LAKSHMAN M. CHARANJIVA,MUMBAI vs. ITO (IT) 2(1)(1), MUMBAI

Lakshman M. Charanjiva Assessment Year-2013-14 1. “On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred in holding that for the purpose of computation of Long Term Capital gains, the indexed cost of acquisition of property has to be calculated, based on the schedule of payments made, relying on the decision of the Hon. ITAT, Mumbai Bench “F” Mumbai in in the case of Shri Vikas P. Bajaj vs. ACIT 14(3), Mumbai and not on the basis of Financial Year 2007-08 in which the agreement for acquiring the property was entered into and registered, as claimed by the appellant, which is supported by the decision of the Hon. ITAT, Mumbai Bench “D”, Mumbai in ITA No.6578/Mum/2010 in the case of ACIT CIT 9(3), Mumbai vs. Shri Ramprakash Bubna. 2. “On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) further erred in directing the Assessing Officer not to allow the benefit of indexation in respect of payments of Rs.18,32,137/- and Rs.13,44,187/- stating these payments have been made in F.Y.2011-12, being less than 36 months from the date of sale, thereby ordering enhancement of income and that too without issue of any show cause to the appellant to this effect. An additional ground of appeal has been filed by the Ld. Auhtorized Representative for Assessee [AR] which reads as under:- 3. “On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred in not providing any finding on the submissions of the Appellant with regard to VAT paid of Rs.11,35,167/- on purchase of flat.

Learned Authorized Representative had pleaded that the language employed in explan. (iii) is in pari material with the language employed in s. 2(42A) where describing the definition of ‘short –term capital asset” the work “held” is used 28. Explanation (iii) to s 48 refers to the words 'the asset'. It means some capital asset which is subject-matter of sale on which long-term capital gain is to be computed. The capital asset is defined in s. 2(14) as under:

According to the aforementioned definition capital asset means property of any kind held by an assessee whether or not connected with the business or profession and it excludes certain items which while considering the facts of the present case are not relevant. Therefore, it has to be seen that whether by entering into an agreement vide which the assessee was allotted a particular flat by allotment letter whether the assessee has held any asset or not By entering into an agreement to allot a flat, the assessee has identified a particular property which he intended to buy from the built and the builder is also bound to provide the applicant with that property by accepting certain advance amount and making agreement for balance payment as scheduled in the agreement. Thus, going into the provisions, it is not necessary that to constitute a capital asset the assessee must be the owner by way of a conveyance deed in respect of that asset for the purpose of computing capital gain. The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word ‘held’ used in s. 2(14) as well as Explanation to s. 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. By making the payment to the builder and having received allotment letter in lieu thereof, the assessee will be holding capital asset and, therefore, the benefit of indexation has to be granted to the assessee on the basis of payments made by him for acquiring the said asset and the assessee has rightly claimed the indexation benefit from the dates when he has made the payments to the builder. Therefore, we see force in the claim of the assessee. The AO is directed to provide the benefit of indexation to the assessee in the manner in which the assessee has claimed. The coordinate bench of this Tribunal thus has decided a similar issue involving identical facts in favour of the assessee in the case of Praveen Lakshman M. Charanjiva Assessment Year-2013-14 Gupta (supra) and that too after taking into consideration the provisions of Explanation (iii) to section 28 which have been relied upon by the learned DR at the time of hearing before us in support of the Revenue’s case. The issue involved in the present case thus is squarely covered in favour of the assessee by the said decision of the Tribunal and respectfully following the same, we direct the AO to allow deduction on account of indexed cost of acquisition while computing the capital gain as claimed by the assessee.” 6.4 As the above decision of the Hon’ble ITAT is subsequent to the decision in the case of Ramprakash Bubna (supra), respectfully following the above decision of the Hon’ble ITAT, the AO’s action of computation of capital gain as per the dates of payments is upheld. However, it is noticed that out of the total payments, Rs.18,32,137/- and Rs.13,44,187/- have been made in FY 2011-12, which are less than 36 months from the date of sale. Hence, the AO is directed not to allow indexation of these two payments. Accordingly, Ground NO.1 is dismissed. Aggrieved, the assessee is in further appeal before us.

The Ld. Authorized Representative for Assessee [AR], Shri Biren Gabhawala supported the workings made by the assessee which has been controverted by Ld. Departmental Representative [DR], Shri Rajesh Kumar Yadav.

We have carefully heard the rival contentions and perused the relevant material on record including cited judicial pronouncements. We find that Ld. CIT(A) has referred to two decisions of this Tribunal. Upon perusal, it is found that in the case of Ramprakash Bubna (supra), the benefit of indexation has been provided from the date of agreement for acquisition of the property whereas the decision rendered by this Tribunal in Vikas P.Bajaj (supra) has primarily drawn strength from the decision of Delhi Tribunal rendered in Praveen Gupta Vs ACIT 137 TTJ (Del.) 307. The case of Vikas P.Bajaj as well as Praveen Gupta dealt with a situation in which the assessee himself offered capital gains by indexing the actual payments Lakshman M. Charanjiva Assessment Year-2013-14 made in the respective AYs by applying the indexes for those years and therefore, is not directly on the issue under hand since the Tribunal, in both the case laws, has confirmed the workings / computations adopted by the assessee.

So far as the statutory provisions as contained in Section 48, Explanation (iii) as extracted in the impugned order is concerned, we find that indexed cost of acquisition has been defined to mean 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 assessee. We find that the expression used is 'held' as against 'acquired' or 'purchased' as used in other Sections like section 54 / 54F which shows that legislatures were conscious while making use of this expression. The expressions like 'owned' / ‘acquired’ has not been used for allowing the indexation benefit to the assessee. However, the important question that arises for consideration, at this juncture, is that whether the indexation benefit of even the future installments would also be allowable to the assessee from the year in which the asset is first held by the assessee. For this, our attention has been drawn to the decision of Hon’ble Gujarat High Court rendered in Nirmal Kumar Seth Vs CIT [17 Taxmann.com 127] wherein Hon’ble court has decided the issue as under:- 6. We have heard both the parties at length and gone through the material available on record.

From the record, it appears that the land in question was purchased from the Lucknow Development Authority on instalments basis for which registration was made Lakshman M. Charanjiva Assessment Year-2013-14 on 01.12.1982 by paying a sum of Rs. 3000/- only. The remaining payment was made in instalments to Lucknow Development Authority, as per the chart given in the AO's order. As per the agreement, the right to get the sale deed registered in favour of the assessee was acquired, though subject to the full and final payment. After making the full and final payment, the assessee got the allotment letter in his favour in the year 1985. On getting the allotment letter, the assessee also obtained the valuable right to have a sale deed in his favour. Thus, the assessee has acquired the capital asset.

It may be mentioned that the expression "cost of acquisition" is defined in Section 55(2) of the Act. The date of acquisition will have a relevance in determining the cost of acquisition. As per the ratio laid down in the case of CIT v. Srinivasa Rao [1987] 166 ITR 593 / 31 Taxman 466 (AP) the expression of "cost of acquisition" is exhaustive and the language employed is peremptory. It is not open to the Court to introduce any other facts of meaning to the expression "cost of acquisition".

From the record, it also appears that the actual amount was paid from time to time after the date of issuance of allotment letter, which has to be considered for the purpose of indexation with reference to the date of payments. The Tribunal has rightly asked to compute the long term capital gain as per the payment schedule. There is nothing wrong in the Tribunal's order, which is based on the well established legal position as well as the CBDT Circular, which have already been mentioned in the impugned order passed by the Tribunal.

During the course of argument, we were told that the long term capital gain has already been deposited as per the computation made by the A.O. in the manner claimed by the assessee. When it is so then nothing survives in the appeal.

Hence, we decline to interfere with the impugned order passed by the Tribunal, which is hereby sustained along with the reasons mentioned therein.

The answer to the substantial questions of law is in favour of the revenue and against the assessee. Respectfully following the wisdom of higher judicial forum, we hold that the indexation benefit against the cost of acquisition shall be available to the assessee on the basis of index of the year in which the payments were actually made by the assessee. The payment made up-to the date of agreement i.e. 18/10/2007 shall be indexed by applying the index for Financial Year 2007-08. Accordingly, subsequent payments made in Lakshman M. Charanjiva Assessment Year-2013-14 different financial years shall be indexed by applying the respective indexes of those years. Ground Number-1 stand dismissed.

In additional Ground of Appeal