out of the same should be assessed as short term capital gain. The AO has adopted the value of such capital asset as nil and therefore entire receipt of ₹17,22,47,975/- was assessed as short term capital gain. Aggrieved, assessee preferred the appeal before CIT(A).
The CIT(A) after considering the submissions of the assessee and considering the decision of Hon’ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) held that the cost of acquisition of this property should be taken as nil and once the cost of acquisition is taken as nil no capital gain can be assessed either short term capital gain or long term capital gain. For this, the CIT(A) decided the issue in Para 11 as under: - “11. I have gone through the submission of the appellant and I find force in the same. Here it is an undisputed fact that the appellant has become entitled to receive the above property from the firm and has not paid any amount for such acquisition. Since in this case property as 8 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd such has riot been purchased: cost thereof is not determinable under normal circumstances. In section 49 of the Income Tax Act. 1961, certain conditions have been specified, under which cost is determined in the manner specified therein, however, receipt from partnership firm at the time of retirement has not been specified even in section 49 Therefore, provision of section 49 cannot be made applicable to the appellant and therefore, cost cannot be determined u/s 49 of the income Tax Act. 1961. Thus, the cost cannot be determined either under section 49 or under normal provisions. Under section 55(2), certain situations have been specified where cost of acquisition shall be 'NIL', however, in the present case 'cost of acquisition' cannot be ‘nil as the same has not been specified u/s 55. Since cost cannot be determined under any of the provisions specified under the Income Tax Act 1961, the general guidelines available in view of the ruling given by the Hon'ble Court as specified above and relied upon by the appellant shall prevail, therefore, market 9 | P a g e ITA Nos. 5794/Mum/2010 & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd value on the date of receipt needs to be considered as cost of acquisition.
11.1 Since the appellant has received the entitlement of the 41.252 sq. ft. constructed area on 30.04.05, market value as on 30.04.05, needs to be considered as Cost of Acquisition. Since market value of the entitlement as on 30.04.05 is of Rs.17,22,47,975/- is the same as of 'sale value', there remained no capital gain Therefore, addition made by the AO is not well founded and directed to be deleted 11.2 Now coming to the third and final issue: if 'cost of acquisition' is not the prevailing market rate as on 30.04.05 then in that case what shall be the 'Cost of Acquisition' and how the same shalt be calculated? In my considered view, if market rate on 30-04-2005 is not taken as 'Cost of Acquisition', then the natural conclusion is that the 'Cost of Acquisition' remained unconclusive or cannot be determined. Since, the cost of acquisition remain unconclusive or cannot be determined, then the second obvious 10 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd question is how capital gain can be calculated 11.3 Here the guidance comes from the ruling given by me Hon'ble Supreme Court in the case or CIT Vs. B.C. Srinivasa Shetty reported in [1981] 128 ITR 294 (SC) where the Hon'ble Supreme Court has occasion to consider a similar issue whereby cost of acquisition was not possible to compute The Hon’ble Court held that transfer of 'Capital Asset' which does not have any 'Cost of acquisition' does not result into Capital Gain subject to tax u/s 45 of the Income Tax Act, 1961. The Hon’ble Court further held that if the computation provision fails: then charge also fails. Therefore, if a view is taken that market value of the property as on 30.04.05 cannot e considered in that case, I hold that the 'Cost of Acquisition remains unconclusive. Since 'Cost of Acquisition' remains unconclusive, what is to be reduced from the sale consideration also remained unconclusive, therefore capital gain cannot be calculated. Since computation of capital gain is failed, the charges also fails.
11 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd Accordingly, on that ground also, the capital gain should be calculated as 'NIL'.”
Aggrieved, now Revenue is in appeal before Tribunal on this very issue.
We have heard rival contentions and gone through the facts and circumstances of the case. We noted that as per the terms and conditions of the retirement deed, the assessee is entitled to receive 76,752 sq. ft. of constructed area to be developed by the firm M/s Keshav and Co. and to be handed over on or before31.09.2008. Out of the total 76,752 sq. ft. area, the area of 41,257 sq. ft. the firm has right to repurchase the same from the assessee at agreed rate upto 31.01.2006. During the year under consideration, the assessee firm M/s Keshav and Co. exercise its option whereby the constructed area of 41,257 sq. ft. there purchase from the assessee for a sum of ₹17,22,47,975/-. We noted that the learned Counsel for the assessee before us argued that the right to receive the constructed area was acquired by the assessee vide retirement deed dated 30.04.2005 and therefore, the market rate prevailing on such date need to be considered as cost of acquisition on such cost of acquisition capital gain having need to be calculated. But, the learned Counsel argued that the cost of acquisition could be nil only when specifically provided in the statute book under section 55(2) of the Act. The assessee company further argued that once the cost of acquisition is taken at prevailing market rate as on 30.04.2005 then there will not be any capital gain as market value as on 30.04.2005 and 12 | P a g e & 2454/Mum/2013 M/s Bharat Barrel & Drums Mfg. Co. Ltd sale consideration remain the same. To support this, the assessee submitted the copy of circle rates i.e. ready reckoner rate of sub