TMI Blog2022 (2) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, as provided in Section 49(1)(ii), clauses (29A) and (42A) of Section 2 and Section 55(2)(b)(ii) of the Act, indexation of the cost of acquisition under the second proviso to Section 48 should be available from the financial year 1981-1982. Therefore, on this ground alone, we will have to grant prayer clause (a) as quoted earlier. Refund of excess tax paid - From the assessment order annexed to the affidavit in rejoinder, it does appear that the Revenue had selected the return of the seller for scrutiny and an assessment order dated 24th February 2014 under Section 143(3) of the Act has been passed. In the said order, department has accepted the capital gains at ₹ 3,85,613/-, and in the absence of any claim of TDS of ₹ 28,74,100/-, has not allowed any credit or refund of the same. In fact, the department has raised the demand of ₹ 91,360/- as seller s tax along with interest under Section 234B of the Act. There is no sur-rejoinder filed by department to this affidavit in rejoinder, denying any of the averments in the affidavit though more than four years have passed since rejoinder was filed in the Court on 15th December, 2017 when time was granted on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Mr. Rustom Framjee expired on 17th September 2006 leaving behind two sons as his legal heirs namely, Mr. Sohrab Rustom Framjee and Mr. Pesh Rustom Framjee. As per the Will of Mr. Rustom Framjee dated 19th February 2006, he bequeathed his estate including his 1/4th share in the said property to his two sons in equal shares. Though no probate has been granted in respect of the Wills of Mrs. Rodha Rustom Framjee and Mr. Rustom Framjee, their only sons - Mr. Sohrab Rustom Framjee and Mr. Pesh Rustom Framjee have accepted the said Wills and acted upon the same. 3. Accordingly, Mr. Pesh Rustom Framjee (hereinafter referred to as seller ) became owner of 1/8th share in the said property. Petitioner had decided to buy that 1/8th share of seller and since Mr. Pesh Rustom Framjee (seller) was a non-resident in so far as the Income Tax Act, 1961 (the Act) is concerned and he had not filed his return of income for any of the earlier years as there was no taxable income in India in those years in his hands, petitioner filed an application before respondent No.1 under Section 195(2) of the Act requesting him to issue a LOW tax rate Certificate for Deduction of Tax at Source in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the cost for which the said property was acquired by late Mrs. Dolly Jehangir Gazdar. It is also petitioner s case that under clauses (29A) and (42A) of Section 2, the period of holding of late Mrs. Dolly Jehangir Gazdar, Mrs. Rhoda Rustom Framjee and Mr. Rustom Framjee are also to be included in the period of holding of seller for ascertaining whether the said property is held by him as a short term capital asset or as a long term capital asset. Therefore, in its application under Section 195(2) of the Act, petitioner annexed a copy of draft computation of long term capital gains of the seller in respect of the transfer of the said property. Petitioner took the benefit of the option provided in the provisions of Section 55(2)(b)(ii) of the Act, which provides that where a capital asset became the property of the assessee by any of the modes specified in Section 49(1) and the capital asset became the property of the previous owner before the 1st day of April 1981, cost of acquisition means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April 1981 at the option of the assessee. Based on the scheme of the Act as is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently grant a refund of the excess tax paid along with interest to the Petitioner; 9. In the affidavit in reply, respondent is of course justifying the action of respondent No.1 in passing the order dated 21st December 2010 impugned in the petition. Respondent is also admitting that a Full Bench of ITAT has taken a view, which is contrary to the view taken by respondent No.1. However, according to respondent, the department is contesting the order of ITAT and the issue has not been settled by the Hon ble High Court. 10. Time and again, Courts have held that the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department or is the subject matter of an appeal cannot be a ground for not following it unless its operation has been suspended by a competent court. This has been reiterated by this Court in its order dated 31st January, 2022 Karanja Terminal Logistic Private Limited Vs. Principal Commissioner of Income Tax Writ Petition No.1397 of 2020 (unreported). 11. In any case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act 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 per the previous owner held the capital asset from January 29, 1993, as per Explanation 1(i)(b) to section 2(42A) of the Act, the assessee is deemed to have held the capital asset from January 29, 1993. By reasons of the deemed holding of the asset from January 29, 1993, the assessee is deemed to have held the asset as a long-term capital asset. If the long-term capital gains liability has to be computed under section 48 of the Act by treating that the assessee held the capital asset from January 29, 1993, then, naturally in determining the indexed cost of acquisition under section 48 of the Act, the assessee must be treated to have held the asset from January 29, 1993, and , accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. If the argument of the Revenue that the deeming fiction contained in Explanation 1(i)(b) to section 2(42A) of the Act cannot be applied in computing the capital gains under section 48 of the Act is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Explanation 1(i)(b) to section 2(42A) of the Act. To accept the contention of the Revenue that the words used in clause (iii) of the Explanation to section 48 of the Act has to be read by ignoring the provisions contained in section 2 of the Act runs counter to the entire scheme of the Act. Section 2 of the Act expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under section 2 of the Act. In section 48 of the Act, the expression asset held by the assessee is not defined and, therefore, in the absence of any intention to the contrary the expression asset held by the assessee in clause (iii) of the Explanation to section 48 of the Act has to be construed in consonance with the meaning given in section 2(42A) of the Act. If the meaning given in section 2(42A) is not adopted in construing the words used in section 48 of the Ac, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee, in the present case, is held liable for long-term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. In the result, we hold that the Income-tax Appellate Tribunal was justified in holding that while computing the capital gains 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. 13. Therefore, the cost of acquisition of the said property in the hands of seller is deemed to be the cost for which the said property was acquired by late Mrs. Dolly Jehangir Gazdar and the period of holding of late Mrs. Dolly Jehangir Gazdar, Mrs. Rhoda Rustom Framjee and Mr. Rustom Framjee are also to be included in the period of holding of seller for ascertaining the period for which the property was held by the seller. Based on the Scheme of the Act, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rejoinder. 17. At the same time, it is not clear whether the seller has paid the tax amount of ₹ 91,360/- demanded from him pursuant to the assessment order dated 24th February, 2014. 18. At this point of time, we would, therefore, permit the department to retain this amount (₹ 91,360/-) and return the balance out of ₹ 28,74,100/-. The department will also refund the proportionate interest of ₹ 43,112/- after recalculating, by taking capital gains that should have been deposited at ₹ 3,85,613/- and not ₹ 1,39,51,463/-. 19. The next point which has to be given attention to is the interest on refund and the date from which the interest has to be paid. A similar point has been considered by the Apex Court in Union of India Vs. Tata Chemicals Limited [2014] 363 ITR 658 (SC), where paragraph 39 reads as under:- 39. In the present case, it is not in doubt that the payment of tax made by resident/ depositor is in excess and the department chooses to refund the excess payment of tax to the depositor. We have held the interest requires to be paid on such refunds. The catechize is from what date interest is payable, since the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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