TMI Blog2012 (9) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 14,93,485 Less : Amount invested in NABARD Bonds U/s. 54EC ₹ 26,00,000 Long Term Capital Gain taxable ₹ 10,06,515 However, in the revised return the working of long term capital gain was shown as under: Sale price of Property as per Sale Deed dated 09-03-2006 ₹ 56,00,000 Add : Damage given by Court ₹ 12,00,000 Less : Legal Expenses Advocate fees ₹ 5,00,000 Less : Indexed price ₹ 59,19,270 Less : Amount invested in NABARD Bonds u/s. 54EC ₹ 26,00,000 Long Term Capital Gain Taxable NIL 2.1 The assessee's brother Shri H.K. Mody was the original owner of the property which was sold by the assessee during the year under consideration. Shri H.K. Mody died in December 1982. Vide following release deeds, the other brother, sisters and wife of Shri H.K. Mody relinquished their rights in the said property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r : Particulars Amount (Rs.) Remarks 1. Cost of purchase (For Late Mr. H.K. Mody 11,91,000 As on 01-04-1981 2. Sale Consideration including compensation 68,00,000 -- 3. Proportionate cost of acquisition of assessee's part after the death of her brother Mr. H.K. Mody) being 20% of cost of acquisition) 2,38,200 As on 01-04-1981 4. Indexed cost of acquisition to the extent assessee's part of 20% (1/5) [(2,38,200 x 497)/109= 10,86,105] 10,86,105 C11 of 1982-83 is 109 5. Cost of Acquisition on relinquishment of rights by one brother 2 sisters [3 X 2,38,200 X 497/281 = 12,63,901] 12,63,901 C11 of 1995-96 is 281 6. Cost of Acquisition on relinquishment of rights by brother's wife (2,38,200 X 497)/331 = 3,57,660 3,57,660 C11 of 1997-98 is 331 7. Total indexed cost of acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not applicable to the facts of the case. He also rejected the claim of the assessee that ₹ 12 lakhs received as compensation be excluded on the ground that the same was filed through the additional ground and therefore cannot be entertained at this juncture in view of the decision of the Hon'ble Supreme Court in the case of Goetz India Ltd. 5. So far as the claim of the assessee that ₹ 40,000/- received as advance money from time to time against agreement to sale be not excluded from the cost of the asset he held that the above amount is liable to be reduced from the cost of acquisition of the asset for the purpose of computation of capital gain. Accordingly he enhanced the income by ₹ 1,34,500/- under section 251(1) of the Income Tax Act. 5.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : 1. In the facts and circumstances of the case and in law it may please be held that Long Term Capital Gains arising on sale of property at K-21, Hauz Khas Enclave New Delhi, by the assessee during the year work out to Nil and that the working made by the learned Assessing Officer as well as the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e additional ground of appeal raised by the assessee that the compensation of ₹ 12,00,000/- received by the assessee from Mr. Sharma for unauthorised and illegal occupation of property at K-21, Hauz Khas Enclave New Delhi was a Capital Receipt not liable to be taxed. 8. It may please be held that the compensation of ₹ 12,00,000/- received by the assessee from Mr. Sharma, for unauthorised and illegal occupation of property at K-21, Hauz Khas Enclave New Delhi is a Capital Receipt not liable to be taxed. 9. The assessee be awarded cost of the present appeal u/s. 254 (2B) of the I.T. Act, 1961. 10. The assessee craves the permission to add, amend, modify, alter, revise, substitute delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal. 6. The learned counsel for the assessee submitted that the issue relates to computation of long term capital gain on account of sale of a Bungalow at New Delhi which was purchased by the brother of the assessee Sri H.K. Mody on 26- 06-1965. He submitted that Sri H.K. Mody was a Parsi and his wife was alive when he died. He submitted that vide two sale deeds dated 09-03-2006 the property was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset. He submitted that since Mr H.K. Mody had held the property since 1965 and since after his death the other co- owners vide respective release deeds had relinquished their rights in the property to the assessee, which amounts to gift, therefore, in view of the decision cited above the fair market value of the property should be taken as on 01-04-1981 and indexation benefit should be granted to the assessee. He submitted that the case of the assessee falls u/s.49(1)(ii). He submitted that because of ignorance of law the assessee had taken a contrary stand before the CIT(A) for which he had held that there is inconsistency in the stand of the assessee. However, for the purpose of taxation correct law has to be applied and therefore indexation benefit should be given to the assessee w.e.f., 01-04-1981. 8. So far as the taxing of compensation of ₹ 12 lakhs is concerned he submitted that it was an erroneous c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as the first ground is concerned the same being general in nature is dismissed. Before going to Ground of appeal No. 2 we would like to decide the Grounds of appeal No. 3 and 4 first, according to which the release deeds executed by co- owners of the property in favour of the assessee amounts to gift and therefore the indexed cost of acquisition of the property should be calculated by taking the value of the entire property as on 01-04-1981. From the various details furnished by the assessee in the Paper Book we find Sri H.K. Mody, brother of the assessee had purchased the property on 26-05-1965. Sri H.K. Mody was a Parsi and died on 29-12-1982 leaving his wife. Father of Sri H.K. Mody died on 15-05-1983 and mother Smt. M.K. Mody died on 12-06-1984. After the death of Sri H.K Mody as per Parsi Act the following persons were the legal heirs : 1. Mrs. T.J. Cooper 2. Mr. C.K. Mody 3. Mrs. Nergish J. Parakh 4. Dr. Mrs. J.F. Irani 5. Mrs. Mani H. Mody 13. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the donor and attested by at least two witnesses. Consequently, a registered instrument releasing the right, title and interest of the releasor without consideration may operate as a transfer by way of a gift, if the document clearly shows an intention to effect the transfer and is signed by or on behalf of the releasor and attested by at least two witnesses. Exhibit B-1 stated that the releasor was the owner of the properties. It showed an intention to transfer his title and its operative words sufficiently conveyed the title. The instrument, on its true construction, took effect as a gift. The gift was effectively made by a registered instrument signed by the donor and attested by more than two witnesses. 14. In view of the above decision of the Hon'ble Supreme Court cited (Supra) it has to be held that the transfer of the property by the respective co-owners in favour of the assessee through the release deeds in pursuance of love and affection which were duly attested by a notary in presence of witnesses before him amounts to transfer of the property through gift. 15. We find as per the provisions of Section 49 where the capital asset became the property of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improvement incurred by the previous owner is included in determining the period for which the asset was held by the assessee. Therefore, it is reasonable to hold that in the case of an assessee covered under Section 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. 22. The object of giving relief to an assessee by allowing indexation is within a view to offset the effect of inflation. As per the CBDT Circular No. 636 dated 31/8/1992 [see 198 ITR 1 (St) 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 Section 49(1) of the Act, the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad received an amount of ₹ 40,000/- as earnest money, therefore, in view of the clear cut provisions of section 51 the earnest money of ₹ 40,000/- has to be deducted from the cost of the asset while calculating the capital gain. The decision in the case of Hanuman Cotton Mills and Others Vs. Tata Air Craft Ltd. cited (Supra) by the learned counsel for the assessee will not be of any use to her because the same was on different sets of facts and for different proposition and does not relate to computation of capital gain when advance money is received on account of any capital asset which has been transferred. Ground of Appeal Nos. 5 and 6 are accordingly dismissed. 19. So far as Ground of appeal Nos. 7 and 8 relating to the compensation of ₹ 12 lakhs are concerned we find the same was received by the assessee from Mr. Sharma for unauthorised and illegal occupation of the property at Hauz Khas Enclave, New Delhi as per direction of the court. We find the issue has to be decided in favour of the assessee in view of the decision of the Special Bench of the Tribunal in the case of Narang Overseas Pvt. Ltd., (Supra) wherein it has been held that mesne profits award ..... X X X X Extracts X X X X X X X X Extracts X X X X
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