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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Sanjay Arora & Dr. Seethalakshmi
Appellant by: None (written submissions) Respondent by: Smt. J.M. Jamuna Devi, Sr. DR Date of Hearing: 13.12.2023 Date of Pronouncement: 11.03.2024 O R D E R Per: Sanjay Arora, AM This is an Appeal by the Assessee agitating the Order dated 24.08.2022 by the Commissioner of Income Tax (Appeals), Income Tax Department [CIT(A)], confirming, on appeal, the assessment under section 143(3) of Income Tax Act, 1961 (hereinafter "the Act") dated 29.12.2016 for Assessment Year (AY) 2014-15.
2.1 The only issue arising in the instant appeal is the computation of Long Term Capital Gain (LTCG) arising to the assessee on sale of land during the relevant previous year. The bone of contention between the parties is the manner of working the fair market value (FMV) thereof as on 0l.04.1981, which value the law provides, at the option of the assessee, for being deemed as the cost of acquisition of the capital asset where acquired prior to that date. It is this value which is further subject to indexation, on account of inflation, to arrive at the indexed cost of acquisition, which (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS is to be, in terms of s. 48, deducted from the net consideration (i.e., gross consideration less expenditure on transfer) arising on transfer, to yield the LTCG. The assessee has computed the FMV as on 01.04.1981 by reverse indexing the FMV as on the transfer date. The Revenue insists the same, i.e., the fmv as on 01/4/1981, to be an independent variable, to be determined on the basis of the value of the capital asset as on 01.04.1981. The index, being a cost inflation index (CIF), only seeks to adjust the value, over time, on account of inflation. The FMV as on the value date, which is being reverse indexed, would, on the other hand, capture the increase in the actual value of land/capital asset on account of several factors, including inflation, which only the law provides for being removed, so that only the real, as opposed to notional (i.e., due to change in the value of money over time), or increase in the intrinsic value of the capital asset transferred, is subject to tax. Here, it would be relevant to reproduce the operating part of the orders by the Revenue authorities, as under: Assessment Order ‘11. The assessee’s submissions need to be clarified on an issue basis. Regarding the assessee’s view that the IT Act does not mandate that the FMV of a property has to be based on the data provided by the Sub-Registrar’s Office, I also agree with the assessee. The IT Act does not mandate that FMV of a property has to be based on the data provided by the Sub-Registrar's Office. However, the IT Act defines fair market value in section 2 (22B) as follows: "fair market value, in relation to a capital asset, means- (1) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date, and (ii) where the price referred to in sub-clause (1) is not ascertainable, such price as may be determined in accordance with the rules made under this Act 12. The Act clearly states that, only when the price referred to in sub-clause (i) is not ascertainable, such price may be determined in accordance with the rules made under the IT Act. Nowhere, does the IT Act say that the assessee may obtain valuation report from registered valuer, as claimed by the assessee. Hence, the assessee's statement, in this regard, is incorrect.
The IT Act clearly states that fair market value is the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date. A sub-registrar is a Government authority to record the prices at which properties are sold in the open 2 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS market. It is to be noted that the sub-registrar's data is only a recording by a government authority and no price determination is done by the registrar. Data from the sub-registrar's office is a reliable primary source of market prices of properties on a said date. From the primary data, adjustments and corrections can be made to eliminate errors and arrive at a reasonable accuracy.
The assessee's next contention is that the primary data is unreliable on the grounds that prices are generally underreported during the registration. This contention cannot be accepted because, the assessee was given opportunity to produce any record from the Sub-Registrar's Office which she believes as fair reflection of the market price during 1981 without any underreporting. The assessee did not produce any such document. The assessee is willing to neither produce records by herself in support of her claim nor accept the data apparent from the records available from a government authority. Instead, the assessee wants the AO to adopt a method which is unrealistic and illogical and based on few case laws where the facts were different. To quote, ITAT Agra in the case of Jahnaganj Cold Storage vs. ACIT (submitted by the assessee herself), has stated that "It is settled law that the apparent is real. The onus is on the person who alleges apparent is not real to prove it otherwise". The AR has not made any submission to prove that the data apparent from the records of the Sub-Registrar's Office is not real. His claim that the rates mentioned in the Sub- Registrar's Office are under-reported is a blank claim without any support.
The assessee's accusation that the practice of under valuation for the purpose of registration is universal is incorrect. It is true that to a certain extent, the practice of under valuation of property for the purpose of registration exists. But to say that, all registrations are undervalued cannot be accepted. If the AR's argument is accepted, then it would mean that all calculation of cost of acquisition based on registered values are incorrect and every time to determine cost, a registered valuer's report is to be submitted. This is contrary to the practice adopted by assessing officers throughout the country. Cost of acquisition is determined primarily based on the registered value of properties. Only in cases where the registered values are not ascertainable, case specific suitable secondary methods are adopted. 16.....19 20. In sum, the assessee has made her claim based on the opinions of the valuers. The responsibility of the assessing officer is broad and does not end with receiving submissions from the assessee. The submissions have to be verified whether they truly reflect the fair market value of a property during 1981 by analysing the methods adopted by the valuers and comparing it with data from the field. The reports of the valuers are not acceptable as, not only the methods adopted by the valuers are incorrect but also the values arrived by them grossly vary with the rates obtained from the Sub-Registrar’s Office.’ (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS Appellate Order ‘6.7 It has been stated by the A.O. that with rapid expansion of the city, properties which were once considered as remote have now become prime properties. Moreover, there are several factors behind the increase in the value of property, inflation is just one of them. Other factors are linked to the development of the locality and its proximity to main roads and commercial establishments. This increase in price due to development does not follow a straight line increase and therefore the method of indexation cannot be applied in all cases such especially in the case of the appellant where the property in question has significantly increased in value due to proximity to Wayanad Road and also because 35 years have passed between 01.04.1981 and the date of sale. Furthermore, Sec. 2(22B) defines the fair market value as the price that the capital asset would ordinarily fetch on sale in the open market. Here the AO has got data about the actual sale consideration of six adjacent plots of land in the same locality. In such a situation, I agree with the AO that when reliable, credible primary information about the fair market value is available from the sub-registrar, there is no need to resort to the method of reverse computation by using the inflation index. Such a indirect method of reverse computation can be resorted to when the information about the fair market value is not available which is not the case in the present appeal. The fair market value computed by the A.O. is therefore, upheld. The above grounds are dismissed. (emphasis, supplied) 2.2 The assessee – who has before us preferred to rely on his written submissions, requesting that personal appearance be excused, on the other hand, relies on a series of orders by the Tribunal, confirming the validity of the adopted method, i.e., the reverse indexation method, for computing the indexed cost of acquisition, further relying on the decision qua judicial precedence, principally being UoI v. Kamlashi Finance Corporation Ltd., 1992 KHC 622 [1992 Supp (1) SCC648/443], wherein the Apex Court has emphasized judicial discipline inasmuch as consistency and certainty are of prime concern; it’s dictum reading as: ‘8. .........We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need to give effect to the orders of the higher appellate authorities which are binding on them.’ 3. We have heard the party before us, and perused the material on record. 3.1 We may firstly reproduce the relevant provisions in their relevant part: Definitions.
In this Act, unless the context otherwise requires,— 4 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS (1) – (23)...................... (24) "income" includes— (i) to (v)....................... (vi) any capital gains chargeable under section 45 ; Capital gains. 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, 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. Mode of computation.
48. The income chargeable under the head "Capital gains" 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 following amounts, namely :— (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto; Provided that …..: Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted: Explanation.—For the purposes of this section,— (i) .. (ii); (iii) "indexed cost of acquisition" 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 assessee or for the year beginning on the 1st day of April, 2001, whichever is later; (iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; (v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS Consumer Price Index (urban) for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.
3.2 The scheme of the Act is clear. It is the difference in the values, or the accretion in value, as determined by the FMV of a capital asset at two determinate points of time, i.e., the dates of it’s transfer and 01/4/1981, the cut-off date (where the acquisition is prior thereto) or, as the case may be, of it’s acquisition, that the law seeks to bring to tax as income by way of LTCG, i.e., after isolating and eliminating the increase to the extent it is on account of and, thus, attributable to inflation, being the change in the value of money – in which income is itself measured, over time. For acquisitions on or after 01/4/1981, it is the actual cost of acquisition that is deducted, of course, after being, similarly, subject to indexation. The purpose is clear: to tax only the real income by removing from the increase in ‘value’ incident to the time interval over which the capital asset is held prior to its transfer, the holding period, which may at times extend to decades, the extent to which it is notional inasmuch as it arises only due to presuming as constant the value of money, in which the value of the asset is expressed, which may not be and, rather, is not so. For example, if an asset costing Rs. 1 lac ten years ago, is sold today for rs. 5 lac, the difference of rs. 4 lac may not be the real gain due to the change (depreciation) in the value of currency (INR) in which the asset is being valued, i.e., inflation, by definition. If the inflation over this period is 100% (say), i.e., an inflation index of 2, Rs. 1 lac ten years ago equals Rs. 2 lac today, so that the gain, in real terms, would be Rs. 3 lac, representing the actual increase in value over time, measured in currency at today’s rate. Like- wise for the cost of improvement, if any, that may have been incurred by the transferor over the holding period. Inasmuch as the gain is realized today (i.e., the relevant assessment year), the indexation is to necessarily apply to the cost, to state it, in monetary terms, at today’s rate, i.e., the value of money obtaining at the time of transfer. Substituting the FMV as on the cut-off date, i.e., 01/4/1981, where the acquisition is prior thereto, was essentially for the reason that no index was available 6 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS for period prior thereto. This also explains the adoption of transfer value instead of the FMV, with it being substituted by FMV only where the latter, as inferred on the basis of stamp value, is higher, indicating a suppression in the stated transfer value (s.50C). Without doubt, this is accompanied by a procedure for the assessee to, at his option, exhibit that there has been no such suppression, and the stated value represents the actual transfer value in view of the peculiar facts and circumstances attending the transfer in his case. 3.3 It is therefore clear that the computation of capital gain envisages two values at two different points of time, the date of acquisition of the capital asset and that of it’s transfer, as independent variables, difference wherein, adjusted for inflation, is income, which is liable for being taxed as LTCG. Indexation seeks to state the cost of acquisition (and improvement) of the relevant capital asset at it’s current value. FMV is adopted for assets acquired prior to a cut-off date, primarily for the reason that the index was not available prior to that date, and besides the data on acquisition cost may not be readily available for assets acquired long ago, so that FMV is taken as a surrogate measure of the acquisition cost for periods prior to 01.04.1981. With this background and rationale of indexation in mind, we proceed to analyse the user of the reverse indexation method. 3.4 Reverse indexation converts the current FMV of a capital asset to its value as on the date of its acquisition or, as the case may, the cut-off date. That is, rather than stating the cost at its inflation-adjusted value as on the date of transfer, it does the opposite. Equally, and which is the second fundamental error that it entails, is that it presumes that the entire increase in the value of an asset over time, which the capital gain seeks to capture and bring to tax, is on account of inflation. This is what the Assessing Officer (AO) is at pains to emphasize in his order, explaining the enormous development that in the facts of the case Calicut had witnessed in the last 35 years, leading to a very high market rate of the properties in proximity to the 7 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS Wayanad Road. The cost of acquisition or, as the case may be, the FMV as on the cut-off date, is no longer an independent variable, a pre-requisite for computing capital gain by definition, but a derived value. Why, the cost of acquisition, so determined, would, on being indexed for inflation, as is required to, yield FMV as on the date of transfer as the deemed cost of acquisition, results in nil capital gain. That is, completely vitiates the computation of gain, defeating the very object of applying the inflation index, with the value being at times, and deliberately so, being so pegged to yield a marginal gain. For instance, going by our example (para 3.2), if the asset is valued as on 01/4/1981 at Rs. 2.35 lacs (say), it would yield, post indexation, a gain of rs. 0.30 lacs, as against an actual gain of rs. 3 lacs, besides avoiding the charge as to the value being arrived at through reverse indexation, so that it is, in effect and substance, an abuse of the adjustment for inflation provided by law. That is to say, while in the instant case the registered valuer, whose value the assessee advocates, is candid about having no basis apart from reverse indexing the sale consideration (i.e., fmv as on the sale date), the practice is liable to be abused to peg the value at a sum so as to, upon indexation, yield a marginal gain, emphasizing the vital need for the cost or fmv as on the cut- off date to be an independent variable, arrived at on the basis of actuals, which only would lend credence and meaning to the computation.
3.5 We may next explain as to why, despite the assessee’s reliance on decisions by the Tribunal accepting the reverse index method, each of which has been perused, we have yet found it as not valid. To begin with, the AO has in this regard furnished specific, factual reasons for differing from the orders by the ITAT advanced before him, as under, and which again has not been rebutted either before the first appellate authority or before us: Reasons for not accepting the decision of case laws: 21. The assessee's other contentions are regarding the case laws that he has quoted. In the questionnaire itself, it has been explained clearly that the facts of the case of the assessee 8 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS are distinct from that of the case laws quoted and hence the decisions adopted in those case laws cannot be applied in the assessee's case. The assessee has agreed that the facts were different and has further submitted that, though the facts are different, the tribunal had approved the method of valuation, i.e., reverse working from the present value. It is to be noted that, none of the tribunals which have held the method of 'reverse working from present value', were presented with the arguments and reasons quoted by the AO in this case. Had the tribunals ruled the same way even after hearing arguments in line with the arguments of the AO, then they could be accepted. (emphasis, obtaining) 22….
I beg to differ from the Hon'ble ITATs on the acceptance of 'reverse working from present value' due to the following reasons: Between 1981 and 2016, 35 years have rolled by. A city's landscape, areas of commercial importance, access to main road ways, proximity to important localities etc change significantly in 35 years. Properties which were considered as remote and insignificant in 1981's land market have increased in value tremendously now in 2016 due to growth of road networks and expansion of the city. That is why indexation as a method to calculate cost should only be used forward. The said property may have very high market value in 2016 because of its proximity to the Wayanad Road and commercial establishments that have propped up now, in and around it. But, in 1981, the same need not be true. With the city expanding rapidly in all directions, properties that were considered asremote during few decades back have become properties in the centre of the city now. Hence, taking the present declared value and working backwards using cost inflation index would not yield the actual and "fair" market value as on 1981, but will yield only an artificially inflated value.
It is to be noted that the present guideline value is a composite figure comprising of many factors like proximity to the city's current road networks, rail heads, commercial establishments, schools, colleges, hospitals, public amenities, etc. in addition to the value of land. When the index is reversed, taking the present guideline value as a base, it only reduces one component, the value of land, by the amount it has increased due to inflation. The other components like growth in road networks and proximity to government offices and amenities were not a product of inflation, but development. Moreover, these factors do not follow a linear growth pattern on a year by year basis like inflation, Hence, doing linear interpolation and reverse indexing would mean that all these increases in value of a property due to infrastructure development of Calicut are also pegged to inflation, which is factually incorrect.
The AR has pointed out that in a comparable shown in the case of Commonwealth Trust Ltd, the FMV calculation based on a similar reverse indexing was accepted and claimed that the same advantage should be offered to the assessee in this case. As mentioned earlier, the facts of the cases are different. Unlike the instant case, primary data about sale of property in the area of Mananchira, Calicut in 1981 was not available in the case of Commonwealth Ltd. The AO has written to the Sub Registrar's Office for obtaining information related to Commonwealth Trust Ltd also and if the data from the (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS SRO's office indicate otherwise, the capital gains shall be re-assessed accordingly. So, there shall be no inconsistency in the method adopted by the AO. (emphasis, supplied) In the facts of the case, a part of the subject land having been sold in 1981, the AO has adopted the sale rate as the FMV as on 01.04.1981. That apart, the SRO, in response to notice u/s. 133(6), furnished data on sale of six other adjacent properties in 1981. The data being on independent, albeit comparable, transactions by different sets of buyers and sellers at different dates in 1981, the same have also been taken into consideration by the AO with a view to arrive at a fair value, eliminating the scope of under-reporting the same (para 20 of his order). The same, in our opinion, gets as fair as it could; the Sub-Registrar’s Office being a government authority maintaining record of sales. How, pray, could that be faulted with, so that the AO factually establishes and, thus, distinguishes the instant case. The assessee stating that the reported sale values are suppressed, is without any factual basis. Two, where so, it would equally apply to the instant sale value! Continuing further, it is the ratio decidendi of a decision that has precedence value and is binding, and not the decision per se. The matter is well-settled, toward which we cite two binding decisions, clarifying the law. In Mavilayi Service Co- operative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC), it stands held as under: The ratio decidendi in Citizen Co-operative Society Ltd. would not depend upon the conclusion arrived at on the facts in that case,the case being an authority for what it actually decides in law and not for what may seem to logically follow from it. Thus, the statement of the principles of law applicable to the legal problems disclosed by the facts alone is the binding ratio of the case, the judgment based on the combined effect of the statements of the principle of law applicable to the material facts of the case cannot be described as the ratio decidendi of the judgment. In Sree Bhagavathi Textiles Ltd. v. CIT[2000] 244 ITR 496 (Ker), it stands held as: What is binding u/s. 141 is the ratio of the decision and not any finding on facts. It is the principle underlying a decision which is binding. It is to be read in the context of the question which arose for consideration. Judged in that background, the tribunal’s conclusions cannot be maintained.
(AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS We are afraid, we observe no ratio decidendi of the cited decisions, listed as under, and which explains our proceeding independently in the matter: CIT v. Ashven Datla [2013] 37 Taxman.com 261 (AP) Asst. CIT v. Narayan Krishnanand (in & 322/Coch/2017, dated 14.08.2018) Deen Dayal Rathi v. ITO (in ITA No. 108/Jodh/2013, dated 04.04.2013) Dy. CIT v. Rajendra Kumar Sindhvi (in ITA No. 313/Jodh/2010, dated 14.07.2013) We shall nevertheless discuss each of them, as follows: In Ashven Datla (supra), the Hon'ble Court has merely declined interference in view of the conclusion on facts arrived at by the Tribunal, which in that case had accepted the Valuer’s report, which was in turn based on reverse indexation method. How, one wonders, could that be said to be a statement of a principle of law, or one having been laid down by the Hon'ble Court, which does not at all discuss either the provisions of law or their interpretation. In Narayan Krishnanand (supra), the Tribunal, faced with two values, one furnished by the Sub-Registrar’s Office (SRO), the basis of which was not disclosed except that it was a guideline value, and the other by the Valuer, based on reverse indexation method, found no infirmity by the ld. CIT(A) in preferring the latter, drawing support from the decision in Ashven Datla (supra). In Deen Dayal Rathi (supra), the Tribunal proceeds on the presumption that s. 48 admits of applying the statutory formula backwards! It does not discuss either its rationale or implications. There is again no principle laid down, nor in fact even an explanation as to how the cost of acquisition, or its substitution by FMV as on the cut-off date, could not but be an independent value, based on which the capital gain is to be statutorily computed, and not a derived value from the sale consideration itself. That is akin to predetermining the capital gain based on its sale value. In Rajendra Kumar Sindhvi (supra), the Tribunal merely follows it’s order in Deen Dayal Rathi (supra), reproducing it in the relevant part and without discussing it in any manner, i.e., proceeds on the presumption of it’s order in Deen Dayal Rathi (supra) being a 11 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS speaking order. There is, it needs to be emphasized, no reference to the relevant provision/s of law, which is being sought to be applied, much less any discussion on its interpretation or rationale, or even explanatory notes to the Finance Bill or the Board Circular explaining the same, in any of the orders. Reference to Board Circular No. 636, dated 31.08.1992 in Deen Dayal Rathi (supra), only reproduces para 35.6 thereof, and which is only a statement of the cost inflation index, as defined in Explanation to s.
There is further no delineation of the basis of interpreting the clear provision of law in the manner done. That is, no interpretative exercise precedes the conclusion arrived at, with even the Hon'ble High Court, on considering it as a finding of fact, declining interference, with that by the Tribunal proceeding de hors the provision of law. Determining the legislative intent, which is to be the foundation of any interpretative exercise, is, needless to add, conspicuous by its absence (CIT vs. Baby Marine Exports, 290 ITR 323 (SC)). Now, sure, a finding as to a value arrived at by the reverse indexation method as a reasonable value under the circumstances, a finding of fact, is very different from expressing an opinion on the provision of law itself or indeed the validity of the method itself, on which, as afore-noted, there has been no elucidation. In fact, the finding of fact again does not address the basic issue as to the actual cost of acquisition (which would only in all probability represent the market value at the relevant time) or the FMV as on the cut-off date, are values not impacted or influenced by inflation alone, but equilibrium values on the basis of market force of demand and supply, which varies from time to time, as also the facts and circumstances of the case. In fine, no precedent value can be ascribed to any of the decisions by the Tribunal relied on by the assessee before us. The Hon'ble Apex Court in Kamalakshi Finance Corporation Ltd. (supra) emphasizes on judicial discipline, so that the order of a higher appellate authority is to be followed by the subordinate authority. Apart from the absence of ratio decidendi which, as afore- explained, only is binding, a coordinate bench of this Tribunal is not a higher 12 (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS appellate authority, which is only one which is authorised by law to pronounce on, in appropriate proceedings, the appellate order by this Tribunal.
The second issue arising in appeal is the allowance of exemption u/s. 54EC, which has been restricted by the AO to, as against Rs. 8 lakhs claimed by the assessee, Rs.4 lakhs, on the ground that second instalment of Rs. 4 lakhs is beyond the six-month period that the section postulates for investment in specified bonds for being eligible for the benefit there-under. The ld. CIT(A) has confirmed the same, finding the AO to have, accepting the assessee’s plea of delayed receipt of sale consideration, taken into account the date of receipt of the sale consideration, allowing the benefit u/s. 54EC on investment within six-month period thereof, acted both reasonably and consistent with the decision by the Hon'ble High Courts, as in CIT v. Dr. Arvind S. Phake [2018] 401 ITR 96 (Bom). These facts are not in dispute; the assessee having furnished the date/s of receipt of sale consideration from the builder as indeed of investment in REC bonds. We are, in view thereof, unable to appreciate the assessee’s grievance. Exemption provisions are to be strictly construed: Commissioner of Customs v. Dilip Kumar & Co. [2018] 6 GSTR-OL 46 (SC); Ramnath & Co. v. CIT [2020] 425 ITR 337 (SC) (affirming CIT v. Ramnath & Co. [2016] 388 ITR 307 (Ker)), to cite two. More recently, the Hon'ble Apex Court in The Authorized Officer, Central Bank of India v. Shanmugavelu (in CA Nos. 235-236/2024, dated 02/2/2024), discountenanced the practice of reading down a provision, even as tax statutes are to be, it is again well-settled, strictly construed (Banarsi Debi v. ITO [1964] 53 ITR 100 (SC)). Capital gain is chargeable u/s. 2(24)(vi) r/w s. 45, not on the basis of receipt of sale consideration/gain, but its accrual. Why, even assessing its relevance, there is nothing to show that the Builder had not paid the sale consideration as per the agreed schedule. The AO has, thus, in allowing the assessee an extended qualifying period, i.e., by reckoning the 6-month period from the date of receipt of the sale (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS consideration, as against the date of transfer, acted reasonably. In fact, the six-month period after the receipt of the second instalment expired on 09.07.2014, by which date the assessee has invested only Rs. 4 lakhs, as against receipt of Rs.11.78 lakhs; he even failing to invest, by that date, Rs.6.21 lakhs received on 02.12.2013. We, accordingly, find no scope for interference; the Revenue authorities having acted most reasonably in the matter.
In sum 5. Basic to the computation of profits and gains arising on the transfer of a capital asset, income by definition (s. 2(24)(vi)), chargeable as capital gain for the year of transfer (s. 45), is it being based on actuals, i.e., representing income so arising (s. 48). Based on real income concept, the matter reduces to being principally factual. Indexing cost of acquisition (or improvement), which is to be therefore deducted in computing income, is to eliminate from the accretion in value – the said gain, the extent to which it is not real, but on account of depreciation in the value of money over the holding period of the asset, i.e., from the time of investment to that of its realisation, which may be separated by years. It is imperative therefore that the cost incurred at the time of acquisition is stated in terms of the value of money obtaining at the time of transfer. Reverse indexation, which applies instead on the transfer value, defeats this object inasmuch as the premise thereof is that the entire increase in value (gain) is on account of inflation. That is, puts the cart before the horse. The second fundamental flaw therein is that it is not based on actuals. Two persons acquiring a capital asset (say, land) at different values during a particular year would be subject to the same gain where the same is sold at the same price. The constancy of sale price across different persons, is only to highlight the anomaly. Going by the stated example (para 3.2), reverse indexing Rs. 5lakhs would yield a cost of acquisition of Rs. 2.5 lakhs (5 x ½), resulting in the same apparent gain for Rs.2.5 lacs. How could that be? It is (AY : 2014-15) Pulparambil Rajendran v. Asst. CIT, Circle -1(1) & TPS easy to see that the gain, being not based on actuals,the higher the real gain vis-à- vis inflation, greater would be the difference or suppression in the gain by computing it through reverse indexation. Rather, indexing the cost so arrived at (rs. 2.5 lacs), would yield nil capital gain. The said method, thus, defeats the very object of indexation, to effectuate which is the purpose of interpretation (CIT v. Mahindra & MahindraLtd. [1983] 144 ITR 225 (SC)). Further,we observe no ratio decidendi – which alone is binding, of the several decisions cited by the assessee, for us to adopt the same.There is in fact no discussion either on the provisions of law or any discussion on the various aspects germane to the issue.Rather, the Tribunal, as in Deen Dayal Rathi (supra), regards reverse method as having statutory sanction, making no bones about the fact that on being so computed, it amounts to pre-determining the gain, instead of being a value based on actuals, which though is to be adjusted for inflation to derive the gain in real terms.Intrinsic to the concept of income is the gain or the accretion in value between two (defined) points of time. Reverse indexation, devoid of any conceptual or legal basis, violates the very concept of income and, rather, is an abuse of the benefit of adjustment for inflation provided by law. The ld. CIT(A), who has also confirmed the same, as a method, albeit under certain circumstances, has again not explained his reasons for the same. His findings, to that extent, are, accordingly, vacated. Once the computational integrity is observed, the matter becomes principally factual. The AO has proceeded objectively, basing his working on actual, authentic data, credibility or validity of which has not been assailed. The computed rate of Rs.18,181 per cent, also approved by the ld. CIT(A), is accordingly confirmed. Qua the second issue, again, we find the Revenue to have acted reasonably, even travelling beyond the clear language of the provision, so that there is no scope for interference. We decide accordingly.