Income Tax Appellate Tribunal - Chennai
John Ettimootil Samuel, Coimbatore vs Assessee on 27 January, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'A' : CHENNAI
[BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER
AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER]
I.T.A.No.385/Mds/2009
Assessment year : 2005-06
Shri John Eettimootil Samuel vs The ITO
202, Rathna Mount Enclave Ward III93)
Race Course Road Coimbatore
Coimbatore 641 018
[PAN - ALMPS6292B ]
(Appellant) (Respondent)
Appellant by : Shri K.Raghu
Respondent by : Shri Shaji P. Jacob
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
This appeal of the assessee, for assessment year 2005-06, is directed against the order of the ld. CIT(A), Coimbatore, dated 27.1.2009.
2. The only issue raised in this appeal is regarding computation of capital gains on the sale of a property situated at 35-37, ATT Colony, Coimbatore. The facts apropos the impugned issue are that the assessee sold a property comprising of land measuring 17,598¼ sq ft [equivalent to 40 cents] alongwith building consisting of ground :- 2 -: ITA 385/09 and first floor situated at the above given address, to one Shri M.Narayanasamy vide Registered Sale Deed Document no.811/04 dated 17-7-2004 for a consideration of ` 1,74,00,000/-. Consequent upon the sale of this property, 'NIL' Long Term Capital Gain (LTCG) was shown because he has claimed exemptions under sections 54N and 54EC of the Income-tax Act, 1961 (hereinafter referred to as 'the Act' for short). The assessee has worked out the 'Indexed Cost' of acquisition of the said property as under:
"Cost of Acquisition Purchased on 22-8-55 vide document no.2890/1955 registered at the office of RO, Coimbatore and building constructed thereon Fair Market Value Estimated as on 1-4-1981 Land 40 cents @ Rs.15,000 per cent ` 6,00,000 Building 4500 Sq.ft. @ 240 per sq.ft. ` 10,80,000 Indexed cost of Rs.16,80,000 x 480/100 ` 80,64,000."
3. As against this, the Assessing Officer has done the following computation:
"Total sale consideration ` 1,74,00,000 Less: Sale expenses - Brokerage & ` 3,59,250 Legal charges ` 1,70,40,750 Less: Indexed cost of acquisition Land 40 cents @ ` 9,000/- per cent ` 3,60,000 Building 4500 sq ft (as discussed in ` 3,53,394 para 4) ` 7,13,394 :- 3 -: ITA 385/09 Indexed cost of ` 7,13,394x480/447 ` 7,66,061 Less: Amount invested in capital gain ` 50,30,000 A/c scheme exempted u/s 54 Less: Amount invested in NABARD ` 40,00,000 Capital gain bonds & REC bonds exempted u/s 54EC Total LTCG ` 72,44,689
4. In this way, the Assessing Officer has computed the total Long Term Capital Gains at `72,44,689/- as against 'NIL' shown by the assessee. The assessee felt aggrieved, so, he filed appeal before the ld. CIT(A) with a prayer that the computation done by the Assessing Officer is not correct and the computation done by the assessee should have been accepted. In first appeal, the assessee was not successful in getting any relief. Now, he has further raked up the same issue in this appeal by taking following grounds:
1. The order of the Learned CIT (Appeals), confirming the assessment as such, made by the Assessing Officer, is opposed to law and unsustainable in the facts and circumstances of the case and in law.
2. The Learned CIT (Appeals) ought to have held that the long term capital gains on sale of residential property, as computed is excessive and is unsustainable in law and in the facts and circumstances of the case.
3. The Learned CIT (Appeals) ought to have held that if the indexed cost of acquisition cannot be adopted with reference to the previous owner, the appellant would not be liable to tax under the head 'capital gains' at all, in the facts and circumstances of the case and in law.:- 4 -: ITA 385/09
4. The Learned CIT (Appeals) ought to have held that the provisions of taxation laws cannot be interpreted so as to make them discriminaly and render them void.
5. The Learned CIT (Appeals), by upholding the cost inflation index at 447 instead of 100, has rendered the computation of capital gains unworkable and hence the levy of tax on such income is unsustainable.
6. The Learned CIT (Appeals) has erred in confirming the fair market value of the property as on 01/04/1981, as adopted by the Assessing Officer, in the place of fair market value of the property as on 10/04/1981, adopted by the appellant, in the facts and circumstances of the case and in law.
7. The Learned CIT (Appeals) ought to have held that the Assessing Officer did not have jurisdiction to refer to the Valuation Officer, the question of valuation of the fair market value of the property, as on 01/04/1981, in the facts and circumstances of the case and in law.
8. The Learned CIT (Appeals) ought to have held that the fair market value, as on 01/04/1981, adopted by the appellant as correct, and to be adopted, in the facts and circumstances of the case and in law.
9. The Learned CIT (Appeals) has erred in not adopting the cost of `76,48,425/- of the new residential building constructed by the appellant, as exempt under section 54, in the facts and circumstances of the case and in law.
10. The Learned CIT (Appeals) has erred in holding that the appellant is entitled to exemption under section 54 only, to the extent of ` 50,30,000/- as per the return of income and not more than what is claimed in the return, in the facts and circumstances of the case and in law.
11. For these and other additional grounds of appeal that may be raised at the time of the hearing, the order of the, is opposed to law and unsustainable, in the facts and the circumstances of the case, and in law.
5. We have heard the rival submissions and have circumspected the entire records available before us. Undeniably, the assessee has :- 5 -: ITA 385/09 claimed exemption in the summary of total income annexed with the return as under:
Amount Invested in Capital Gains Account Scheme (Account No. 307586 at SBT -
Pappanaicken Palayam Br) On 16.07.2004 - ` 72,00,000 On 30.07.2004 - ` 18,30,000 5,030,000 Less : Exemption U/s 54 (Amount Utilised For Purchase Of Residential Flat) Rathna Mount Enclave-
(` 49,72,880+41,000+1,00,000) Less : Exemption u/s.54EC (Amount invested in NABARD Capital 4,000,000 Gain Bonds & REC specified U/s 54EC -
` 40,00,000/-) 9,030,000 8976750
RESTRICTED To
OTHER SOURCES ; -
INTEREST FROM SB A/c 51104 39104
ADJUSTED
LESS: DEDUCTION U/S 80L 12000 39104
TOTAL INCOME
Nil
Tax Due Thereon At Normal Rates Nil
At Special Rates U/s 115E @ 10%
Add : Surcharge @ 10% (Income Below Nil
` 10 lakhs) Nil
Add : Education Cess _________
Nil
Tax Payable ==========
6. In this way, he has arrived at 'NIL' LTCG. The other
undisputed facts of the case are that the property in question was inherited by the assessee's mother through a 'Will' in the year 1955.:- 6 -: ITA 385/09
Later, she died in the year 2002. This property was inherited by this assessee on her death in the year 2002. Subsequently, this property was sold in the year 2005. It was argued by the ld.AR that the property was acquired through transfer, therefore, 'Indexation of Cost' has to be done with reference to the year in which previous owner acquired the asset. We are in agreement with the ld.AR so far as his contention is concerned as the provisions of section 2(42A), Explanation 1(b), (29A), sec.48, Explanation (iii) section 49(1) and CBDT Circular 636 dated 31.8.1992, reported in 198 ITR (Statute) page 1, when read cumulatively, speak so. This view is fortified by the Special Bench's decision in the case of Dy. CIT vs Manjula J Shah, 318 ITR AT 417 (Mumbai Special Bench). In this case, it has been held as under:
"Under sections 2(42A), Explanation 1(b), 2(29A); 48 and 49(1) of the Income-tax Act, 1961, read together, no capital gains are chargeable to tax on a gift, as a transaction involving a gift of a capital asset is not regarded as a transfer for the purpose of section 45. However; where such capital asset becoming the property of the assessee under a gift is subsequently transferred as envisaged in section 45, the capital gains arising from such transfer are chargeable to tax and the date and cost of acquisition of the previous owner are adopted as the cost and date of acquisition of the assessee for the purpose of computation of such capital gains. The entire capital gains including the capital gains :- 7 -: ITA 385/09 which would have been chargeable as a result of transfer of the capital asset by the previous owner to the assessee as a result of gift but for the provisions of section 47, thus are made chargeable to tax at the second stage when the capital asset becoming the property o/the assessee under gift is transferred by him."
7. Resultantly, the fair market value of the said property, for the purpose of arriving at its cost has to be estimated as on 1.4.1981. The assessee has estimated fair market value as on 1.4.1981 at `16,80,000/-. The computation to arrive at this figure has been recorded in the earlier part of this order. The basis for adoption of the cost of the land at `15,000/- per cent is a gift deed dated 31.3.1982 in respect of a property located in T.S. No.584, Ward 10, near Ram Nagar, Coimbatore, a copy of which was filed before the Assessing Officer also. This estimation was not accepted by the Assessing Officer and he has adopted the value of the land as on 1.4.1981 at ` 9,000/- per cent on the basis of the circle rates prevalent on that date and obtained from the Office of the Joint Registrar-I, Collectorate, Coimbatore. Apart from this, the assessee also produced copy of a sale deed dated 22.5.1986 in respect of a nearby property in which the cost of the property is stated to be `35,000/- per cent. The value of ` 9,000/- per cent adopted by the Assessing Officer based on the guideline value obtained from Stamp Valuation Authority is :- 8 -: ITA 385/09 definitely a relevant piece of evidence having reference to the value of the property obtaining on 1.4.1981. But as the reality of life goes, as per common place knowledge, invariably, the fair market value of a property on a given date is more than the guideline value barring some specific instances. The assessee has produced copy of gift deed dated 31.3.1982 in which fair market value of the land adjacent to the land in question is shown as `15,000/- per cent. In the sale deed dated 22.5.1986 again the fair market value of an adjacent land has been shown at `35,000/- per cent. When it comes to ascertain the cost of the property for capital gains, the Department wants to reduce its cost to arrive at its fair market value, by relying on one evidence or the other, but for determining sale consideration it does the exact opposite. In the same manner, the assessee plays exact role. How to do justice to the parties becomes a million dollar question in such quagmire situations. We cannot ignore relevant pieces of evidence which are available on record. In such situations, the balance is to be struck on the basis of given facts and circumstances of a case. In the case of Shri R.Sugantha Ravindran vs ITO, in I.T.A.No. 2126/Mds/08, for assessment year 2005-06, order dated 30.6.2009, [a copy of which is enclosed at pages 8 to 11 of the paper book], similar situation has been tackled with by arriving at a rate of ` 15,000/- per cent when :- 9 -: ITA 385/09 assessee had adopted ` 28,938/- per cent and Assessing Officer had adopted only ` 5400/- per cent. In that case, the assessee had relied on a proposed sale agreement which was not executed subsequently in which the sale value was `28,938/- as on 21.10.1983. In this case also almost similar situation arises. In our view, the Assessing Officer as well as the ld. CIT(A) have failed in their duty by not considering the sale instances produced before them, respectively, although they related to few years later than the year 1981. In Chennai Bench decision (supra), the Assessing Officer had placed reliance on the cost adopted by the Stamp Valuation Authority. To meet the ends of justice and to be fair to both the parties, we deem it fit to take the average cost at ` 12,000/- per cent [15,000+9000÷2] and thus direct the Assessing Officer to adopt this value to estimate the cost of the land as on 1.4.1981. The indexed cost of acquisition shall be arrived at by adopting the rate of ` 12,000/- per cent. We may mention that the assessee is entitled o exemption u/s 54 of the Act which has been duly claimed and allowed by the Assessing Officer as well. No other material issue has been raised in this appeal. Accordingly, this appeal of the assessee is partly allowed.
:- 10 -: ITA 385/09
8. In the result, the appeal of the assessee stands partly allowed.
The order pronounced in the open court on 10.2.2011.
Sd/- Sd/-
(B. RAMAKOTAIAH) ( HARI OM MARATHA )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 10th February, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR