TMI Blog2007 (8) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... l estate prices appears reasonable and therefore in our considered opinion the value estimated by the Registered Valuer does not appear to be excessive, unreasonable or incorrect. Moreover, in his report the Registered Valuer gave cogent reasons and considered numerous facts affecting the value of the subject property and therefore, we do not find any infirmity in the valuation report of the Registered Valuer. Thus, we uphold the value of the property as estimated by the Registered Valuer and direct the AO to adopt the value of the assessee's 1/4th share in the property and compute the capital gains. Since we have accepted the value estimated by the Registered Valuer, the assessee's challenge to the legality of the reference made to Valuation Officer u/s 55A has become only academic and we do not deem it necessary to decide the same. Application of the correct cost inflation index for determining indexed cost of acquisition u/s 48(2) - HELD THAT:- In the present case the AO himself allowed the benefit of FMV' of the property as on 1st April, 1981 to be cost under s. 55 (2)(b)(ii) of the Act. Under s. 2 (42A) the period of holding of the capital asset in the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments the Revenue considered the assessee to be the 1/3rd owner thereof. In the wealth-tax assessment 1/3rd share of property was charged to wealth-tax treating her to be the owner. Thus, we hold that the AO was not justified in not considering the assessee as the 1/3rd owner of the property at Panchsheel Park. In our considered opinion the 1/3rd rent received by the assessee from the letting of the residential house property was assessable under the head House property and the assessee was entitled to statutory deduction u/s 24 of the Act. In the result, the assessee's appeal is hereby allowed. - Member(s) : K. S. S. PRASADA RAO., B. R. KAUSHIK., K. S. S. PRASADA RAO., B. R. KAUSHIK. ORDER-K.S.S. PRASAD RAO, J.M.: This appeal is filed by the assessee having been aggrieved by the order of the CIT(A) dt. 29th March, 2007 for the asst. yr. 2004-05 in the case of the assessee. 2. The assessee has raised the following issues in its grounds of appeal: "1. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in adopting the fair market value of the appellant's 1/4th share in the immovable property at 47, Golflinks, New Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income under the head 'Capital gains'. 9. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in law and in fact in upholding the assessment of the rental income derived from property at Panchsheel Park, New Delhi under the head 'Other sources' as against 'House property'. 10. For that on the facts and in the circumstances of the case, the assessing authorities having held and treated the appellant as 'owner' of the said 'house property' in the income-tax and wealth-tax assessments for the past 25 years, the authorities below were not justified in assessing the rental income under the head 'Other source' as against 'house property' only in asst. yr. 2004-05. 11. For that on the facts and in the circumstances of the case, the appellant being owner of the residential building at New Delhi, by dint of incurring 1/3rd of the cost of construction, the authorities below should have held the appellant as the 'owner' of the house property and should have assessed rental income under the head 'House property'. 12. For that on the facts and in the circumstances of the case, the AO be directed to assess the rental income in respect of property at Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee prior to 1st April, 1981, the assessee has option to substitute the 'fair market value' of the said property as on 1st April, 1981 to be the "cost of acquisition". Accordingly, the assessee has obtained a valuation report from a Registered Valuer. As per that valuation report, the fair market value of the property was determined at Rs. 73,60,975. The 1/4th share of the assessee's share came to Rs. 18,40,244 and was considered as cost of acquisition under s. 55 of the IT Act, while arriving at the capital gain to be taxable in the hands of the assessee. During the course of the assessment proceedings, the assessee has filed the report issued by the Registered Valuer and the AO has referred the matter of valuation to the DVO under s. 55A of the Act. The DVO has estimated the market value of the property at Rs. 46,62,280 and thereby arrived at the 1/4th share of the assessee at Rs. 11,65,570. Taking this into account, the AO has determined the capital gain taxable in the hands of the assessee. 6.2 Apart from that, the assessee has purchased and sold units of mutual funds during the period under consideration and thereby earned unit dividend. The AO has taken the same as short-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the co-owners for Rs. 12 crores and the appellant's 1/4th share was Rs. 3 crores on which assessee was liable to pay capital gain tax. As per s. 49(1)(ii), the cost of acquisition to the "previous owner" constituted cost of acquisition to the assessee. Further, under s. 55(2)(v)(ii) of the Act "fair market value" on 1st April, 1981 could be opted for by the assessee as cost of acquisition. The assessee so opted and adopted fair market value of the property as on 1st April, 1981 as the cost of acquisition for assessing her capital gains liability. The Registered Approved Valuer in his valuation report estimated the fair market value of the, Golf Links property as on 1st April, 1981 at Rs. 73,60,975. This inter alia included the estimated value of building at Rs. 5,67,500 and land at Rs. 67,93.475 at the rate of 6,500 per sq. mtr. In AO's opinion the FMV estimated by Registered Valuer prima facie indicated substantial increase over cost of acquisition and therefore, made a reference of valuation under s. 55A(b)(ii) to the DVO at New Delhi. The DVO, New Delhi estimated the value of the said property at Rs. 46,62,280. In valuing the property the DVO estimated value of land at the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted that Golf Links area was a better location and himself increased the price by 25 per cent. On the other hand the Registered Valuer mentioned that the impugned property enjoyed strategic location as it was situated on the main road. It had ideal shape and dimension and several multinational companies owned properties in this area which substantially increased the value. Land rate for commercial properties was Rs. 6,000 per sq. mtr. and auction rate in Safdarjung Enclave was Rs. 3,128 per sq. mtr. for residential plot. He also referred to a sale instance of plot of land at Vasant Vihar which was auctioned at Rs. 8,000 per sq. mtr. in 1985. Since Golf Links area was much better than Safdarjung Enclave and Vasant Vihar areas he estimated the value of land at Rs. 6,500 per sq. mtr. According to Authorised Representative, the DVO admitted that the Golf Links was much better area but did not give any reasons for allowing token increase of 25 per cent. The Registered Valuer on the other hand gave several reasons for estimating the land @ Rs. 6,500 per sq. mtr. before the CIT(A) the assessee had submitted that assessee's property overlooked the main Golf course and therefore enjoy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny property, the consideration should not only be given to the locality but also to other facts relatable to the specific property. In the DVO's report the reference is made only to the Golf Link locality in general and being a better locality token increase of 25 per cent was given by him without giving any specific reasons. The DVO did not even discuss the relative advantages or disadvantages of the impugned property. On the other hand the Registered Valuer discussed advantages enjoyed by the property in question. He has mentioned that the property was strategically located on the main road. The plot area and shape was ideal for residential purpose. The property was facing Main Golf Course and therefore "enjoyed locational advantage which fetched much better price. The Registered Valuer also referred to the sale instance of a plot of land in Vasant Vihar area which fetched Rs. 8,000 per sq. mtr. in 1985. Since Golf Links area in general was a better locality compared with Safdarjung Enclave and Vasant Vihar and further considering the other locational advantages enjoyed by the property in question. DVO estimated the value of land @ Rs. 6,500 per sq. mtr. We thus find that the Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x for determining indexed cost of acquisition under s. 48(2) of the Act. The impugned property in question was acquired by Smt. Bhajan Pratap Singh on demise of her husband in 1968. Accordingly, she was the owner of the property on 1st April, 1981. As per provisions of s. 2(42A) of the Act in determining period of holding of the capital asset the period for which the previous owner held the asset was includible. As per s. 2(42A) the assessee was deemed to have held the said capital asset since 1958. According to Authorised Representative, if provisions of s. 2(42A), s. 47(ii), s. 49(1)(iii)(a) and s. 55(2) (b)(ii) are cumulatively and harmoniously read then in case of succession the date of acquisition, cost of acquisition and period of holding is to be computed with reference to the acquisition of the capital asset by the first previous owner. He therefore, submitted that different considerations could not apply for the purpose of applying base cost inflation index. Referring to Explns. (iii) and (iv) to s. 48, he submitted that if the cost of inflation index is adopted with reference to the year of succession, then it leads to assured results. Relying on the ratio of decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preted by him to be the year in which the assessee succeeded to the assets of her mother. We find that s. 2(42A) also uses a somewhat similar expression. Explanation 1 to s. 2(42A) provides that in determining the period for which any capital asset is held by the assessee, in the case of a capital asset which become the property of the assessee, in any of the circumstances mentioned in s. 49(1), there shall be included the period for which the asset is held by the previous owner. If for the purpose of determining the period of holding of the capital asset by an assessee, the period for which the previous owner has held the capital asset is to be included, then different consideration cannot be applied for the purpose of s. 48. 8.4 If ss. 2(42A), 47(iii), 49(1)(ii)(iii) and s. 55(2)(b)(ii) are read co-jointly then it appears that in law no "transfer" of a "capital asset" is considered to take place on inheritance and succession. The liability for capital gain arises only when the capital asset is actually transferred by the successor, it is only when the ultimate successor transfers the capital asset for a consideration the capital gains are assessed to tax. In assessing capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital asset. Under the new system a fair method of allowing relief was enacted to link the cost of acquisition to the period of holding. For this purpose the cost of acquisition and the cost of improvement of the asset was to be inflated to arrive at indexed cost of acquisition. The circular further clarified that if an asset was acquired before 1st April, 1981, the market value of the capital asset as on 1st April, 1981 would be taken for the purpose of indexation. 8.6 A co-joint reading of the Memorandum explaining the Finance Bill, 1992 and CBDT Circular No. 636 shows that the indexation is to be allowed in respect of period of holding of the asset and not in relation to the individuality of the assessee. For the purpose of determining the period of holding intermediate transfers on account of succession are to be ignored. This proposition is quite clear from para 35 of the Circular No. 636, dt. 31st Aug., 1992 which states that if an asset was acquired before 1st April, 1981 then the market value of the capital asset as on 1st April, 1981 is to be taken for indexation. In the present case the AO himself allowed the benefit of "FMV' of the property as on 1st April, 1981 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an enactment. We, therefore, direct the AO to re-compute the capital gains by applying cost inflation index of 100 per cent applicable for financial year 1981-82. 8.7 The third material issue is whether the assessee can be said to be considered as "owner" of a residential let out property at Panchsheel Park. New Delhi under s. 22 of the Act. The brief facts giving rise to the dispute are as follows: The Panchsheel Co-operative Housing Society Ltd. allotted and leased Plot No. F-256, Panchsheel Park, New Delhi, to Sri R.N. Deogun, husband of the assessee. In the municipal records the property stands in the name of Sri R.N. Deogun, Sri R.N. Deogun along with the assessee constructed a residential building on the said plot. The assessee incurred cost of construction of Rs. 40,600 out of the aggregate cost of construction of Rs. 1,22,595. This property was let out since 1973-74 and in all the past assessments of the assessee and her husband till asst. yr. 2003-04, 1/3rd of the rental income was assessed in the assessee's hands under the head "Income from house property". In the wealth-tax assessments of the assessee till asst. yr. 1992-93, the Revenue assessed 1/3rd share in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he house property under s. 22 of the Act and rental income is assessable in the hands of such owner. 8.9 From perusal of the assessment order under s. 143(3) for asst. yr. 1972-73 in the case of Sri R.N. Deogun it appears that the Revenue accepted that the cost of construction of the said property was Rs. 1,22,595 and assessee's contribution thereto was Rs. 40,600. In that assessment the AO also examined the assessee's sources of incurring cost of construction of the said property. In the income-tax assessment for the past several years the Revenue assessed 1/3rd rent in the hands of the assessee under the head "House property" and the remaining 2/3rd in the hands of her husband. In the wealth-tax assessment under s. 16(3), assessee's 1/3rd share in the property at Panchsheel Park, New Delhi, was assessed by applying rental capitalization method thereby accepting that the assessee was 1/3rd owner of the said property. No new facts have been brought on record and no material change took place in the asst. yr. 2004-05 to take a different view. The Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) has held that where a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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