ITO 5(2)4), MUMBAI vs. P.M. RUNGTA (HUF), MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

2 P.M. Rungta (HUF) 2007-08, decided against the assessment order passed by the Assessing Officer (in short ‘AO’) u/s 143(3) of the Act. The assessee has raised following grounds of appeal:

“1. Whether CIT(A) erred in law in directing to allow the cost of acquisition of the property as a market value as on 01.04.1981 and indexation allowed on that cost without appreciating of the fact that the asset was not acquired on distribution of asset on partition of HUF but cost was incurred for acquiring such asset as in evident from t he copy of Award granted by the Hon’ble High Court.

2. The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the AO be retored.”

3 P.M. Rungta (HUF) 4. Being aggrieved, the assessee contested the matter in first appeal before the CIT(A), wherein it was inter-alia submitted by the assessee that assessee was in the ownership of the property through his family partnership firm since 1963 and therefore, period of holding should be counted since 1963, and therefore, value as on 01.04.1981 should be taken as cost of acquisition of the property, and the benefit of indexation should also be given from the said date. Ld. CIT(A) accepted the submissions of the assessee by inter alia holding that family settlement cannot be termed as transfer, and reliance was placed upon the judgment of Hon’ble Madras High Court in the case of CIT vs. Shanthi Chandran and another 241 ITR 371. It was held that the assessee was owner of the property since 1963. It was further held by him, relying upon the judgment of special bench of ITAT Mumbai in the case of Smt. Manjula Shah (ITA No.7315/Mum/2007) that indexation should be provided w.e.f. 01.04.1981 i.e. the year in which the previous owner held the assets.

4 P.M. Rungta (HUF) 6. We have gone through the arguments made by both the sides, the orders of lower authorities and material placed before us for our consideration as well as judgments relied upon before us.

6.1. The brief facts culled out from the orders of lower authorities, which remained undisputed before us, are that the impugned land was originally acquired in the family partnership M/s. Krishnagopal Rungta in 1963. The firm was regularly assessed to tax. The assessee along with his two sons was 50% partner in the firm. Subsequently, the family members decided to separate, settle and distribute the family assets amongst themselves to avoid any dispute in future thereof. The understanding was recorded in agreement dated 15th November, 1985. A copy of agreement is placed at page 2 of the Paper Book. Regarding some of the immovable properties, a consensus was not arrived at amongst the family members, and therefore it was mutually decided by all to appoint a relative Shri L.B. Rungta to decide the issue. The family’s immovable properties were settled as per Award no. 70 of 1986. The Award was filed with Hon’ble High Court of Bombay for its approval. A copy of Award is placed at page 26 of the paper book. The properties were held by individuals, firms and HUF, and by this arrangement HUF Assets were partitioned and other assets were also distributed. To facilitate the implementation of the understanding, it was agreed between the parties that the assets will be transferred at their original cost and the amount receivable and payable by each

5 P.M. Rungta (HUF) party to the other will accordingly be debited/credited in the books of accounts. No actual amount was paid by one party to other.

6.2. We have carefully examined these facts. It is noted that the assessee has acquired aforesaid rights in the impugned land in pursuance to a family arrangement, arising as a result of partition of family, which has been entered into amongst the family members vide its family settlement dated 15th November, 1985 and Award of the High Court dated 21st January 1987. Now, for the purpose of determining holding period, to compute taxable amount of capital gain in the hands of the assessee, we need to address the issue that when the assessee became owner of the said land, and accordingly holding period of the land would be reckoned from that date.

6.3. In our considered opinion, the aforesaid family arrangement/settlement (which has been given legal recognition by the Hon’ble High Court through award dated 21st 1987), should not be regarded as an event giving rise to transfer as envisaged u/s 45 of the Act. We can here make reference to section 47, which inter-alia provides that any distribution of capital assets on the total partition of Hindu Undivided Family shall not be regarded as transfer within the meaning of section 45. It is noteworthy that if the said family partition/settlement/distribution of the properties would have been regarded as transfer within the meaning of section 45 by the department, in that case, applying provisions of section 45, it would have brought to tax some amount of capital gain

6 P.M. Rungta (HUF) in the hands of firm of HUF etc. in the year 1987 i.e. when High Court passed the order, when the assessee allegedly becoming owner, as has been contended by the AO in the assessment order. But no such action has been taken by the Revenue. In our considered view, under the law, no such action could have been taken either, because there was no transferor and transferee. The family members were transferors, and family members got their respective shares in the properties and assets. In our considered view, in these facts and circumstances, it cannot be said that the assessee acquired the property in 1987. As per law, the rights of the assessee in the impugned property have been only reinstated or re-determined. It cannot be said that any fresh rights have taken birth. It was just re-fixation of the rights which the assessee was already having, in one way or the other. In our considered view, the assessee was beneficial owner of the impugned property since 1963, being 50% partner in the firm which was owner of the said property. Impliedly, it can also be said that the assessee was holding the property as beneficial owner since 1963.

6.4. With a view to simplify this issue further, we have analysed the meaning of the expression "held by the assessee", as has been used by the legislature in section 2(42A). In CIT vs Frick India Ltd 369 ITR 328 (Delhi), Hon’ble Delhi High Court got an occasion to elucidate and explain the meaning and scope of this expression. Relevant paras’ are reproduced below for the sake of clarity:

7 P.M. Rungta (HUF) “10. We would like to elucidate and explain the expression, "held by the assessee" in some detail. General words should normally receive plain and ordinary construction but this principle is subject to the context in which the words are used as the words reflect the intention of the Legislature. The words have to be construed and interpreted to effectuate the object and purpose of the provision, when they are capable of multiple meanings or are ambiguous. Isolated reading of words can on occasions negate the very purpose. Lord Diplock had referred to the term, "business" as an 'etymological chameleon', which suits its meaning to the context in which it is found. The background, therefore, has to be given due regard and not to be ignored, to avoid absurdities. This principle is applicable when we interpret the word, "held" in Section 2(42A) of the Act, for the said word is capable of divergent and different connotations and understanding.

8 P.M. Rungta (HUF) (at page 1884) the word 'held' was interpreted to mean "lawfully held, to possess by legal title". The term 'legal title' here not only includes ownership, but also title or right of a tenant, which will mean actual possession of the land and a right to hold the same and claim possession thereof as a tenant”.

6.5. Similarly, Hon’ble Punjab and Haryana High Court in CIT vs. Ved Prakash & Sons (HUF) 207 ITR 148 further explained the meaning of this expression as under:—

“As is clear from a bare reading of Section 2(42A) of the Act, the word "owner" has designedly not been used by the Legislature. The word "hold", as per dictionary meaning, means to possess, be the owner, holder or tenant of (property, stock, land.). Thus, a person can be said to be holding the property as an owner, as a lessee, as a mortgagee or on account of part performance of an agreement, etc. Conversely, all such other persons who may be termed as lessees, mortgagees with possession or persons in possession as part performance of the contract would not in strict parlance come within the purview of "owner". As per the Shorter Oxford Dictionary. Edition 1985, "owner" means one who owns or holds something; one who has the right to claim title to a thing' (Emphasis supplied)”

6.6. In CIT vs Rama Rani Kalia 358 ITR 499, Hon’ble Allahabad High Court has drawn distinction between holding of an asset and the nature of title over the property and it has been observed that period of holding will determine whether the consideration should be taxed as a short-term capital gains or long-term capital gains. Thus, conversion of leasehold right into freehold by way of improving the title over the property would not affect the taxability of the gain from such property, which is relatable to the period over which the property is held.

9 P.M. Rungta (HUF)

6.7. Hon’ble Delhi High Court in CIT v. K. Ramakrishnan 225 Taxman 123 has held that for the purpose of calculating period of holding, one has to look and take into account the date since the assessee got 'beneficial interest' in the property.

We have already held that in the given facts of this case, the assessee was beneficial owner of impugned asset, and in any case, on the event of family partition, there was at the best improvement in ‘title’ of the assessee over the property, which the assessee was already having. Thus, from the above discussion, it is clear that the term ‘held’, used in the context of section 2(42A) is of wide amplitude and scope. The asset need not be necessarily held as ‘owner’ by the assessee. Thus, in view of aforesaid legal position and facts of the case, it can be said that the assessee was holding this property since 1963.

6.8. Even otherwise, the case of the assessee would fall in the situations envisaged in section 49(1). Therefore, in our view, in any case, the cost incurred by the previous owner shall be adopted while computing capital gains in the hands of the assessee, and also, the period of holding of the assets in the hands of the assessee should also be reckoned from 1963, and accordingly for the purpose of taking cost of acquisition, the value as on 01.04.1981 should be adopted in the hands of the assessee for the purpose of computing taxable amount of capital gain. The benefit of indexation should accordingly be provided w.e.f. 01.04.1981. Therefore, we find that the 10 P.M. Rungta (HUF) findings of Ld. CIT(A) are correct as per law and facts, no interference is called for therein, and the same are upheld. Grounds raised by the Revenue are dismissed.