Income Tax Appellate Tribunal - Pune
Jayakumar B. Patil vs Deputy Commissioner Of Income-Tax on 7 April, 2006
Equivalent citations: [2007]108ITD439(PUNE), (2007)108TTJ(PUNE)900
ORDER
K.G. Bansal, Accountant Member
1. This appeal of the assessee arises out of the order of the Commissioner of Income-tax (Appeals)-II, Kolhapur, passed on April 3, 2001. The corresponding order of assessment was passed by the Deputy Commissioner of Income-tax, SR-1, Kolhapur (hereinafter called "the AO"), under the provisions of Section 143(3) of the Income-tax Act, 1961, on March 31, 1994. The assessee has taken up six grounds of appeal. However, before us learned Counsel did not press grounds Nos. 1, 3, 4 and 5. Thus, he only pressed ground No. 2, in which it is mentioned that the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of short-term capital loss incurred by the assessee. Ground No. 6, is in the nature of prayer that the Assessing Officer may be directed to adopt the cost of shares at Rs. 10 per share.
2. The findings of the learned Commissioner of Income-tax (Appeals), with regard to ground No. 2, are contained in paragraph 4.4 of his order, which is reproduced overleaf for the sake of ready reference:
4.4. It is an admitted fact that the appellant had subscribed to the impugned shares at par. The cost of acquisition of the shares therefore was Rs. 10 lakhs. After acquiring the shares, however, the appellant transferred the shares to the association of persons by way of revocable gift deed. The gift was liable to be revoked on expiry of 74 months. After the expiry of the said period, the appellant again came to possess the shares. The appellant claims that he continued to be the owner of the shares during the period of time they were with the association of persons even after the gift made by the appellant. The gift deed does not subscribe to this proposition. For a period of 74 months as per the gift deed, the shares remained the property of the donee. The donee, therefore, became the owner of the shares. The cost of the shares to the donee was 'nil'. Consequently, on repossession of the shares after the specified period of 74 months by the appellant, the cost of acquisition of the shares had to be determined in accordance with the provisions of Section 55(3). In view of this, the Assessing Officer was entirely justified in ascertaining the cost of acquisition of the shares in accordance with rule 1C of the Wealth-tax Rules. Accordingly, the decision of the Assessing Officer is confirmed. Appeal fails on this ground.
3. In the course of hearing before us, learned Counsel for the assessee pointed out that the assessee was holding 1,00,000 shares, which were gifted on March 29, 1982, to two association of persons, namely, KJP Associates and NJP Associates by way of revocable gifts. The gift could be revoked after a period of 74 months of the making of the gift at the option of the assessee. The assessee paid gift tax on the aforesaid gifts and consequently the aforesaid shares were not included in his net wealth for the purpose of levy of wealth tax. These shares were purchased by the assessee at the cost of Rs. 10 per share on March 29, 1982. The gift was revoked on December 31, 1988, and the shares were sold on March 27, 1989. Therefore, there was a question of finding out the cost of the shares to the assessee. The case of learned Counsel was that these shares had been purchased in the past at Rs. 10 per share and, therefore, the value on this basis ought to have been adopted for the purpose of computing loss to the assessee. It was stated that since the assessee had actually paid the cost at Rs. 10 per share, there was no question of holding that the cost was not ascertainable in the case of the assessee and, therefore, the Assessing Officer and the learned Commissioner of Income-tax (Appeals) erred in invoking the provisions of Section 55(3) of the Act. The case of the learned Departmental Representative was that the assessee was entitled to the cost of previous owner only who happened to be two association of persons. Therefore, his argument was that the learned Commissioner of Income-tax (Appeals) was right in upholding the computation of cost of the shares on the basis of rule 1C of the Wealth-tax Rules.
4. We have considered the facts of the case and rival submissions. Section 55(3) contains the provisions for ascertaining the cost of acquisition of the previous owner in case such cost cannot be ascertained. For the sake of ready reference, the provision is reproduced below:
Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.
5. The provisions of this section can be invoked where the cost of previous owner cannot be ascertained. However, if such cost can be ascertained, then, this provision has no application. On consideration of facts, it is found that pervious owners had received the shares by way of gift and, therefore, their cost was nil. Thus, it cannot be said that cost of previous owner cannot be ascertained. Therefore, we are of the view that the learned Commissioner of Income-tax (Appeals) erred in invoking the provisions of the aforesaid Sub-section (3).
6. In the course of hearing before us, the intent and purpose of gifting the shares to the association of persons, under a revocable gift, was ascertained from learned Counsel. It was pointed out that the revocable transfer of shares was made to the association of persons as a matter of wealth-tax planning. At the time of gifting the shares, the association of persons in which members had specified the shares in its wealth, were not liable to pay wealth-tax. Therefore, both the assessee and the association of persons escaped taxation on the value of shares under the Wealth-tax Act, 1957. However, the aforesaid tax planning was undone when such association of persons were also brought to tax under that Act. Consequently, the assessee revoked the gifts, which he was empowered to do under the original gift deed. Nonetheless, his case was that since the assessee had paid cost of the shares at Rs. 10 per share, he is entitled to adopt this cost for computing short-term capital loss. In this connection, a reference was also made to Section 49(1)(iii)(d), under which where the capital asset became the property of the assessee under a transfer to a revocable or an irrevocable trust, the cost of the asset to the assessee shall be deemed to be the cost for which the previous owner of the property acquired it. The case of learned Counsel was that the provisions of this section and not Section 55(3) are applicable. The provisions of this section are reproduced below:
Where the capital asset became the property of the assessee under a transfer to a revocable or an irrevocable trust, 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 assets incurred or borne by the previous owner or the assessee, as the case may be.
7. We have thoroughly considered the facts of the case, the arguments of learned Counsel and the statutory provisions contained in the aforesaid section. The facts of the case are that the assessee, after gifting the shares, ceased to be the owner of the shares. He was left with the right to revoke the gift after a period of 74 months from the date of making of the gift. Such a right does not make the assessee as a full owner of the shares during the subsistence of the gift. This is also clear from the fact that the assessee excluded the value of the shares from his net wealth. Thus, according to the assessee's own conduct, the right of revocation had only nil value. Coming to the point of law, raised by learned Counsel, it may be pointed out that Section 49(l)(iii)(d) deals with a situation where the capital asset becomes the property of the assessee under a transfer to a revocable or an irrevocable trust. Therefore, this clause applies to a situation where any asset is transferred to a revocable or an irrevocable trust. This section does not apply where the capital asset becomes the property of any assessee on revocation of the trust. Thus, the question regarding finding out the cost to the previous owner or determining the fair market value does not arise in this case either under Section 49(1) or under Section 55(3) of the Act. We have already pointed out that the assessee had a nominal interest in the shares, embedded in his right to revoke the gift after 74 months of the making of the gift. It has also been pointed out that the assessee was not a full owner of the shares prior to revocation of the gift and he himself had excluded the value of shares from his net wealth. Therefore, according to him, the value of the right of revocation on various valuation dates, till the date of revocation of the gift, was nil. On the basis of the assessee's own conduct, we are of the view that the assessee was not entitled to deduct any cost in computing the short-term capital loss. However, the Assessing Officer and the learned Commissioner of Income-tax (Appeals) have allowed the cost to the assessee at Rs. 5 per share. The Revenue is not in appeal before us against the order of the learned Commissioner of Income-tax (Appeals) and they could not have filed such an appeal as the Revenue had no grievance against the order of the learned Commissioner of Income-tax (Appeals). The assessee cannot be worse off before us than what he was before the learned Commissioner of Income-tax (Appeals) in the absence of any appeal from the side of the Revenue on this issue. Therefore, we are also not in a position to make any interference with the order of the learned Commissioner of Income-tax (Appeals), which is adverse to the assessee. Thus, his order in this behalf is upheld.
8. In the result, the appeal of the assessee is dismissed.