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2016 (3) TMI 178 - ITAT KOLKATA

2016 (3) TMI 178 - ITAT KOLKATA - TMI - Capital gain computation - whether Property 'held' by the assessee is relevant in computing capital gain and not 'owned' - indexation - computation of Cost of acquisition - market value - antecedent interest over the property - revision u/s 263 - Held that: - The expression “where the capital asset became the property of the Assessee before 1st April, 1981 in the context of Sec.55(2)(b)(i) of the Act, is rather ambiguous, in the sense that it does not spea .....

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ssee that the property became property of the Assessee before 1st April, 1981 as it held the property from the year 1970 has to be accepted, 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, .....

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)(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 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 c .....

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ng 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 - ITA No.372/Kol/2009 - Dated:- 2-3-2016 - Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM For The Appellant : Shri Soumen Adak, ACA & Shri Prakash Singh,ACA For The Respondent : Shri Radhey Shyam, CIT.DR ORDER Per Shri N.V.Vasudevan, JM This appeal by the Assessee is directed against the order dated 15.01.2009 of CIT, Ci .....

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e Property . The property was a vacant plot measuring about 3.44 Acres with compound wall. The Computation of long term capital loss as given by the assessee was as follows :- Particulars Amount (Rs.) A.Long Term Capital Gain on sale of Land located at Ambattur Industrial Estate, Plot No.40-A(NP) in Saidapet Taluk and Chingleput M.G.R. District in the State of TamilNadu Sale Consideration (As per enclosed agreement for sale 32,325,000 Less : Commission paid on the sale of aforesaid land 1,073,92 .....

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. 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 n .....

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(3) of the Act was erroneous and prejudicial to the interest of the revenue. The CIT after considering the proposal of the AO and after perusing the records was of the view that the order passed by the AO was erroneous and prejudicial to the interest of the revenue. He accordingly issued a show cause notice dated 11.08.2008. 6. It was the case of the CIT in the show cause notice that on 3rd March, 1971, the Government of Tamilnadu assigned the property to the assessee by an Indenture for constru .....

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ll comply with the building regulation and other conditions as specified in the Indenture of assignment. The consideration for assignment was ₹ 20,000 per acre and the total consideration was ₹ 68,800 for 3.44 acres of land. In the Indenture of assignment there were 19 conditions to be observed by the assessee. According to CIT from the above mentioned conditions in the Indenture of assignment it was very much clear that the Government of Tamilnadu assigned the developed plot of land .....

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stries Development Corporation Ltd. and transferred the ownership 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 co .....

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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 land only after five years from the date of the said sale deed dtd. 19.04.1994. 7. The property was sold by the Assessee to M/s.Reliance Infocom Ltd., under a sale deed dated 2.12.2003. It is only on this transfer capital loss in question was c .....

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d conveyance was obtained by the Assessee in respect of the property. According to CIT, in course of the regular assessment proceedings, for the A. Y. 2004-05, the Assessing Officer did not examine the long term capital loss calculated as above by the assessee and also he did not make any enquiry relating to the claim of the assessee that there was long term capital loss on sale of the property. The A.O. also did not make any enquiry as to whether the payment of commission on sale of the propert .....

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pril, 1994 when Tamilnadu Small Scale Industries Development Corporation had sold the property to the assessee by a Registered Deed and the assessee was only an assignee of the property till then and used the land as tenant/user by virtue of the Indenture of assignment dtd. 03.03.1971. The CIT was therefore of the view that the order of the AO was erroneous and prejudicial to the interest of the revenue and was liable to be revised in exercise of his powers of revision u/s.263 of the Act. 8. In .....

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) 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 conditio .....

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ands today, shows that capital gain is chargeable on "any profits or gains arising from the transfer of the capital asset...". Read in the context of the definitions of "capital asset" and "transfer" the section carries no words of limitation to read that a transfer effected by a person backed up with a title passed on under a registered deed alone could be considered as resulting in a profit or gain assessable under s. 45. All that the present section looks at is t .....

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the stand of the respondent that the transactions falling under s. 53A of the Transfer of Property Act for the purpose of considering the capital gains would fall for consideration for the purpose of considering the same as falling under long-term capital asset only on and from the amendment inserted under the Finance Act, 1987, w.e.f. 1st April, 1988. The insertion is only declaratory of the law already there by reason of inclusive terms under s. 2(47) which is a wide definition in its import. .....

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agree with the aforesaid contention put forth by the Assessee. He held that the words held by an Assessee would mean de jure ownership and such ownership was acquired by the Assessee only on 19.4.1994 when a registered conveyance was executed in its favour. In coming to the above conclusion, the CIT placed reliance on the decision of the Hon ble 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 b .....

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82, 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 b .....

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(SC). It is, therefore, true that if any one of such interests was alienable by the holder of the same, it could give rise to a capital gain short or long-term depending upon the period for which the interest was held by the person concerned. 13. The question, however, is not whether the leasehold right held by the assessee could independent of the sale in favour of the assessee have been treated as a property right capable of generating a capital gain in the hands of the assessee. The question .....

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ultaneously and independent of each other, the transfer of the title in the property could not be deemed to be transferring the lesser and the larger estates both so as to make them amenable to a process of splitting for purpose of taxing the capital gain arising as a short-term or long-term gain. This, however, was not so in the present case. As from the 29th March, 1982, the assessee held only one estate representing the title to the property in question and any capital gain arising from the t .....

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y 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 f .....

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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 proposal for revision u/s.263 of the Act and therefore the order u/s.263 of the Act has to be held to be invalid, illegal. We are of the view that this argument is liable to be rejected. It is no doubt true that the CIT in the show cause notice u/s.263 of the Act has set out the proposal of the AO that his order suffered from an error and by reason of such error h .....

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s.263 of the Act only suo motto. So long as there is application of mind on errors brought to his notice and the other conditions u/s.263 of the Act are satisfied, there can be no grievance whatsoever to the Assessee. We therefore reject this argument made on behalf of the Assessee. 14. The next contention of the learned counsel for the Assessee was that Property 'held' by the assessee is relevant in computing capital gain and not 'owned'. According to him in all sections dealing .....

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(2008) 301 ITR 345 (Mad) wherein it was held that the definition of 'capital asset' u/ s 2(14) refers to property of any kind "held" by an assessee as distinguished from the word' owner' or 'owned'. He also placed reliance on an identical view taken by Hon'ble Kolkata ITAT in Anindya Dutta -vs.- DCIT (2013)[ITA No. 473/Kol./2012]. His further submission was that the only difference between 'short term capital asset' and 'long term capital asset&# .....

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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 o .....

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property from 1970 for the purposes of computation of Capital Gains/loss. It was further submitted that enabling enjoyment of any immovable property falls within the definition of 'transfer' as per Sec. 2(47)(vi) of the Act. Sec. 2(47)(vi) of the Act, defines 'transfer', as transactions, which inter-alia, have the effect of transferring or enabling the enjoyment of any immovable property by way of any agreement or arrangement or in any other manner. It was pointed out that in the .....

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2(47) by way of insertion of clause (v) & (vi) as held in the case of CIT -vs.- Smt. C. Shakuntala (ITA No. 117 of 2006) (Kar) & Smt. Anita Venugopalchar -vs.- ITO (ITA No. 3667/Mum/2010). Without prejudice, it was submitted that in view of Explanation 2 to Sec. 2(47) inserted by Finance Act, 2012 w.e.f. 01-04-1962 the impugned property has to be regarded as transferred to the Assessee on 08- 04-1970 i.e. the date on which the possession of land was handed over. It was also pointed out t .....

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order of the CIT and the decision of the Hon ble Karnataka High Court in the case of CIT Vs. Dr.V.V.Modi (supra). 16. We have given a very careful 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 tr .....

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on 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 way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) .....

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y manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India; . 17. Sec.48 lays down the method of computation of long term capital gain and it reads as follows: S .....

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om the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall b .....

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erred 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 capi .....

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ital gains" in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.".'. Explanation : For the purposes of this section,- (i) "foreign currency" and "Indian currency" shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999); (ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Ind .....

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unt which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; (v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index (Urban) for the immediately preceding previous year to such previous .....

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b)(i) which reads thus: (2) For the purposes of sections 48 and 49, "cost of acquisition",- (b) in relation to any other capital asset,- (i) where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market 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 capit .....

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ue 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 with .....

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ignment dated 3.3.1970 in favour of the Assessee. The preamble to the deed of assignment refers to the Government having formulated a scheme for the laying of developed plots for industries at Ambattur and the layout plan in respect thereof having been approved by the Town Planning authorities. It thereafter refers to the Assessee having applied for assignment to them of the property. Thereafter there is a reference to the consideration for the assignment and the mode in which it has to be paid. .....

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or superstructure or any portion thereof. "15. Notwithstanding anything hereinbefore contained, in the event of a breach of any of the these conditions by the assignee, the Director may after giving reasonable notice, cancel this assignment and resume that plot and on such resumption, the said plot shall vest absolutely in the government free from all encumbrances and the assignee shall be paid for the land only the price actually paid by the assignee after deducting the penal interest, if .....

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nd 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 .....

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h possessory right got enlarged into an absolute ownership rights. We are of the view that the sale deed merely recognized the Assessee s ownership with reference to original deed of assignment dated 3.3.1970 and payment of full consideration in respect of the property prior to 1.4.1981. The title of the Assessee to the property can be traced to the original assignment deed dated 3.3.1970. 23. Sec.55(2)(b)(i) of the Act defines Cost of acquisition and the expression where the capital asset becam .....

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legal title to the property. Even the provisions of sec.2(47)(v) & (vi) of the Act which defines what is transfer for the purpose of the Act, considers possessory rights as akin to legal title. It is therefore necessary to look into the policy and object of the provisions giving exemption from levy of tax on capital gain. In the present case the Assessee had paid the entire consideration for the property prior to 1.4.1981. Therefore the claim of the Assessee that the property became property .....

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