ACIT 11(2), MUMBAI vs. AJAY I.. THAKORE, MUMBAI

आयकर आयकर अपीलीय आयकर आयकर अपीलीय अपीलीय अिधकरण अपीलीय अिधकरण अिधकरण," ए” खंडपीठ अिधकरण खंडपीठ खंडपीठ मुंबई खंडपीठ मुंबई मुंबई मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI-“A”,BENCH सव�ी जोिग�दर �सह, �याियक सद�य एवं राजे��, लेखा सद�य Before S/ShJoginder Singh,Judicial Member & Rajendra,Accountant Member आयकर अपील सं./ITA/6917 /Mum/2011,िनधा�रण िनधा�रण वष� वष� /Assessment Years: 2008-09 िनधा�रण िनधा�रण वष� वष� ACIT-11(2) Shri Ajay I. Thakore Room no.479, 4th Floor, Aayakar Bhavan, 1416, Dalamal Tower, M.K. Road Vs. Free Press Journal Marg, Mumbai-400 020. Nariman Point,Mumbai-400 021. PAN:AABPT 0802 G आयकर अपील सं./ITA/6602/Mum/2011,िनधा�रण िनधा�रण वष� वष� /Assessment Years: 2008-09 िनधा�रण िनधा�रण वष� वष� Shri Ajay I. Thakore Vs. ACIT-11(2) Mumbai-400 021. Mumbai-400 020. (अपीलाथ� /Appellant) (��यथ� / Respondent) Revenue by: Shri M.Murli Assessee by: Shri Ajay Indrajit Thakore सुनवाई क� तारीख / Date of Hearing: 23.03.2016 घोषणा क� तारीख / Date of Pronouncement: 13.04.2016 आयकर आयकर अिधिनयम आयकर आयकर अिधिनयम अिधिनयम,1961 क� अिधिनयम क� क� धारा क� धारा धारा 254(1)केकेकेके अ�तग�त धारा अ�तग�त अ�तग�त आदेश अ�तग�त आदेश आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER Rajendra A.M.- अनुसार Challenging the order dt.25/7/2011 of the CIT(A)-3 Mumbai the Assessee and the Assessing Officer(AO)have filed the cross appeals for the year under consideration raising various Grounds of appeal.Assessee, an individual filed his return of income on 20/07/2008 declaring total income of Rs.56.22 lakhs.The AO completed the assessment u/s.143(3)of the Act on 21. 12.2010,determining the income of the assessee at Rs.2.40 crores. ITA No.6917/Mum/2011(A.Y. 2008-09)Revenue’s Appeal : 2.During the assessment proceedings,the AO found that the assessee had sold his half share in tenancy right of a property,for Rs.1.83 crores,that the tenancy right in the property was received by the assessee in inheritance,that he had claimed the sale proceed of tenancy right as capital receipt and stated that same was not taxable within the meaning of section 55(2)(ii) of the Act.However,the AO did not agree with the assessee and held that assessee’s claim for taking the sale proceeds received against the tenancy right was capital receipts was not as per law,that the receipt in question was taxable within the meaning of section 45 r.w.s.49 and 55(2) of the Act.The AO referred the matter to the JCIT u/s. 144A of the Act,who observed that the assessee had not denied that the tenancy right was a capital asset, that there was transfer of tenancy right in respect of immovable property, that the consideration received on transfer of tenancy right was capital receipt.He referred to the provisions of section 49 and section 55(2)of the Act and held that in the case under consideration the father of the assessee had acquired the tenancy right without payment of any money, that the cost of acquisition had to be taken as nil in the hands of the father of the assessee as per the provisions of section 55(2)(a) of the Act, that there was no cost of any improvement incurred or borne by the father of the assessee or by the assessee himself,that the cost of acquisition shall be nil in the hands of the assessee,that the entire sale consideration of Rs.1.83 crores had to be assessed to tax under the head LTCG, that the fair market value of the tenancy right as on 01.04.1981 could not be considered for determining the tax liability,that the clause (b) to section 55(2) was not applicable in respect of the tenancy right while computing the cost of acquisition.In view of

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the direction of the JCIT the AO assessed the entire sale consideration of Rs.1,83,33,334/- as LTCG. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).It was contended that the assessee inherited half share in the tenancy rights along with his brother, that the fact of tenancy it was not in dispute, that he had received for transfer of his half share of inherited tenancy right a consideration of Rs. 1.83 crores,that the consideration received by him fell under the exempted portion of section 55 (a) (2) (ii) of the act, that section 55 (2) was amended with effect from 1/4/1995 to supersede the certain exclusions, that the new provisions provided that for the purpose of section 49 and 48 the cost of acquisition in any other case had to be taken as nil, that as per the provisions of section49(1)(iii)(a)where the capital asset became the property of the assessee by succession, inheritance or devolution, the cost of acquisition of the asset would be deemed to be cost for which the previous owner of the property acquired at has increased by the cost of any improvement of the assessee incurred or borne by the previous owner for the assessee as the case might be,that explanation provided that the expression previous owner of the property in relation to any capital asset owned by an assessee meant the last previous owner of the capital asset who acquired it by order of acquisition other than that referred to in clause (i) or clause (ii) or clause(iv) of the subsection,that the assessee had inherited tenancy rights from his father,that the exception provided by way of section 55(2)(a) (ii) would be applicable, that the provisions providing that cost of tenancy rights would be taken as nil would not be applicable to the facts of the case,as the case of the assessee clearly fell under section 49(1) (ii) of the Act.After considering the submissions of the assessee and the assessment order,the FAA held that section 49(1)(ii) was an exception to the main provisions provided under section 55 (2) of the act and therefore the cost could not be taken as nil,that in case of the assessee the law to prior to assessment year 1995-96 would apply,that the capital assets in light of the provisions of section 45 and 48 of the act could be divided into three categories-a.)Assets where there is no cost,b.)Assets where there is cost. In such cases cost and cost of improvement or at the option of the assessee fair market value as on 1/04/1981+ indexed course of improvement is to be considered c.)Nil cost is provided by section 55 with effect from 1/4/1996 applicable to some category of assets by fiction of law barring the sets falling under section 49 (1),that in the case of the assessee FMV as on 01.04.1981 was to be adopted for determining the taxable capital gains. After considering the submissions of the assessee and assessment order,the FAA held that assessee was not justified in claiming the amount received by him was not taxable as LTCG, that provisions of sec.55(2)were amended from 1.4.95,that law as stood prior to 1996 will not be applicable,that the assessee had acquired the inherited tenancy right in property from his father, that the provisions of sec 55(2)(a) would be applicable.He referred to provisions of sec.48,49 & 55(2) of the Act and held that the assessee had exercised its option to substitute the FMV as on 1.4.1981, that the FMV as per valuation done by registered valuer had to be considered for indexation.The FAA referred to the case of Vijay Rathore (204 taxation 193)and held that property in question was acquired by the aa by way of inheritance from his father, who held it prior to 1981,that as per the provisions of section 55(2)(b)(i) of the Act the market value as on 01. 04. 81 as determined by the valuer,was to be considered for computing indexed cost.He also referred to the case of Manjula J Shah (35SOT105) and directed the AO to re-compute indexed cost.He referred to the value determined by the valuer as on 01.04.48 lacs and indexed it to Rs.79,81,237/-.Accordingly,he held that LTCG would be computed at Rs.1,03,52,098/-(1,83,33,334/(-)Rs.79,81,235/-)as against Rs.1.83,determined by the AO.

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4.During the curse of hearing before us,the Departmental Representative(DR)stated that the entire amount received by the assessee i.e. Rs.1.83 crores was taxable,that the cost of acquisition of tenancy right was to be taken as nil,that provisions of Sec.55(2)(b) were not applicable to the facts and circumstances of the case under consideration. The assessee stated that whole consideration recd by the assessee was capital receipt and not liable to tax u/s.55(2)(a) of the Act.He alternatively stated that FMV as on 01.4.81 plus the indexing worked out by using cost inflation index in reverse manner should have been allowed. That provisions of sec. 49(a) were applicable to the facts of the case,that in case of tenancy capital gain was not taxable.He referred to the case of D.P. Sandu Bros. Chembur P. Ltd.(273 ITR 1),Tara Agencies (292 ITR444) and B.Srinivasa Shetty (128 ITR294) 5.We have heard the rival submissions and perused the material before us.Undisputed facts of the case are that the assessee had sold half of the tenancy right of a property that was acquired by his late father,that the property was acquired before the year 1981,that the property was sold for Rs.1.83 Crores,that he had claimed that no tax was payable on sale of the tenancy right of the property,that the AO had taxed the entire amount,that the FAA had given part relief to the assessee.Before proceedings,further,we would like to refer to certain principles governing the provisions of sections 48,49 and 55 of the Act and they stipulate as under: i.Section 48 of the Act deals with the mode of computation of capital gains,whereas section 49 refers to cost with reference to certain modes of acquisition are machinery provisions relating to the assessment of capital gains meant for computing the capital gains under different circums -tances.Sections 48,49 and 55 are not charging sections. ii.Section 49 of the Act stipulates cost of acquisition with reference to the specified modes of acquisition.Sections 47 and 49 of the Act go together and have to be read as part of one scheme,the legislative intent being that when the first transaction is not brought to charge,the assessee having benefited once,should not benefit once again by claiming a higher cost at the time of a subsequent transaction. iiii.Section 49 of the Act deals with the cost with reference to certain modes of acquisition and same is provided in sub-clauses (i) to (iv) of the section.It further provides that 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 previous owner or the assessee, as the case may be. iv.The option under section 55 to take the cost of acquisition of the asset as the fair market value of the asset as on 01.01.1981, or at the actual cost incurred by the assessee, at the option of the assessee,is independent of section 48 which deals with mode of computation. It is only after working out the cost of acquisition within the meaning of section 55 that the capital gains could be computed under section 48. 5.1.It would be useful the refer to the matter of Mina Deogun(375ITR586).The facts of the case were as under that a residential house situate at premises No. 47, Golf Links, New Delhi, was purchased by Sardar Pratap Singh on 16.04.1958,that he died on 29.06.1968,that the aforesaid property devolved on her widow, who died on 16.09.1999, that, the assessee and her three sisters succeeded to the property in equal shares. During the financial year 2003-04 the property was sold at a sum of Rs. 12 crores. The share of the assessee in the sale proceeds was a sum of Rs. 3 crores.Matter travelled up to the Hon’ble Calcutta High Court, wherein following question about valuation of the property was framed

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“(b)Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in applying the cost inflation index with effect from April 1, 1981, instead of the year 1999-2000, in which the assessee inherited the property, contrary to the provisions of Explanation (iii) to section 48 of the Income-tax Act, 1961, to the effect that it would be applied with effect from the first year in which the assessee held the property, or April 1, 1981, whichever is later, on the ground that a literal interpretation of the provisions was to be discarded ?” Deciding the matter,the Hon’ble Court held as follow: “10.Section 49 referred to in the aforesaid clause (b) of Explanation 1 provides for various circumstances including acquisition by succession, inheritance or devolution. Therefore, the period for which the asset was held by the previous owner, namely, the mother of the assessee can also be included to the period of holding of the property by the assessee. The mother held the property since 1968, as indicated above. Here is, as such, the reason why the assessee in the case before us can be said to have held the property since 1968. In order to ascertain the cost of acquisition to the assessee reference can also be made to section 55(2)(b)(ii) which reads as follows : "(ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee." 11.Based on the aforesaid provision the cost of acquisition of capital asset at the option of the assessee is the fair market value of the asset on April 1,1981. When that is permissible in law, indexation on the fair market value as on April 1, 1981, until the date of transfer has to be allowed. Any other interpretation will not only lead to absurd result but shall also cause immense prejudice to the assessee. If the previous owner, that is to say, the mother, had not died and if she herself had sold the property in the year 2003, she would have got the benefit of indexation on the fair market value as at 1st April, 1981. 12. We are supported in our view by a judgment of the Gujarat High Court in the case of CIT v. Rajesh Vitthalbhai Patel reported in[2013]37 Taxmann.com 439 wherein the following views were expressed : "7. Under section 48 of the Act,thus capital gain is computed by deducting from the full value of the consideration received or accruing as a result of the transfer, the amounts of expenditure incurred wholly and exclusively in connection with such transfer, the cost of acquisition of the asset and the cost of any improvement thereto. The term 'cost of acquisition of the asset' is explained in Explanation (iii) to section 48. In terms of such Explanation, indexed cost of acquisi tion would be an amount which bears to the cost of acquisition the same proportion as the 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, 1981, whichever is later. In simple words, there fore, for an asset acquired prior to April 1, 1981, the indexed cost of acquisition would be the cost of acquisition multiplied by the ratio of the cost inflation index in the year in which assessee's asset is trans ferred to the cost of inflation index for the year beginning on April 1, 1981. It was, therefore, that the Tribunal in our opinion correctly held that the indexed cost of acquisition shall have to be worked out with reference to April 1, 1981, since, in the present case, the asset was acquired by the previous owner of the property. Learned counsel for the Revenue, however, submitted that such interpretation would fail to take into account the expression 'cost inflation index for the first year in which the asset was held by the assessee'. In his opinion, the 'assessee' referred to under such expression would be the present assessee and not the previous owner. In our opinion, such interpre tation cannot be accepted. We say so for the following reasons. Firstly, by virtue of a deeming fiction provided in sub-section (1) of section 49, cost of acquisition in hands of the assessee would be the cost for which the previous owner of the property acquired it. It is for this purpose that we need to fall back on computation provision of section 48. When we do so, we work out the cost of acquisition of the asset in the hands of previous owner. While doing so, we cannot transpose the assessee in Explanation (iii) of section 48. Doing so, would amount to falling short of giving full effect to the deeming fic tion contained in sub-section (1) of section

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Since the assessee, in the present case, is held liable for long-term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis." 14. For the aforesaid reasons, the second question is answered in the affirmative and against the Revenue.” 5.2.In the case of Raja Malwinder Singh(334ITR48),the Hon’ble P& H High Court has held that even in a case where the cost of acquisition cannot be ascertained,section 55(3) of the Act statutorily prescribes the cost to be equal to the market value on the date of acquisition, that this being the position, capital gains are not excluded even on the plea that the value of the asset in respect of which capital gains are to be charged was incapable of being ascertained,that the view based on the assumption that where the market value cannot be ascertained,capital gains cannot be applied, is not correct being against the statutory scheme,that 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 option of the assessee. 6.Now,coming back to the facts of the case,we find that the FAA had adopted the fair market value as on 01.04.1981 for the property inherited by the assessee from his father.Considering the facts and circumstances of the case and the above mentioned two judgments of the Hon’ble High Courts we hold that the order of the FAA does not suffer from any legal infirmity.So, confirming,his order we decide the effective ground of appeal against the AO. ITA/6602/Mum/2011(A.Y.2008-09)Assessee’s Appeal: 7.While deciding the appeal filed by the AO,we have held that FMV adopted by the FAA i.e. as on 01.04.1981 was as per the provisions of the Act and that his order is not suffering from any legal infirmity.Following the same,we decide the effective ground of appeal,filed by the assessee against him.We would also like to mention that none of the cases,relied upon by the assessee,deal with the issue before us. As a result appeals filed by the AO and the assessee stand dismissed. फलतः िनधा�रती अिधकारी और िनध�रती �ारा दािखल क� गई अपील� नामूंजर क� जाती ह�. Order pronounced in the open court on 13th April, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांक 13 अ�ैल, 2016 को क� गई । Sd/- Sd/- जोिग�दर�सह /JoginderSingh) (राजे�� / RAJENDRA) जोिग�दर�सह �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य जोिग�दर�सह जोिग�दर�सह मुंबई Mumbai; �दनांकDated : 13.04.2016. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�,4.The concerned CIT संब� आयकर आयु� 5.DR “A ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, ए खंडपीठ,आ.अ.�याया.मुंबई 6.Guard File/गाड� फाईल स�यािपत �ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai. 6