Income Tax Appellate Tribunal - Chandigarh
Amritsar Hotels Ltd., Chandigarh vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL: "B" BENCH: CHANDIGARH
BEFORE SHRI D K SRIVASTAVA, AM AND Ms. SUSHMA CHOWLA, JM
ITA No.1096/Chandi/2010
Assessment Year: 2007-08
M/s Amritsar Hotel Ltd v. D.C.I.T. C-1(1),
SCO 183-184, Section 8-C, Chandigarh Chandigarh
PAN: AAECA 4047 J
Appellant by: Shri A K Jindal, FCA
Respondent by: Shri S K Mittal, CIT-DR
ORDER
D K Srivastava: The appeal filed by the assessee is directed against the order passed by the ld. CIT(A) on 2.6.2010, on the following grounds:
"1 That the ld. CIT(A) is not justified in upholding the action of assessing authority in treating the capital gain on sale of land as short term under the facts and circumstances of the case."
"2 That the ld. CIT(A) is not justified in holding that the cost of land to the previous owner i.e. PTDC cannot be considered in the hands of appellant under the facts and circumstances of the case."
"3 That the ld. CIT(A) is not justified in holding that the appellant became the owner of assets on 1.9.2004, i.e., the date of approval of the demerger scheme under the facts and circumstances of the case."
"4 That the ld. CIT(A) is not justified in holding that the market value of land as on 1.4.1981 is not to be taken for computing capital gain under the facts and circumstances of the case."
"5 That the ld. CIT(A) is not justified in upholding the action of assessing authority in denying the benefit of indexation under the facts and circumstances of the case."
"6 That the appellant disputes the quantum of addition made."
"7 That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal till the disposal of the same."
2. The assessee, an undertaking under the Government of Punjab, filed its return of income for the assessment year under appeal on 8.11.2007 returning total income at Rs.30,82,48,000/-. Assessment u/s 143(3) of the Income-tax Act was completed on 30.12.2009 assessing the total income of the assessee at Rs.50,71,57,998/-. The subject matter of dispute in the present appeal is whether the capital gain shown by the assessee on transfer of properly located at City Centre, Amritsar should be treated as long term capital gain as contended by the 2 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 assessee or as short term capital gain as held by the Assessing Officer and confirmed by the CIT(A).
3. Facts of the case giving rise to the present appeal are, in brief, as under:
(i) All the tourists' complexes in the State of Punjab were earlier run by the Department of Tourism, Government of Punjab. In 1978, it was decided by the Government of Punjab to create a corporate body, namely, Punjab Tourism Development Corporation (PTDC) to run and manage various tourists' complexes earlier run by the Department of Tourism in the State of Punjab. With the aforesaid object in view, Punjab Tourism Development Corporation was incorporated on 26.3.79. Resultantly, all the properties of tourist complexes including the property of Amritsar Hotel Ltd., which were earlier held by the Department of Tourism, were handed over to Punjab Tourism Development Corporation with effect from the date on which Punjab Tourism Development Corporation was incorporated.
(ii) In the first meeting of the Board of Directors of Punjab Tourism Development Corporation held on 9.4.79, a decision was taken to capitalize the assets of tourist complexes so taken over by the Punjab Tourism Development Corporation in its books. It is claimed by the assessee that the consideration for acquisition of the Tourist Complexes was paid by the PTDC by way of issue of equity shares in 1986. The aforesaid assets were shown by the PTDC in its books under the head "Fixed assets" and depreciation thereon was also reportedly claimed by the assessee. It is the case of the assessee that the AO had also allowed depreciation on the aforesaid assets in the case of PTDC.
(iii) In 2003, a scheme of de-merger of Punjab Tourism Development Corporation was prepared which was approved by the Ministry of Corporate Affairs of the Central Government on 1.9.2004. As per the scheme so approved by the Ministry of Corporate Affairs on 1.9.2004, the appointed date for de-merger was fixed as 1.4.2003. As a result of the approval of the aforesaid scheme of de-merger by the Ministry of Corporate Affairs, the assessee-company came into existence and took over the possession of properties of Amritsar Hotel from Punjab Tourism Development Corporation.
(iv) It is claimed that first accounts of the assessee-company were prepared for the year ended 31.3.2004. It is also claimed that the assessment of the assessee-company, namely, Amritsar Hotel Ltd., for AY 2004-05, i.e., the first year of its existence, was completed by the AO u/s 2 3 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 143(3) of the Income-tax Act in which the assessee was allowed depreciation on its assets including the hotel building.
(v) The absolute ownership including legal title and possession of the impugned property was conveyed/transferred by the Department of Tourism (Government of Punjab) to the assessee-company by the order of the Principal Secretary, Tourism and Cultural Affairs of the Government of Punjab vide Notification dated 2.11.2004 Reference No.12/79/01/ITC/2585 to the assessee-company. Thus the assessee-company was vested with the absolute ownership over the impugned property on 2.11.2004.
(vi) The impugned property was sold by the assessee-company to M/s Sanger Finlease Private Ltd., vide agreement dated 27.9.2006, for which conveyance deed was executed on 4.1.2007. There is a specific recital in the said conveyance deed dated 4.1.2007 that the assessee got the absolute ownership and possession of the impugned property from the Department of Tourism and Cultural Affairs, Government of Punjab, vide order given by the Principal Secretary, Tourism and Cultural Affairs vide Notification dated 2.11.2004 Reference No. 12/79/01/ITC/2585.
(vii) The assessee received total consideration of Rs.51.00 crores on sale of the aforesaid property to M/s Sanger Finlease Private Ltd.
4. Main issue for consideration in the present appeal is whether the capital gain arising from sale of the impugned property is long term capital gain or short term capital gain. According to sub-section (29B) of section 2, "long-term capital gain" means capital gain arising from the transfer of a long-term capital asset. According to sub-section (29A) of section 2, "long-term capital asset" means a capital asset which is not a short-term capital asset. According to sub-section (42B) of section 2, "short-term capital gain" means capital gain arising from the transfer of a short-term capital asset. According to the sub-section (42A) of Section 2, "short term capital asset" means a capital asset held by the assessee for not more than 36 months preceding the date of its transfer. It is not in dispute that the property in question was transferred by agreement dated 27.9.2006 followed by conveyance deed dated 4.1.2007 for Rs.51.00 crores. In order to determine as to whether the capital gain arising from transfer of the absolute ownership and legal title together with possession of the said property is short term capital gain or long term capital gain, it is necessary to determine as to when the absolute ownership, legal title together with possession of the said property was acquired by the assessee-company so as to find out as to whether the said rights in the property, which are subject matter of transfer/sale, were held by the assessee-company for more than thirty six months.
3 4Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010
5. The case of the assessee-company before the AO was that Punjab Tourism Development Corporation had acquired the property on 1.4.79 from the Department of Tourism (Government of Punjab) and therefore it was 1.4.79 which should be treated as the relevant date of acquisition of the property by the assessee also and resultantly for computing the period of holding of the property. Without prejudice to the aforesaid submission, it was also submitted in the alternative that the property in question was acquired by the assessee through a scheme of de-merger of Punjab Tourism Development Corporation, which was duly approved by the Ministry of Corporate Affairs w.e.f 1.4.2003, and therefore the period of holding the impugned property should be computed, in the alternative, with reference to 1.4.2003 being the appointed date fixed by the Ministry of Corporate Affairs for de-merger. The AO however rejected the claim of the assessee in this behalf for the reasons given in the assessment order. The AO has computed the period of holding of the impugned property with reference to the date on which the assessee was vested with the absolute ownership and possession of the impugned property by the order of the Government of Punjab, i.e., 2.11.2004. In the aforesaid view of the matter, the AO held that the capital arising on transfer of the impugned property was short term capital gain as the said property was held by the assessee for less than 36 months. On appeal, the ld. CIT(A) held that the period of holding of the impugned property by the assessee should be computed with reference to the date on which the scheme of de-merger of Punjab Development Corporation was approved by the Ministry of Corporate Affairs, i.e., 1.9.2004 and therefore the capital gain arising on transfer of the impugned property was short term capital gain as the property was held by the assessee for less than thirty six months.
6. Aggrieved by the order passed by the ld. CIT(A), the assessee is now in appeal before this Tribunal. In support of the plea that the assessee has held the impugned property for more than 36 months and therefore it was assessable as long term capital gain, the ld. authorized representative for the assessee reiterated the submissions earlier made on behalf of the assessee before the Departmental authorities. His submissions, in brief, as made before us, are as under:
(i) His first submission is that Punjab Tourism Development Corporation was the owner of the property and that the assessee became the owner of the impugned property through a scheme of de-merger of Punjab Tourism Development Corporation as approved by the Ministry of Corporate Affairs and therefore the date of acquisition of the property by the de-merged company, i.e., PTDC should be taken as the date of acquisition of the property by the resulting company, i.e., the assessee-company.4 5
Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010
(ii) Once the Department has treated the assessee as owner for allowing depreciation to the assessee in AY 2004-05, the Department cannot turn around to say that the assessee-company is not the owner for the purpose of levy of capital gain. According to him, the assessee has to be treated as owner for computing capital gain in spite of the fact that land was transferred to the assessee on 2.11.2004. He contends that the I-T Act recgmises beneficial owner as owner for the purposes of the Income-tax Act.
(iii) Registration of title deed is not necessary for ownership under the I- T Act and therefore the fact that the assessee acquired absolute ownership and title over the property on 2.11.2004 by Notification issued by the Government of Punjab is irrelevant. In support of his submission, he relies upon the following decisions:
1. Madathil Bros. v. DCIT, 9 DTR 114 (Mad.);
2. CIT v. Dhir & Co., 288 ITR 561 (P&H);
3. Sushma Rani Bansal v. ACIT, 165 Taxman 145 (Delhi Trib.);
4. Wipro Ltd. v. DCIT, 34 DTR 494 (Bang.)
5. Gopal D Shetty v. ITO, 112 ITD 103 (Pune (URO);
6. Chaturbhuj Dwarkadas Kapadia v. CIT, 260 ITR 491 (Bom.);
7. Dayameshwar N Mulik v. ACIT, 98 TTJ 179;
8. CIT v. Lakshmi Devi Ratani, 296 ITR 363 (MP);
9. CIT v. CF Raju, 158 Taxman 310 (Ker.);
10. CIT v. Poddar Cements, 226 ITR 625 (SC); and
11. CIT v. Ved Prakash & Sons, 207 ITR 148 (P&H).
(iv) The Ministry of Corporate Affairs has already fixed 1.4.2003 (being the appointed date or effective date) as the date on which the scheme of demerger would come into effect and hence the said date would be the date on which the property would stand transferred from PTDC to the assessee-company and therefore the said date is the relevant date for reckoning the period of 36 months for determining as to whether capital gain is in the nature of long term capital gain. By allowing depreciation on the property in A Y 2004-05 to the assessee, the Department has also accepted the factum of acquisition of ownership of the property in the hands of the assessee w.e.f. 1.4.2003. Referring to the decisions in Pentamedia Graphics v. ITO, 43 DTR 256 (Mad.); and M N Chhaya and another v. PRS Mani & others, 127 Company Cases 863 (Bom.), he submitted that tax authorities were bound to take note of the state of affairs as on the appointed date fixed in the scheme of demerger. He submitted that the CIT(A) was therefore not justified in treating the date of 5 6 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 approval (i.e., 1.9.2004) of the Scheme of Demerger by the Ministry of Corporate Affairs as the relevant date for coming to the conclusion that the property was held by the assessee for less than 36 months and hence was in the nature of short term capital gain.
(v) Referring to Explanation 7-A to sub-section (1) of Section 43, he submitted that the actual cost of a capital asset transferred by a de-merged company to the resulting company would be the same in the hands of the resulting company as it would have been if the demerged company had continued to hold the capital asset for the purpose of its own business. According to him, the AO ought to have adopted the aforesaid basis and accordingly taken the cost of acquisition of the impugned property as in the hands of the de-merged company. In this connection, he also referred to the provisions of clause (vib) of section 47 and submitted that any transfer, in a de-merger, of a capital asset by the demerged company to the resulting company, was not to be regarded as transfer and therefore the AO was not justified in ignoring the aforesaid provisions.
(vi) He referred to a Note dated 28.3.2003 from the Pvt.
Secretary/PSTCA to the MD, PTDC in which it has been conveyed that a decision with regard to transfer of land of different departments in the name of PTDC has been taken by the Council of Ministers and that necessary action in this regard may be taken. He has also filed copies of Jamabandi in support of his claim that the impugned property was mutated in the name of Punjab Tourism Development Corporation on 24.9.2003. Based on the aforesaid, he submitted that the period of holding of the impugned property by the assessee-company exceeded 36 months and therefore the capital gain arising from transfer/sale of the property should have been assessed as long term capital gain.
7. Per contra, the ld. Departmental Representative opposed all the submissions made by the ld. authorized representative for the assessee. His submissions as made before us, in brief, are as under:
(i) His first submission is that it was the assessee who had made a declaration in the conveyance deed dated 4.1.2007 to the effect that it acquired absolute ownership and possession of the property in question under the orders of the Governor of Punjab vide Notification dated 2.11.2004 and therefore the assessee cannot be allowed to deny the truth of the aforesaid declaration/statement made in the conveyance deed.6 7
Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010
(ii) His second submission is that Explanation 7-A to sub-section (1) of section 43 was relevant in the context of the provisions of section 28 to 41 and not in the context of the provisions of section 45 of the Income-tax Act and therefore the reliance placed by the ld. authorized representative on the said Explanation was not only out of context but also completely misplaced and irrelevant for deciding the issue under appeal.
(iii) His third submission is that the reliance placed by the ld. authorized representative for the assessee on clause (vib) of section 47 is equally misplaced for the reason that the aforesaid provisions simply treats the transfer of a capital asset, in a de-merger, by the de-merged company to the resulting company as not constituting transfer notwithstanding the provisions of section 45. He submits that the provisions of section 47(vib) have no application to the issue under appeal as the issue under appeal is not whether the transfer of capital asset by the de-merged company to the assessee-company is transfer or not for the purposes of section 45. According to him, what is under challenge in the present appeal is the taxability of capital gain arising from transfer/sale of capital asset by the assessee-company to M/s Sanger Finlease Private Ltd. and not the taxability of capital gain arising on transfer of capital asset by the de- merged company to the assessee-company at the time of de-merger as contemplated by section 47(vib).
8. We have heard both the parties and carefully considered their submissions including all the authorities referred to by them. In terms of section 45 of the Income-tax Act, any profit or gain arising from the transfer of a capital asset effected in the previous year is, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, chargeable to income-tax under the head "Capital gains", and is deemed to be the income of the previous year in which the transfer takes place. The subject matter of charge u/s 45 is the profit or gain arising from the transfer of a "capital asset". Sub-section (14) of section 2 defines "capital asset" as "property of any kind held by an assessee, whether or not connected with the business or profession...." The aforesaid expression consists of two critical terms, namely, (i) the property of any kind; and (ii) held by an assessee. Both the aforesaid terms are of considerable significance.
9. Neither the term "property" nor the term "property of any kind" as used in section 2(14) is defined in the Income-tax Act or comprehensively defined in any other Act though inclusive definitions of "immovable Property" or "movable property" are available, inter-alia, in the General Clauses Act and the Transfer of Property Act. In common parlance, "property" includes not only money and other tangible things of value but also any intangible right considered as a source or 7 8 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 element of income or wealth as also the right and interest which a man has in lands and chattels to the exclusion of others. The word "property" does not mean merely physical property but also means the right, title or interest in it. A person may have different kinds of rights and interests in a property, e.g., as an absolute owner, as a mortgagee, as a lessee or on account of part performance of an agreement in terms of section 53A of the Transfer of Property Act, etc.
10. Sub-section (14) of section 2 comes into play only when capital asset being property of any kind is held by an assessee. The use of the phrase "held by an assessee" in the expression "property of any kind held by an assessee" in section 2(14) makes it absolutely clear that the capital asset may not necessarily be owned by an assessee. A person can hold the property without being its absolute owner. The phrase "held by an assessee" is wider in scope than the phrase "owned by an assessee" and therefore includes a property "owned by an assessee". If a person is an absolute owner of the property, then and then only it can be said that he has all the rights and interest in that property, that is to say, right to title, right to alienate, right to possession, right to enjoyment, etc. If a person is not the absolute owner of property then it cannot be said that he has all the rights and interest in the property as an absolute owner thereof would have though he may still have the right to enjoyment, right to possession, etc. Thus a person can be the holder of a capital asset without being its owner. What is contemplated by section 2(14) is that it should be held by an assessee. A holder of property may or may not be its owner. This position has been well-recognised in several judgments, for example, CIT v. Ved Parkash & Sons, 207 ITR 148 (P&H) in which it has been held that a person can be said to be holding the property as an owner, as a lessee, as a mortgagee or on account of part performance of an agreement, etc. The relevant question therefore is as to what has been transferred or conveyed giving rise to capital gain. If an assessee transfers/conveys his rights and interests as a mortgagee or as a lessee, then it is the date of acquisition of rights and interests as a mortgagee or as a lessee, as the case may be, that will be taken into account to determine the period of holding. Similarly, if an assessee transfers absolute ownership or title, then it is the date of acquisition of absolute ownership or title that would have to be taken into account to work out the period of holding of absolute ownership and title over the property.
11. The aforesaid view is well-supported by the provisions of section 2(42A) according to which short term capital asset means a capital asset "held" by an assessee for not more than thirty-six months immediately preceding the date of "its" transfer. The use of the phrase "its transfer" in the expression "preceding the date of its transfer" is quire relevant. The word "its transfer" in the said expression does not refer to the physical form of property or the possession of the property. It 8 9 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 refers to what has been transferred or, in other words, the subject matter of transfer, i.e., nature of rights and interest in the property transferred by an assessee. The requirement of holding the property for not more than 36 months would therefore need to be met with reference to the nature of property, i.e., the nature of rights and interest in the property, which has been transferred. Let us look at the issue from another angle. If a person is holding the property as a mortgagee, he can transfer his interest in the property as a mortgagee. He cannot transfer absolute ownership and title over the property. Likewise, if a person has interest or right in the property as a lessee, he cannot transfer absolute ownership and title over the property. In other words, a holder of property can transfer the same interest or right which he has in the property. It is only when the holder of a property acquires absolute ownership and title over the property that he can transfer the absolute ownership and title over the property. The relevant question therefore is as to what has been transferred by the assessee in the present case and when was the same acquired by the assessee. In the present case, the assessee has transferred absolute ownership and title. The assessee must therefore first acquire absolute ownership and title as he cannot transfer absolute ownership and title without first acquiring it. It is thus the date of acquisition of absolute ownership and title and the date of transfer of absolute ownership and title giving rise to gain or profit, which is relevant for determining the issue as to whether the assessee has held the property, i.e., absolute ownership and title over the property, for not more than thirty-six months.
12. Perusal of the deed of conveyance dated 4.1.2007 between the assessee- company and M/s Sanger Finlease Private Ltd. shows that the assessee has transferred all the rights in property inclusive of its absolute ownership, title and possession. Thus the assessee has transferred not only the possession of the property but also its legal title and absolute ownership over the property. At page 2 of the aforesaid deed of conveyance, the assessee-company states in unambiguous terms that it acquired absolute ownership of the property from the Department of Tourism and Cultural Affairs, Government of Punjab, vide order given by the Principal Secretary, Tourism and Cultural Affairs on the orders of the Governor of Punjab vide notification dated 2nd November, 2004 Reference No. 12/79/2001-ITC/2585. The relevant portion from page 2 of the said conveyance deed is reproduced below for ready reference:
"The vender is the absolute owner of the property being situated at village Amritsar urban 107, Khewat No. 433, Khataunt No. 839, Handbast No. 3873, Khasra No. 2701/1934/1647 at City Centre, Amritsar on G.T. Road, Amritsr and measuring 23 kanal and 1 marla of land more particularly described in the Schedule A hereto and delineated in the map 9 10 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 annexed hereto (hereinafter referred to as the "property"), having got the ownership and possession of the same from the Department of Tourism and Cultural Affairs, Govt of Punjab vide order given by the Principle Secretary Tourism and Cultural Affairs on the orders of the Governor of Punjab vide notification dated 2nd November, 2004 Reference No. 12/79/2001-ITC/2585 as mentioned in Schedule B hereto given on the basis of the order given by the Cabinet vide letter reference no. 1/60/2003/1 CABINET/2127 dated 29.3.2003. The same has been mutated in the name of the said vendor with the Amritsar Improvement Trust, Amritsar Authority and acknowledgement by them vide letter/order No. 02/06/2006 being in peaceful and uninterrupted possession and enjoyment thereof."
13. It is abundantly clear from the aforesaid recital in the deed of conveyance that absolute ownership inclusive of legal tile and possession of the property transferred by the assessee-company to the purchaser was acquired by it on 2.11.2004 from the Government of Punjab. It is further stated in the aforesaid recital that the property was mutated in the name of the assessee-company by Amritsar Improvement Trust by its order dated 2.6.2006.
14. The deed of conveyance of immovable properties, upon their registration under the Registration Act, is a public document. Having recited that the assessee became the absolute owner of the property on 2.11.2004 by virtue of the order issued by the Government of Punjab, and all concerned having acted on the basis of the aforesaid declaration, the assessee-company, in our view, cannot be allowed to turn around at this stage and deny the aforesaid fact stated and held out by it on the principle Nemo contra factum suam venire potest, i.e., No man can contravene or contradict his own deed (p.1037 of Black's Law Dictionary - Sixth Ed.). An estoppel is a special plea in bar, which arises where a man has done some act, or executed some deed, which estops or precludes him from averring any thing to the contrary. Besides, the Notification conveying the absolute ownership of the property to the assessee-company on 2.11.2004 was issued by the Government of Punjab and hence there is a presumption in favour of regularity and correctness of the aforesaid official action that the absolute ownership of the impugned property was conveyed by the Government of Punjab to the assessee-company on 2.11.2004 by the aforesaid Notification issued by the Government of Punjab.
15. The ld. authorized representative for the assessee wants us to hold that legal title/absolute ownership of the property, which is the subject matter of transfer/sale by the assessee-company, was acquired from its owner more than 36 months before its transfer/sale. Before taking up the submissions made by the 10 11 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 ld. authorized representative for the assessee in this behalf, it may be mentioned that the title and legal ownership over the property is derived from an instrument executed by the owner thereof in favour of an alienee: State of UP v. Amar Singh, (1997) 1 SCC 734, 738. A person cannot acquire absolute ownership or legal title over the property unless it is conveyed to him by its owner by an instrument executed in conformity with law. At the time of hearing, the ld. authorized representative for the assessee was therefore specifically called upon to place a copy of any instrument executed by the owner of the property transferring the title/absolute ownership of the impugned property to the assessee-company before 2.11.2004. He could not place any such instrument before us in this behalf to establish that the title/absolute ownership of the property was conveyed by the owner thereof to the assessee-company before 2.11.2004. In this view of the matter, the recital made in the deed of conveyance that the title/absolute ownership of the property was conveyed by the Government of Punjab to the assessee-company, vide its Notification dated 2.11.2004, stands un-rebutted.
16. It was strongly urged by the ld. authorized representative for the assessee that the assessee-company became the owner of the property on the appointed date (i.e., 1.3.2003) fixed in the scheme of de-merger as approved by the Ministry of Corporate Affairs and was accordingly allowed depreciation thereon by the AO in the assessment order for AY 2004-05. We are unable to accept the aforesaid submission for several reasons. One, the "appointed date" fixed by the Ministry of Corporate Affairs in the Scheme of Demerger was 1.4.2003. At the time of hearing before us, it was fairly conceded by the ld. authorized representative for the assessee that the assessee-company itself was not in existence as a legal entity on 1.4.2003. It was therefore legally impossible for the assessee-company to acquire and hold absolute ownership and title over the property on 1.4.2003 as it was not in existence on 1.4.2003. It is stated at page 10 of the appellate order passed by the CIT(A) that the assessee-company was incorporated on 9.7.2003 and therefore the assessee-company can, by no stretch of imagination, be regarded as the owner of the property as on 1.4.2003. Without prejudice to the aforesaid, the purpose behind the scheme of demerger is to effectuate demerger of a de-merged company. The scheme of demerger cannot by itself create absolute ownership or title in favour of a resulting company with effect from a date on which the resulting company was not even in existence or even in favour of a de-merged company. As already stated earlier, a person can acquire absolute ownership and legal title over the property by an instrument duly executed by its owner in favour of the person claiming ownership and by no other mode. In the present case, the assessee, as stated earlier, has not produced any evidence that the owner of the property had executed any instrument transferring title and absolute ownership of the property either to PTDC or to the assessee before 11 12 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 2.11.2004. Neither was any instrument executed by the owner of the property transferring or conveying absolute ownership or legal title over the property to the assessee-company nor anything in this behalf took place till 2.11.2004, i.e., the date on which absolute ownership and legal title was conveyed by the Government of Punjab to the assessee-company. It is therefore not possible to take either 1.4.2003 (being the appointed date) or 9.7.2003 (being the date of incorporation of the assessee-company) or any other date after the assessee- company was incorporated till 2.11.2004, i.e., the date on which absolute ownership together with title was conveyed by the Government of Punjab to the assessee-company, as the date of acquisition of absolute ownership and title over the property by the assessee. In this view of the matter, the period of 36 months can not be reckoned from 1.4.2003 or 9.7.2003 or any other date except 2.11.2004.
17. It was vehemently contended by the ld. authorized representative for the assessee that the assessee-company was allowed depreciation on the impugned property in the assessment order for AY 2004-05 and therefore the period of holding should be reckoned from 1.4.2003 or from the date on which the assessee-company was incorporated. We are unable to accept the aforesaid submission for several reasons. One, the order of assessment by its very nature assesses the total income. Absolute ownership or title over the property is acquired by a person not through the assessment order passed by the AO but by an instrument duly executed by the owner thereof in favour of the person claiming absolute ownership and title over the property. It is only the absolute owner and holder of title who can convey absolute ownership and title and not the AO. Therefore, a person claiming absolute ownership and title over the property must establish its acquisition by an instrument executed by the owner in his favour. The assessee has failed to establish so. Two, depreciation is neither permissible on land nor has been allowed by the AO on land. In fact, depreciation on land has neither been claimed by the assessee nor allowed by the AO. The assessee has transferred mainly land together with building. It is therefore not correct to say that the AO has allowed depreciation on land and building. Three, and without prejudice to the aforesaid, allowance for depreciation is granted on the fulfillment of the conditions specified in section 32 of the I-T Act. One of the conditions for grant of depreciation allowance is that the asset should be "owned, wholly or partly" by an assessee and used for the purposes of his business. What is sufficient for allowance of depreciation, inter-alia, is that the asset should be "owned, wholly or partly." The concept of ownership in section 32 is different from absolute ownership/legal title, which has been transferred or conveyed by the assessee-company. In the present case, the assessee has not transferred the ownership of the nature contemplated by section 32 but the absolute ownership 12 13 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 together with legal title, which it acquired through notification dated 2.11.2004 and not through assessment order. Therefore the issue of acquisition of absolute ownership and legal title has to be examined with reference to the instrument by which it was acquired de hors the assessment order. Four, the mere fact that depreciation has been allowed by the AO on building does not estop him from examining the issue in accordance with law and more particularly the provisions of section 2(42A). It is well-settled that estoppel does not apply against the statute. Five, as already stated earlier, the ld. authorized representative for the assessee could neither produce nor refer to any instrument executed by the owner transferring absolute ownership and legal title to the assessee or to PTDC except the one referred to in the deed of conveyance. Since the assessee acquired absolute ownership and legal title over the property from its previous owner on 2.11.2004, the date of acquisition of absolute ownership and legal title over the property has necessarily to be reckoned from 2.11.2004 and not with reference to the assessment order or the date from which depreciation has been allowed by the AO. An assessee can transfer what he has acquired and not anything on which he has been allowed depreciation. The assessee has not been able to place any evidence/instrument on record to establish that it acquired absolute ownership of the property before 2.11.2004. Six, if the assessee had already been vested with the absolute ownership over the property before 2.11.2004, there would have been no necessity on the part of the Government of Punjab to issue Notification on 2.11.2004 to convey absolute ownership of the property in favour of the assessee. In such a situation, the State of Punjab would not have been legally competent to convey the property if the said property was already owned by someone else, e.g., PTDC or the assessee-company. The fact that the State of Punjab has transferred absolute ownership and title over the property on 2.11.2004 itself shows that no-body including the assessee-company and PTDC was the absolute owner of the property before 2.11.2004. Therefore the fact that the assessee has failed to establish the acquisition of the absolute ownership of the property before 2.11.2004 and also the fact that the Government of Punjab transferred the absolute ownership of the property on 2.11.2004 prove beyond doubt that the assessee acquired absolute ownership and possession of the property on 2.11.2004, as per recital in the deed of conveyance.
18. It was also urged by the ld. authorsied representative for the assessee that the assessee was already in possession of the property on the appointed date fixed for de-merger by the Ministry of Corporate Affairs and therefore it was the owner of the property on 1.4.2003 being the appointed date. The aforesaid argument has to be necessarily rejected mainly for the reason that the assessee- company itself was not in existence on 1.4.2003. i.e., the date on which it claims to have acquired possession of the property. Besides, what is relevant for 13 14 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 determining the period of holding in terms of section 2(42A) is the date on which the property together with its title/ownership, which was subsequently transferred/sold, was acquired by the assessee and not the date on which the assessee acquired the possession of the property. Absolute ownership of the property and right to possession or right to enjoyment of property are completely different from each other. If an assessee transfers absolute ownership of the property, it is the date of acquisition of absolute ownership which is relevant and not the date of acquiring the possession of the property or right to enjoy the property. In the present case the assessee became absolute owner of the property on 2.11.2004 as per recital in the deed of conveyance (supra). Therefore the fact that the assessee was in possession of property before 2.11.2004 is completely irrelevant as it is not the possession of the property but the absolute ownership of the property which is the subject matter of transfer/sale to M/s Sanger Finlease Private Ltd., vide agreement dated 27.9.2006. The assessee received consideration of Rs.51 crores for transfer of absolute ownership together with possession of the property and not for parting with the mere possession of the property. In this view of the matter, the AO has rightly concluded that the property was held by the assessee for less than 36 months and hence the gain arising from its transfer/sale was short term capital gain.
19. Reliance placed by the assessee on the provisions of clause (vib) of section 47 is completely misplaced as the aforesaid provisions are applicable when the property is transferred, as a result of de-merger, from a de-merged company to a resulting company. According to section 47(vib), section 45 does not apply to any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company. In other words, such transfers would not be hit by section 45. In the case before us, the property has been transferred by the assessee-company to M/s Sanger Finlease Private Ltd. Neither the assessee-company is a de-merged company nor M/s Sanger Finlease Private Ltd., is a resulting company. In this view of the matter, the provisions of clause (vib) of Sec 47 are not applicable to the transfer/sale effected by the assessee in the year under appeal.
20. Reliance placed by the assessee on Explanation 7A of sub-section (1) of section 43 is equally misplaced. It is true that Explanation 7A provides that actual cost of the capital asset transferred by a de-merged company to a resulting company, in a case of demerger, would be taken to be the same as it would have been if the transferor-company had continued to hold the capital asset for the purposes of its business. However, it is important to note that Explanation 7A to section 43(1) is relevant for determination of actual cost, in cases of de-merger, for computation of income from profits and gains of business or profession u/s 28 14 15 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 of the I-T Act. The aforesaid Explanation holds good in the context of sections 28 to 41 and not in the context of section 45, i.e., computation of income from capital gains.
21. Section 49 deals with the determination of cost with reference to certain modes of acquisition. It provides that the cost of acquisition of the asset would be deemed to be the cost for which the previous owner of the property acquired it if the asset has been acquired in any of the modes specified therein. The assessee- company has not acquired the impugned property through any of the modes specified in section 49 and hence section 49 cannot be pressed into service. There is thus no provision in Chapter IV-E of the Income-tax Act under which the cost of acquisition of the previous owner can be treated as cost of acquisition in the hands of the transferor-assessee, namely, the assessee (resulting company), in cases of demerger.
22. The ld. authorized representative for the assessee has referred to a large number of judgments/decisions in support of the proposition that the concept of ownership under the Income-tax Act is different from the concept of ownership as understood in common law or the Transfer of Property Act or the Registration Act. We are in complete agreement with the aforesaid submission. But that is not the issue here. The issue in the matter under appeal is the computation of period of holding of that property which has been transferred by the assessee. As already stated earlier, the assessee has transferred absolute ownership and title over the property after acquiring the same on 2.11.2004 from the Government of Punjab and therefore the assessee has held the absolute ownership and title over the property for less than thirty-six months. If the assessee had transferred the mere possession of the property, the assessee could have in that situation pleaded that the date of acquisition of possession of property should be taken to compute the period of holding. But that is not the case here. Secondly, the issue under appeal has been examined with reference to the provisions of section 2(42A) of the Income-tax Act and not with reference to principles of common law or the Transfer of Property Act or the Registration Act.
23. For the reasons given above, each of the grounds of appeal is disposed off as under:
(i) Apropos Ground No.1, it is held that the AO has rightly taken 2.11.2004 as the date of acquisition of absolute ownership of the property as it is this absolute ownership of the property which was acquired by the assessee on 2.11.2004 from the Government of Punjab and subsequently sold/transferred by the assessee to M/s Sanger Finlease Pvt. Ltd., vide agreement dated 27.9.2006. Since the period of holding of absolute 15 16 Amritsar Hotel Ltd, Chd. v. DCIT ITA No.1096/Chandi/2010 ownership of the property by the assessee is less than 36 months, the AO has rightly held that the profits and gains arising from the aforesaid transfer/sale are in the nature of short term capital gain. Ground No.1 is dismissed.
(ii) Apropos Ground No.2, the assessee has placed no evidence or instrument before us to establish that absolute ownership of land was ever conveyed by its owner to the assessee before 2.11.2004 and hence the AO has rightly not taken cognizance of the said plea as raised in Ground No.2. Besides, the case of the assessee is not covered by section 49 and therefore the cost of land, if any, to the previous owner was rightly not taken as cost of acquisition in the hands of the assessee-company. Ground No.2 is dismissed.
(iii) Apropos Ground No.3, the AO has rightly held that the assessee became the absolute owner of the property on 2.11.2004, which it subsequently transferred by agreement dated 27.9.2006. There is no evidence or instrument on record to hold that the assessee acquired absolute ownership of the property before 2.11.2004 from its previous owner. Ground No.3 is dismissed.
(iv) Apropos Ground No.4, we have already confirmed the action of the AO in taking 2.11.2004 as the date of acquisition of absolute ownership of the property and hence the AO was justified in rejecting the plea of the assessee for adopting fair market value of the property as on 1.4.1981 as cost of acquisition. Ground No.4 is dismissed.
(v) Apropos Ground No.5, the benefit of indexation u/s 48 is available only where long term capital gain arises from the transfer of a long term capital asset and not where short term capital gain arises from transfer of a short term capital asset. Since the impugned capital gain arising from transfer of the impugned property is assessable as short term capital gain, the assessee is not entitled to the benefit of indexation u/s 48. Ground No.5 is dismissed.
(vi) Ground Nos.6 and 7 are general in nature and therefore do not require independent adjudication.
24. The appeal filed by the assessee is dismissed.
Order pronounced on 29 April 2011
Sd/- Sd/-
(SUSHMA CHOWLA) (D K SRIVASTAVA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Chandigarh: the April 2011
SURESH
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Amritsar Hotel Ltd, Chd. v. DCIT
ITA No.1096/Chandi/2010
Copy to:
1. The Appellant, Amritsar Hotel Ltd. Chandigarh
2. The Respondent, D.C.I.T. C-1(1) Chandigarh
3. The CIT(A), Chandigarh
4. The ld. CIT, Chandigarh
5. The D.R, Income-tax Department, Chandigarh
True Copy
By Order
Assistant Registrar, ITAT, Chandigarh
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