Ita/152/2014 Of Deputy Commissioner Of Income Tax v. Sushil Kumar & Ors

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.152 of 2014 (O&M)Date of decision: 01.09.2014 The Deputy Commissioner of Income [ax, Circle, I, Bathinda Vs, .....- Appe Shri Sushil Kumar and others| ....AmeSsponde CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICE FATEH DEEP SINGH Present: Mr. Gaurav Singh Hooda, Advocate for the appellant,Ajay Kumar Mittal,J..inThis order shall dispose of ITA Nos.152 and 153 of 2014 asaccording to the learned counsel for the appellant, the facts and the issueinvolved in both the appeals are similar. However, the facts are beingextracted from [TA No.152 of 2014.) -ITA No.152 of 2014 has been preferred by the revenue undersection 260A of the Income Tax Act, 1961 (in short, “the Act’) against theorder dated 19.8.2013, Annexure A.3 passed by the Income Tax AppellateTribunal, Amritsar Bench Amritsar (in short, “the Tribunal’) in ITA No.86(Asr)/2013 and C.O. No.09(Asr)/2013 for the assessment year 2009-10,claiming following substantial questions of law:- 1) Whether on the facts and circumstances of the case, the firstyear in which the asset was held by the respondent/assesseeaS appearing in the explanation to section 48 (mode ofcomputation) of the Income Tax Act, 1961, should be theyear 1n which the final partition of the HUF was actuallyeffected and decreed by the District Court on 19.5.1998 orwhether 1t can be construed to be earlier than 1.4.1981? 11)Whether in facts and circumstances of the case, theimpugned orders of the Appeal Court's at Annexure A 2 andA. 3 are legally sustainable in the eyes of law’impugned orders of the Appeal Court's at Annexure A 2 andA. 3 are legally sustainable in the eyes of law’ 3]A few facts relevant for the decision of the controversy,involved as narrated in ITA No.I52 of 2014 may be noticed. Therespondent-assessee filed his return for the assessment year 2009-10 at anincome oftzy46,11,493/- mcluding Long Term Capital Gain (LTCG) ofL35,53,500/-. The assessment was completed under Section 143(3) of the Actat an income ofa11,38,960/- plus LTCG of|a1,11,48,931/- respectively.The respondent became the owner of two properties namely a hotel and aplot on 19.5.1998 in pursuance of the Hindu Undivided Family partitionvide order of the then Additional District Judge, Bathinda. Accordingly, theindexed cost of inflation had to be taken by taking the Cost Inflation Indexfor the year 1998-99 and not for the year 1981-82. Accordingly, noticeunder section 143(2) of the Act was issued to the assessee on 30.9.2010.Subsequently, notice under section 142(1) was issued to the assessee on18.10.2010 calling for books of account, bill and vouchers and finalstatements. In response to the notice, the representative of the assesseeappeared and produced the relevant documents. Vide order dated 16.9.2011, ITA No.152 of 2014 (O&M) assessee filed appeal before the Commissioner of Income Tax (appeals)[CIT(A)]. Vide order dated 27.11.2012,Annexure A.2, the CIT(A) allowedthe appeal and deleted the additions made by the Assessing officer onaccount of difference in LTCG te.zy75,95,431/-. Dissatisfied with theorder, the revenue filed appeal before the Tribunal and assessee preferredCross Objection. Vide order dated 19.8.2013, Annexure A.3, the Tribunaldismissed the appeal and the Cross Objection. Hence the instant appeals bythe revenue. 4We have heard learned counsel for the appellant and perusedthe record. 4]It was urged on behalf of learned counsel for the appellantrevenue that the property in dispute was finally partitioned by virtue ofdecree of the District Court on 19.5.1998 and therefore, for purposes of costof indexation, the date of acquisition by the assessee would be 19.5.1998and not 1.4.1981. 4We have heard learned counsel for the appellant and perusedthe record. 4]It was urged on behalf of learned counsel for the appellantrevenue that the property in dispute was finally partitioned by virtue ofdecree of the District Court on 19.5.1998 and therefore, for purposes of costof indexation, the date of acquisition by the assessee would be 19.5.1998and not 1.4.1981. 6.|We do not find any substance 1n the aforesaid submission.Tq The core or the primary issue that has arisen in the presentappeals 1s when the asset becomes the property of the assessee 1n any one ofthe modes specified in Section 47 after 1.4.1981 but was acquired by theprevious owner prior to 1.4.1981, whether the Cost Inflation Index would betaken for the financial year 1981-82 in terms of Section 48 of the Act or forthe financial year 1998-99, 1.e., the year in which the asset became theproperty of the assessee, 8Section 47 of the Act stipulates that the transactions of thenature specified therein are not regarded as transfer and the provisions of ITA No.152 of 2014 (O&M) Section 45 would not apply to them. The relevant portion of Section 47reads thus:- 66A’Nothing contained insection 45Shall apply to thefollowing transfers :— (1) any distribution of capital assets on the total or partialpartition of a Hindu undivided family; Clause (1) of this sub section deals with a case where the capital asset whichthe assessee has sold has come to him on the distribution of the assets of aHindu undivided family on its total or partial partition. Under Section 47(1),no capital gains is attracted where a Hindu undivided family disrupts and itsassets are distributed among its members. QThe ‘mode of computation’ of capital gains has been specifiedunder Section 48 of the Act. The provision which is relevant for thepurposes of present appeal is in the following terms:- Ag.The income chargeable under the head “Capital gains”shall be computed, by deducting from the full value of theconsiderationTeceived or accruing as a result of the transfer ofthe capital asset the following amounts, namely :—shall be computed, by deducting from the full value of theconsiderationTeceived or accruing as a result of the transfer ofthe capital asset the following amounts, namely :— ,1) expenditure incurred wholly and exclusively in connectionwith such transfer; ,a) the cost of acquisition of the asset and the cost of anyimprovement|hereto: ProvidedxX (((((((((((( Provided furtherthat where long-term capital gain arises fromthe transfer of a long-term capital asset, other than capital gainarising to a non-resident from the transfer of shares in, ordebentures of, an Indian company referred to in the first proviso,the provisions of clause (a) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words“indexed cost of acquisition” and “indexed cost of anyimprovement” had respectively been substituted: ((((((((((((((((((Explanation—For the purposes of this section,—,1) and (11) xx((((((((((,111) “indexed cost of acquisition” means an amount which bearsto the cost of acquisition the same proportion as Cost InflationIndex for the year in which the asset is transferred bears to theCost Inflation Index for the first year in which the asset was heldby the assessee or for the year beginning on the Ist day ofApril,1981, whichever 1s later; ,TA) “indexed cost of any improvement” means an amount whichbears to the cost of improvement the same proportion as CostInflation Index for the year in which the asset 1s transferredbears to the Cost Inflation Index for the year in which theimprovement to the asset took place; ,Y) “Cost Inflation Index”, in relation to a previous year, meanssuch Index as the Central Government may, having regard toseventy-five per cent of average rise in the Consumer PriceIndex for urban non-manual employees for the 1mmediatelypreceding previous year to such previous year, by notification inthe Official Gazette, specify, in this behalf.” 10.) Under Section 49 of the Act, the events have been enumerated ,TA) “indexed cost of any improvement” means an amount whichbears to the cost of improvement the same proportion as CostInflation Index for the year in which the asset 1s transferredbears to the Cost Inflation Index for the year in which theimprovement to the asset took place; ,Y) “Cost Inflation Index”, in relation to a previous year, meanssuch Index as the Central Government may, having regard toseventy-five per cent of average rise in the Consumer PriceIndex for urban non-manual employees for the 1mmediatelypreceding previous year to such previous year, by notification inthe Official Gazette, specify, in this behalf.” 10.) Under Section 49 of the Act, the events have been enumerated where the cost of acquisition of an asset shall be deemed to be the cost forwhich the previous owner of the property had acquired it which shall beincreased by the cost of improvement of the assets incurred or borne by theprevious owner or the assessee. The relevant portion 1s as under:- 649.(1) Where the capital asset became the property of theasscsscc— (1) on any distribution of assets on the total or partial partition of a Hindu undivided family;(41) under a gift or will;(111) (a) by succession, inheritance or devolution, or(b) on any distribution of assets on the dissolution of a firm,body of individuals, or other association of persons, where suchdissolution had taken place at any time before the Ist day ofApril, 1987, or (c) on any distribution of assets on the liquidation of a company,OT| (d) under a transfer to a revocable or an irrevocable trust, on(e) under any such transfer as 1s referred to in clause (iv) orclause (v) or clause (v1) or clause (via)or clause (viaa)or clause(vica) or clause (vicb) ofsection 47F (1v) such assessee being a Hindu undivided family, by the modereferred to in sub-section (2) ofsection 64at any time after the31st day of December, 1969, the cost of acquisition of the asset shall be deemed to be the costfor which the previous owner of the property acquired it, asincreased by the cost of any improvement of the assets incurredor borne by the previous owner or the assessee, as the case maybe. Explanation.—In this sub-section the expression “previousowner of the property” in relation to any capital asset owned byan assessee means the last previous owner of the capital assetwho acquired it by a mode of acquisition other than that referredto in clause (1) or clause (11) or clause (111) or clause (iv) of thissub-section. ll.On conjoint reading of sections 47, 48 and 49, what emerges 1s that where there is any distribution of capital asset on total or partial partition of a Hindu undivided family, there is no transfer and therefore, no capital gains tax under section 45 of the Act 1s exigible thereon. Further, the ITA No.152 of 2014 (O&M) Explanation.—In this sub-section the expression “previousowner of the property” in relation to any capital asset owned byan assessee means the last previous owner of the capital assetwho acquired it by a mode of acquisition other than that referredto in clause (1) or clause (11) or clause (111) or clause (iv) of thissub-section. ll.On conjoint reading of sections 47, 48 and 49, what emerges 1s that where there is any distribution of capital asset on total or partial partition of a Hindu undivided family, there is no transfer and therefore, no capital gains tax under section 45 of the Act 1s exigible thereon. Further, the ITA No.152 of 2014 (O&M) cost of acquisition in such cases would be the cost for which the previousowner of the property had acquired which shall be increased by any cost ofimprovement in the capital asset incurred or borne by the previous owner orthe assessee as the case may be. The cost of acquisition of the asset by theHindu undivided family augmented by the costs of improvement made by itto the asset will be taken as the cost of its acquisition in the hands of theassessee. Once the cost of acquisition of the previous owner is taken as thecost of acquisition of the assessee, necessarily, the fiction 1s to be carried toits logical conclusion. In such a situation, by deeming fiction, the assesseeshall for all intents and purposes be deemed to be the owner of the capitalasset on the date when the previous owner had the title to it for the purposesof computation of capital gains under section 45 read with sections 47, 48and 49 of the Act. For calculating the quantum of capital gains, in clause (11)of Section 48 of the Act, for the words “cost of acquisition” and “cost of anyimprovement”, the words “Indexed cost of acquisition” and “Indexed cost ofimprovement” respectively had been substituted. Thus, the indexed cost ofacquisition of such capital asset shall be computed by taking the CostInflation Index of the year in which the previous owner first held the asset. 12.Adverting to the factual matrix herein, the capital asset was theproperty of the Hindu undivided family prior to 1.4.1981. The assesseeacquired absolute ownership by way of Civil Court decree on 19.5.1998after partition of the Hindu Undivided Family property. In suchcircumstances, the date of acquisition of the property by the HinduUndivided Family being prior to 1.4.1981 would entitle the assessee tocalculate capital gains tax by taking the Cost Inflation Index for the financial year 1981-82 in terms of section 48 of the Act and not for thefinancial year 1998-99 as had been done by the Assessing Officer.14.The Tribunal while repelling the contention of the revenue hadnoticed as under:- 12.Adverting to the factual matrix herein, the capital asset was theproperty of the Hindu undivided family prior to 1.4.1981. The assesseeacquired absolute ownership by way of Civil Court decree on 19.5.1998after partition of the Hindu Undivided Family property. In suchcircumstances, the date of acquisition of the property by the HinduUndivided Family being prior to 1.4.1981 would entitle the assessee tocalculate capital gains tax by taking the Cost Inflation Index for the financial year 1981-82 in terms of section 48 of the Act and not for thefinancial year 1998-99 as had been done by the Assessing Officer.14.The Tribunal while repelling the contention of the revenue hadnoticed as under:- “The second issue relates to the addition of v75,95,431/- onaccount of Long Term Capital Gains on the sale of Hotel andplot of land forL1,41,75,000/- during the previous yearrelevant to the assessment year 2009-10. It 1s a fact that thebigger HUF of the respondent/assessee owns the propertybefore 01.04.1981 which is clear from the various partialpartitions made by the bigger HUF on 30.01.1964, 05.02.1964and 12.04.1971 which were duly accepted by the departmentu/s 171 (3) on 14.01.1966, 12.04.1971 and 21.12.1974respectively. The full partition was made on 20.02.1995 whichwas accepted by the A.O. on 19.02.1998. However, therespondent/ assessee also got it made Rule of Court of Lawfrom Additional District Judge on 19.05.1988. The A.O. hashimself accepted the claim of the respondent/assessee u/s 49(1)(1) of the Act taking the cost of the previous owner as on01.04.1981. However, the A.O. has applied the Cost ofInflation Index for the year 1998-99 instead of 1981-82. Therespondent/ assessee has pointed out that this very A.O. hasaccepted the cost of Inflation Index of 1981-82 instead of1998-99 in the case of other co-owners who have sold theproperty during the previous year relevant to the assessmentyear 2009-10. The A.O. could not give a satisfactory reply inhis Remand Report dated 29.10.2012 filed during the course ofappellate proceedings. There should be consistency in theapplication of law while dealing with the various assessesplaced similarly. The respondent/ assessee heavily relied on thejudgment of Hon'ble jurisdictional High Court reported atJaswant Rai vs. CWT (107 ITR 477) in which it was held if a valuation is subject to low rate of taxation in one co-ownerthen it would look highly improper to burden a similarlysituated co-sharer with a higher rate of tax. If such an action onthe part of the A.Q. is sanctioned it would clearly militateagainst the principle of equalities of law enriched in Article 14of the Constitution of India. This judgment of the Hon'bleJurisdictional High Court is clearly applicable to the facts ofthe case and the learned A.O. erred in making discrimination inapplying the Cost of Inflation Index of 1998- 99 in the case ofrespondent/ assessee whereas he applied the Cost of InflationIndex of 1981-82 in the case of other co-owners. Even onmerits, the case of the respondent/ assessee is liable to beaccepted which is based on the interpretation of section 49(1)(1) and its Explanation and definition of Short Term CapitalAsset in section 2(42A) and its Explanation 1(1)(b) read withsection 48 with Explanation (111) which are reproduced below:- Section49 (1)Q):=Where the capital asset became theproperty of the respondent/ assessee:- (1) On any distribution of assets on the total or partialpartition of a HUF, the cost of acquisition of the asset shall bedeemed to be the cost for which the previous owner of theproperty acquired it, as increased by the cost of anyimprovement of the assets incurred or borne by the previousowner or the respondent/ assessee, as the case may be. Explanation: Section49 (1)Q):=Where the capital asset became theproperty of the respondent/ assessee:- (1) On any distribution of assets on the total or partialpartition of a HUF, the cost of acquisition of the asset shall bedeemed to be the cost for which the previous owner of theproperty acquired it, as increased by the cost of anyimprovement of the assets incurred or borne by the previousowner or the respondent/ assessee, as the case may be. Explanation: In this sub-section the expression "previous owner of theproperty’ in relation to any capital asset owned by therespondent/ assessee means the last previous owner of thecapital asset who acquired means the last previous owner ofthe capital asset who acquired it by a mode of acquisitionother than that referred to in clause (1) or clause (11) or clause(111) or clause (iv) of this sub-section Explanation | (1)(b) to section 2(42A) definingJShort Term J5Capital Asset "Short term Capital Asset" means a capital asset held by anrespondent/ assessee for not more than 36 monthsimmediately preceding the date of transfer, 5Explanation 1(1)(b):in the case of a capital asset whichbecomes the property of the respondent/ assessee in thecircumstances mentioned in sub-section (1) of section 49,there shall be included the period for which the asset washeld by the previous owner referred to 1n the said section ." =Explanation (i) to Section 48: Indexedcost of acquisition means an amount which bears tothe cost of acquisition the same proportion as the CostInflation Index for the year in which the asset 1s transferredbears to the Cost inflation Index for the first year in which theasset was held by the respondent/ assessee or for the yearbeginning on the Ist day ofApril, 1981, whichever 1s later.The issue is directly covered by the latest Special Benchdecision of Mumbai Bench in the case of DCIT vs. Mangjula Shah 318 ITR (AT) 417 where 1n 1t was held as under:- "We are of the view that for the purpose of computing longterm capital gains arising from the transfer of a capital assetwhich had become the property of the respondent/ assesseeunder gift, the first year in which the capital asset was heldby the respondent/ assessee has to be determined to work outthe indexed cost of acquisition envisaged in Explanation (111)to section 48 after taking into account the period for whichthe said capital asset was held by the previous owner. In thatview of the matter, we hold that the indexed cost ofacquisition of such capital asset has to be computed withreference, to the year in which the previous owner first heldthe asset." It is further mentioned that this judgment of Special Bench ofI.T.A.T. Mumbai Bench has since been approved by the Hon'ble Bombay High Court on 11.10.2011 and the same hassince been reported at CIT vs. Manjula J Shah 249 CTR 270.This view of the Bombay High Court has been followed bythe Hon'ble Delhi High Court in the case of Arun ShunglooTrust Vs. CIT reported at 249 CTR 294 while interpreting thesection 49(1)(11) read with section 2(42A) and Explanation(111) to section 48 of the Act.....” 14)The findings recorded by the Tribunal have not been shown tobe illegal or perverse in any manner. Consequently, no substantial questionof law arises. The appeals stand dismissed. Since the appeal bearing ITANo.152 of 2014 has been dismissed on merits, no order is required to bepassed on the application for condonation of delay which 1s left open. (Ajay Kumar Mittal)vudge September 01, 2014 (Fateh Deep Singh)Judge "gS