2014 (12) TMI 129 - AT - Income Tax

Indexed Cost of Acquisition - assessee had acquired the asset from her late father - Held that - Following the decision in Commissioner of Income-tax Versus Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT - indexed cost of acquisition as envisaged in Explanation (iii) to section 48, has to be reckoned from the year in which previous owner acquired the asset and not from the year in which the assessee had acquired - Therefore, in this case the cost of acquisition has to be taken from 1st April 1981 as the previous owner had acquired the asset much prior to it i.e., on 28th December 1966 thus, the order of the CIT(A) is upheld Decided against revenue. Cost of acquisition of capital asset u/s 55(2) Held that - Both the Revenue authorities have held that cost of acquisition should be taken on the value on which it was acquired by the previous owner that is at 3.50 lakhs, on 28th December 1966 - the subject matter of sale is lease hold rights - the property has become the capital asset of the assessee by way of Will, therefore, cost of acquisition as prescribed in section 55(2)(a)(ii) will not be applicable thus, the cost of acquisition has to be worked out as per clause (b) of section 55(2), which provides that it is the option of the assessee if the property has been acquired by the assessee before 1st April 1981 to adopt the fair market value as on 1st April 1981 - the assessee has opted to fair market value as on 1st April 1981, and therefore, the assessee has rightly adopted the fair market value of the asset as on 1st April 1981 thus, the order of the CIT(A) is set aside and the AO is directed to take the fair market value as adopted by the assessee as on 1st April 1981 for the purpose of cost of acquisition Decided in favour of assessee. Claim made u/s 54F disallowed - acquisition of another residential house - Held that - The assessee has claimed the deduction u/s 54F on account of long term capital gain, arising out of sale of lease right of the property - The capital gain arising out of transfer of such a long term capital asset was utilized for purchasing of a residential flat at Forest Castles, Mundhawa, Pune - the assessee has also purchased two adjacent flats in a different locality and in a different building called as Water Front - sub clause (ii) of clause (a) clearly provides that when the assessee has purchased any residential house other than the new residential house within a period of one year after the date of transfer, then the assessee shall not be eligible for claim of deduction u/s 54F - there is a clear violation of conditions laid down in proviso to section 54F(1), therefore, the AO as well as the CIT(A) have rightly denied the assessee s claim of deduction thus, the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues:
1. Determination of the full value consideration for the cost of acquisition.
2. Applicability of indexed cost of acquisition from the date of the previous owner.
3. Determination of the cost of acquisition under Section 55(2).
4. Denial of deduction under Section 54F for the cost of acquisition of a residential unit.

Analysis:

Issue 1: Determination of the Full Value Consideration for the Cost of Acquisition
The primary issue raised by the Revenue was whether the full value consideration should be taken as on 1st April 1981 or from the date the assessee acquired the property. The assessee inherited leasehold rights from her father, who had acquired them on 28th December 1966. The Assessing Officer contended that the indexation should start from 23rd July 1993, the date the assessee inherited the property. However, the Commissioner (Appeals) followed the Special Bench decision of the Tribunal in DICT v/s Manjula J. Shah, which held that the indexation should be from the date the original owner acquired the property. This position was affirmed by the Hon'ble Jurisdictional High Court, and thus, the Revenue's appeal was dismissed.

Issue 2: Applicability of Indexed Cost of Acquisition from the Date of the Previous Owner
The Tribunal upheld the decision that the indexed cost of acquisition should be reckoned from the year the previous owner acquired the asset. In this case, since the previous owner acquired the asset on 28th December 1966, the cost of acquisition should be taken from 1st April 1981. This was in line with the decision of the Hon'ble Jurisdictional High Court in Manjula J. Shah, thereby affirming the Commissioner (Appeals)'s order and dismissing the Revenue's appeal.

Issue 3: Determination of the Cost of Acquisition under Section 55(2)
The assessee argued that under Section 55(2)(b)(ii), she had the option to consider the fair market value as on 1st April 1981 for the cost of the capital asset. The Assessing Officer, however, determined the cost of acquisition to be Rs. 3.50 lakhs, the amount for which the previous owner acquired the asset. The Tribunal found that since the property was acquired through a Will, the cost of acquisition should be determined under Section 55(2)(b), which allows the assessee to adopt the fair market value as on 1st April 1981. The Tribunal directed the Assessing Officer to take the fair market value as adopted by the assessee for the cost of acquisition.

Issue 4: Denial of Deduction under Section 54F for the Cost of Acquisition of a Residential Unit
The assessee claimed a deduction under Section 54F for the purchase of a residential unit. The Assessing Officer denied this claim, stating that the assessee had purchased additional residential properties within one year of the transfer of the original asset, violating the conditions under Section 54F(1). The Tribunal upheld this decision, noting that the purchase agreements for the additional properties clearly indicated they were residential units, and the intention to use them for commercial purposes was not substantiated. The Tribunal also rejected the argument that possession was given in the next financial year, as the purchase agreement was dated within the relevant period. Thus, the assessee's claim for deduction under Section 54F was denied, and the Commissioner (Appeals)'s decision was affirmed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the indexed cost of acquisition should be reckoned from the date the previous owner acquired the asset. The Tribunal allowed the assessee's appeal in part, directing the Assessing Officer to consider the fair market value as on 1st April 1981 for the cost of acquisition. However, the Tribunal upheld the denial of the deduction under Section 54F for the purchase of additional residential units within one year of the transfer of the original asset.