2007 (8) TMI 484 - AT - Income Tax

Determining ALV of the property - Income from house property u/s 23(1)(a) - Capital gains - Cost with reference to certain modes of acquisition - HELD THAT - Neither the Assessing Officer nor the CIT (Appeals) has alleged the action of the Assessing Officer regarding property at Vasant Vihar New Delhi remained vacant from December 2000 till April 2002. We are therefore inclined to agree with the learned AR that both the lower authorities were not justified for taking the income from house property u/s 23 as per provisions of section 23(1)(c) (sic) of the Act. Accordingly we reverse the action of the lower authorities and direct the Assessing Officer to delete the addition made with respect to property at 8-Vasant Vihar New Delhi. Computation of capital gain - shares devolved on the assessee on the death of her husband - In the instant case the Assessing Officer has correctly adopted the cost of acquisition of the shares/securities sold at the cost to Mr. H.C. Misra. However in substituting the indexed cost of acquisition he has changed the base year from the year of actual purchase to 1997-98 when these devolved upon the assessee. The base year as determined by the learned Assessing Officer is erroneous. There cannot be two different dates in respect of the same asset devolving on the heir one date to determine the date of cost of acquisition and another to determine the indexed cost of acquisition. Even otherwise the period of holding for determining long-term capital gains includes the period for which the original owner held the asset that devolved upon the legal heir. Accordingly the Assessing Officer is directed to recompute capital gains on sale of securities by indexing cost of acquisition with reference to the year in which husband of assessee acquired them. Property at the farm house at Village Masudpur being in the nature of farm house - There is no merit in the action of the Assessing Officer for taking the rental income u/s 22 of the Act. In the interest of justice and fair play this ground is restored to the file of the Assessing Officer for deciding the issue afresh after considering the submissions of the assessee and the definition of the agricultural income contained u/s 2(2A)( c ) of the Act. The cross-objection was in support of the CIT(Appeals) s action which we have decided hereinabove - In the result both the appeals of the revenue and assessee are partly allowed and cross-objection is dismissed as infructuous.

Summary

Issues:
1. Determination of annual letting value (ALV) for properties under section 23(1)(c) vs. section 23(1)(a).
2. Assessment of income from properties at Haridwar and Masudpur.
3. Indexation of securities acquired upon death of husband.
4. Notional income from various properties.
5. Base year for indexation under section 48.
6. Assessment of rental income from farm house at Village Masudpur.

Analysis:
1. The Assessing Officer disputed the computation of ALV for properties under section 23(1)(c) by the assessee, arguing that section 23(1)(a) should apply as per the provisions of section 22. The ITAT ruled that the AO's approach was incorrect as section 23(1)(c) was applicable, and directed the deletion of the addition made for the property at Vasant Vihar, New Delhi.

2. The AO assessed income from properties at Haridwar and Masudpur under section 22. The ITAT upheld the assessment for Haridwar property but restored the issue of rental income from the farm house at Masudpur to the AO for reconsideration based on the definition of agricultural income.

3. Regarding indexation of securities acquired upon the death of the husband, the ITAT found that the base year for indexation should align with the year of acquisition by the husband, not the year of devolution to the assessee. The AO was directed to recompute capital gains accordingly.

4. The ITAT addressed the claim for notional income from various properties, including Sadhu Bela, Haridwar, and Vasant Vihar, New Delhi. The issue was considered in light of the relevant legal provisions.

5. The ITAT emphasized the correct determination of the base year for indexation under section 48 of the Income-tax Act, directing the AO to adopt the year of acquisition by the husband for indexing the cost of acquisition of securities.

6. The assessment of rental income from the farm house at Village Masudpur was revisited by the ITAT, instructing the AO to reconsider the issue in accordance with the definition of agricultural income under section 2(2A)(c) of the Act.

In conclusion, the ITAT partially allowed both the appeals of the revenue and the assessee, while dismissing the cross-objection as infructuous. The judgment provided detailed analysis and clarification on the issues raised, ensuring adherence to the relevant legal provisions and principles governing income tax assessments.