TMI Blog2017 (10) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... approximation, we deem it proper to conclude that the FMV as on 01.04.1981 should be fixed at ₹ 75/sq.ft. We hold and direct accordingly. The relevant grounds of appeal of the revenue are accordingly dismissed while that of the assessee is partly allowed. Interpretation of Explanation (iii) to Sec.48 of the Act, which defines the expression “Indexed Cost of Acquisition” - Whether indexed cost of acquisition has to be computed by taking 1.4.1981 or the year 1994 when the Assessee succeeded to the property as legal heir of her deceased husband? - Held that:- As per the CBDT Circular No. 636 dt. 31st Aug., 1992 a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at the indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long-term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under s. 49(1), the period of holding the asset has to be determined by including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures were let out to one Smt. Rudramma and her legal heirs. There were disputes with the tenant also. It is in this state of affairs that the property in question was sold by the Assessee after settling all the litigations. 4. The Assessee computed long term capital gain on sale of the property. The computation of capital gain as made and given by the Assessee and the computation of capital gains done by the AO was as follows. Particulars Particulars of calculation of Capital Gains by assessee Particulars of calculation of Capital Gains by the learned A.O. Additions / Disallowance made by A.O. Sale Consideration 6,15,00,000/- 6,15,00,000/- - Less: Cost of additional piece of land allotted by BDA 2,02,70,155/- 2,02,70,155/- - 4,12,29,845/- 4,12,29,845/- - Less: Expenses incurred in relation to transfer: Brokerage Paid Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee inherited the property from her husband by way of intestate succession. Under the provisions of section 55(2)(b)(i) of the Income Tax Act, 1961 (Act), where the capital asset became property of the assessee before 01.04.1981, the cost of acquisition of the asset to the assessee shall, at the option of the assessee, be taken as the Fair Market Value (FMV) as on 01.04.1981. The assessee claimed the FMV as on 01.04.1981 at ₹ 100/sq.ft. The AO determined the FMV as on 01.04.1981 at ₹ 10/sq.ft. On appeal by the assessee the CIT(A) fixed the FMV as on 01.04.1981 at ₹ 50/- per sq.ft. In the appeal by the assessee the assessee has challenged the order of CIT(A) fixing the FMV as on 01.04.1981 at ₹ 50/sq.ft. and has claimed that the same should be fixed at ₹ 100/sq.ft. as claimed by the assessee. The revenue in its appeal has challenged the order of CIT(A) whereby CIT(A) fixed the FMV as on 01.04.1981 at ₹ 50/sq.ft. According to the revenue the FMV as on 01.04.1981 should have been fixed at ₹ 10/sq.ft. as done by the AO. 6. We have already seen that the assessee acquired the property by way of succession as legal heir of her husband. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21/07/2009. The date is 21/07/2009 and it may be cross checked in my declaration and also on inspection, reference date. This report has been given by me and fair market value as on 1981 for the property located at Koramangala I Block (which was earlier III Block, Koramangala)and I have valued the property at ₹ 175/- per sq.ft.as the fair market value. For this I have relied upon the guidance value given by the State Government in Circular No. RD/268/ESR/84 dated 07/08/1985, where the value of Richmond Town and Indiranagar which are in close vicinity and their value is at ₹ 166/- per sq.ft. The FMV thus arrived has been interpolated with cost inflation index issued by the Government and the minimum guidance value is worked out at ₹ 125/- per sq.ft. Further, the value has been arrived at after considering future usage and commercial potentiality where high rise structures can come up. I have relied upon 1985 circular because, there was no circular prior to this as per my knowledge. Q.5 I am showing you the statement government circular No.329/EST/79 dated 10/11/1982 and letter from Sub- Registrar, Koramangala dated 16/11/2009. Kindly go through the contents a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e anything else to say? Ans. In view of that property lacking a clear title, the guidance value arrived at Q.6 is not applicable and value will be lesser and will be proportionate to the compensation paid / payable by BDA as on that date. Further, the compensation given would be commensurate with the guidance value of the City Corporation. Q.9 While going through the replies given by you, you have taken only the guidance value of neighbouring areas, kindly explain why you have not taken the valuation of Koramangala. Why you have not taken the actual registrations in Koramangala at that time? Ans. While going through the circulars, it is clear that the guidance value for Koramangala is not there. I presume that there were not many transactions and guidance value in Koramangala is not given. I did not have possession of the documents like you have as per the letter dated 16/11/2009. Q.10 In this back ground ie., the sale transactions in Koramangala taking place at ₹ 10/-to ₹ 22/- and guidance value in neighbouring area varying from ₹ 24/- to ₹ 30/-, the property being acquired at as on 01/04/1981, the assessee not in possession of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the property in question in all respects. In the case of Mahamudabad Properties (P) Ltd. v. CIT (1972) 85 ITR 500 (Cal), the Hon'ble High Court of Calcutta, in their judgement dated 27/7/1970, has held that no rules, however framed under the Act, were brought to our notice having a bearing on the question. 3.12 In regard to the question of FMV of the property, the appellant adopted FMV at ₹ 100 per sq ft. The registered valuer estimated the FMV of the said property at ₹ 175/ per sq ft in the first instance and ₹ 25/ - in the second instance. The guidance value of the State Government in the vicinity of Koramangala had value of ₹ 25/- per sq ft. The sale price of the properties during the year 1981-82 in III Block of Koramangala ranged between ₹ 10/- and ₹ 22/- per sq ft. However, the AO adopted the same as on 1/4/1981 at ₹ 10 per sq ft. 3.13 The appellant narrated the various factors in the determination of FMV for the relevant period. As already discussed above, the valuation is necessarily an estimate as it would be impossible to find out properties identically situated with the property in question in all res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuer is located in the same place or in the vicinity of the assessee s property. In other words we find lot of loose ends in the statement given by the approved valuer before the AO. In this regard the Assessee has in her submissions dated 30.9.2013 specifically pointed out that the AO did not afford opportunity of cross-examination of the Registered Valuer and therefore the evidence in the form of statement of the Registered valuer has to be ignored. The Assessee has in this regard relied on the decision of the Hon ble Madras and M.P.High Court in the case of CIT Vs. A.N.Dynaneswaram 297 ITR 1235 (Mad) and Prakashchand Natha Vs. CIT 301 ITR 134 (MP). Apart from the above, in arriving at the value on the basis of statement of Registered Valuer, the AO has not taken cognizance of the existence of the building and the cost to be attributed to the value of building as on 1.4.1981. Keeping these facts in mind and also taking note of the fact that the AO has not chosen to make a reference to the valuation officer u/s. 55A of the Act and also keeping in mind the fact that estimation of FMV as on 01.04.1981, in the absence of a good comparative sale instance, would be only an approximat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany 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 Explanation : For the purposes of this section,- (i) (ii) (iii) indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later; (iv) indexed cost of any improvement means an amount 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 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t inflation index for 1993- 94 would be applicable. The AO was of the opinion that under Expln. (iii) to s. 48 of the Act, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the asset was first held by the assessee. According to the AO, the asset was held by the assessee from 1st Feb., 2003 and, therefore, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. 14. The Hon ble Bombay High Court held the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was held by the assessee . Since the expression held by the assessee is not defined under s. 48, that expression has to be understood as defined under s. 2. Explanation 1(i)(b) to s. 2(42A) provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29th Jan., 1993, as per Expln. 1(i)(b) to s. 2(42A), the assessee is deemed to have held the capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital asset acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in cl. (iii) of the Explanation to s. 48 that the words asset was held by the assessee has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Expln. 1(i)(b) to s. 2(42A). If the meaning given in s. 2(42A) is not adopted in construing the words used in s. 48, then the gains arising on transfer of a capital asset acquired under a gift or will will be outside the purview of the capital gains tax which is not intended by the legislature. Therefore, the argument of the Revenue which runs counter to the legislative intent cannot be accepted. 16. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
