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2013 (4) TMI 608 - AT - Income TaxCost inflation index for computation of long term capital gain - Long term capital gain assessable on the sale of property sold by the father of the assessee as Power of Attorney of the assessee - On 09.07.1984 Shri Suresh Babu gifted the property acquired by him by way of gift from his father in favour of his nieces & since they were minors at that point of time, a trust deed was executed and appointed their parents as trustees with the condition - CIT(A) convinced with the submissions made by the assessee directed AO to adopt the cost inflation index pertaining to the financial year 1981-82 - Held that - In s. 48 the expression asset held by the assessee is not defined and therefore in the absence of any intention to the contrary the expression asset held by the assessee in cl. (iii) of the Explanation to s. 48 has to be construed in consonance with the meaning given in s. 2(42A). If the meaning given in s. 2(42A) is not adopted in construing the words used in s. 48 then the gains arising on transfer of a capital asset acquired under a gift or will will be outside the purview of the capital gains tax which is not intended by the legislature. Therefore the argument of the Revenue which runs counter to the legislative intent cannot be accepted. See DCIT vs. Manjula J.Shah (2011 (10) TMI 406 - BOMBAY HIGH COURT). Against revenue. Whether the CIT(A) was justified in deleting the capital gain relating to Property No.2 - Held that - A plain reading of the recitals made in the Gift deed dated 08-06-2005 would show that Shri V.K.Mohan(father of minors) has handed over the possession of the Property No.2 to the assessee herein. Further following recitals made in the irrevocable Power of Attorney dated 13-07-2005 executed by the assessee herein in favour of Shri V.K. Mohan show that the assessee herein accepted the gift and was also in possession of the property As per the provisions of sec. 47(iii) of the Act the transfer of property by way of settlement deed by Shri V.K.Mohan to the assessee herein is not considered as a transfer and hence the same is not assessable to capital gains. On the execution of the Settlement deed the assessee herein became absolute owner of the Property No.2 as per the Transfer of Property Act. The provisions of Transfer of Property Act are not overridden by sec. 47(iii) of the Act. Hence CIT(A) has misdirected himself in interpreting the scope of provisions of sec. 47(iii) of the Act. Since there was absolute transfer of Property No.2 by way of settlement deed there is no scope to interpret that there was transfer of income only without transfer of asset so as to attract the provisions of sec. 60 - the various reasoning given by CIT(A) are not in accordance with the law and are liable to be struck down. Accordingly AO was right in law in assessing the capital gain arising on transfer of Property No.2 in favour of the Construction company. Further the assessee would not be entitled for exemption u/s 54F of the Act on the purchase of property by her father. In favour of revenue.
Issues Involved:
1. The cost inflation index to be adopted for the purpose of computation of long-term capital gain. 2. Long-term capital gain assessable on the sale of property sold by the father of the assessee as Power of Attorney of the assessee. Issue-wise Detailed Analysis: 1. Cost Inflation Index for Computation of Long-Term Capital Gain: The primary issue is the determination of the correct cost inflation index for calculating the long-term capital gain on Property No.1. The assessee adopted the cost inflation index of "125" applicable for the financial year 1984-85, arguing that she became the owner of Property No.1 by virtue of a settlement deed dated 09-07-1984. The assessing officer, however, adopted the cost inflation index of "223" applicable to the financial year 1992-93, asserting that the assessee could only be considered to have held the property from the date she became a major. The assessee contended before the Ld CIT(A) that as per the provisions of sec. 49(1), the cost to the previous owner should be adopted if the property is received under a gift. Additionally, sec. 2(42A) includes the period of holding by the previous owner for determining the time period in the hands of the assessee. The Ld CIT(A) agreed with the assessee and directed the assessing officer to adopt the cost inflation index pertaining to the financial year 1981-82. Upon appeal, the Tribunal upheld the decision of the Ld CIT(A), referencing the Hon'ble High Court of Delhi's decision in Arun Shungloo Trust Vs. CIT and the Hon'ble Bombay High Court's decision in CIT Vs. Manjula J Shah. The Tribunal concluded that the indexed cost of acquisition should be determined with reference to the cost inflation index for the first year in which the capital asset was held by the previous owner. 2. Long-Term Capital Gain on Sale of Property No.2: The second issue concerns the long-term capital gain assessable on the sale of Property No.2, which was sold by the father of the assessee, Shri V.K.Mohan, as her Power of Attorney holder. The assessee contended that she never got possession of Property No.2 and that the sale proceeds were received and enjoyed by her father, who declared the capital gain in his return of income and claimed exemption u/s 54. The assessing officer held that the assessee was the owner of Property No.2 and that her father acted only as her agent. Therefore, the capital gain arising from the sale was assessed in the hands of the assessee. The Ld CIT(A) deleted the addition of Rs.1,45,28,987/- on several grounds, including that the sale proceeds were received by Shri V.K.Mohan, who declared the capital gain in his return, and that the provisions of sec. 60 of the Act were applicable. The Ld CIT(A) also noted that the gift deed did not constitute a transfer as per sec. 47(iii) and that the assessee never accepted the gift. Upon appeal, the Tribunal disagreed with the Ld CIT(A), stating that the transfer of Property No.2 by way of a settlement deed was absolute, and the assessee became the owner upon execution of the deed. The Tribunal held that Shri V.K.Mohan acted as the agent of the assessee when selling the property and that the capital gain should be assessed in the hands of the assessee. The Tribunal also ruled that the assessee would not be entitled to exemption u/s 54F for the property purchased by her father. Conclusion: The appeal of the revenue was partly allowed. The Tribunal upheld the decision of the Ld CIT(A) regarding the cost inflation index but set aside the Ld CIT(A)'s decision on the long-term capital gain on Property No.2, restoring the addition made by the assessing officer.
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