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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
These five appeals filed by the five different assessee are arising out of the different orders of Commissioner of Income Tax (Appeals)-I, Mumbai [in short CIT(A)], in appeal No. THN/ITQ (HQ) (CIB), Pune/158, 160, /07-08, dated 29.01. 10. The Assessments were framed by the ITAs No.4241-4245/Mum/2018
Income Tax Officer, Mumbai (in short ITO/ AO) for the A.Y. 2005-06 vide even date 28.12.2007 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in these five appeals of different assessees is as regards to the computation of long term capital gain in case where the cost of acquisition is nil. For this assessee has raised the following four grounds. The facts and circumstances of the are exactly identical in all the five appeals. Hence, we will take up the facts from ITA No. 4245/Mum/2017 in the case of Pramila gajanan Bhoir and decide the issue. The relevant grounds raised reads as under: -
“(1) "On the/act and in the circumstances of the case & in law the CIT('A)-3 Nasik has erred in not holding that the land acquired by the ancestors of the appellant under the Bombay Persona looms Abolition Act, 1952 was acquired without incurring any cost of acquisition.
(2) "On the facts and in the circumstances of the case & in law the CIT(A)-3 Nasik has erred in not appreciating the/act chat, in absence of cost of acquisition/or the land to the ancestors of the appellant, the computation provisions of section 48 of the Act fail and as such the charging provisions 0/ season 45 of the Act become non applicable to the case of the appellant.
(3) On the facts and in the circumstances of the case & in law the learned CJT(A)-3, Nasik has erred in holding that the provisions of section 55 of the Act were applicable to the case of the appellant and as ITAs No.4241-4245/Mum/2018
such the fair market value of the land on 01.04.1 981 was the cost of acquisition of the land
('4) "On the facts and in the circumstances of the case & in law the CIT(A)-3 Nasik has erred in holding that the cost of acquisition of the land in the hands of the previous owner was not ascertainable when the land was acquired by the ancestors of the appellant without any cost of acquisition and as such the cost of acquisition to the previous owners was ascertainable i.e the land was acquired without any cost of acquisition.”
Briefly stated facts are that the land revenue records revealed that the land bearing survey no 45/3 village Gandhare, Kalyan had vested on in the ancestors of the assessee by operation of the Bombay Personal Inams Abolition Act, 1952. The great grandfather of the assessee and other co-owners, late Shivram Nathu Bhoir was the inferior landholder of the said land and the Inamdar who was the superior landholder. By operation of the said Act and more specifically sec 5(2)(b) of the said Act, the inferior holder was made “Primarily Liable to the state government for payment of land revenue due in respect of such land held by him and shall be entitled to all rights and shall be liable to all obligations in respect of such land as an occupant under the code or the rules made there under or any other law for the time being in force. The phrase Personal Inam has been defined in see 2(1)(c) of the said Act which reads as under “Personal lnam" means
“i. a grant of village, portion of a village, (land (Including any share in the revenue of a village or a portion thereof or land) or 'total or partial exemption
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from the payment of land revenue entered as personal inam in the alienation register kept under section 53 of the code.
ii. a grant of money or land revenue including anything payable as cash allowance on the part of the state Government in respect of any right, privilege, requisite or office as class I,II,III, IV or V in the records kept under the rules made under the Pensions Act 1871. The land bearing survey no. 453 of village Gandhare, Kalyan was grant of land to the lnamdar as a inam land and was hold as personal inamn as defined in sec 2(1)(c,d & e).”
The ancestor of the assessee acquired the might in the said land on account of being the inferior holder of the said inam land on 01.08.1955 when the Bombay Personal lnams Abolition Act, 1952 was implemented. By operation of section 5(2)(b) of the said Act, the ancestors become liable for payment of land revenue and became entitled to all rights and liable to all obligations in respect of such land as an occupant. The land being held as personal Inam was vested in the ancestors of the assessee as a grant free of any cost. “Inam” is a grant or gift from ruler or……authority of any territory. In view of the above facts, the land was acquired by the ancestor of the assessee as an inam and by operation of law without any cost of acquisition. The fact that the land vested in the ancestors of the assessee by operation of law came to the knowledge of the assessee when the search of land revenue records was obtained in June 2008 for preparation of the assessee’s submission to be filed in the appeal before CIT(A).
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Accordingly, the assessee was having 1/7th shares in the property and through development agreement dated 28.12.2004, the rights in the property was transferred to the developer. The assessee before CIT(A) as well as before Tribunal raised the issue that once there is no cost of acquisition or the cost of acquisition is nil in term of section 49 read with section 55(2) and 55(3) of the Act, no tax on capital gain in consequence to transfer of such asset could be charged. The assessee before us and before CIT(A) also filed copies of 7/12 extract of the land, wherein the assessee is one of the co-owner of 1/7th and further the copy of record of rights in form No. 16 is enclosed at page 1 and 2 of assessee’s paper book. The certified copy of the translation of English from Marathi of the village record i.e. record of rights is enclosed at page 3 to 5, wherein it is clearly stated that this land was held by the assessee as inamdar owner as per section 5(2)(b) of the Bombay Personal Inams Abolition Act, 1952 and the type of right mentioned read as under: -
Village No 6 Record of rights Village-Gandhare Taluka-Kalyan Entry Type of rights Survey No. & Hissa Sign & remark of No. No. as per Mutation inspecting officer Entry 49 On 20.08.1957 below mention 45/3 Certified C.O., person was paying land revenue to Kalyan 12/10/57 inamdar as such ½ share of the land shown in the next column is recorded in his name as account holder as per section 5(2)(b) of The Bombay Personal Inams Abolition Act, 1952. 5. This certificate was issued by Talathi, Saja Kalyan, Taluka Kalyan, Dist. Thane on 20.06.2008. Further, copy of record of rights in form No. 6, in continuation, was issued on the very same date 20.06.2008 by Talathi,
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Saja Kalyan, Taluka Kalyan, dist. Thane stating that the following 7 legal heirs of original holder Shivram Nathu Bhoir were the owner and the relevant record read as under: -
Village No 6 Record of rights Village-Gandhare Taluka-Kalyan Entry Type of rights Survey No. & Hissa Sign & remark of No. No. as per Mutation inspecting officer Entry 640 As per legal heir search dated 45/3 Village 2/10/96 account holder Shivram Chikanghar Bhoir has expired and he had only Mutation entry one son, Maruti Shivram Bhoir who Nos. 256, 2425 has expired 19 years ago, who had &3895 are only one son Gajanan Maruti Bhoir sanctioned and who has expired on 5/7/96 his legal hence this heirs are as under: Mutation entry is 1. Draupadibai gajanan Bhoir, wife sanctioned
Prakash Gajanan Bhoir, son
Pramod Gajanan Bhoir, Son, 4. Pradeep Gajanan Bhoir, son Circle officer
Prashant Gajanan bhoir, son C.O., kalyan
Pramila Gajanan Bhoir, Daughter 23.10.96 7.Pratibha Gajanan Bhoir, Daughter The deceased has seven legal heirs as above and has no other legal heirs, the names of the legal heirs are recorded by deleting the name of the deceased (Entry Village- Chikanghar, Mutation entry, 256, 2425 & 3896 verified and this mutation entry recorded.) These documents were not disputed by the Revenue and these are admitted facts.
The CIT(A) has decided this ground and held that the plea of the assessee that the property in question was acquired by the great grandfather free of cost, is contradictory as the assessee himself has ITAs No.4241-4245/Mum/2018
worked out the cost on the basis of the report of the valuation. The CIT(A) rejected these grounds vide Para 6.1 and 6.2 as under: -
“6.1 The addition ground is entertained and considered. In the submission it is explained by the appellant that the land in question had been acquired by the great grand father of the appellant in the year 1955 as gift / inam on account of implementation of Bombay Personal Inam Abolition ITAs No.4241-4245/Mum/2018
The plea that the property in question was acquired by the great grand father free of cost and, therefore, the property is not liable for capital gains at all is irrelevant and unacceptable. The facts in this case are distinguishable from the cases that are relied upon by the appellant. However, the assessee himself has worked out the cost on the basis of a report from a valuer. Accordingly, I hold that the action of the AO does not suffer from any infirmity and hence
I uphold the action of the AO. The ground is, therefore, dismissed.”
Aggrieved, assessee came in appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. The above facts are undisputed that this property was originally came to assessee’s great grandfather in the name of Shivram Nathu Bhoir, who was the holder of the land bearing survey No. 45/3 vilalge-Gandhare, Taluka-Kalyan which has been vested in the name of Shivram Nathu Bhoir on introduction of Bombay Personal Inams Abolition Act, 1952. It is also admitted fact that by way of operation of the said Act and particularly, the provisions of section 5(2)(b) of the Bombay Personal Inams Abolition Act, 1952, inferior holder made primarily liable to the said government for payment of land revenue deemed in respect of such land held by him and shall be entitled to rights and shall be liable to all rights in respect of such land as an occupant under the core of the rules made thereunder or another law for the time being inforce. Hence, this property has devolved in this way and now owner of the property by virtue of the provisions of section 5(2)(b) of the Bombay Personal Inams
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Abolition Act, 1952. Now, the question arises when there is nil cost, the provisions of section 55(2)(b) or section 55(3) of the Act will apply or not. We are of the view that by virtue of the provisions of income tax Act capital gain arising on transfer of capital asset is subject to capital gain tax and the method is prescribed in section 48 of the Act for the computation of capital gains. The cost of acquisition and expenditure relating to the transfer are deducted from the full value of consideration to arrive at the capital gains. Hon’ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) has held that none of the provisions pertaining to the head capital gains suggest that the capital assets include an asset in the acquisition of which no cost at all can be conceived. The courts have decided that where the cost of assets to assessee is nil, no tax on capital gains consequent to transfer of such asset could be charged. They have ruled that only if an asset did some costs to the assessee in term of the money only then, the provisions relating to the levy of tax of capital gains under section 45(1) of the Act read with section 48(2) of the Act would apply. A transaction to which provisions cannot be applied has held to be one never intended by section 45(1) to be subject of the charge. The courts have further interpreted that the intent of levying capital gain tax goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on expenditure of money to a person seeking to acquire it. As regards to the application of the provisions of section 55(3) of the Act, this issue is debatable and controversial because the Hon’ble Punjab and Haryana High court in the case of CIT vs. Raja Malwinder Singh [2011] 334 ITR 48 (Punjab & Haryana) (FB) has considered and held that even in the case where cost of acquisition cannot be ascertained, the provisions of section 55(3) of the Act
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statutorily prescribed the cost to be equal to the market value on the date of acquisition. Hon’ble High court has considered this issue in para 5 and 6 as under: -
“5. It is pointed out that the judgment in B.C. Srinivasa Setty's case (supra) is distinguishable. It was observed therein that in a newly started business the value of goodwill was not ascertainable, and on sale of goodwill, capital gain was not attracted. It is submitted that in the case of acquisition of land, the same is either acquired at some cost or without cost and under the scheme of the Act, there can be no situation when the cost is incapable of ascertainment. Section 55(2) provides for taking the cost either equal to the market value as on January 1, 1954, or at the option of the assessee equal to the cost of acquisition of the previous owner. Section 55(3) provides that where the cost of acquisition of the previous owner cannot be ascertained, it has to be taken to be equal to the market value on the date the asset was acquired by the previous owner. The Explanation to section 49 provides that previous owner is the person not covered by the clauses mentioned in section 49(2), i.e., who acquires property otherwise than by way of gift, will or by succession.
In the present case, the assessee acquired the property by succession from the previous owner. According to the stand of the assessee, the cost of acquisition by the previous owner could not be ITAs No.4241-4245/Mum/2018
ascertained. However, he failed to exercise the option of going either by the date of market value on the date of acquisition or by the cost of the previous owner in which case the only option available to the Assessing Officer was to proceed to compute capital gain by taking the cost of the asset to be the fair market value on the specified date, i.e., January 1, 1954 as per applicable provision for assessment year 1977-78 and as on January 1, 1964 for the assessment year 1978-79. Even in a case where the cost of acquisition cannot be ascertained, section 55(3) statutorily prescribes the cost to be equal to the market value on the date of acquisition. This being the position, capital gain is not excluded even on the plea that value of the asset in respect of which capital gain is to be charged was incapable of being ascertained. The view taken in Amrik Singh's case (supra) based on the assumption that where market value cannot be ascertained, capital gain cannot be applied, is not correct being against the statutory scheme. Similarly, the view taken by the Madhya Pradesh High Court in CIT v. H.H Maharaja Sahib Shri Lokendra Singhji [1986] 162 ITR93/25 Taxman 66 cannot be accepted. The said judgment also does not give effect to the mandate of section 55(3) which provides for a situation where the value of the asset acquired could not be ascertained. If the market value can be ascertained, it has to be taken to be equal thereto and if the value cannot be ascertained, it has to be equal to the market value on a specified date at the ITAs No.4241-4245/Mum/2018
option of the assessee. It is not the case of the assessee that land had no market value at all on the date of its acquisition. The contention that the value was incapable of being ascertained, as already observed, the value in such case has to be taken as being equal to market value on a specified date.”
On contrary, the Hon’ble Bombay High Court in the case of CIT vs. Kanubhai R. Shah (HUF) [1993] 201 ITR 1050 (Bombay) has held that as the provisions of section 55(3) of the Act are attracted only in the case, where the cost for which the previous owner acquitted the property cannot be ascertained but these provisions are not attracted to a case where the property has been received by the assessee on a partially partition of the HUF. Hon’ble Bombay High court has reasoned in this case, that where the cost of acquisition in the hands of the assessee is nil, no capital gain tax can be lieved. Even taking such case as falling under section 49(1)(i) of the Act, the cost of acquisition would be nil because even in the hands of the previous owner it was nil as the previous owner HUF obtained the property as a result of blending. Hon’ble Bombay High Court considering the provisions of section 55(3) of the Act held as under: -
“6. A question arose about the computation of capital gain on transfer of the share of land falling to the share of the assessee-Hindu undivided family for which it had received the compensation of Rs. 62,535. The assessee computed the capital gain by taking the cost of acquisition of the land as the fair market value as on March 25, 1970, that is the date of acquisition of the same by the previous owner,
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that is, the bigger Hindu undivided family which, according to the assessee, was Rs. 67,728. This was done by taking resort to section 55(3) of the Act. Thus, taking the cost of acquisition at Rs. 67,728 and the consideration received on transfer Rs. 62,535, a capital loss of Rs. 5,192 was computed and the same was claimed by the assessee in its return of income under the Act for the year under consideration.
The Income-tax Officer did not accept the computation of capital gain as made by the assessee as, according to him, section 55(3) of the Act had no application to the facts of the assessee's case. According to him, the cost of the land to the assessee-Hindu undivided family was nil because of the fact that the cost of the said land to the previous owner, i.e., the bigger Hindu undivided family from which the assessee had received the same on partition was also nil In view of the above finding, the Income-tax Officer treated the total amount of Rs. 62,535 received by the assessee from the Land Acquisition Officer as a short-term capital gain and assessed the same in the hands of the assessee as such.
The assessee went in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contention of the assessee that the cost of the land had to be taken to be the market value on the date of acquisition by the bigger Hindu undivided family. According to the ITAs No.4241-4245/Mum/2018
Appellate Assistant Commissioner, the insertion of clause (iv) of sub-section (1) of section 49 of the Act by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, had no application to the case of the assessee which pertains to the assessment year 1972-73. The appeal of the Revenue to the Tribunal was rejected. The Tribunal affirmed the finding of the Appellate Assistant Commissioner. It held that clause (iv) of sub-section (1) of section 49 having come into force from April 1, 1976, had no application to the case of the assessee. Hence this reference at the instance of the Revenue.
We may now briefly refer to the relevant provisions of the Act which deal with capital gains. 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" and shall be deemed to be the income of the previous year in which the transfer took place. "Transfer" has been defined in section 2(47)of the Act. Transactions which are not to be regarded as "transfer" for the purpose of charging capital gains under section 45 have been set out in section 47 of the Act with which we are not concerned in the present case. Section 48 of the Act lays down the mode of computation of capital gains. It provides that the income chargeable under the head "Capital gains" shall be computed by deducting from the full value of the consideration for ITAs No.4241-4245/Mum/2018
the transfer, the cost of acquisition of the capital asset and the cost of improvement and also expenditure incurred wholly and exclusively in connection with such transfer. Then comes section 49 which lays down certain rules for computing the cost of acquisition of assets which became the property of the assessee by any of the modes mentioned therein. This section has a material bearing on the determination of the controversy in the present case and, therefore, it has been set out below:
"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, 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) 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 ITAs No.4241-4245/Mum/2018
previous owner of the assessee, as the case may be.
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.
(2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company.
It may be mentioned that clause (iv) to sub-section (1) of section 49 was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976.The words "or clause (iv)" in the Explanation were also inserted by the same amendment Act with effect from April 1, ] 976. A plain reading of this section clearly goes to show that it contains certain exceptions to the general rule that the cost of acquisition would mean the cost of acquisition to the assessee. Under this section, in cases falling under it, the cost to the previous owner
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is deemed to be the cost of acquisition to the assessee. There are a number of other provisions dealing with various aspects relevant for computation of capital gains but we need not refer to the same as they have no relevance to the controversy before us. The only other section which is important for our purpose is section 55 of the Act which lays down the meaning of cost of acquisition, etc., for the purposes of sections 48,49 and 50 in cases falling thereunder. The assessee in the present case relies on sub-section (3) thereof which is set out below:
"55. (3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.
Learned counsel for the Revenue submits that a plain reading of section 49 makes it clear that this section applies, inter alia, to capital assets which had become the property of the assessee on any distribution of assets on the total or partial partition of a Hindu undivided family. This is by virtue of clause (i) of sub-section (1) thereof. In such cases, the cost of acquisition of the asset is deemed to be the cost for which the previous owner of the property acquired it. According to counsel, in the instant case, there is no dispute that the land in question was received by the assessee on the partial partition of the bigger Hindu undivided family. That being so,
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clause (i) is attracted and the cost in the hands of the bigger Hindu undivided family, which was the previous owner thereof, would be the cost of acquisition by virtue of the deeming clause contained in subsection (1) of section 49. The cost in the hands of the bigger Hindu undivided family admittedly was nil, the same having been received by it not by purchase but by throwing of the same by the coparceners into the common family hotchpotch. In this connection, counsel referred to the decision of this Court in CIT v. Trikamlal Maneklal (HUF) [1987] 168 ITR 733 and submitted that the said judgment squarely applies to the present case."
As the ratio laid down by the Hon’ble Bombay High Court applies to us being our juri ictional High court, we are bound to follow the same as a binding precedent. Admittedly, the land revenue records reveal that (the above land under consideration for computation of long term capital gain), the land bearing survey No 45/3 Vilalge- Gandhare, Taluka Kalyan vested in the ancestors of the assessee by operation of section 5(2)(b) of Bombay Personal Inams Abolition Act, 1952 and this is revealed by mutation entry dated 20.08.1957, which was passed in the land records in the name of Shivram Nathu Bhoir, the great grandfather of the assessee. From the provisions of section 5(2)(b) of the Bombay Personal Inams Abolition Act, 1952, the inferior holder i.e. the assessee’s great grandfather namely Shivram Nathu Bhoir, was made primarily liable to the State Government for payment of land Revenue’s due in respect of such land held by him and shall be entitled of all the rights and liabilities in respect of such land as an occupant under the code of the rules made
20 ITAs No.4241-4245/Mum/2018 therein or another law for the time being inforce. The above extract 7/12 of the land Revenue clearly reveals that this property was devolved on the assessee through their ancestors, which has nil cost. Accordingly, in the given facts and circumstances and respectfully following the decision of Hon’ble Bombay High court in the case of Kanubhai R. Shah (HUF) (supra), we direct the AO, not to charge any capital gain tax on the above transaction.
Similar are the facts in other cases i.e. in ITA No. 4241 to 4244/Mum/2018 in the name of Draupadibai Gajanan Bhoir, Pradeep Gajanan Bhoir, Prakash Gajanan Bhoir, Pratibha Gajanan Bhoir, respectively. Hence, in all the cases also the appeals of assessee are allowed.
In the result, all the appeals of the assessee are allowed. Order pronounced in the open court on 21.05.2019. (एन. के. प्रधान/ NK PRADHAN) (महावीर ससंह /MAHAVIR SINGH) (लेखा सदस्य / ACCOUNTANT MEMBER) (न्याययक सदस्य/ JUDICIAL MEMBER) मुंबई, ददनांक/ Mumbai, Dated: 21.05.2019. दीप रकार, व.यनजी धिव / Sudip Sarkar, Sr.PS
21 ITAs No.4241-4245/Mum/2018
आदेश की प्रयिसलपप अग्रेपिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त(अपील) / The CIT(A) 3. आयकर आयुक्त / CIT 4. ववभागीय प्रयतयनधध, आयकर अपीलीय अधधकरण, मुंबई / DR, ITAT,
Mumbai गार्ड फाईल / Guard file. 6. आदेशान ार/ BY ORDER, सत्यावपत प्रयत //// उप/ हायक पुंजीकार (Asstt.