2007 (9) TMI 459 - AT - Income Tax

Fair Market Value - Computation of Capital gains - cost of acquisition of shares sold - deduction claimed u/s 54F - HELD THAT - In this case shares have been sold at the rate of Rs. 1, 83, 250 per share. That value has been accepted but if value of the shares sold on the date of sale as on 28-9-2000 is taken under rule 1D it is much less than the price received. Obviously the price charged has not been worked as per rule 1D. Therefore it will not be legally fair or equitable to apply rule 1D for working out the cost of acquisition. One cannot have a different approach in fixing the price of same asset for a single purpose of computing capital gain. Further written down value or value shown in the balance sheet is just a fraction of the value of main asset held by the company i.e. Natraj Cinema. If one takes only a fraction of the market value for computing value of share as on 1-4-1981 the value taken can by no stretch of imagination be said to be the fair market value of the asset. Obviously one acts not only contrary to the statutory provisions but also advance injustice. Therefore we see no justification for not taking the fair market value of Cinema building as on 1-4-1981 on which no dispute has been raised. We further see no justification why above market value of the Cinema should not be adopted in taking the value of the unquoted shares of the company. There is no justification for taking only a fraction of market value on some technical grounds. Thus we are of view that value as adopted in other cases of Sri H.R. Anand Shri Pawan Anand Shri Ramesh Anand and Smt. Neeru Anand as on 1-4-1981 and thereafter indexed be adopted in all the appeals now under discussion. We order accordingly. Deduction claimed u/s 54F - During the course of hearing of appeals it was contended that membership of housing society was purchased for acquiring a residential house. This was clear from the Brochure issued by Baroda House NRGE Co-operative Group Housing Society Ltd. Copy of Brochure is placed at Supplementary Paper Book. It was contended that for claiming relief u/s 54F it was not necessary that house should be the first purchase and that house should not be owned by any one else before its purchase. Further condition of investment of sale consideration was duly fulfilled in this case it was contended that the alleged case of CIT v. Pradeep Kumar 2006 (4) TMI 99 - MADRAS HIGH COURT relied upon by learned CIT (Appeals) could not be traced. On the other hand in the case of Smt. Shashi Varma v. CIT 1996 (3) TMI 65 - MADHYA PRADESH HIGH COURT has held that in case of allotment of flat under the self-financing scheme is to be treated as case of construction of house for claiming exemption under the capital gains. Further definition of transfer u/s 2(47)(vii ) clearly support that transaction would involve obtaining acquisition of share in a Co-operative Society. The learned counsel for the assessee also relied upon transfer deed between Shri Sagar Tyagi and Smt. Madhu Tyagi dated 12-3-2001 copy of which is available at Supplementary paper book. It was accordingly contended that learned CIT (Appeals) erroneously denied claim of exemption to the assessee. In our considered opinion documentary evidence and relevant case law now placed before us was not considered by the lower authorities. Entire evidence was not made available to them. In other words claim of assessees u/s 54F is required to be reconsidered objectively and in accordance with law. In the interest of justice we set aside impugned orders of CIT (Appeals) in above two cases and restore this issue to the file of the Assessing Officer for re-determination of issue in accordance with law after allowing reasonable opportunity of being heard to the assessees. Appeals on this issue in the above two cases are allowed for statistical purposes. Claim made u/s 54F in the case of Shri Sagar Tyagi was also given up. Above claims are accordingly rejected. In the result all the above appeals are allowed in terms stated above.

Summary

Issues Involved:
1. Valuation of shares for computing long-term capital gains.
2. Ownership of shares sold by certain assessees.
3. Deduction claimed under section 54F for investment in residential property.
4. Legality and validity of reopening proceedings under section 147.

Detailed Analysis:

1. Valuation of Shares for Computing Long-Term Capital Gains:
The primary issue in the appeals was the valuation of shares for computing long-term capital gains. The assessees, owners of M/s. Tyagi Anand & Co. (P.) Ltd., sold their shares at Rs. 1,83,250 per share and claimed deductions based on the indexed fair market value as of 1-4-1981. The Assessing Officer used the Departmental Valuation Officer's (DVO) valuation of the cinema building and substituted this value for the balance sheet value, resulting in a share value of Rs. 46,274. However, the Assessing Officer adopted the face value of Rs. 4,060 per share based on rule 1D of the Wealth-tax Rules.

The assessees argued that the revenue must adopt a consistent approach, citing previous cases where the value of shares was accepted at Rs. 46,274. The Tribunal agreed, emphasizing that the revenue authorities cannot take different values for the same shares on the same date. The Tribunal rejected the application of rule 1D of the Wealth-tax Rules under the Income-tax Act, referencing the Delhi High Court's decision in CIT v. Rajiv Gupta, which stated that the valuation method under the Wealth-tax Act is not applicable for income-tax purposes. The Tribunal concluded that the fair market value of the cinema building determined by the DVO should be adopted for all cases, ensuring consistency.

2. Ownership of Shares Sold by Certain Assessees:
In the cases of Smt. Madhu Tyagi, Shri Shekhar Tyagi, and Shri Sagar Tyagi, the ownership of shares was questioned. The revenue authorities doubted Smt. Madhu Tyagi's ownership of 30 shares as of 1-4-1981, arguing she was too young to hold them. However, evidence showed she received the shares as gifts in 1973 and 1974, subjected to gift tax. The Tribunal held that Smt. Madhu Tyagi was indeed the owner of the shares.

Similarly, Shri Shekhar Tyagi and Shri Sagar Tyagi inherited shares from their grandparents, confirmed by the company's certificate. The Tribunal found no substance in the revenue's objections and ruled that these individuals were entitled to deductions based on the fair market value of the shares as of 1-4-1981.

3. Deduction Claimed Under Section 54F for Investment in Residential Property:
Smt. Madhu Tyagi and Shri Ramphal Tyagi claimed deductions under section 54F for investments in residential property. Shri Ramphal Tyagi invested Rs. 21,30,000 in constructing a house, evidenced by a registered valuer's report. The Tribunal noted that the revenue authorities did not consider this evidence and remanded the issue to the Assessing Officer for reconsideration.

In Smt. Madhu Tyagi's case, the CIT (Appeals) disallowed the claim, stating she only purchased membership in a housing society, not a residential property. The Tribunal found that the documentary evidence and relevant case law were not fully considered by the lower authorities. The issue was remanded to the Assessing Officer for re-determination.

4. Legality and Validity of Reopening Proceedings Under Section 147:
The issue of reopening proceedings under section 147 was not pressed by the assessees during the hearing, and the Tribunal rejected this claim. Similarly, the claim under section 54F by Shri Sagar Tyagi was also given up and rejected.

Conclusion:
The appeals were allowed, with the Tribunal directing the adoption of the fair market value of the cinema building determined by the DVO for all cases. The ownership of shares by Smt. Madhu Tyagi, Shri Shekhar Tyagi, and Shri Sagar Tyagi was confirmed, and the issue of deductions under section 54F was remanded for reconsideration. The claims regarding the reopening of proceedings under section 147 and section 54F by Shri Sagar Tyagi were rejected.