2016 (11) TMI 1525 - AT - Income Tax

Capital gain computation - adoption of cost of acquitsition as NIL - land in question was allotted to the assessee by the Government of India under the Rehabilitation Scheme - Held that - Hon ble Madhya Pradesh High Court in the case of CIT vs. HH Maharaja Sahib Lokendra Singh Ji 1986 (1) TMI 37 - MADHYA PRADESH High Court has held that where A acquires some property by way of gift or reward for instance jagirs from a ruler and the property passed on by inheritance to generations and the same is sold even though for a valuable consideration in such a case because A had not acquired it at some cost in terms of money it would not attract capital gain in such a transaction of sale there being no gain as such. Hon ble Madras High Court in the case of CIT vs. HH Sri Raja Rajagopala Thandaiman, (2005 (10) TMI 45 - MADRAS High Court) affirmed the view of the Tribunal by holding that there was no capital gain assessable in respect of transfer of the site and palace at Pudukkuttai belonging to the assessee for a consideration of 17, 76, 020/- on the ground that there was no cost of acquisition. In the circumstances the amendment instead of working to the advantage of the Revenue goes to indicate that the Legislature does not want to bring within the purview of tax net all the assets (except the specified assets) which does not have cost of acquisition and the entire sale consideration cannot be treated as profits and gains chargeable under the head Capital gains by adopting the cost of acquisition as Nil. - Decided against revenue

Summary

Issues:
1. Computation of capital gain without cost of acquisition.
2. Applicability of judicial pronouncements on capital gains taxation.
3. Interpretation of provisions related to cost of acquisition for capital gains tax.

Analysis:
1. The appeal involved a dispute regarding the computation of capital gain without considering the cost of acquisition for a land transaction during the assessment year 2008-09. The Assessing Officer (AO) had computed the capital gain based on the DLC value of the land, resulting in a higher tax liability. The appellant challenged this computation, leading to an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)], who partially allowed the appeal by directing the exclusion of long-term capital gain from the total income.

2. The Revenue contended that the CIT (A) erred in deleting the capital gain and supported the AO's order. However, the appellant argued that the land was allotted under a Rehabilitation Scheme without any cost of acquisition, thereby asserting that no capital gains tax should be charged in the absence of a cost of acquisition. The appellant relied on various judicial decisions, including the Supreme Court's ruling in CIT vs. B.C. Srinivasa Setty, emphasizing that the concept of cost of acquisition is crucial in determining capital gains tax liability.

3. The Tribunal examined the facts and legal precedents cited by the appellant, highlighting the principle that assets acquired without a cost element do not attract capital gains tax. Referring to cases such as CIT vs. HH Maharaja Sahib Lokendra Singh Ji and CIT vs. HH Sri Raja Rajagopala Thandaiman, the Tribunal emphasized that transactions involving assets acquired without a cost component do not result in taxable capital gains. Additionally, the Tribunal considered the legislative intent behind provisions like section 55 and the specified assets under section 49(1), affirming that the absence of a cost of acquisition precludes the imposition of capital gains tax.

4. Ultimately, the Tribunal upheld the CIT (A)'s decision based on the consistent legal interpretation that assets acquired without a cost element, as in the present case, do not trigger capital gains tax liability. Citing a previous case with similar facts, the Tribunal rejected the Revenue's appeal, affirming the exclusion of capital gains from the appellant's total income. The appeal of the Revenue was dismissed, and the order was pronounced on 03/11/2016.