Income Tax Appellate Tribunal - Mumbai
Madanlal Gupta Family Trust vs Joint Cit on 31 August, 2004
Equivalent citations: [2005]1SOT292(MUM)
ORDER
D.K. Srivastava, A.M Both the cross appeals arise out of the order 28-10-1999 passed by the learned CIT (A) for the assessment year 1996-97. Both the appeals were heard together. They involve common issues and hence they are being disposed of by a consolidated'order.
2. The parties represented by their respective counsel/representatives have been heard.
I.T.A. No. 6234/M/99 - (Assessee's appeal)
3. The assessee has taken the following grounds of appeal:
1. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in holding that there was chargeable capital gains arising on sale of premises at G-002, Vikas Centre, Santacruz, Mumbai, even thought there was no cost of acquisition.
2. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in holding that:
(a) There was no tenancy as claimed;
(b) That the appellant had received a gift of the capital asset from Madanlal Gupta, thus attracting provisions of section 49(1)(ii);
(c) That there was a transfer of capital asset to a trust by Shri Madanlal Gupta, thus attracting provisions of section 49(1)(iii)(a);
(d) That the cost of acquisition of the capital asset was the cost to the previous owner and that the said cost had to be determined with reference to the assessment records of Shri Madanlal Gupta.
3. Without prejudice to the above, the learned CIT (A) erred in not holding that the cost of acquisition of the capital asset transferred would be the market value as on the date when the appellant became the legal owner on the vesting of title of the capital asset on 21-9-1993.
4. The learned CIT (A) erred in not adjudicating on the following grounds of appeal:
(a) Assessment of income from house property at Rs. 2,73,919 as against Rs. 2,72,919 returned by the appellant.
(b) Against non-granting of deduction under section 80L.
4. First three grounds of appeal relate to levy of tax on capital gains consequent upon transfer/sale of property being G-008, Vikas Centre, Santacruz, Mumbai on 2-5-1995. Briefly stated, the facts of the case are that the assessee trust was settled by Mrs. Chand Omprakash Gupta, sister of Shri Madanlal Gupta with an initial corpus of Rs. 5,000 for the benefit of the children of Shri Madanlal Gupta by a Deed dated 16-4-1978. The trustees of the assessee trust are Smt. Usha Gupta & Shri Madanlal Gupta, being wife and husband respectively. The assessee-trust transferred the property in question being G-002, Vikas Centre, Santacruz, Mumbai, on 2-5-1995. The said property was received by the assessee-trust as an alternative accommodation on surrender of tenancy right vide conveyance deed dated 21-9-1993. Thus, two dates are important. The first date is the date of sale of the property in question which is 2-5-1995. The other date, which is relevant for our purpose, is the date of acquisition of the property, which is 21-9-1993, i.e., on which the property in question was acquired by the assessee-trust upon surrender of tenancy rights. It may be appropriate at this stage to give a background of the facts leading to the acquisition of the property by the assessee-trust on 21-9-1993. The original owner of the land and building on which the property in question was subsequently constructed was Shri S.V. Jhaveri, from whom the land together with building was purchased by Shri Madanlal Gupta on 4-1-1982. The assessee-trust which was allowed to use a shed on the aforesaid land and building for carpentry and storage of materials, however, surrendered and vacated the tenanted premises as Shri Madanlal Gupta wanted to develop the property. Shri Madanlal Gupta, therefore, made an application to the Bombay Municipal Corporation for development of the property which was refused by the Bombay Municipal Corporation by their letter dated 18-1-1983. Shri Madanlal Gupta thereupon gave back the premises in question occupied by the assessee-trust on tenancy basis vide letter dated 1-2-1983. However, Shri Madanlal Gupta kept on pursuing the matter with the authorities for development of the property. The BEST authorities vide their letter dated November, 1983 informed that the said property in question was not required for the purpose of their bus depot. Bombay Municipal Corporation thereafter granted permission to the assessee-trust for the development of the property. Construction and development was completed in 1987 and completion certificate was issued by the Bombay Municipal Corporation vide their letter dated 1-10-1987. The assessee-trust was given possession of the premises being G-002, Vikas Centre, Santacruz, Mumbai on 1-10-1987. The assesseetrust let out the premises on a monthly rent of Rs. 40,000 from 1-11-1988. Shri Madanlal Gupta submitted a declaration under the Apartment Ownership Act on 15-1-1990. The conveyance and registration of the property in question in favour of the assessee-trust was completed on 21-9-1993. The said property was thereafter transferred by the assessee trust on 2-5-1995 which the assessing officer has subjected to the levy of capital gains tax.
5. The contention of the assessee before the authorities below was that the property in question was received by the assessee-trust as an alternative accommodation on surrender of its tenancy rights from the owner, i.e., Shri Madanlal Gupta and hence, it was received by the assessee free of cost with the result that no tax on capital gains was chargeable in the light of the decision in CIT v. B.C Srinivasa Shetty (1981) 128 ITR 294 (SC). The assessing officer, however, rejected the contention of the assessee and held that the stamp duty of Rs. 92,000 payable at the time of registration was the cost of acquisition of the property. He indexed the aforesaid cost and fixed the same, after indexation, at Rs. 1,72,534, which he deducted from Rs. 5.51 crores being the sale consideration and accordingly treated a sum of Rs. 5,49,27,466 as capital gains.
6. On appeal, the learned CIT (A) by a detailed order held as under:
"I may hereunder give a bansai presentation of the conclusions reached in this order:
Chargeability : (i) In the Income Tax Act there is no bar for bringing to charge capital gains in respect of assets for which cost was Nil unless the case fell under section 47 where certain transactions are not regarded as transfer.
(ii) Supreme Court decision in the case of CIT v. B.C. Srinivasa Shetty 128 ITR (SC) page 294 covers only such situations where cost is inconceivAle in the very nature of the asset. I does not cover situations where cost was conceivable through actually there was no cost. In the instant case the cost is conceivable.
(iii) In the instant case the asset acquired was a gift by Shri Madanlal Gupta to the appellant Trust. It was also a transfer to a Trust. Therefore, it is covered under section 49(1)(ii) and section 49(1)(iii)(d). B.C. Srinivasa Shetty's case does not apply to situations covered under section 49 (vide 128 ITR page 300 last but one paragraph).
(i) Stamp duty expenses do not constitute cost of acquisition.
(ii) On analysis of the facts of the case and evidences available it is clear that there was no tenancy as claimed.
(iii) Assuming that there was tenancy grant of property i.e. G-002 in Vikas Centre was not in exchange of any tenancy rights. Therefore, it is of gift covered under section 49(1)(ii).
(iv) It is also a transfer to a Trust covered under section 49(1)(iii)(d).
(v) Therefore, it is cost to the previous owner i.e. Shri Madanlal Gupta which should be taken as cost of acquisition for computation of capital gains in the hands of the appellant. Trust in terms of section 49.
The assessing officer is directed to modify the assessment order accordingly."
7. In support of the appeal, the learned authorized representative for the assessee has relied upon his submissions as made before the authorities below and more particularly before the learned CIT (A). He has placed reliance on the decisions of the Honble Calcutta High Court in Mrs. A. Ghosh v. CIT (1983) 141 ITR 45 (Cal.) and CIT v. Debmalya Sur (1994) 207 ITR 996 (Cal.)
8. In reply, the learned Departmental Representative has relied upon the orders of the authorities below.
9. We have considered the rival submissions. In our view, the case of the assessee is squarely covered, as held by the learned CIT (A), by the provisions of sub-clause (a) of clause (iii) of sub-section (1) of section 49 which read as under:-
"49. Cost with reference to certain modes of acquisition (1) Where the capital asset became the property of the assessee-
(i) & (ii)** ** **
(iii) (d) under a transfer to a revocable or an irrevocable trust.
the cost of acquisition of the asset shallbe deemed to be the cost forwhich 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."
10. There is no dispute that the property in question was acquired by the assessee-trust on transfer from Shri Omprakash Gupta. It is also not in dispute that the assessee is a trust. Since all the requisite conditions necessary for the applicability of section 49(1)(iii)(d) are attracted, we hold that the case of the assessee is squarely covered by the said provisions with the result that the order of the learned CIT (A) in that behalf stands confirmed.
11. The learned CIT (A) has also held that stamp duty expenses do not constitute the cost of acquisition as held by the assessing officer. We have gone through the order of the learned CIT (A) in this behalf. In our view, his order is based on correct appreciation of factual and legal aspects of the case. We see no reason to interfere with his order that the stamp duty expenses do not constitute cost of acquisition. However, we are unable to agree with the finding of the learned CIT (A) that transfer of the property in question by Shri Madanlal Gupta to the assessee-trust would constitute 'gift' within the meaning of section 49(1)(ii) of the Income Tax Act. No evidence has been brought on record to show that the property was transferred voluntarily and without consideration in favour of the assesseetrust. The evidence on record is that the property was transferred by Shri Madanlal Gupta to the assessee-trust in lieu of surrender of tenancy rights. It may be relevant to mention here that there will not be any difference in the tax treatment of the transaction in question regardless of whether it is brought under section 49(1)(ii) or (iii)(d) because both the modes of acquisition of the capital asset, namely, by way of gift or by way of transfer to an revocable or irrevocable trust are required to be identically dealt with under the provisions of section 49. In both the situations, the cost of acquisition shall be deemed to be the cost for which the previous owner of the property acquired it. In this view of the matter, we confirm the order of the learned CIT (A) to the extent that the case of the assessee is covered by the provisions of section 49(1)(ii)(d).
12. On the facts and circumstances of the case, the learned CIT (A) has correctly held that the ratio laid down in B.C. Srinivasa Setty's case (supra) is not applicable and that the capital gain arising to the assessee was exigible to tax under section 45 read with section 49(1)(iii)(d).
13. Ground Nos. 1 and 2 taken in the assessee's appeal are disposed of as per the observations made above.
14. As regards Ground No. 3 in the assessee's appeal, we find that the learned CIT (A) has already directed the assessing officer to modify the assessment order in the light of his directions. Having held above that the capital gains arising on transfer/sale of the property in question is exigible to tax under section 45 read with section 49(1)(iii)(d), we consider it appropriate to restore the matter of calculation of cost of acquisition of the property in question to the file of the assessing officer. The assessing officer is directed to work out the cost of acquisition in accordance with law particularly the provisions of section 49 and tax the resultant capital gain. Ground No. 3 is treated as allowed for statistical purposes.
15. As regards Ground No. 4 taken by the assessee, the grievance of the assessee is that the learned CIT (A) has erred in not adjudicating on the following grounds of appeal taken by the assessee before the learned CIT (A) :
(a) Assessment of income from house property at Rs. 2,73,919 as against Rs. 2,72,919 returned by the appellant; and
(b) Against non-granting of deduction under section 80L.
16. Perusal of the order passed by the learned CIT (A) shows that he has not adjudicated upon the aforesaid grounds of appeal though they were taken before him. The learned CIT (A) is therefore, directed to consider and adjudicate upon them in accordance with law after giving reasonable opportunity of hearing to both the parties.
17. In view of the above, the appeal filed by the assessee is treated as partly allowed as per the observations made above.
ITA No. 99/Mum./2000:
18. The effective grounds taken by the revenue are ground Nos. 1 & 2, which read as under:
1 . "On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in directing the assessing officer to ascertain the cost of acquisition to Shri Madanlal Gupta and adopt the same as cost of acquisition for the purposes of computation of capital gains in the hands of the trust.
2. On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in holding applicability of section 49 of the Income Tax Act, 1961 ignoring the fact that the assessee had itself contended before the assessing officer during the course of assessment proceedings that section 49 of the Act are not applicable.'
19. We have heard both the parties. We have already upheld the order of the learned CIT (A) that the transfer in question is covered by section 49(1)(iii)(d) and hence exigible to tax under section 45. Section 49(1)(iii)(d) provides a statutory mode for calculating the cost of acquisition in the cases falling thereunder. In order to charge a property to the levy of capital gains tax, the department, in terms of section 48, has to take into account not only the sale price but also the cost of acquisition as statutorily defined. It is only the resultant gain that is liable to be taxed under section 45, read with section 48/49. Once the case is found to be covered by section 45 read with section 49, the cost of acquisition has to be calculated with reference to the provisions contained therein. Appeal filed by the department is devoid of merit inasmuch as it seeks to tax total sale consideration which is not permissible. The department can tax only the gain arising on transfer of capital asset and not the entire amount of sale consideration on the facts of the case. Ground No. 1 taken by the department is therefore dismissed.
20. As regards Ground No. 2, the assessee's case was and continues to be that the transfer of the property effected by it is not taxable under section 45 as it did not have any cost of acquisition and therefore, the mode of computation as statutorily prescribed under section 48 would fail. It is only in this context that the assessee, in order to deny its liability to capital gains tax, had contended that section 49 was not applicable and that the stamp duty paid on acquisition of the property in question did not amount to cost of acquisition within the meaning of section 48. We have already rejected the aforesaid contention of the assessee and upheld the order of the learned CIT (A) that the capital gain arising on transfer of the property in question is exigible to tax under section 45 read with section 49(1)(iii)(d). The cost of acquisition required to be adopted under section 49 has therefore to be calculated and adopted by the assessing officer. Ground No. 2 taken by the department is therefore dismissed.
21. In view of the aforesaid, the appeal filed by the department is dismissed.