Income Tax Appellate Tribunal - Kolkata
Smt. Mina Deogun vs Income Tax Officer on 3 August, 2007
Equivalent citations: (2008)117TTJ(KOL)121
ORDER
K.S.S. Prasad Rao, J.M.
1. This appeal is filed by the assessee having been aggrieved by the order of the CIT(A) dt. 29th March, 2007 for the asst. yr. 2004-05 in the case of the assessee.
2. The assessee has raised the following issues in its grounds of appeal:
1. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in adopting the fair market value of the appellant's 1/4th share in the immovable property at 47, Golflinks, New Delhi at Rs. 15,02,907 as against Rs. 18,40,244 estimated by the Registered Valuer.
2. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in not striking down the reference to the Valuation Officer made by the AO under Section 55A of the Act and was not justified in upholding the reference under Section 55A(2)(b) even though the said provision was not applicable.
3. For that on the facts and in the circumstances of the case, the appellant having adopted the fair market value of the transferred immovable property as per the value estimated by the" Registered Valuer the authorities below should have determined the 'Capital Gain' with reference to fair market value of the property as on 1st April, 1981 determined by the Registered Valuer.
4. For that on the facts and in the circumstances of the case, the AO be directed to assess the capital gains with reference to cost of acquisition under Section 55 as on 1st April, 1981 at Rs. 18,40,244 as against Rs. 15,02,907 arbitrarily estimated by the CIT(A).
5. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in upholding the AO's action of determining the indexed cost of acquisition with reference to cost inflation index applicable for the financial year 1999-2000 as against cost inflation index applicable for financial year 1981-82.
6. For that on the facts and in the circumstances of the case, the appellant having inherited the property on passing away of her mother and the said property having been owned by the 'previous owner' prior to 1st April, 1981, the authorities below should have determined the indexed cost of acquisition with reference to cost inflation index applicable for financial year 1981-82.
7. For that on the facts and in the circumstances of the case, the CIT(A) failed to appreciate that 'Cost of acquisition' to the assessee was to be determined under Section 49(i)(ii) r/w Section 55(2)(b)(ii) of the Act. Indexed cost of acquisition should have also been determined with reference to such cost, by adopting the cost inflation index applicable to the year of acquisition in the hands of 'previous owner'.
8. For that on the facts and in the circumstances of the case, the AO be directed to recompute the indexed cost of acquisition by applying base 'cost inflation index' of 100 in place of 389 as adopted by the AO and be further directed to recompute income under the head 'Capital gains'.
9. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in law and in fact in upholding the assessment of the rental income derived from property at Panchsheel Park, New Delhi under the head 'Other sources' as against 'House property'.
10. For that on the facts and in the circumstances of the case, the assessing authorities having held and treated the appellant as 'owner' of the said 'house property' in the income-tax and wealth-tax assessments for the past 25 years, the authorities below were not justified in assessing the rental income under the head 'Other source' as against 'house property' only in asst. yr. 2004-05.
11. For that on the facts and in the circumstances of the case, the appellant being owner of the residential building at New Delhi, by dint of incurring 1/3rd of the cost of construction, the authorities below should have held the appellant as the 'owner' of the house property and should have assessed rental income under the head 'House property'.
12. For that on the facts and in the circumstances of the case, the AO be directed to assess the rental income in respect of property at Panchsheel Park, New Delhi under the head 'House property' and be further directed to allow statutory deductions permissible under Section 24 of the IT Act.
3. Both the parties were heard regarding the issues raised by the assessee and its legal implications.
4. During the course of the hearing, the learned representative of the assessee has vehemently argued assailing the orders passed by the Departmental authorities contending, inter alia, that the Departmental authorities have not properly appreciated the materials placed before them and not properly applied the required provisions under the IT Act in adjudicating the issues before them. Both the orders passed by the Departmental authorities suffer from misapplication of the provisions as well as misinterpretation of the provisions to the undisputed facts before the authorities. Therefore, the orders passed by the Departmental authorities are not sustainable for legal scrutiny. Accordingly, he sought for setting aside the same by allowing the-appeal of the assessee.
5. Contrary to this, the learned Departmental Representative has vehemently argued supporting the orders passed by the Departmental authorities and assailing the issues raised by the assessee in the appeal and accordingly, sought for upholding them by dismissing the appeal of the assessee.
6. On careful consideration of the materials made available with the Tribunal and analyzing the same in the light of the rival submissions of both the parties as well as the authorities relied on by them in support of their respective contentions, the undisputed facts relating to the issues are as follows.
6.1 The assessee is an individual and filed return for the asst. yr. 2004-05 declaring total income of Rs. 10,85,730. The assessment was made under Section 143(3) determining the total income taxable in the hands of the assessee at Rs. 82,67,260. The factual aspects involving the issues are that the assessee has inherited a residential house property at 47, Golf Links, New Delhi, on the demise of her mother. It was originally acquired by the father of the assessee in 1958. After his demise, the assessee's mother became its owner. After the demise of the mother, the assessee inherited the same along with other heirs and the share of the assessee is undisputedly 1/4th in the said property. As the said property was owned by the predecessor in title to the assessee prior to 1st April, 1981, the assessee has option to substitute the 'fair market value' of the said property as on 1st April, 1981 to be the "cost of acquisition". Accordingly, the assessee has obtained a valuation report from a Registered Valuer. As per that valuation report, the fair market value of the property was determined at Rs. 73,60,975. The 1/4th share of the assessee's share came to Rs. 18,40,244 and was considered as cost of acquisition under Section 55 of the IT Act, while arriving at the capital gain to be taxable in the hands of the assessee. During the course of the assessment proceedings, the assessee has filed the report issued by the Registered Valuer and the AO has referred the matter of valuation to the DVO under Section 55A of the Act. The DVO has estimated the market value of the property at Rs. 46,62,280 and thereby arrived at the 1/4th share of the assessee at Rs. 11,65,570. Taking this into account, the AO has determined the capital gain taxable in the hands of the assessee.
6.2 Apart from that, the assessee has purchased and sold units of mutual funds during the period under consideration and thereby earned unit dividend. The AO has taken the same as short-term capital loss at Rs. 95,074 and not permitted to claim the loss invoking the provision contained in Section 94(7) of the IT Act.
6.3 Another issue is that the assessee is a joint owner of a house property at New Delhi from which she is deriving rental come. The land on which the building is constructed was leased to Shri R.N. Deogun, husband of the assessee. However, the building constructed in the land is jointly owned by the assessee and her husband in the ratio of 1/3rd and 2/3rd, respectively, basing on the contribution to the construction of the said building. The AO has held that since the land on which the building was constructed is in the name of Shri R.N. Deogun, husband of the assessee, the assessee is not the owner of the building and accordingly, treated the rental income of the assessee from the said building as income from other sources.
6.4 Aggrieved with these orders of assessment, the assessee went in appeal before the CIT(A) and is unsuccessful. Hence, the present appeal is filed before the Tribunal.
7. On careful analysis of the orders passed by the Departmental authorities in the light of the rival submissions of both the parties as well as the authorities relied on by them in support of their contentions, we find that the assessee has raised the following material issues:
(i) Determination of fair market value of property at 47, Golf Links, New Delhi as on 1st April, 1981 opted by the assessee as "cost of acquisition" under Section 55(2)(b)(ii) of the IT Act.
(ii) Whether the cost inflation index applicable for financial year 1981-82 or financial year 1999-2000 should be applied for determination of indexed cost of acquisition.
(iii) Whether the assessee can be regarded as owner under Section 22 of the IT Act in respect of her 1/3rd share in a residential let out property, situated at Panchsheel Park, New Delhi.
7.1 The facts giving rise to the first two material issues are as follows :
A residential house property at 47, Golf Links, New Delhi, was purchased by Sardar Pratap Singh, father of the appellant on 16th April, 1958 at a cost of Rs. 34,600. On his death on 29th June, 1968; his wife Smt. Bhajan Pratap Singh became its owner. She expired on 16th Sept., 1999 and the assessee along with her 3 sisters became co-owner of the said property by virtue of succession. During the financial year 2003-04 the said property was transferred by the co-owners for Rs. 12 crores and the appellant's 1/4th share was Rs. 3 crores on which assessee was liable to pay capital gain tax. As per Section 49(l)(ii), the cost of acquisition to the "previous owner" constituted cost of acquisition to the assessee. Further, under Section 55(2)(v)(ii) of the Act "fair market value" on 1st April, 1981 could be opted for by the assessee as cost of acquisition. The assessee so opted and adopted fair market value of the property as on 1st April, 1981 as the cost of acquisition for assessing her capital gains liability. The Registered Approved Valuer in his valuation report estimated the fair market value of the. Golf Links property as on 1st April, 1981 at Rs. 73,60,975. This inter alia included the estimated value of building at Rs. 5,67,500 and land at Rs. 67,93,475 at the rate of 6,500 per sq. mtr. In AO's opinion the FMV estimated by Registered Valuer prima facie indicated substantial increase over cost of acquisition and therefore, made a reference of valuation under Section 55A(b)(ii) to the DVO at New Delhi. The DVO, New Delhi estimated the value of the said property at Rs. 46,62,280. In valuing the property the DVO estimated value of land at the rate of Rs. 3,910 per sq. mtr. at Rs. 40,94,780. He however, accepted the Registered Valuer's estimate of building at Rs. 5,67,500. Accordingly, assessee's 1/4th share in the property was estimated by the Registered Valuer at Rs. 18,40,244 whereas DVO estimated it at Rs. 11,65,570. The AO completed the assessment by adopting the valuation report of DVO. In the first appeal the assessee challenged the valuation of DVO both on legal grounds and on facts. The CIT(A) rejected the assessee's objections regarding reference made under Section 55A. The CIT(A) however averaged out the two valuations and adopted Rs. 15,02,907 as cost of acquisition of the assessee's 1/4th share in the said property under Section 55(2)(b)(ii) as on 1st April, 1981 and directed the AO to re-compute the capital gains. The CIT(A) also agreed with the AO that cost of inflation index applicable to financial year 1999-2000 was to be adopted as base since in the said year the assessee first held the asset on demise of her mother. Against the order of the CIT(A), the assessee has filed the present appeal raising the first two material issues.
7.2 Before us the representative of the assessee objected to the reference made to the Valuation Officer under Section 55A(b)(ii) of the Act. According to Authorised Representative, the assessee's case was covered by Clause (a) of Section 55A and, therefore, Clause (b) was not applicable. As per Authorised Representative the assessee had relied on the market value determined by the Registered Valuer and the same being higher and not lower, the AO did not have authority to refer the valuation of the capital asset to the Valuation Officer under Section 55A(b)(ii). In support of this proposition he relied on the following decisions:
(i) Ms. Rubab M. Kazerani v. Jt. CIT ;
(ii) Smt. Krishnabai Tingre v. ITO ;
(iii) Sajjankumar M. Harlalka v. Jt. CIT .
Referring to both the valuation reports, copies of which were placed in the paper book, the assessee's representative stated that both the Registered Valuer and DVO in estimating the land value had taken into consideration the auction rate of DDA in respect of a plot of land in Safdarjung Enclave area which had realized sale price @ Rs. 3,128 per sq. mtr. The DVO admitted that Golf Links area was a better location and himself increased the price by 25 per cent. On the other hand the Registered Valuer mentioned that the impugned property enjoyed strategic location as it was situated on the main road. It had ideal shape and dimension and several multinational companies owned properties in this area which substantially increased the value. Land' rate for commercial properties was Rs. 6,000 per sq. mtr. and auction rate in Safdarjung Enclave was Rs. 3,128 per sq. mtr. for residential plot. He also referred to a sale instance of plot of land at Vasant Vihar which was auctioned at Rs. 8,000 per sq. mtr. in 1985. Since Golf Links area was much better than Safdarjung Enclave and Vasant Vihar areas he estimated the value of land at Rs. 6,500 per sq. mtr. According to Authorised Representative, the DVO admitted that the Golf Links was much better area but did not give any reasons for allowing token increase of 25 per cent. The Registered Valuer on the other hand gave several reasons for estimating the land @ Rs. 6,500 per sq. mtr. before the CIT(A) the assessee had submitted that assessee's property overlooked the main Golf course and therefore enjoyed better aesthetic view and therefore commanded much higher price as compared with other properties in Golf Link area. This fact was overlooked by the DVO. The Authorised Representative further pointed out that the assessee realized Rs. 12 crores for a property measuring 1045.12 sq. mtr. which translated into per sq. mtr. realization of Rs. 1,15,000 approx. Such high realization was possible only because the property enjoyed better locational advantages. The CIT(A) was not justified in averaging out 2 valuations because he was not an expert in the matter of valuation. According to learned Authorised Representative when the DVO himself admitted that Golf Links property was better located but allowed mere 25 per cent increase without giving any reasons, the CIT(A) should have followed the valuation report of the Registered Valuer which had statutory recognition under Section 55A of the Act. The learned Departmental Representative on the other hand supported the order of the CIT(A).
8. We have considered the rival submissions and perused the valuation reports of the DVO and the Registered Valuer. The reference to DVO was made by the AO on mere surmise that the value estimated by the Registered Valuer was much higher as compared with cost incurred in 1958. There was no material basis for the AO to reach objective satisfaction that FMV of the property as on 1st April, 1981 was lower or higher than the value estimated by the Registered Valuer. Both the valuation reports i.e., of the DVO and the Registered Valuer establish that there had been substantial increase in the market value of the immovable properties in Delhi during the period 1958 to 1981. We therefore, find that the reasons for which the AO made reference were both subjective and inadequate as there was no basis for AO to doubt the correctness of report of the Registered Valuer. Be the same as it may, we also find that the DVO accepted the value of the building as estimated by the Registered Valuer and the point of difference related only to valuation of land. We note that in both the valuation reports the reference was made of a comparable sale instance in respect of land in Safdarjung Enclave which fetched price of Rs. 3,128 per sq. mtr. Both the valuers agreed that Golf Links area where the subject property was situated was much better compared with Safdarjung Enclave. In valuing the market value of any property, the consideration should not only be given to the locality but also to other facts relatable to the specific property. In the DVO's report the reference is made only to the Golf Link locality in general and being a better locality token increase of 25 per cent was given by him without giving any specific reasons. The DVO did not even discuss the relative advantages or disadvantages of the impugned property. On the other hand the Registered Valuer discussed advantages enjoyed by the property in question. He has mentioned that the property was strategically located on the main road. The plot area and shape was ideal for residential purpose. The property was facing Main Golf Course and therefore enjoyed locational advantage which fetched much better price. The Registered Valuer also referred to the sale instance of a plot of land in Vasant Vihar area which fetched Rs. 8,000 per sq. mtr. in 1985. Since Golf Links area in general was a better locality compared with Safdarjung Enclave and Vasant Vihar and further considering the other locational advantages enjoyed by the property in question, DVO estimated the value of land @ Rs. 6,500 per sq. mtr. We thus find that the Registered Valuer gave cogent reasons for valuing the land @ Rs. 6,500 per sq. mtr. where as the DVO granted token increase of 25 per cent for Golf Links locality in general but without setting out objective basis. We also note that on sale, the assessee realized average sale price of Rs. 1,15,000 per sq. mtr. in 2003. If we adopt the rate estimated by DVO, it results in 30-fold increase over the estimated value in 1981. On the other hand, if we adopt the value estimated by the Registered Valuer it gives 18-fold increase in value during the period 1981 and 2003. In India the prices of real estate have gone up more than the general rate of inflation. The cost inflation index which is prescribed under Section 48 is based on the "wholesale price index" and during the period 1981 and 2003 the cost inflation index recorded increase of 4.6 times. If we accept the report of the Registered Valuer, the value of the property results in increase of 18 times of the value estimated in 1981, which favourably compares with general rate of inflation and increase in the values of property in particular. On the other hand, if we adopt the value estimated by the DVO then the increase in value is 30 times over 1981 prices which appears too high and excessive.
If during 1981 and 2003 the cost inflation index announced by the Government under Section 48 recorded increase of 4.6 times then in comparison the increase of 18 times in real estate prices appears reasonable and therefore in our considered opinion the value estimated by the Registered Valuer does not appear to be excessive, unreasonable or incorrect. Moreover, in his report the Registered Valuer gave cogent reasons and considered numerous facts affecting the value of the subject property and therefore, we do not find any infirmity in the valuation report of the Registered Valuer. For these reasons therefore we uphold the value of the property as estimated by the Registered Valuer and direct the AO to adopt the value of the assessee's 1/4th share in the property at Rs. 18,40,244 and compute the capital gains. Since we have accepted the value estimated by the Registered Valuer, the assessee's challenge to the legality of the reference made to Valuation Officer under Section 55A has become only academic and we do not deem it necessary to decide the same.
8.1 The second material issue relates to application of the correct cost inflation index for determining indexed cost of acquisition under Section 48(2) of the Act. The impugned property in question was acquired by Smt. Bhajan Pratap Singh on demise of her husband in 1968. Accordingly, she was the owner of the property on 1st April, 1981. As per provisions of Section 2(42A) of the Act in determining period of holding of the capital asset the period for which the previous owner held the asset was includible. As per Section 2(42A) the assessee was deemed to have held the said capital asset since 1958. According to Authorised Representative, if provisions of Section 2(42A), Section 47(ii), Section 49(1)(iii)(a) and Section 55(2)(b)(ii) are cumulatively and harmoniously read then in case of succession the date of acquisition, cost of acquisition and period of holding is to be computed with reference to the acquisition of the capital asset by the first previous owner. He therefore, submitted that different considerations could not apply for the purpose of applying base cost inflation index. Referring to Explns. (iii) and (iv) to Section 48, he submitted that if the cost of inflation index is adopted with reference to the year of succession, then it leads to assured results. Relying on the ratio of decision of Supreme Court in the case of CIT v. Lakshmi Machine Works , he submitted that in interpreting the words used in the formula incorporated in Section 48, one should give a schematic interpretation and not literal interpretation. The Authorised Representative then referred to the Memorandum Explaining Provisions of the Finance Bill, 1992 and Circular No. 636, dt. 31st Aug., 1992 [(1992) 107 CTR (St) 1] which explained the provisions of Finance Act, 1992. According to the Memorandum and the Board Circular the indexation of the cost of acquisition was to be allowed with reference to the period of holding of the asset and it was not material as to which particular person held the asset. According to him, since under Section 2(42A) the period of holding of the capital asset by an assessee includes the period of holding by the previous owner also, in computing the indexed cost of acquisition; the cost inflation index applicable to the year of acquisition by the previous owner should be considered. According to Authorised Representative provisions should be interpreted keeping in view the purpose and object of the enactment and not merely the words used which are capable of more than one meaning. In this regard the Authorised Representative made reference to the Board's Circular No. 31, dt. 21st Sept., 1962 issued in the context of provisions of Sections 48, 49 r/w Section 55(2)(ii) of the Act. The Authorised Representative also relied on the decisions of the Tribunal Chandigarh Bench in the case of Mrs. Pushpa Sofat v. ITO and Mumbai Bench in the case of Dy. CIT v. Smt. Meera Khera (2004) 136 Taxman 174 (Mumbai)(Mag).
8.2 The learned Departmental Representative, on the other hand, relied on the order of the AO and the learned CIT(A). According to him under Expln. (iii) to Section 48 the cost inflation index applicable to the year in which the asset first held by the assessee is to be considered. As there was no infirmity in the AO's order, he relied on the order of the authorities below.
8.3 In the present case the AO has interpreted the Expln. (iii) to Section 48 and has applied cost inflation index applicable for financial year 1999-2000 being the year in which the assessee inherited the property from her mother. The words "the year in which the assessee first held the capital assets" is interpreted by him to be the year in which the assessee succeeded to the assets of her mother. We find that Section 2(42A) also uses a somewhat similar expression. Explanation 1 to Section 2(42A) provides that in determining the period for which any capital asset is held by the assessee, in the case of a capital asset which become the property of the assessee, in any of the circumstances mentioned in Section 49(1), there shall be included the period for which the asset is held by the previous owner. If for the purpose of determining the period of holding of the capital asset by an assessee, the period for which the previous owner has held the capital asset is to be included, then different consideration cannot be applied for the purpose of Section 48.
8.4 If Sections 2(42A), 47(iii), 49(1)(ii)(iii) and Section 55(2)(b)(ii) are read co-jointly then it appears that in law no "transfer" of a "capital asset" is considered to take place on inheritance and succession. The liability for capital gain arises only when the capital asset is actually transferred by the successor, it is only when the ultimate successor transfers the capital asset for a consideration the capital gains are assessed to tax. In assessing capital gain in the hands of successor, date of acquisition and period of holding, is determined taking into consideration the date on which and the cost of which the first owner acquires the capital asset. It is for this reason Section 2(42A) uses the expression "in determining the period for which capital asset is held by the assessee". Section 48 of the IT Act incorporates computation mechanism for qualifying the 'capital gain' and therefore the expressions used in the computation formula should be given schematic interpretation. The scheme of taxation of "capital gain-can however, be understood by applying provisions of Sections 2(42A), 2(47), 47(ii), 48, 49(i)(ii) and 55(2)(b)(ii) of the Act. As per the provisions of these sections, where an assessee sells an inherited capital asset the capital gain is computed with reference to the period of holding and cost of acquisition incurred by the previous owner. It is so because in fact the successor assessee does not actually incur any cost. If for applying other provisions relating to computation of capital gains, period of holding and cost incurred by the previous owner is considered, then it will be improper to apply only the cost inflation index, applicable to the year of inheritance.
8.5 The provisions of Section 48 prescribing indexed cost of acquisition were enacted by the Finance Act, 1992. Memorandum explaining the Provisions of Finance Bill, 1992 explained that old provisions relating to taxation of capital gain were unfair because the deduction under Section 48 was being allowed in respect of cost of acquisition which did not relate to the period of time for which the asset was held. The old system of computation of capital gain did not take into account the inflation which occurred over a period of time. The new system was therefore, enacted for computing capital gain which allowed the cost of asset to be adjusted for general inflation before deducting it from the sale proceeds. The statutory objective of the new system was to favour those assessees where capital gains accrued over a long period. The CBDT, in Circular No. 636, dt. 31st Aug., 1992, explained provisions of Finance Act, 1992 relating to amended scheme of capital gains. In this circular the Board explained that in the scheme prior to 1992 a specified percentage was allowed as deduction under Section 48(2) which was unrelated to the length of the period of holding of the capital asset. Under the new system a fair method of allowing relief was enacted to link the cost of acquisition to the period of holding. For this purpose the cost of acquisition and the cost of improvement of the asset was to be inflated to arrive at indexed cost of acquisition. The circular further clarified that if an asset was acquired before 1st April, 1981, the market value of the capital asset as on 1st April, 1981 would be taken for the purpose of indexation.
8.6 A co-joint reading of the Memorandum explaining the Finance Bill, 1992 and CBDT Circular No. 636 shows that the indexation is to be allowed in respect of period of holding of the asset and not In relation to the individuality of the assessee. For the purpose of determining the period of holding intermediate transfers on account of succession are to be ignored. This proposition is quite clear from para 35 of the Circular No. 636, dt. 31st Aug., 1992 which states that if an asset was acquired before 1st April, 1981 then the market value of the capital asset as on 1st April, 1981 is to be taken for indexation. In the present case the AO himself allowed the benefit of "FMV" of the property as on 1st April, 1981 to be cost under Section 55(2)(b)(ii) of the Act. Under Section 2(42A) the period of holding of the capital asset in the hands of the assessee was the period commencing from 16th April, 1958 till the date of transfer. It is therefore quite clear that as on 1st April, 1981 the asset was statutorily considered to be held, by the assessee under Section 55(2)(b)(ii) r/w Section 2(42A) of the Act. In our considered opinion therefore, the cost inflation index applicable for financial year 1981-82 and not to financial year 1998-99 should have been applied by the AO. A similar view was taken by Chandigarh Bench of the Tribunal in the case of Smt. Pushpa Sofat (supra). In that case house property was inherited by the assessee from her father which was sold in asst. yr. 1993-94. The father of the assessee acquired the property in 1972 and therefore, the assessee opted for FMV of 1st April, 1981 to be the cost of acquisition. The assessee computed the indexed cost of acquisition with reference to the cost of inflation index of 1st April, 1981 being 100 per cent. Assessee's father expired on 17th Feb., 1991 and the AO allowed the indexation of cost with reference to the cost inflation index of financial year 1990-91 as against inflation index of 100 per cent. The Tribunal, however held that the assessee was entitled to compute capital gain by applying cost inflation index of 1st April, 1981. Similar view was also taken by Mumbai Bench of the Tribunal in the case of Mrs. Meera Khera (supra). Considering the totality of the facts and the scheme of the IT Act relating to taxation of capital gains, we are of the considered opinion that as per the schematic interpretation the cost of inflation index should be made applied with reference to the year in which the capital asset was first acquired by the previous owner. If only for the purpose of computing indexed cost of acquisition, the date of acquisition by the previous owner is excluded then it will lead to absurd result. Such interpretation of Section 48 will be against the intent and object of the enactment and will be against the overall scheme of taxation of capital gains in case of inherited assets. The cardinal principles of interpretation of statutes is that if literal meaning of the statute leads to an absurdity then the statute should be interpreted in a manner which will result in harmonious interpretation which avoids absurdity and promote the objective of an enactment. We, therefore, direct the AO to recompute the capital gains by applying cost inflation index of 100 per cent applicable for financial year 1981-82.
8.7 The third material issue is whether the assessee can be said to be considered as "owner" of a residential let out property at Panchsheel Park, New Delhi under Section 22 of the Act. The brief facts giving rise to the dispute are as follows : The Panchsheel Co-operative Housing Society Ltd. allotted and leased Plot No. F-256, Panchsheel Park, New Delhi, to Sri R.N. Deogun, husband of the assessee. In the municipal records the property stands in the name of Sri R. N. Deogun. Sri R.N. Deogun along with the assessee constructed a residential building on the said plot. The assessee incurred cost of construction of Rs. 40,600 out of the aggregate cost of construction of Rs. 1,22,595. This property was let out since 1973-74 and in all the past assessments of the assessee and her husband till asst. yr. 2003-04, 1/3rd of the rental income was assessed in the assessee's hands under the head "Income from house property". In the wealth-tax assessments of the assessee till asst. yr. 1992-93, the Revenue assessed 1/3rd share in the said property as immovable property and valued it on rent capitalization method. In the impugned assessment order the AO however, held that since the land on which the building was constructed, was registered in the name of Sri R.N. Deogun, the assessee was not the owner of the house property and therefore 1/3rd rent received was assessable under the head "Other source" and not under the head "House property". The AO accordingly assessed the income under "Other source" head and denied statutory deduction under Section 24 of the Act.
8.8 The learned representative of the assessee submitted that in the income-tax assessment of Sri R.N. Deogun for the asst. yr. 1972-73, his AO admitted the assessee to be the 1/3rd owner of the property. He also relied on the wealth-tax assessments under Section 16(3) of the assessee for the asst. yrs. 1987-88 to 1992-93 wherein the 1/3rd share in the said property was assessed under the head "Immovable property". Though the assessee incurred cost of Rs. 40,600 only, in the wealth-tax assessments value was assessed on rent capitalization method at Rs. 2,40,612. He stated that in all the past till asst. yr. 2003-04 rental income was always assessed, as "house property". There being no change in the factual matrix of the case, the AO could not have changed head of income merely to deny the deduction under Section 24. He further submitted that under Section 23 annual value of a house property is assessed and therefore, it is to be ascertained who is the real owner of the building and not the land underneath, as Section 23 does not bring to tax annual value of land. Merely because the land on which the property was constructed was registered in the name of Sri R.N. Deogun, he could not be considered as the sole (owner) of the entire property. The assessee's representative relied on the decisions of the Calcutta High Court rendered in the case of Tinsukia Development Corporation Ltd. v. CIT and in the case of CIT v. Ajit Kumar Roy , Hon'ble Rajasthan High Court rendered in the case of Saiffuddin v. CIT and the Hon'ble Calcutta High Court rendered in the case of Sri Ganesh Properties Ltd. v. CIT and submitted that the person who actually incurs the cost of construction of the building is the "owner" of the house property under Section 22 of the Act and rental income is assessable in the hands of such owner.
8.9 From perusal of the assessment order under Section 143(3) for asst. yr. 1972-73 in the case of Sri R.N. Deogun it appears that the Revenue accepted that the cost of construction of the said property was Rs. 1,22,595 and assessee's contribution thereto was Rs. 40,600. In that assessment the AO also examined the assessee's sources of incurring cost of construction of the said property. In the income-tax assessment for the past several years the Revenue assessed 1/3rd rent in the hands of the assessee under the head "House property" and the remaining 2/3rd in the hands of her husband. In the wealth-tax assessment under Section 16(3), assessee's 1/3rd share in the property at Panchsheel Park, New Delhi, was assessed by applying rental capitalization method thereby accepting that the assessee was 1/3rd owner of the said property. No new facts have been brought on record and no material change took place in the asst. yr. 2004-05 to take a different view. The Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT has held that where a fundamental aspect permeating through different assessment years has been, found as fact one way or the other and the parties have allowed the position to be sustained by not challenging that order, it would not be proper to all the position to be changed in the subsequent years. In the wealth-tax assessments under Section 16(3) of the past years the Revenue assessed assessee's 1/3rd share to wealth-tax treating her to be the owner, then it is not open for the Department to challenge her ownership only for denying the statutory deduction under Section 24 of the Act. We also find that the Calcutta High Court in the case of Tinsukia Development Corporation Ltd. (supra) upheld the assessment of capital gains on sale of a house property in the hands of the assessee even though the assessee's wife was the legal owner in the property records. The Court however, noted that entire cost of the property was incurred by the assessee and hence he was the real owner though legal ownership was of the wife. The Court therefore did not take cognizance of the legal ownership and assessed capital gains in assessee's hands. In the case of Saifudin (supra), the assessee owned land on which a residential building was jointly constructed with his two brothers. The rental value of the building was assessed in the assessee's hands as he was the owner of the land. The Court observed that since the cost of construction was incurred jointly by 3 persons the property was jointly owned and therefore the entire rental value was not assessable in the assessee's hands. In the present case the facts on record establish that 1/3rd cost of construction of the Panchsheel property was incurred by the assessee and in all past assessments the Revenue considered the assessee to be the 1/3rd owner thereof. In the wealth-tax assessment 1/3rd share of property was charged to wealth-tax treating her to be the owner. Under the facts and circumstances of the case, we, therefore, hold that the AO was not justified in not considering the assessee as the 1/3rd owner of the property at Panchsheel Park. In our considered opinion the 1/3rd rent received by the assessee from the letting of the residential house property was assessable under the head "House property" and the assessee was entitled to statutory deduction under Section 24 of the Act.
In the result, the assessee's appeal is hereby allowed.