2015 (4) TMI 47 - AT - Income Tax

Computation of taxable Long Term Capital Gain of HUF - Lower Authorities taking sale consideration in the hands of the assessee at ₹ 13,33,333/- when in fact the Sale Deed specifically mentions that he gets the sale consideration of ₹ 4,00,000/- only, and therefore, the calculation of the taxable capital gain of ₹ 11,71,597/- which is far much more than the actual sale consideration of ₹ 4,00,000/- is patently bad in law - whether the Revenue Authorities were correct in adopting the index price in A.Y.2003-04 instead of 1.4.1981? Held that - On perusal of the sale deed stated to be registered on 27th of March, 2009 we have noted that the executors of the sale deed were the family members of the Assessee. Meaning thereby the Assessee was not the only seller of the property but the property in question was sold jointly by all the members of the family. The property in question was sold for a consideration of ₹ 80 lac. As per section 49 where the capital asset became the property of the Assessee by succession or inheritance then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property had acquired it. In this case, the Assessee, Sri Harish Babulal had acquired this property by inheritance on death of his father Sri Babulal Popatlal who expired on 19th December, 1961. We, therefore, hereby hold that if the dates are correct than the index cost of acquisition is required to be adopted as on 1.4.1981, i.e., 100 instead of 463 as alleged by the AO. Since, the family tree was not disclosed in the assessment order therefore, at this stage of second appeal it is not clear that whether the dates as mentioned were verified by the AO or not. The only reference which we have noticed is in paragraphs 3, 4 & 5 of the sale deed. Therefore, the AO is required to investigate this issue in the light of the dates mentioned in the said registered sale deed, especially, the date of death of the father of the Assessee. If it is found to be prior to 1.4.1981 then naturally the year of inheritance shall be held as 1.4.1981 for the purpose of fixation of cost indexation. With these remarks this issue raised is restored back for denovo adjudication. - Decided in favour of assessee for statistical purpose Cost of acquisition - Held that - Assessee got his share in the property after the death of his father and later on after the death of Rohit Babulal his already existed share was enhanced or increased by the death of Sri Rohit Babulal. So the Assessee is required to place on record the correct factual position in respect of the property which was inherited by the Assessee on death of his father and the portion of the property which he received on the death of Sri Rohit Babulal. After verifying this fact, the AO shall examine the datas referred in the valuation report so as to decide the correctness of the value of the property for the purpose of applying the value in the formula of cost inflation index. Since certain facts are yet to be determined as discussed by us therefore, the additional ground of assessee also allowed for the statistical purpose.

Summary

Issues Involved:
1. Whether the capital gain arising from the sale of house property should be taxed in the hands of the individual or the HUF.
2. Determination of the correct cost of acquisition and the application of the cost inflation index for calculating capital gains.
3. The validity of the additional ground raised by the appellant regarding the sale consideration and the taxable capital gain.

Detailed Analysis:

1. Taxation of Capital Gain in Individual vs. HUF Capacity:
The appellant argued that the Learned CIT(A)-XVI erred in not allowing the income arising from the sale of house property to be considered as HUF income and instead added it to the individual's income. The AO observed that the property was registered and sold in the individual capacity, with the PAN number of the individual used in the sale deed. The sale proceeds were credited to the individual's bank account, not the HUF's. The return of income in the HUF capacity was filed only after receiving notice from the Income Tax Department, which was not within the stipulated time under section 139 of the IT Act. Consequently, the AO concluded that the property belonged to the individual and taxed the long-term capital gain in the hands of the individual. The CIT(A) upheld this decision, noting that the sale deed and the bank account details supported the AO's conclusion.

2. Determination of Cost of Acquisition and Cost Inflation Index:
The appellant contended that the cost of acquisition should be indexed from 01.04.1981, arguing that the property was inherited and not acquired in 2003-04 as determined by the AO. The AO had applied the cost inflation index for the year 2003-04, considering the property was first held by the appellant in 2004 upon the death of a family member. The appellant presented a family tree and argued that the property was ancestral, inherited from his father who died in 1961, thus the cost of acquisition should be indexed from 1981. The Tribunal referred to the Gujarat High Court decision in CIT Vs. Gautam Manubhai Amin, which held that for computing long-term capital gains, the indexed cost of acquisition should be computed with reference to the year the previous owner first held the asset. The Tribunal restored this issue to the AO for re-examination, emphasizing the need to verify the dates of inheritance and apply the correct cost inflation index accordingly.

3. Additional Ground on Sale Consideration and Taxable Capital Gain:
The appellant raised an additional ground, arguing that the lower authorities erred in computing the taxable long-term capital gain by taking the sale consideration at Rs. 13,33,333/- instead of Rs. 4,00,000/- as mentioned in the sale deed. The AO calculated the taxable capital gain as Rs. 11,71,597/-, which was significantly higher than the actual sale consideration. The Tribunal noted that the valuation report provided by the appellant was not adequately discussed by the AO. The Tribunal instructed the AO to re-examine the valuation report and the factual position regarding the property inherited by the appellant, ensuring the correct value is applied for the cost inflation index.

Conclusion:
The Tribunal concluded that the appeal of the assessee is allowed for statistical purposes. The issues regarding the correct determination of the cost of acquisition and the application of the cost inflation index were restored to the AO for a fresh adjudication, while the taxation of the capital gain in the individual capacity was upheld due to the lack of challenge from the appellant on this point. The additional ground regarding the sale consideration was also allowed for statistical purposes, requiring further examination by the AO.