2015 (6) TMI 64 - AT - Income Tax

Determination of capital gain on sale of house property - Indexation benefits considering holding period of previous owner - Addition on account of additions i.e. renovation & repair, made to the new residential house - Applicability of Section 50C while claiming deduction u/s 54 - Held that - As per the provisions of Section 49(1) of the Income-tax Act, when a property is acquired by the assessee by inheritance, then the cost of acquisition of the previous owner is taken as the cost of the assessee and the period of holding of the previous owner is also taken as the period of holding of the assessee. It is not in dispute that the assessee received the property in question by way of inheritance on the death of his father who acquired the property on 13.09.1969. Therefore, in our considered view, the assessee is deemed to be holding the property since 13.09.1969. As the assessee is deemed to be holding the said residential property from a period prior to 01.04.1981 as per the provisions of Section 55 of the Act, the assessee is entitled to adopt the fair market value as on 01.04.1981 as the cost of the property and also entitled for indexation from 01.04.1981. We, therefore, set aside the orders of the lower authorities in respect of this part of the issue and direct the Assessing Officer to allow indexed-cost of the fair market value as on 01.04.1981 by allowing indexation with reference to 01.04.1981. We find that the additional cost of ₹ 6,00,000/- claimed by the assessee was not accepted by the lower authorities on the ground that evidence in respect of the same was not produced before them. We find that no evidence could either be produced before us. Further, also no details as to how the payments were made in respect of the above alleged renovation expenditure was made was brought on record either before the lower authorities or before us. In absence of the same, we do not find any infirmity in the orders of the lower authorities in respect of this part of the issue. Applicability of Section 50C while claiming deduction u/s 54 - The deeming fiction created by virtue of section 50C in determining capital gain from transfer of any long-term capital asset for purpose of section 54F has to be worked out by applying section 48 without imposing section 50C into it.Thus, it was held that for computing Capital Gain, Section 50C is to be taken into consideration but the exemption u/s 54F or 54 being a complete code in itself, exemption has to be worked out as per the provisions of that section itself. As per the provisions of Section 54, exemption is allowable with reference to the amount of Capital Gain and not with reference to the amount of net consideration. Therefore, the issue which arose with reference exemption u/s 54F wherein exemption is allowed with reference to amount of net consideration does not arise in granting exemption u/s 54. We, therefore, dismiss this contention of the AR of the assessee. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Determination of indexed cost of acquisition for capital gains calculation.
2. Applicability of Section 50C for determining sale consideration under Section 54.
3. Inclusion of renovation and repair costs in the cost of a new residential house for exemption under Section 54.

Detailed Analysis:

Issue 1: Determination of Indexed Cost of Acquisition
The assessee claimed the indexed cost of the property based on its value as of 01.04.1981, which was acquired by inheritance from his father, who originally purchased the property on 13.09.1969. The Assessing Officer (AO) and the Commissioner of Income-Tax (Appeals) [CIT(A)] rejected this claim, using the date 24.05.1993 (the date of a written agreement among heirs) for indexation. The Tribunal held that the cost of acquisition should be based on the fair market value as of 01.04.1981, as per Section 49(1) and Section 55 of the Income-tax Act, since the property was inherited. The Tribunal directed the AO to allow the indexed cost of the fair market value as of 01.04.1981.

Issue 2: Applicability of Section 50C for Determining Sale Consideration under Section 54
The assessee argued that Section 50C, which considers stamp duty value for capital gains calculation, should not apply when claiming exemption under Section 54. The Tribunal dismissed this contention, clarifying that Section 50C is applicable for computing capital gains, while Section 54 provides exemption based on the amount of capital gains, not the net consideration. The Tribunal distinguished the assessee's case from the Bangalore Bench decision in Shri Gouli Mahadevappa v. ITO, which dealt with Section 54F, emphasizing that Section 54F involves net consideration, unlike Section 54.

Issue 3: Inclusion of Renovation and Repair Costs in the Cost of New Residential House
The assessee claimed an additional Rs. 6,00,000 for renovation and repairs to the new residential house, which the AO and CIT(A) disallowed due to lack of evidence. The Tribunal upheld this disallowance, noting that no proof of renovation expenses was provided either before the lower authorities or the Tribunal. Consequently, the Tribunal found no infirmity in the lower authorities' decision to exclude the renovation costs from the cost of the new house.

Conclusion
The Tribunal partly allowed the appeal, directing the AO to consider the indexed cost of acquisition based on the fair market value as of 01.04.1981. However, it upheld the disallowance of renovation costs and confirmed the applicability of Section 50C for computing capital gains under Section 54. The stay petition filed by the assessee was dismissed as infructuous.