Income Tax Appellate Tribunal - Mumbai
Smt. Smita N. Shah vs Joint Commissioner Of Income Tax, ... on 7 July, 2004
Equivalent citations: [2005]94ITD492(MUM), (2005)95TTJ(MUM)640
ORDER
M.K. Chaturvedi, Vice President
1. This appeal by the assesses is directed against the order of Commissioner of Income-tax (Appeals)-IX Mumbai and relates to the assessment year 1998-99.
2. The solitary issue raised in this appeal relates to the computation of long-term capital gains.
3. We have heard the rival submissions. The dispute is two fold; firstly, whether capital gain can be charged on the forfeited amount of Rs. 21,02,000/-, and secondly, whether the forfeited amount is to be deducted from the cost of acquisition or from the indexed cost of acquisition.
4. The property in question was subject to negotiations for its transfer. Assessee did receive advance of Rs. 21,02,000/-. Sale could not be fructified. Resultantly advance was forfeited. Indisputably cost of acquisition amounted to Rs. 9,40,416/-. AO while computing the capital gains first worked out the capital gains on the forfeited amount. It amounted to Rs. 11,61,584/-.
5. Capital gain was again worked out on the same property when sale took place. Property was sold for Rs. 1,55,00,000/-. AO took the cost of acquisition at 'Nil' value and after deducting transfer fee of Rs. 1,59,000/- computed long-term capital gains at Rs. 1,53,41,000/-. Rs. 11,61,584/- was added to this amount totalling to Rs. 1,65,02,584/-. The assessee's 50% share was taken at Rs. 82,51,292/-, which was made exigible to tax. CIT(A) confirmed the order of the A'O.
6. The prescription of Section 45 of the Income Tax Act, 1961 (hereinafter called the Act) describes the "Capital gains" as any profits or gains arising from the transfer of a capital asset. As such, in order to effect capital gain, transfer of asset is sine qua non. In the present case, an amount of Rs. 21,02,000/- was forfeited for not complying with the conditions contained in the contract. Transfer was not effected. As such, the amount forfeited cannot be construed to be capital gains.
7. The next issue pertains to the adjustment of forfeited amount towards the cost of the asset.
8. Where the capital asset was on any previous occasion the subject of infructuous negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired, or in case of depreciable asset written down value, or in case of asset was declared before April 1, 1981, the fair market value thereof as on April 1, 1981, as the case may be, in terms of Section 51 of the Act, which reads as under: -
"51. Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition".
9. The expression "indexed cost of acquisition" has been defined in Clause (iii) of Explanation to Section 48 of the Act, so as to mean 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 01.04.1981, whichever is later. The cost of acquisition in relation to any other asset is defined under Section 55(2)(b) of the Act. By virtue of the provisions of Section 45 of the Act, a capital gain arising on transfer of capital asset is subjected to income-tax. Section 48 of the Act lays down the method of computing capital gains. Section 51 deals with computing the cost of acquisition for the purposes of computation of capital gains where the capital asset was on any previous occasion the subject of infructuous negotiations for its transfer.
10. It was submitted that the cost of acquisition as worked out by the AO amounted to Rs. 9,40,416/-. This is the fair market value adopted by the DVO as on 01.04.1981. The amount to be deducted as per the prescription of Section 51 of the Act, comes to Rs. 21,02,000/-. If money retained by the assessee is deducted from the cost of acquisition, the result will be in minus figure. It was argued that should the retained money be ignored, the cost of acquisition will be indexed and will be worked out as per the Notification regarding cost inflation index. But if it comes in minus figure, it cannot be worked out as per the cost inflation index. As such, Section 51 of the Act should be interpreted with reference to the dictum: - "UT RES MAGIS VALEAT QUAM PEREAT", i.e. such a meaning should be given to the statute so it could carry out and effectuate to the fullest extent the intention of the Legislature.
12. Interpretation postulates the search for the true meaning of the words used in the statute. If the language of the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the MENS LEGIS, i.e. the intention of the law, as evinced in the statute. If the precise words used are plain and unambiguous, we are bound to construe them in their ordinary sense. Words may be modified or varied where their import is doubtful or obscure.
13. We have carefully perused the prescription of Section 51 of the Act. It takes care of the situation where any capital asset was negotiated for transfer on any previous occasion and as a result thereof assessee received and obtained advance money, in such eventuality, section prescribes that the cost of the asset is to be reduced to the extent of the advance money so received or retained in computing the cost of acquisition. No dispute was raised in respect of fair market value 'adopted by DVO. The word "indexed cost of acquisition" is nowhere mentioned in Section 51 of the Act. As such, it is beyond the competence of the Court to substitute it. The language of the statute is clear and explicit. The words of the statute speak the mens legis. As such, recourse cannot be made to the purposive theory of interpretation. In our opinion, CIT(A) was correct in taking the cost of acquisition at 'Nil' value. We uphold his order protanto.
14. In the result, appeal of the assessee stands partly allowed.