D.b. Income Tax Appeal v. A.c.i.t., Circle-1, Jodhpur (Raj

HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR D.B. Income Tax Appeal No. 90 / 2008 Smt.Mukut Rajya Laxmi, C/o Sardar Guest House, Civil Lines, Jodhpur (Raj.). ----Appellant Versus A.C.I.T., Circle-1, Jodhpur (Raj.). ----Respondent _____________________________________________________ For Appellant(s) : Mr.Vikas Balia. For Respondent(s) : Mr.KK Bissa. _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATIJudgment / Order 24/01/2018 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasremitted the matter back to the Assessing Officer for deciding thematter afresh. 2.While admitting the appeal, this Court framed followingsubstantial questions of law :- “(I) Whether in cases, where the cost of acquisition ascontemplated by the definition given under the Income TaxAct, is not ascertainable for any reason, still in the event oftransfer of the asset, the liability for capital gain tax wouldbe attracted? (II) Whether even in cases, where the property iscontemplated to have been acquired by the owner, ororiginal owner in upward sequence without payment of anycost, and the property ultimately comes in the hands ofproperty ultimately comes in the hands of the presenttransferor in one of the modes prescribed like will, gift,inheritance, etc., still in the event of transfer, the liability ofcapital gain tax would be attracted? (III) Whether the onus to prove, as to what was the cost of acquisition of the asset, which is sought to be subjected tolevy of capital gain tax, is on the assessee, or the Revenue?” 3.Counsel for the appellant has taken us to the order of theTribunal and contended that the Tribunal while considering thematter though partially confirming the submissions of theassessee, has observed as under :- "8.Having heard both the sides and perused the relevantmaterial on record, we find that the Ld. CIT (A) hasproceeded by taking the previous owner as Shri RaghunathSingh in disregard to Explanation 49(1), as per which theprevious owner means ‘last previous owner’ who acquiredproperty by modes other than those referred in sub-section(1) of sec. 49 (1). As Shri Raghunath Singh Ji also inheritedthe property, he cannot be taken as the last previous owner.Since the Ld. A.R. could not furnish details of the ‘lastprevious owner’ and the cost of property to such owner, weare of the considered opinion that the question cannot bedecided at our end in the absence of such imperative detail.Under these circumstances it would be just and fair if theimpugned order is set aside and the matter is restored to thefile of the AO. We order accordingly and direct him todecided this case afresh as per law after allowing reasonableopportunity of being heard to the assessee." 3.1He also relied upon the decision of High Court of Gujaratreported in (2006) 281 ITR 19 (Guj.) (Commissioner of IncomeTax. vs. Manoharsinhji P. Jadeja) and contended that the Tribunalhas misconstrued the view taken by the Gujarat High Court,wherein it is observed as under :- 3.1He also relied upon the decision of High Court of Gujaratreported in (2006) 281 ITR 19 (Guj.) (Commissioner of IncomeTax. vs. Manoharsinhji P. Jadeja) and contended that the Tribunalhas misconstrued the view taken by the Gujarat High Court,wherein it is observed as under :- "The case of B.C. Srinivasa Setty [1981] 128 ITR 294 (SC)came to be applied by the Madhya Pradesh High Court in factsituation which is almost similar to the present one. Theassessee therein was Maharaja of Ratlam who sold somelands which were part of the property inherited by the saidassessee from his forefather to whom the property had beengifted by a Moghul Emperor. Madhya Pradesh High Courtafter taking into consideration various decisions repelled thetwo fold contentions raised by the Revenue viz. that the caseof Srinivasa Setty (supra) and other decisions which followedthe said decision related to intangible assets and secondlywhere cost of acquisition could not be ascertained fairmarket value had to be adopted in the following words : "It is no doubt true that none of these casesrelate to the sale of immovable property as in thepresent case. But the gist of all these decisions hasbeen the same that if there is no cost of acquisition,then the sale price would not attract the provisions ofcapital gains. Thus, it would be clear that the liabilityfor capital gains tax would arise in respect of only thosecapital assets in the acquisition of which the element ofcost is either actually present or is capable of beingreckoned and not in respect of those assets in theacquisition of which the element of cost is altogetherinconceivable, as in the present case. The circular ofthe Board referred to above on which learned counselfor the Revenue placed reliance--though not binding onthis court--only indicates that the section does notrelate to only the immediate past owner but to pastowners in succession. Thus, we are not persuaded to agree with thesubmission made by the learned counsel for theRevenue that in such a case as the present one,according to the provisions of section 55 of the Income-tax Act, 1961, where cost cannot be ascertained, thefair market price has to be taken into considerationbecause the very basis of capital gains to us appears tobe that at some point of time, the person who initiallyacquires acquires the property at some cost in terms ofmoney." [Commissioner of Commissioner of IncomeTax v. H.H. Maharaja Sahib Shri Lokendra Singhji,(1986) 162 ITR 93]. The Andhra Pradesh High Court in the caseof Commissioner of Income Tax v. Markapakula Agamma,(1987) 165 ITR 386 was once again called to resolve almosta similar controversy between the assessee and theRevenue. There the assessee was a protected tenant andacquired rights in the land itself by virtue of Section 40(4) ofthe Andhra Pradesh (Telangana Area) Tenancy andAgricultural Lands Act. The said rights in the land came to becompulsorily acquired by the State Government pursuant toacquisition proceedings for the purpose of the Housing Boardand the lands vested in the State Government. Out of thetotal compensation paid by the State Government theprotected tenant was entitled to 60% on the basis ofprovision of the aforesaid Tenancy and Agricultural Act. Inrelation to the said compensation question arose as towhether the assessee was liable to be charged under thehead 'Capital gains'. Applying the ratio in the case ofSrinivasa Setty (supra) the Court held that the rights in theland though in the nature of protected tenancy rights do nothave any cost of acquisition and the compensation cannot bebrought within the net of capital gains. The contention onbehalf of the Revenue that fair market value on the date ofconferring of protected tenancy may be adopted as the costof acquisition was also rejected. The necessity of providing an optional date for adopting cost of acquisitionunder Section 55 of the Act has been explained in thefollowing words while repelling the contention of the Revenuethat in absence of cost of acquisition fair market value has tobe adopted as provided under Section 55 of the Act. "Learned standing counsel for the Revenue contendedthat in any event, the fair market value on the date ofconferring protected tenancy can be considered asprovided under Section 55 of the Act. Learned counselsays that by this process the element of cost ofacquisition can be taken as present. Considered from aproper perspective, section 55 does not yield to thisline of approach. The relevant sub-section of section55 is an elucidation and extension of sections48and 49 providing for the valuation being peggeddown to the date specified therein, namely January 1,1964, at the option of the assessee. Having in view thegalloping increase in prices and abnormal low costs inthe earlier years, the assessee is facilitated to opt forthe date, i.e., January 1, 1964, for ascertaining thecost of acquisition. This provision presupposes the costof acquisition but this mode of ascertaining the cost ofacquisition is prescribed by shifting the date ofascertainment to January 1, 1964, from the actual dateof acquisition. The effect of this section is thatwhatever be the cost during the period precedingJanuary 1, 1964, the assessee may exercise the optionof having the value ascertained as on January 1, 1964.This provision cannot be pressed into service wherethere is no cost of acquisition at all." This Court in the case of Baroda Cement and ChemicalsLtd. v. Commissioner of Income Tax, (1986) 158 ITR 636was called upon to decide as to whether amount received bythe assessee by way of damages for breach of contract ofsale was chargeable to tax under the head 'Capital gains'.The Court after referring to the case of Srinivasa Setty(supra) and extracting the relevant portion from Page 299 ofthe reported decision of 128 ITR held that : "The ratio of this decision is that the asset referred toin section 45 must be one in the acquisition whereofthe assessee had incurred a cost. If the Revenue failsto show that the assessee had incurred a cost as in thepresent case, it would be impossible to compute theincome chargeable to tax under the head "Capitalgains" and what the Revenue would be charging wouldbe the capital value of the asset and not any profit orgain." Thus, it is apparent that the asset referred to in Section45 of the act has to be - (i) in the acquisition of which it ispossible to envisage a cost; (ii) in the acquisition whereofthe assessee had incurred a cost, and the onus of showingthat the assessee had incurred cost is on the Revenue. If theRevenue fails to show that the assessee had incurred a cost, as in the present case, it would be impossible to compute theincome chargeable to tax under the head 'Capital gains'. TheRevenue cannot be permitted to charge capital value of theasset because what is chargeable is profits and gains ontransfer of a capital asset. Therefore, stand of the Revenuethat in absence of any cost being actually incurred the valuethereof has to be taken as Nil and the entire saleconsideration is taxable cannot be accepted in light of thesettled legal position. as in the present case, it would be impossible to compute theincome chargeable to tax under the head 'Capital gains'. TheRevenue cannot be permitted to charge capital value of theasset because what is chargeable is profits and gains ontransfer of a capital asset. Therefore, stand of the Revenuethat in absence of any cost being actually incurred the valuethereof has to be taken as Nil and the entire saleconsideration is taxable cannot be accepted in light of thesettled legal position. The contention that when the cost of asset is Nil theentire sale consideration is required to be taxed as profitsand gains under the head 'Capital gains' is also sought to besupported by the amendment in Section 55 of the Act.According to the learned counsel for the Revenue theprinciple -- that a capital asset which does not have cost ofacquisition does not fall within the charging Section -is nowsuperseded by amended provision of Section 55 of the Act.However, it requires to be noted that by the Finance Act,1987 w.e.f. 01-04-1988 the amendment toSection 55 of theAct only ropes in taxability of goodwill on transfer of thesame even if there is no cost of acquisition. Similarly, Section55 has been amended from time to time to enable thetaxation of other assets wherein no cost of acquisition isenvisaged : tenancy rights, state carriage permits and,looms hours by the Finance Act, 1994 with effect from 1stApril 1995; right to manufacture, produce or process anyarticle or thing by the Finance Act 1997 with effect from 1stApril 1998; trademark or brand name associated withbusiness by the Finance Act 2001 with effect from 1st April2002; and right to carry on any business by the FinanceAct2002 with effect from 1st April 2003. Therefore, even if the amendment is taken intoconsideration Section 55 can be invoked in cases of Nil costof acquisition for the purpose of bringing to tax entire saleconsideration only in relation to the specified assets. TheLegislature having amended the said section from time totime has roped in only specified assets as notedhereinbefore. In the circumstances, the amendment insteadof working to the advantage of the Revenue goes to indicatethat the Legislature does not want to bring within thepurview of tax net all the assets (except the specified assets)which do not have cost of acquisition and the entire saleconsideration cannot be treated as profits and gainschargeable under the head 'Capital gains' by adopting thecost of acquisition as Nil. The contention of the Revenue that fair market value ofthe asset is required to be adopted by invoking provisionof Section 55(3) of the Act has already been rejected by theApex Court in the case of Srinivasa Setty (supra) in thefollowing words " Nor can sub-section (3) of Section 55 beinvoked, because the date of acquisition by the previousowner will remain unknown." The importance of date of acquisition cannot be lost sight of taking into consideration the scheme of theAct. Under the Act both short term gains and long termcapital gains are chargeable to tax but the treatment thereofis different. Section 2(42A) defines "short term capital asset"and lays down the period beyond which if an asset is held itwould become a long term capital asset, transfer whereof isliable to be taxed as long term capital gains. Therefore, forworking out the specified period i.e. 36 months immediatelypreceding the date of transfer the date of acquisitionbecomes relevant. In the present case, admittedly, theassets have been acquired by a mode of acquisition specifiedin Section 49(1)(iii)(a) of the Act and thus the asset inquestion is a long term capital asset but neither the cost northe date of acquisition are ascertainable. In light of what is stated hereinbefore, it cannot be heldthat the order of the Tribunal suffers from any legal error orinfirmity so as to call for any interference. The Tribunal wasjustified in law in holding that the Income-tax authoritieswere not right in working out capital gains at Rs.41,11,414/= so as to bring the same to tax under the head'Capital gains'. In the result, the question referred to the Court isanswered in the affirmative i.e. in favour of the assessee andagainst the Revenue. There shall be no order as to costs." 4.We have heard learned counsel for the parties. 5.In para 2(a) of the appeal, it is specifically narrated that how the property has come to the family. Para 2(a) reads as under :- "2(a). That the Appellant assessee owns a plot of landsituate at Amer Sagar Road, Jaisalmer. The land in questionbelonged to the erstwhile rulers of the state of jaisalmer. Theappellant became the owner of the said land by virtue of a‘Will’ executed by her husband late Shri Raghunath singh jiwho died on 27.02.1982. Shri Raghunath Singh ji in turn hadreceived the property by way of gift from his father late shriGirdhar Singh ji who died in the year 1950. And, the land inquestion came to late Shri Girdhar Singh ji by way ofinheritance from his father late Shri Jawahar Singh ji andLate Jawahar Singh ji inherited the property from hisforefathers. Shri Jawahar Singh ji, Shri Girdhar Singh ji andshri Ragunath Singh ji are the erstwhile rulers of the State ofJaisalmer. 6.In our considered opinion where no cost of acquisition is incurred, it would be impossible to compute the inicomechargeable to tax under the head 'capital gains'. In that view ofthe matter, the contention raised by the assessee is required to be accepted in the light of the judgment of Gujarat High Court. 7.In that view of the matter, all the issues are answered infavour of the assessee and against the department. 6.Accordingly, the appeal stands allowed. (DR. PUSHPENDRA SINGH BHATI)J. (K. S. JHAVERI)J. S.Phophaliya/-122