Income Tax Appellate Tribunal - Chennai
A.K.Hemant Kumar, Chennai vs Assessee on 25 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI V.DURGA RAO, JUDICIAL MEMBER
ITA No.273(Mds)/2009
Assessment Year : 2005-06
Shri A.K.Hemanth Kumar, The Deputy Commissioner
25, Subbaray Chetty Main Vs. of Income-tax,
Street, Nammalwarpet, Salary Circle I,
Chennai-600 012. Chennai.
PAN AAOPH9815Q.
(Appellant) (Respondent)
Appellant by : Shri N.Devanathan, Advocate
Respondent by : Dr.Yogesh Kamath, IRS, Addl.CIT
Date of Hearing : 25th April, 2012
Date of Pronouncement : 25th April, 2012
ORDER
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT:
This appeal is filed by the assessee. The relevant assessment year is 2005-06. The appeal is directed against the order of the Commissioner of Income-tax(Appeals)-IV at Chennai, dated 18-11-2008. The appeal arises out of the
-2- ITA 273 of 2009 assessment completed under section 143(3), read with section 147 of the Income-tax Act, 1961.
2. The assessee Shri A.K.Hemanth Kumar is a scientist working with the Tuberculosis Centre, Chetput, Chennai. His father Shri A.N.Kupparam had been a cultivating tenant since 1959. Thereafter the right of assessee's father in the tenancy property was upheld by the Hon'ble Madras High Court and thereafter following the compromise suit, the land was vacated in lieu of compensation received by assesee's father. The compensation received as such was distributed by the assessee's father to his legal heirs including the assessee.
3. In view of the above events, the assessee had to offer long-term capital gains alongwith his salary income for the purpose of taxation.
4. The assessee worked out his long-term capital gains to ` 9,37,472/- after deducting the indexed cost of acquisition at ` 37,63,473/-. Development charges and land approval cost were added thereafter to work out the total cost at ` 43,87,528/-. The share of sale consideration in the hands of
-3- ITA 273 of 2009 the assessee was ` 53,25,000/- and the differential amount of ` 9,37,472/- was offered as long-term capital gains.
5. The stand taken by the assessee is that the cultivating land belonged to his father alone and the right of his father alone was transferred in lieu of consideration in the light of the settlement arrived at before the Hon'ble Madras High Court. Accordingly, what is received by the assessee is his share from the legacy of his father on partition of the property and, therefore, his share should be computed in his hands independently and for that purpose the cost of the previous owner, i.e. the cost in the hands of his father should be acted upon.
6. But, the Assessing Officer treated the assessee also as a cultivating tenant and held that the cost of the land is NIL in his hands. Therefore, he declined to deduct the cost of acquisition in computing the long-term capital gains. The Assessing Officer determined the long-term capital gains at ` 53,73,505/-.
7. This dispute was taken in first appeal. The Commissioner of Income-tax(Appeals) confirmed the
-4- ITA 273 of 2009 assessment order and dismissed the appeal filed by the assessee.
8. It is against the above that the assessee has come in second appeal before the Tribunal.
9. The grounds raised by the assessee read as under:-
"1. Reopening of asst.
The order of the learned CIT(A) is contrary to law, facts and circumstances of the case, evidence onrecord and erred in confirming reopening of the asst since the conditions for reopening and jurisdictional facts are not satisfiedon the facts of the case.
Manner of Computation of capital gains:
2. The learned CIT(A) was wrong in not adopting the capital gains at ` 9,37,412 as returned by the appellant.
3. The learned CIT(A) ought to have seen that the appellant had received the property from his father in terms of partition by way of family arrangement and hence the date of compromise as effected in terms of koorchit partition/family arrangement is the date of acquisition to the previous owner and the cost to the
-5- ITA 273 of 2009 previous owner is the cost to the appellant and hence the -provisions of section 49(1) is applicable and the provisions of section 55(2)(a)(ii) has no application to the facts of the case since it has no relevance to the facts of the case.
4. The learned CIT(A) ought to have appreciated the case law cited by the appellant, viz 201 ITR AT 0090 and 86 ITR 497 208 ITR 912 and 201 ITR 577 squarely applies to the facts of the case and hence the learned CIT(A) ought to have followed the same since the same is binding upon him.
5. The learned CIT(A) grossly erred in holding that the lands were given to the appellant as compensation and the cost of the land is considered to be Nil in terms of section 55(2)(a)(ii) of the Act without appreciating the fact that the appellant was born only in the year 1959 and the question of any participation in cultivation. In the lands is ruled out and further the appellant is not a party to the court proceedings.
-6- ITA 273 of 2009
6. The learned CIT(A) erred in not allowing land improvement expenses of ` 20,000/- and further erred in not passing a speaking order."
10. We heard Shri N.Devanathan, the learned counsel appearing for the assessee and Dr. Yogesh Kamath, the learned Joint Commissioner of Income-tax, appearing for the Revenue.
11. The Hon'ble Supreme Court in the case of L.R.Ganapati Thevar vs. Navaneethaswarswami Devasthanam, 1 SCR 508, has examined the meaning of the words "cultivating tenant". The examination was made under the provisions of Tamil Nadu Cultivating Tenants Protection Act, 1955. The Hon'ble Supreme Court held that in order to fall within the definition of 'cultivating tenant' a person should carry on personal cultivation which again requires that he should contribute physical labour. The use of physical labour includes physical strain, the use of muscles and sinews. Mere supervision of work, or maintaining of accounts or distributing the wages will not be such contribution of physical labour so as to attract the definition.
-7- ITA 273 of 2009
12. As far as the assessee is concerned, he must be a student when his father was carrying on work as cultivating tenant. The date of birth of the assessee is 20th April, 1959. When the assessee's father was bestowed with the tenancy right to cultivate the land, the assessee was just born. Thereafter the assessee pursued his studies and ultimately joined public service as a scientist. Therefore, there is no reason to hold that the assessee was acting as a cultivating tenant. There is nothing on record to show that the assessee was in fact a cultivating tenant.
13. When the assessee cannot be held to be a cultivating tenant, the assessee had no locus standi to receive any compensation for the surrender of tenancy rights. The right goes to his father alone. When this is the case, it is not proper on the part of the Assessing Officer to treat the assessee also as one of the original right holders in the tenancy property and treat the cost of asset in his hands as NIL. In fact the entire event has two stages of transaction. The first stage is that the right of the assessee's father as a cultivating tenant was surrendered and compensation received in the light of the compromise decree
-8- ITA 273 of 2009 delivered by the Hon'ble Madras High Court. The relevance of right of cultivating tenancy and all connected events came to a logical conclusion at that point. Thereafter the assessee's father divides the consideration and provides to his legal heirs including the assessee. That is the second stage of event.
14. The first stage of event and the second stage of event are independent. It means that what the assessee had received from his father was only his share in the legacy of his father. He has got a share in his father's property. That is his individual right. Therefore, the asset has been devolved upon the assessee from his father as his status as son. It has not been devolved upon the assessee in his status as cultivating tenant.
15. Therefore the assessee is quite entitled in law to compute the cost of acquisition as the cost of acquisition in the hands of the earlier owner. In that way the assessee has computed the long-term capital gains available in his hands in accordance with law.
16. Therefore, we direct the Assessing Officer to accept the long-term capital gains computed by the assessee for the
-9- ITA 273 of 2009 purpose of assessment. He is directed to revise the assessment order.
17. In result this appeal filed by the assessee is allowed.
Order pronounced on Wednesday, the 25th of April, 2012 at Chennai.
Sd/- Sd/-
(V.Durga Rao) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated the 25th April, 2012.
V.A.P.
Copy to: (1) Appellant
(2) Respondent
(3) CIT
(4) CIT(A)
(5) D.R.
(6) G.F.