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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member)
Aforesaid appeal by assessee for Assessment Year [AY] 2009-10 is a recalled matter which contest the order of the Ld. Commissioner of Income-Tax (Appeals)-30 [CIT(A)], Mumbai, Appeal No.CIT(A)-30/ITO- 19(10(1)/IT-93/11-12 dated 20/07/2012 by raising following grounds of appeal:-
Nitul B. Shah Assessment Year-2009-10 I. CONFIRMING OF THE LONG TERM CAPITAL GAIN ON SALE OF IMMOVABLE PROPERTY OF RS.35,86,000/- AS SHORT TERM CAPITAL GAINS AND THEREBY WITHDRAWING CLAIM OF DEDUCTION U/S 54EC:-
1. 1. The Learned CIT(A) erred in confirming the Long Term Capital Gains of Rs.35,86,000/- on sale of immovable property as Short Term Capital Gains and thereby denying deduction claimed u/s 54EC.
2. The Capital gain of Rs.35,86,000/- requires to be treated as Long term Capital Gain and deduction claimed u/s 54EC requires to be allowed.
The appeal was disposed-off by the bench on 05/11/2015, however, the same has been recalled vide MA No. 213/Mum/2017 order dated 02/02/2018 for the reasons stated therein. Accordingly, the appeal has come up for fresh hearing before this bench. 2.1 Facts in brief are that the assessee being resident individual has been assessed u/s 143(3) on 19/12/2011 at Rs.49.26 Lacs after certain adjustments as against returned income of Rs.13.30 Lacs e-filed by the assessee on 31/03/2010. The only subject matter of dispute is nature of certain capital gains earned by the assessee during impugned AY upon sale of immoveable property situated at Flat No.41, Kahan Nagar Building, Kahan Nagar CHS Limited, NC Kelkar Road, Dadar, Mumbai – 28 admeasuring 433 Square Feets. 2.2 The facts on record reveal that the assessee had sold an immoveable property for Rs.36.56 Lacs vide agreement dated 29/07/2008. The said property was acquired by the assessee through family arrangement vide agreement dated 10/08/2006. The assessee, claiming the same to be Long Term in nature, claimed exemption u/s 54EC for Rs.37 Lacs against eligible investment made in NHAI Bonds. However, the Ld. AO opined that since the property was held by the assessee for less than 36 months in terms of Section 2(42A) as counted Nitul B. Shah Assessment Year-2009-10 from the date of family arrangement, the gain was Short Term Capital Gain in nature, against which the assessee was not eligible to claim deduction u/s 54EC. The assessee defended the same by submitting that the property devolved upon assessee as per the wishes and intent of his grandmother Mrs. Kantaben K.Shah who expired on 10/12/1999. Since the grandmother died intestate, necessary formalities were to be completed as per her last wish and accordingly, the property got inherited by the assessee only during August, 2006. Nevertheless, the property was inherited by the assessee only with effect from 10/12/1999 i.e. upon the death of the grandmother. Therefore, it was submitted that date of acquisition of the property was to be considered as 10/12/1999 instead of 10/08/2016 i.e. the date when procedure for transfer was completed. However, not convinced, Ld. AO opined that the gains were Short Term gains in nature and therefore, the assessee was not eligible for indexation benefit as per Section 49(1). Finally, the gains were assessed as Short Term Capital Gains and indexation benefit as well as deduction u/s 54EC was denied to the assessee.
Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 20/07/2012 wherein the stand of Ld. AO got confirmed with following observations:- 2.3 I have gone through the assessment order, the submissions of the appellant and the facts of the case. In this case the moot question is whether the sale of the immovable property is LTCG entitled for exemption u/s.54EC or it is STCG. The AO held that it is STCG and not LTCG and consequently the AO did not allow exemption u/s 54EC of the I.T. Act. The appellant has contended that by family arrangement dated 08.08.2006 the other members had relinquished the property in favour of the appellant. It is also contended that for the purpose of determining the date of acquisition of property either the date of death of grandmother (10.12.99) or the date of purchase of property (11.2.1981) by the previous owner should be taken and not the date when the procedure for transfer was carried out (i.e. August, 2006).
Nitul B. Shah Assessment Year-2009-10 The Learned AR has relied upon the explanation 2(42A) of the I.T. Act which refers to section 49(1) of the I.T. Act. The contention of the appellant is that the property had devolved on the appellant through inheritance/gift and hence the period for which the property was held by the previous owner should be considered. 2.4 I have considered the submissions of the learned AR of the appellant but I am not in agreement with the same. In this case Mrs. Kantaben K. Shah, grandmother had died by intestate (without will) and hence by the law succession property firstly devolved on the sons and daughters of Mrs. Kantaben K. Shah. It is by a family arrangement and by an affidavit cum declaration that the property was acquired by the appellant on 08.08.2006. Further, section 49(1) does not make any mention of family arrangement. In any case the previous owners with reference to the appellant are the sons and daughters of Mrs. Kantaben K. Shah as they had acquired the property when the family arrangement was made. Therefore, in my considered view the appellant cannot take shelter of explanation 1(b) of section 2(42A) of the I.T. Act, 1961. The appellant became the owner of the property on 8.8.2006 which was sold by him on 29.7.2008 which is less than 36 months and hence capital gain arising there from is not LTCG. In view of this the AO is quite justified in holding that the capital gain arising to the appellant on the sale of the property is STCG. The AO is also justified in not granting exemption to the appellant u/s.54EC of the I.T. Act. The action of the AO is accordingly upheld. The grounds of appeal are dismissed. Aggrieved, the assessee is in further appeal before us.
4. The Ld. Auhtorized Representative for Assessee [AR], Shri Paresh Shaparia, explaining the factual matrix submitted that the assessee inherited the property as per the wishes of her late grandmother who died intestate. Therefore, certain formalities were required to be completed so as to give effect to transfer of property in assessee’s name. The formalities got completed only during August, 2006. Nevertheless, the property devolved upon the assessee on 10/12/1999 itself i.e. the date of death of the grandmother. Our attention has been drawn to the statutory provisions to bolster the claim that the holding period of previous owner was also to be included while counting the holding period of the assessee and therefore, the indexation benefit as well as benefit of Section 54EC was available to the assessee. Per Nitul B. Shah Assessment Year-2009-10 Contra, Ld. Departmental Representative [DR], Shri Asghar Zain placed reliance on the stand of lower authorities.
5. We have carefully heard the rival contentions and perused relevant material on record. Some undisputed facts are that the assessee has inherited the property from her grandmother who died intestate on 10/12/1999. Nothing on record suggest that the property was first acquired by the legal heirs and thereafter transferred to the assessee. Even assuming that the property first devolved on the legal heirs and thereafter the assessee acquired the property from those legal heirs under a gift, even then in terms of Section 2(42A) Explanation 1(b) read with Section 49(1)(ii), the holding period of donor was includible while counting the assessee’s holding period. Therefore, both the situation i.e. gift as well as inheritance stand on same footing and are respectively covered by Section 49(1)(ii) & Section 49(1)(iii)(a). Viewed from any angle, the holding period of previous owner was includible in the assessee’s holding period. This being the case, we have no hesitation in holding that the nature of impugned gains was Long Term in nature and therefore, the indexation benefit as well as benefit of Section 54EC was available to the assessee. The facts on record reveal that the assessee has invested an amount of Rs.37 Lacs in the eligible bonds as against sale consideration of Rs.36.56 Lacs and therefore, the value of investment itself nullifies the entire sale consideration reflected by the assessee against the sale of property.
While arriving at the above conclusion we draw strength from the decision of jurisdictional Hon’ble Bombay High Court rendered in the case of CIT Vs. Manjula J.Shah [355 ITR 474] wherein the Hon’ble Nitul B. Shah Assessment Year-2009-10 Court, on similar facts and circumstances, have made the following observations:- “16) It is the contention of the revenue that since the indexed cost of acquisition as per clause (iii) of the Explanation to Section 48 of the Act has to be determined with reference to the Cost Inflation Index for the first year in which the asset was held by the assessee and in the present case, as the assessee held the asset with effect from 1/2/2003, the first year of holding the asset would be FY 2002-03 and accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. 17) We see no merit in the above contention. As rightly contended by Mr. Rai, learned counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29/1/1993, as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29/1/1993. By reason of the deemed holding of the asset from 29/1/1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under Section 48 of the Act by treating that the assessee held the capital asset from 29/1/1993, then, naturally in determining the indexed cost of acquisition under Section 48 of the Act, the assessee must be treated to have held the asset from 29/1/1993 and accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. 18) If the argument of the revenue that the deeming fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in computing the capital gains under Section 48 of the Act is accepted, then, the assessee would not be liable for long term capital gains tax, because, it is only by applying the deemed fiction contained in Explanation 1(i)(b) to Section 2(42A) and Section 49(1)(ii) of the Act, the assessee is deemed to have held the asset from 29/1/1993 and deemed to have incurred the cost of acquisition and accordingly made liable for the long term capital gains tax. Therefore, when the legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under Section 48 of the Act has to be computed by applying the deemed fiction, it is not possible to accept the contention of revenue that the fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under Section 48 of the Act. 19) It is true that the words of a statute are to be understood in their natural and ordinary sense unless the object of the statute suggests to the contrary. Thus, in construing the words 'asset was held by the assessee' in clause (iii) of Explanation to Section 48 of the Act, one has to see the object with which the said words are used in the statute. If one reads Explanation 1(i)(b) to Section 2(42A) together with Section 48 and 49 of the Act, it becomes absolutely clear that the object of the Nitul B. Shah Assessment Year-2009-10 statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee under a gift or will as provided under Section 49 of the Act where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in clause (iii) of the Explanation to Section 48 of the Act that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Explanation 1(i)(b) to section 2(42A) of the Act.
To accept the contention of the revenue that the words used in clause (iii) of the Explanation to Section 48 of the Act has to be read by ignoring the provisions contained in Section 2 of the Act runs counter to the entire scheme of the Act. Section 2 of the Act expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under Section 2 of the Act. In Section 48 of the Act, the expression 'asset held by the assessee' is not defined and, therefore, in the absence of any intention to the contrary the expression 'asset held by the assessee' in clause (iii) of the Explanation to Section 48 of the Act has to be construed in consonance with the meaning given in Section 2(42A) of the Act. If the meaning given in Section 2(42A) is not adopted in construing the words used in Section 48 of the Act, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the capital gains tax which is not intended by the legislature. Therefore, the argument of the revenue which runs counter to the legislative intent cannot be accepted. 21) Apart from the above, Section 55(1)(b)(2)(ii) of the Act provides that where the capital asset became the property of the assessee by any of the modes specified under Section 49(1) of the Act, not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under Section 48 of the Act. The question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under Section 49(1) of the Act would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under Section 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition.
It is also noted that the ratio of above decision has become final since Special leave Petition [SLP No. 19924/2012] filed by the revenue against Nitul B. Shah Assessment Year-2009-10 the same has recently been dismissed by Hon’ble Apex Court. Drawing analogy from the above decision, we allow the appeal. 7. Resultantly, the appeal stand allowed. Order pronounced in the open court on 10th October, 2018.