Income Tax Appellate Tribunal - Mumbai
Miss Anjali Goel vs Income Tax Officer on 27 May, 2002
Equivalent citations: [2003]85ITD27(MUM), (2003)79TTJ(MUM)1004
ORDER
Mukul Shrawat, J.M.
1. The assessee is in appeal arising out of the order of CIT(A) XII, Mumbai, dt. 28th Dec., 1993. The issue raised as per grounds of appeal is that the appellant had not incurred any cost for acquisition of the beneficial interest being settled for her benefit by the settlor on assignment of beneficial interest in the trust, therefore, the receipt of Rs. 9,91,000 was not chargeable to tax and learned CIT(A) has also erred in directing to compute capital gains by taking cost of acquisition at Rs. 12,850.
2. As per the assessment order passed under Section 143(3), dt. 18th March, 1993, the AO has found that the assessee has credited a sum of Rs. 9,91,000 in her capital account being an assignment of beneficial interest in M/s Goel Family Trust. The assessee has claimed that this amount was not taxable because there was no cost of acquisition: The AO has discussed various case laws in this regard and held that the provisions of Section 10(3) of the Act were attracted and also liable to be taxed under Section 45 of IT Act. Accordingly the gain on assignment was taken at Rs. 9,91,000 and after deducting beneficial interest treating the same as cost of acquisition amounting to Rs. 12,850 he has worked out capital gain at Rs. 9,78,150. However, since the AO was of the opinion that the provisions of Section 10(3) as well as provisions of Section 45 were attracted in this case, therefore, he has opted to tax the said amount in accordance with the provisions of Section 10(3) of IT Act. The said amount of Rs. 9,91,000 was thus taxed as casual and non-recurring receipt and after allowing exemption under Section 10(3) of Rs. 5,000 the balance amount of Rs. 9,86,000 was taxed in the hands of the assessee.
3. In first appeal learned CIT(A) has discussed in detail the facts of the case as well as various provisions of IT Act along with case laws. According to him the order of AO has indicated that the said sum was assessable under Section 45 as well as Section 10(3). In doing so, the AO has lost sight of the legal principle that income has to be first brought to charge under one of the head specified in Section 14 of the Act. By this observation he has mentioned that he agrees with the view of the counsel of the assessee that Section 14 of the IT Act provides for the head of income, on which income-tax can be charged. He has further expressed that if any income falls under that head, it is not open for the AO to tax the appellant under Section 10(3). Accordingly, he has directed the AO to tax the amount under Section 45 of the Act being capital gains after deducting the cost of Rs. 12,850. He has not accepted the view of the assessee that the beneficial interest in the trust had no cost and this contention was rejected. Being aggrieved, now the assessee is further in appeal before us.
4. On behalf of the assessee learned authorized representative Shri Arvind Sondhe and Ms. Rekha Bagry appeared and narrated the facts of the case at length. M/s Goel Family Trust was created on 23rd March, 1978, trust deed filed on p. 1 of paper book, by Shri A.S. Jain and Smt. Snehlata M. Goel as trustees. This trust was created for the benefit of Master Anish Goel and Miss Anjali Goel (appellant), with the corpus of Rs. 5,000. A deed of assignment dt. 1st Jan., 1992, was executed, filed on p. 9 of the paper book. According to this deed the appellant has assigned her interest in the trust to Mrs. Snehlata M. Goel and, therefore, the beneficial interest of the appellant stood transferred in favour of her mother. The appellant received a consideration of Rs. 9,91,000. With this background he argued that since there was no cost in the hands of the assessee, therefore, in view of the order of Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty (1981) 128 ITR 294 (SC), capital gain tax should not have been charged. He has also relied upon the decision of Gujarat High Court in the case of Chintan N. Parikh v. CIT (2002) 253 ITR 564 (Guj). During the course of his arguments he has also distinguished the facts of the present case with the case of Yasmin Properties (P) Ltd. v. Asstt. CIT (1993) 46 ITD 331 (Bom) relied by learned CIT(A). Referring para 9 of this order he has mentioned that when a trust is created, the ownership over the property is split into two, (i) the legal ownership which is acquired by a trust with the trustees, (ii) the beneficial ownership acquired by the beneficiary by virtue of transfer under the trust which is enjoyed by him. He has thus argued that in the said case Tribunal has accepted fundamentally that in such cases of dual ownership exists. The power of management is owned by the trustees and the right of enjoyment is owned by the beneficiary. Thereafter, comparing the facts of the appeal now before us with the facts of the Yasmin Properties he has mentioned that in the present case the right of the beneficiary or the beneficial interest reverted back in the hands of the trustee who was otherwise enjoying the right of management in the capacity of a trustee, therefore, as such there was no transfer of property from one hand to another hand liable for capital gain tax, he concluded.
5. On behalf of the Revenue learned Departmental Representative Shri Abhijit Kumar, N. has strongly relied upon the orders of AO and CIT(A) and argued that the facts of the case has clearly revealed that the appellant has received a consideration of Rs. 9,91,000 which was subject to tax under the head "capital gain". He has also argued that learned CIT(A) by his order has also removed the doubt in respect of taxability of income by confirming that the same has to be assessed under Section 45 of IT Act.
6. We have carefully considered the rival submissions and also perused the orders of the authorities below as well as the two deeds annexed with a short compilation. A deed was executed on 23rd March, 1978, and according to this indenture a settlor namely Smt. Mohanbai M. Gupta has created a trust named "Goel Family Trust" and has settled a sum of Rs. 5,000 for the benefit of Master Anish Goel and Miss Anjali Goel (appellant) and on creation of this trust two trustees have been appointed namely, Shri A.S. Jain and Smt. Snehlata M. Goel. As per Clause 2 of this indenture the trust was operative up to 31st March, 1998, and thereafter the trustees were required to pay, transfer and hand over the trust's fund equally to both the beneficiaries. This clause, therefore, indicate that ultimately the trust's funds or trust's property shall vest with the beneficiaries. The deed of assignment dt. 1st Jan., 1992, is also placed before us on p. 9 of the compilation. This deed of assignment has expressed that Miss Anjali Goel, party of the first part being a beneficiary of the trust called "Goel Family Trust" hold 50 per cent share both in the income and the corpus of the trust. Clause 2 has referred that the trust's funds consisted of various movable and immovable assets. As per Clause 3; party of the first part i.e., Miss Anjali Goel has expressed her desire of assigning all her beneficial rights, title and interest in the said Goel Family Trust in favour of the party of the second part namely, Mrs. Snehlata M. Goel. According to the next clause; Miss Anjali Goel has assigned all her rights in favour of Smt. Snehlata M. Goel and in lieu has accepted a sum of Rs. 9,91,000 as an assignment value. The party of the second part i.e., Smt. Snehlata M. Goel had already paid a sum of Rs. 1,45,000 and the rest of the amount was agreed to be paid within one month time. Consequently, all rights, title and interest in the Goel Family Trust have been transferred in favour of Smt. Snehlata M. Goel. The assessee has credited the said sum of Rs. 9,91,000 in her capital account on account of assignment of beneficial interest in M/s Goel Family Trust. This amount was not offered for taxation on the ground that there was no cost of acquisition, hence not allowable to be taxed relying upon the decision of B.C. Srinivasa Shetty's case (supra).
7. As per the facts of the case, narrated above, certain position is clear that beneficiary was empowered to transfer her beneficial interest and the facts of the case also revealed that on becoming major on the date of assignment deed signed she was competent to transfer her beneficial interest. Therefore, being a legal holder of the rights in the trust property she had validity to transfer such rights. Now the issue before us is that whether on such transfer any capital gain has arisen to be taxed in the hands of the assessee or not. As far as the view taken by AO regarding taxability of the said amount under Section 10(3) had been dealt with and rejected by learned CIT(A). Moreover as per grounds of appeal, nothing was contended in this respect. To tax capital gain, Section 45, Section 48 and Section 49 are mainly operative. Section 45 refers to any profits or gains arising from the transfer of capital asset shall be chargeable to income-tax under the head "capital gains". Section 48 elaborates the mode of computation according to which the income chargeable under the head "capital gain" shall be computed by deducting from the value of the consideration an amount, namely the cost of acquisition of the asset. To determine the cost, Section 49 says that where the capital asset became property of the assessee on any distribution of assets on the dissolution of a firm or AOP etc., then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. All the above provisions of IT Act are, therefore, integral code to assess the capital gain. To determine the cost of acquisition at Rs. 12,850, the reasoning given by AO was that the said trust was created through an indenture dt. 23rd March, 1978, with a corpus of Rs. 5,000. In the subsequent years the trust has earned commission income etc., and for the asst. yr. 1979-80 income was declared at Rs. 25,700. The assessee's share was worked out at Rs. 12,850 which was transferred in her capital account. In the subsequent years the credit balance of the assessee was not withdrawn and started getting accumulated. The trust has also started making certain investment and also purchased immovable property at Nariman Point during the asst. yr. 1982-83. Thus, the capital asset in which the trust had the beneficial interest became the property of the assessee under transfer of a revocable or a irrevocable trust, as enumerated in Section 49(1)(iii)(d). This section is in respect of cost with reference to certain modes of acquisition. Where the capital asset became the property of the assessee under a transfer to a revocable or a irrevocable trust then 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 asset incurred or borne by the previous owner or the assessee. In the present case settlor had the absolute right over the settled amount of Rs. 5,000 which was settled on trust over which the assessee-trustee had the 50 per cent beneficial rights as owner to, enjoy the fruits. This initial amount has increased and the property as well as assets of the trust have improved by accumulation of assessee's fund and the trust by utilising such accumulated funds has acquired a property at Nariman Point, Therefore, there must be some cost of acquisition of the property for that to the provisions of Section 49(1)(iii)(d) definitely applies. The initial seed money has taken a larger shape by the contribution in acquiring asset through accumulated share of beneficial rights of the assessee trustee.
8. With these observations we are of the opinion that there was no force in the contention of the assessee that there was no cost of acquisition of beneficial interest acquired by the assessee in the trust. Learned counsel for the assessee also relied upon the decision of B.C. Srinivasa Shetty's case (supra) which according to us is not applicable in the present facts and circumstances. In that case the question was whether the transfer of the goodwill can give rise to a capital gain and the Hon'ble Supreme Court held that none of the provisions contained in Section 45 of the Act, the charging section, and Section 48, the computation section, suggests the inclusion of the assets under the head "capital gain" in the acquisition of which no cost at all could be conceived. Likewise the decision of Chintan N. Parikh's case (supra) relied upon by learned authorized representative has different facts. In this case the Hon'ble Gujarat High Court was dealing with some what different facts. There was a joint family which comprised Karta, wife and son. This HUF was partitioned. On partition the son received one bungalow. Later on he executed a trust deed whereby the properties received in partition were settled upon a trust. The said son retained life interest in the said property which he had received on partition. However, by creation of a trust settled upon beneficiaries being two sons; have sold their respective interest in the property for a consideration of Rs. 1,76,000 each and claimed that no capital gain was chargeable under Section 45. While dealing this issue in the background of these facts Hon'ble Gujarat High Court has opined that the interest of the assessee was contingent when the trust deed was executed and the assessee has acquired the rights in the remainderman's interest only on the death of their mother. From the time when the trust deed was executed till their mother expired the right of the assessee was only contingent. Thus, it was held that not only was there no previous owner as the right although contingent, had come into existence only on the execution of the trust deed, but there was no conceivable cost of acquisition. Further, it was opined that even applying the provisions of Section 49(1), the backward chain would snap at the settlor and it was not possible to conceive a cost in the hands of the settlor. The Hon'ble High Court in clear terms mentioned that if the asset was "created" by the settlor the cost of acquisition (creation) has to be ascertained in the hands of the settlor. There was no material on record to establish this cost, [stress given by us by underlining (italicised in print) the relevant portion). Therefore, this view of the Hon'ble Court clearly reflects that where a settlor has created an asset then the cost can be ascertained. Since in the present appeal before us the amount settled by the settlor was ascertainable and later on the same was improved and increased by further contribution of the assessee's capital received as beneficial interest out of which the investment had been made for acquiring the said property. Therefore, firstly the reliance placed by learned authorized representative is illogical and secondly the observation of Hon'ble Gujarat High Court supports the view expressed by us hereinabove. Before we conclude, it is pertinent to refer a decision of 'D' Bench Mumbai in the case of Yasmin Properties (P) Ltd. (supra) through which the view expressed above gets support.
9. In view of the facts, circumstances and the legal position of the case as discussed above, we find no force in the contentions of the assessee and confirm the order of learned CIT(A).
10. In the result, the appeal of the assessee is dismissed.