TMI Blog2016 (3) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... d, keeping in mind the policy and object of the provisions giving the benefit of inflation by adopting fair market value as on 1.4.1981 in respect of properties acquired prior to that date. In our view that the legislature would not have intended to give a meaning to the expression “where the capital asset became the property of the Assessee before 1st April, 1981” used in Sec.55(2)(b)(i) of the Act, as referring to only vesting of legal title. It is unlikely that the legislature would wish to deny benefit of adopting Fair Market value as on 1.4.1981 while computing cost of acquisition for the purpose of Sec.48 of the Act, in a case where, otherwise the Assessee satisfies all parameters for grant of fair market value as on 1.4.1981. The expression “where the capital asset became the property of the Assessee before 1st April, 1981” as used in Sec.55(2)(b)(i) of the Act should not be therefore be equated to legal ownership. In the present case the Assessee had an antecedent interest over the property as early as 3.3.1970 and a vested right over the property by paying the entire sale consideration and complying with the other terms of the deed of assignment much prior to 1.4.1981. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1) Long-term Capital Gain/(Loss) 31,251,074 34,419,420 (3,168,346) Note-1 Indexed cost of acquisition is determined as under :- Estimated Fair market value of Land as on 01-04-1981 (Year of acquisition 1971) [As per valuation report attached] Indexed cost of acquisition[74,34,000*463/100] 7,434,000 34,419,420 3. The assessee sold the property to Reliance Infocom Ltd., under a sale deed dated 02.12.2003 for a total consideration of ₹ 3,25,00,000. The Sale consideration towards the value of the land and the compound wall was apportioned at ₹ 3,23,25,000 for the value of land and ₹ 1,75,000 towards compound wall. In the computation of long term capital loss, the assessee claimed that it had paid ₹ 10,73,926 as commission for sale of the said plot. The assessee deducted the indexed cost of acquisition i.e.,Rs.3,41,19,420 calculated on the fair market value of the land as on 01.04.1981 of ₹ 74,34,000 from the said net sale consideration of ₹ 3,23,25,000 and computed the long term capital loss at ₹ 31,68,346 and claimed carried forward the same to the A. Y. 2005-06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnership of the Industrial Estate at Ambattur to the said Corporation by G..O.Ms.N-785 dtd.7.8.88 and the said Corporation became the absolute owner of the Industrial Estate. Thereafter, at the request of the assessee, the said corporation sold the property to the assessee as per the sale deed dtd. 19.04. 1994 for a consideration of 68,800 already paid by the assessee as per the terms of the deed of assignment. In the sale deed, certain conditions were also imposed upon the assessee. One of the conditions was that the purchaser shall not transfer, sell or mortgage the property or change the ownership/constitution/partners/shareholders or directors within five years from the date of allotment without the prior approval of vendor i.e., Tamilnadu Small Industries Development Corporation Ltd.. But, however, beyond five years from the date of allotment, the purchaser was given the right to effect the changes after informing the vendor subject to compliance of the covenants contained in the sale deed. Therefore, according to CIT, from the language of the sale deed it was clear that the assessee became the owner of the property only in April, 1994 and further had right to dispose of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971 and complied with all the conditions of the assignment and thus became de facto owner of the property much before 1.4.1981 and in terms of Sec.55(2)(b)(i) of the Act, it was entitled to adopt the fair market value of the property as on 1.4.1981. In this regard the Assessee pointed out that the definition of Transfer for the purpose of Sec.2(47) of the Act under clause (v) of Sec.2(47) of the Act also includes Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 . The Assessee pointed out that Sec.2(14) of the Act defines Capital Asset to mean property of any kind held by an Assessee . The expression held by an Assessee only means that de jure ownership is not a condition precedent for regarding a person as owner of a capital asset. The Assessee placed reliance on the decision of the Hon ble Madras High Court in the case of Madathil Brothers Vs. DCIT 301 ITR 345 (Mad) wherein it was held as follows: .the definition of capital asset refers to property of any kind held by an assessee. In contradisti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka High Court in the case of CIT Vs. Dr.VV Mody 218 ITR 1 (Karn.) wherein the facts were that the assessee, an individual, was allotted a site by the Bangalore Development Authority on the 25th May, 1972 in accordance with the relevant rules of allotment. A lease-cum-sale agreement was executed according to which the assessee was required to pay a certain amount to the Bangalore Development Authority and at the end of the 10th year, secure a conveyance in his favour upon payment of the entire sale consideration. Consequently, a sale-deed was executed in favour of the assessees by the Bangalore Development Authority on the 29th March, 1982, registered on the 13th May, 1982. Shortly, thereafter, on 27th Nov., 1982, the assessee sold the site to a third person for a total consideration of ₹ 1,69,200. The question before the Court was as to whether it can be said that the Assessee held the property from the year 1971 or only when the registered conveyance was executed in his favour. The Hon ble Karnataka High Court held as follows: 12. The term capital asset as defined by s. 2(14) of the Act means property of any kind held by the assessee whether or not connected wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee. With regard to the argument of the Assessee by placing reliance on Sec.2(47)(v) of the Act, the CIT was of the view that those provisions are not applicable when one of the contracting parties was Government. He also held that even otherwise the conditions necessary for application of Sec.53A of the Transfer of Property Act, 1887 were not present in the case of the Assessee. 11. For the above reasons, the CIT set aside the order of the AO in so far as it relates to acceptance of capital loss on sale of the property and directed the AO to frame assessment on the above issue by considering the date of acquisition of the property as 19.4.1994 and further directed the AO to enquire into the actual cost of acquisition and expenditure in connection with the transfer claimed by the Assessee. 12. Aggrieved by the order of the CIT, the Assessee has preferred the present appeal before the Tribunal. 13. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The first argument of the learned counsel for the Assesse was that u/s.263 of the Act it is only the CIT who can suo motto initiate proceedings and in this case the AO has mooted the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been held by the assessee and not the nature of the title of the property. It was his submission that in the case of the Assessee, possession of land was given to the Assessee in 1970 and by way of sale deed executed in 1994, only improvement of the existing right in the said land has taken place. The said improvement will not have any impact on determination of holding period. He placed reliance upon the decision of Hon'ble Allahabad HC in CIT -vs.- Rama Rani Kalia 358 ITR 499 (All). It was further submitted that depreciation u/ s 32 of the Act is allowable, inter-alia, if the assets are wholly or partly owned by an assessee. Even in such cases, it has been held that legal ownership is not necessary and possession of assets would suffice for allowance of depreciation. Reference was made to the decision of the Hon'ble Apex Court in Mysore Minerals Ltd. -vs.- CIT (1999) 239 ITR 775 (SC) wherein it was held that anyone in possession of property for the time being in his own title and having right to use or occupy it and/ or to enjoy it in his own right for the purpose of business or profession would be the owner of the property though a formal deed of title may not have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful consideration to the rival submissions. Sec.45 of the Act lays down that any profit or gain arising from the transfer of a capital asset effected in the previous year shall be chargable to income tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place. Sec.2(47) of the Act defines transfer for the purpose of the Act and it reads thus: (47) transfer , in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent thereafter in, and sale of, shares in, or debentures of, an Indian company: Provided further that where long-term capital gain arises from the transfer of a longterm capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) 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 any improvement had respectively been substituted : Provided also that nothing contained in the second proviso shall apply to the longterm capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government : Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section: Provided also that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the asset as on the 1st day of April, 1981, at the option of the assessee; 19. It can be seen that clause (b)(i) of Sec.55(2)(b) would be attracted only when the capital asset became the property of the Assessee before 1st April, 1981. It was the plea of the Assessee that though a registered conveyance in respect of the property was obtained by the Assessee only on 19.4.1994, it became the owner of the property by paying the entire consideration as set out in the deed of assignment dated 3.3.1971 and by complying with the conditions of assignment much before 1.4.1981 and therefore under clause (b)(i) of Sec.55 of the Act, it was entitled to adopt the fair value market value as on 1.4.1981 as cost of acquisition while computing capital gain/loss. 20. The undisputed facts are that the property was assigned by the Tamil Nadu Government through Governor by a deed of assignment dated 3.3.1970. The consideration payable by the Assessee for the assignment of the property was a sum of ₹ 34,400/-. The Asssessee paid ₹ 17,200/- on the date of assignment. The remaining sum was to be paid in two equal instalments, the 1st instalments to be paid within 2 years fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Assignee. Nevertheless some interest is created in favour of the Assignee and that is clear from clause-12 of the deed of assignment. The deed of assignment cannot be construed as conveying absolute ownership/interest over the property in favour of the Assessee because such ownership/absolute interest is conveyed only by deed of sale dated 19.4.1994. The deed of assignment does not confer any right on the Assessee to demand conveyance from the Assignor nor was there any agreement to convey the property to the Assessee. The Assessee was therefore not an agreement holder in possession of the property. In such circumstances, we fail to see as to how the Assessee can lay claim on the basis of Sec.2(47)(v) of the Act. The Assessee in the present case was neither a lessee nor an agreement holder in respect of the property. The capacity in which the Assessee was in occupation of the property prior to the sale deed dated 19.4.1994 was as a permissive user and that did create interest over the property in favour of the Assessee. By the deed of sale dated 19.4.1994 such possessory right got enlarged into an absolute ownership rights. We are of the view that the sale deed merely recogni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to legal ownership. In the present case the Assessee had an antecedent interest over the property as early as 3.3.1970 and a vested right over the property by paying the entire sale consideration and complying with the other terms of the deed of assignment much prior to 1.4.1981. We are therefore of the view that the CIT was not justified in directing the AO to adopt the date of acquisition of the property by the Assessee for the purpose of computing capital gain u/s.48 as 19.4.1994. The claim of the Assessee that it was entitled to adopt fair market value of the property as on 1.4.1981 as cost of acquisition and consequent indexation benefit is correct. We reverse and modify the order of the CIT to this extent. 24. As far as what is the cost of acquisition and as to whether the expenditure incurred by the Assessee in connection with the transfer were allowable deduction or not, has not been examined by the AO while completing the assessment u/s.143(3) of the Act. To this extent we uphold the order of the CIT directing the AO to examine these two aspects and compute capital gain accordingly. 25. In the result the appeal by the Assessee is partly allowed. Order pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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