2015 (5) TMI 10 - HC - Income Tax

Valuation of share of the assessee in the property - report of the Registered Valuer or the mean value between the valuations made by the Registered Approved Valuer and by the District Valuation Officer, as determined by the Commissioner of Income Tax (Appeals) - Held that - Revenue/appellant has not disputed the fact that under Clause (a) of section 55A as it stood at the relevant point of time, the assessing officer could have made a reference provided he was of the opinion that the valuation made by the registered valuer was less than the fair market value of the property. When the valuation made by the registered valuer was on the higher side, there was no occasion for the assessing officer to refer the matter to the valuation officer under section 55A. therefore, the valuation at a sum of ₹ 18,40,244/- as at 1st April, 1981 was correctly accepted by the learned Tribunal. The first question is answered in the positive and against the revenue. Tribunal applying the cost inflation index with effect from 1.4.1981 - Held that - The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per CBDT Circular No.636, dated August 31, 1992, a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at the indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the longterm capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee.Since the assessee, in the present case, is held liable for long-term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. - Decided against the revenue. Rent from the property - assessed under the head Income from House Property or Income from Other Sources - land stood in the name of the assessee s husband - Held that - Section 27 provides an inclusive definition of the expression owner . An inclusive definition is not an exhaustive definition in law. We can imagine a situation where a person can be the owner of the land and another can be the owner of the structure. This is permissible in law because in joint ownership unity of title is not required. In the case before us the land admittedly belonged to the husband. He has raised the building with the joint funds belonging to himself and his wife. Therefore, one inference which can be drawn is that the land belonging to the husband has been thrown into the common stock of joint property between the husband and the wife. Both of them thus became the joint owners by operation of the doctrine of blending. They admittedly have borne the cost of construction in the ratio of 1/3rd and 2/3rd. Therefore, the income arising out of the property is in fact an income arising out of house property which has to be taxed under Section 22 rather than as an income arising out of other sources under Section 56 - Decided against the revenue.

Issues Involved:

1. Valuation of the property at 47, Archbishop Makarios Marg (Golf Links), New Delhi as on 1.4.1981.
2. Application of the cost inflation index with effect from 1.4.1981 or 1999-2000.
3. Classification of rental income from the property at Panchasheel Park, New Delhi.

Detailed Analysis:

Issue 1: Valuation of the Property

The first issue concerns the correct valuation of the property at 47, Archbishop Makarios Marg (Golf Links), New Delhi as on 1.4.1981. The Income Tax Appellate Tribunal (ITAT) adopted the value of the assessee's share in the property at Rs. 18,40,244/- based on the report of the Registered Valuer. The Commissioner of Income Tax (Appeals) had determined the value at Rs. 15,02,907/- by taking the mean value between the Registered Approved Valuer's valuation and the District Valuation Officer's valuation of Rs. 11,65,570/-. The Tribunal held that the reference made by the assessing officer to the departmental valuer under section 55A was incompetent because the registered valuer's valuation was higher than the fair market value. Consequently, the Tribunal accepted the valuation of Rs. 18,40,244/- as correct. The court upheld this decision, stating that the assessing officer had no occasion to refer the matter to the valuation officer under section 55A when the registered valuer's valuation was on the higher side. Thus, the first question was answered in the positive and against the revenue.

Issue 2: Application of Cost Inflation Index

The second issue pertains to the application of the cost inflation index. The revenue argued that the cost inflation index should be applied from the year 1999-2000 when the assessee inherited the property, as per Explanation (iii) to section 48 of the Income Tax Act, 1961. However, the court referred to section 2(42A) and section 49, which include the period for which the asset was held by the previous owner in determining the holding period of the asset by the assessee. Since the previous owner (the mother) held the property since 1968, the court held that the assessee could be deemed to have held the property from 1968. Section 55(2)(b)(ii) allows the cost of acquisition to be the fair market value as on 1st April, 1981, at the option of the assessee. Therefore, the indexed cost of acquisition should be calculated from 1st April, 1981. The court cited judgments from the Gujarat High Court and the Bombay High Court, which supported this interpretation. Thus, the second question was answered in the affirmative and against the revenue.

Issue 3: Classification of Rental Income

The third issue involves the classification of rental income from the property at Panchasheel Park, New Delhi. The property was constructed on land owned by the assessee's husband, with the cost of construction shared between the husband and wife in a 1/3rd and 2/3rd ratio. The revenue contended that the rental income should be assessed under "Income from Other Sources" since the land was in the husband's name. However, the court noted that the definition of "owner" in Section 27 is inclusive and not exhaustive. It is possible for one person to own the land and another to own the structure. Since the building was constructed with joint funds, the land could be considered as having been thrown into the common stock of joint property between the husband and wife, making them joint owners. Therefore, the income arising from the property should be taxed under "Income from House Property" as per Section 22, rather than "Income from Other Sources" under Section 56. The third question was answered in the affirmative and against the revenue.

Conclusion:

The appeal was dismissed, with all three questions answered in the affirmative and against the revenue. The court upheld the ITAT's decisions regarding the valuation of the property, the application of the cost inflation index, and the classification of rental income.

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