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TMI Blog2007 (8) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. 3. For that on the facts and in the circumstances of the case, the appellant having adopted the fair market value of the transferred immovable property as per the value estimated by the Registered Valuer the authorities below should have determined the 'Capital Gain' with reference to fair market value of the property as on 1st April, 1981 determined by the Registered Valuer. 4. For that on the facts and in the circumstances of the case, the AO be directed to assess the capital gains with reference to cost of acquisition under s. 55 as on 1st April, 1981 at Rs. 18,40,244 as against Rs. 15,02,907 arbitrarily estimated by the CIT(A). 5. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in upholding the AO's action of determining the indexed cost of acquisition with reference to cost inflation index applicable for the financial year 1999-2000 as against cost inflation index applicable for financial year 1981-82. 6. For that on the facts and in the circumstances of the case, the appellant having inherited the property on passing away of her mother and the said property having been owned by the 'previous owner' prior to 1st April, 1981, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental authorities contending, inter alia, that the Departmental authorities have not properly appreciated the materials placed before them and not properly applied the required provisions under the IT Act in adjudicating the issues before them. Both the orders passed by the Departmental authorities suffer from misapplication of the provisions as well as misinterpretation of the provisions to the undisputed facts before the authorities. Therefore, the orders passed by the Departmental authorities are not sustainable for legal scrutiny. Accordingly, he sought for setting aside the same by allowing the appeal of the assessee. 5. Contrary to this, the learned Departmental Representative has vehemently argued supporting the orders passed by the Departmental authorities and assailing the issues raised by the assessee in the appeal and accordingly, sought for upholding them by dismissing the appeal of the assessee. 6. On careful consideration of the materials made available with the Tribunal and analyzing the same in the light of the rival submissions of both the parties as well as the authorities relied on by them in support of their respective contentions, the undisputed facts re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land is jointly owned by the assessee and her husband in the ratio of 1/3rd and 2/3rd, respectively, basing on the contribution to the construction of the said building. The AO has held that since the land on which the building was constructed is in the name of Shri R.N. Deogun, husband of the assessee, the assessee is not the owner of the 'building and accordingly, treated the rental income of the assessee from the said building as income from other sources. 6.4 Aggrieved with these orders of assessment, the assessee went in appeal before the CIT(A) and is unsuccessful. Hence, the present appeal is filed before the Tribunal. 7. On careful analysis of the orders passed by the Departmental authorities in the light of the rival submissions of both the parties as well as the authorities relied on by them in support of their contentions, we find that the assessee has raised the following material issues: (i) Determination of fair market value of property at 47, Golf Links, New Delhi as on 1st April, 1981 opted by the assessee as "cost of acquisition" under s. 55(2)(b)(ii) of the IT Act. (ii) Whether the cost inflation index applicable for financial year 1981-82 or financial year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of DVO both on legal grounds and on facts. The CIT(A) rejected the assessee's objections regarding reference made under s. 55A. The CIT(A) however averaged out the two valuations and adopted Rs. 15,02,907 as cost of acquisition of the assessee's 1/4th share in the said property under s. 55(2)(b)(ii) as on 1st April, 1981 and directed the AO to re-compute the capital gains. The CIT(A) also agreed with the AO that cost of inflation index applicable to financial year 1999-2000 was to be adopted as base since in the said year the assessee first held the asset on demise of her mother. Against the order of the CIT(A), the assessee has filed the present appeal raising the first two material issues. 7.2 Before us the representative of the assessee objected to the reference made to the Valuation Officer under s. 55A(b)(ii) of the Act. According to Authorised Representative, the assessee's case was covered by cl. (a) of s. 55A and, therefore, cl. (b) was not applicable. As per Authorised Representative the assessee had relied on the market value determined by the Registered Valuer and the same being higher and not lower, the AO did not have authority to refer the valuation of the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property enjoyed better locational advantages. The CIT(A) was not justified in averaging out 2 valuations because he was not an expert in the matter of valuation. According to learned Authorised Representative when the DVO himself admitted that Golf Links property was better located but allowed mere 25 per cent increase without giving any reasons, the CIT(A) should have followed the valuation report of the Registered Valuer which had statutory recognition under s. 55A of the Act. The learned Departmental Representative on the other hand supported the order of the CIT(A). 8. We have considered the rival submissions and perused the valuation reports of the DVO and the Registered Valuer. The reference to DVO was made by the AO on mere surmise that the value estimated by the Registered Valuer was much higher as compared with cost incurred in 1958. There was no material basis for the AO to reach objective satisfaction that FMV of the property as on 1st April, 1981 was lower or higher than the value estimated by the Registered' Valuer. Both the valuation reports i.e., of the DVO and the Registered Valuer establish that there had been substantial increase in the market value of the immov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1981. On the other hand, if we adopt the value estimated by the Registered Valuer it gives 18-fold increase in value during the period 1981 and 2003. In India the prices of real estate have gone up more than the general rate of inflation. The cost inflation index which is prescribed under s. 48 is based on the "wholesale price index" and during the period 1981 and 2003 the cost inflation index recorded increase of 4.6 times. If we accept the report of the Registered Valuer, the value of the property results in increase of 18 times of the value estimated in 1981, which favourably compares with general rate of inflation and increase in the values of property in particular. On the other hand, if we adopt the value estimated by the DVO then the increase in value is 30 times over 1981 prices which appears too high and excessive. If during 1981 and 2003 the cost inflation index announced by the Government under s. 48 recorded increase of 4.6 times then in comparison the increase of 18 times in real 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1992 [(1992) 107 CTR (St) 1] which explained the provisions of Finance Act, 1992. According to the Memorandum and the Board Circular the indexation of the cost of acquisition was to be allowed with reference to the period of holding of the asset and it was not material as to which particular person held the asset. According to him, since under s. 2(42A) the period of holding of the capital asset by an assessee includes the period of holding by the previous owner also, in computing the indexed cost of acquisition; the cost inflation index applicable to the year of acquisition by the previous owner should be considered. According to Authorised Representative provisions should be interpreted keeping in view the purpose and object of the enactment and not merely the words used which are capable of more than one meaning. In this regard the Authorised Representative made reference to the Board's Circular No. 31, dt. 21st Sept., 1962 issued in the context of provisions of ss. 48, 49 r/w s. 55(2)(ii) of the Act. The Authorised Representative also relied on the decisions of the Tribunal Chandigarh Bench in the case of Mrs. Pushpa Sofat vs. ITO (2004) 89 TTJ (Chd) 499 : (2002) 81 ITD 1 (Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore the expressions used in the computation formula should be given schematic interpretation. The scheme of taxation of "capital gain" can however, be understood by applying provisions of ss. 2(42A), 2(47), 47(ii), 48, 49(i)(ii) and 55(2)(b)(ii) of the Act. As per the provisions of these sections, where an assessee sells an inherited capital asset the capital gain is computed with reference to the period of holding and cost of acquisition incurred by the previous owner. It is so because in fact the successor assessee does not actually incur any cost. If for applying other provisions relating to computation of capital gains, period of holding and cost incurred by the previous owner is considered, then it will be improper to apply only the cost inflation index, applicable to the year of inheritance. 8.5 The provisions of s. 48 prescribing indexed cost of acquisition were enacted by the Finance Act, 1992. Memorandum explaining the Provisions of Finance Bill, 1992 explained that old provisions relating to taxation of capital gain were unfair because the deduction under s. 48 was being allowed in respect of cost of acquisition which did not relate to the period of time for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st inflation index applicable for financial year 1981-82 and not to financial year 1998-99 should have been applied by the AO. A similar view was taken by Chandigarh Bench of the Tribunal in the case of Smt. Pushpa Sofat. In that case house property was inherited by the assessee from her father which was sold in asst. yr. 1993-94. The father of the assessee acquired the property in 1972 and therefore, the assessee opted for FMV of 1st April, 1981 to be the cost of acquisition. The assessee computed the indexed cost of acquisition with reference to the cost of inflation index of 1st April, 1981 being 100 per cent. Assessee's father expired on 17th Feb., 1991 and the AO allowed the indexation of cost with reference to the cost inflation index of financial year 1990-91 as against inflation index of 100 per cent. The Tribunal, however held that the assessee was entitled to compute capital gain by applying cost inflation index of 1st April, 1981. Similar view was also taken by Mumbai Bench of the Tribunal in the case of Mrs. Meera Khera. Considering the totality of the facts and the scheme of the IT Act relating to taxation of capital gains, we are of the considered opinion that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly assessed the income under "Other source" head and denied statutory deduction under s. 24 of the Act. 8.8 The learned representative of the assessee submitted that in the income-tax assessment of Sri R.N. Deogun for the asst. yr. 1972-73, his AO admitted the assessee to be the 1/3rd owner of the property. He also relied on the wealth-tax assessments under s. 16(3) of the assessee for the asst. yrs. 1987-88 to 1992-93 wherein the 1/3rd share in the said property was assessed under the head "Immovable property". Though the assessee incurred cost of Rs. 40,600 only, in the wealth-tax assessments value was assessed on rent capitalization method at Rs. 2,40,612. He stated that in all the past till asst. yr. 2003-04 rental income was always assessed, as "house property". There being no change in the factual matrix of the case, the AO could not have changed head of income merely to deny the deduction under s. 24. He further submitted that under s. 23 annual value of a house property is assessed and therefore, it is to be ascertained who is the real owner of the building and not the land underneath, as s. 23 does not bring to tax annual value of land. Merely because the land o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner, then it is not open for the Department to challenge her ownership only for denying the statutory deduction under s. 24 of the Act. We also find that the Calcutta High Court in the case of Tinsukia Development Corpn. Ltd. upheld the assessment of capital gains on sale of a house property in the hands of the assessee even though the assessee's wife was the legal owner in the property records. The Court however, noted that entire cost of the property was incurred by the assessee and hence he was the real owner though legal ownership was of the wife. The Court therefore did not take cognizance of the legal ownership and assessed capital gains in assessee's hands. In the case of Saiffuddin, the assessee owned land on which a residential building was jointly constructed with his two brothers. The rental value of the building was assessed in the assessee's hands as he was the owner of the land. The Court observed that since the cost of construction was incurred jointly by 3 persons the property was jointly owned and therefore the entire rental value was not assessable in the assessee's hands. In the present case the facts on record establish that 1/3rd cost of construction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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