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2021 (9) TMI 977 - AT - Income TaxCapital gain - scheduled property acquired through settlement deed executed by the grandfather of the assessee - claim for cost of indexation as well as deductions claimed u/s 54 54EC - consideration of period of holding of the property by the previous owner i.e. grandfather of the assessee - HELD THAT - Out of total sale consideration, the share of 10.94% was legally and rightly given to the assessee s father, who held lifetime enjoyment right, which was relinquished and thereby both the assessees sold the said property. Thus, respectfully following the above decision of CV. SOUNDARARAJAN AND ANOTHER 1983 (8) TMI 14 - MADRAS HIGH COURT the Assessing Officer is directed to compute the capital gains only for ₹.2.03 crores each in the hands of both the assessees and not the entire sale consideration. Benefit of cost of indexation - Both the assessees have acquired the scheduled property through settlement deed executed by the grandfather of the assessees . To determine the cost, there are different modes of acquisition. Where the capital asset became the property of the assessee, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it as per section 49 of the Income Tax Act, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. In the present case, the assessees have acquired the property through settlement deed. The settlement deed duly executed becomes effective immediately during life time of all the parties. The period of holding by the assessee s grandfather, who was the previous owner of the said property, should be taken into account both for indexation and for long term capital asset. Both the assessees have acquired the property on 10.10.2005 and sold the property on 12.09.2012 and thus, both the assessees are eligible to avail the benefit under section 54 of the Act as the asset held by the assessees are long term capital asset Assessing Officer has to assess the long term capital gain by taking into consideration of the period of holding of the property by the previous owner i.e. grandfather of the assessee as well as for indexation in view of the decision in the case of CIT v. Manjula J. Shah 2011 (10) TMI 406 - BOMBAY HIGH COURT as held that the benefit of indexation would be available right from the day the predecessor in title acquired the property, wherever, the acquisition is by a mode mentioned in section 49 of the Act. Since the asset held by the assessee is a long term capital asset, the Assessing Officer has rightly allowed the exemption claimed under section 54 54EC of the Act as per the assessment order and the ld. CIT(A) has erroneously rejected the claim of the assessee. We set aside the appellate order and direct the Assessing Officer to take the sale consideration of the property after payment of ₹.49,98,000/- to the father of the assessees towards lifetime enjoyment and to allow the claim for cost of indexation as well as deductions claimed under section 54 54EC of the Act after verification of the details as may be submitted for claiming such deduction. - Decided in favour of assessee.
Issues Involved:
1. Enhancement of assessment without notice. 2. Adherence to Tribunal's remand directions. 3. Classification of transferred asset as short-term capital asset. 4. Withdrawal of indexation benefits and deductions under sections 54 and 54EC. 5. Applicability of section 46 of the Transfer of Property Act, 1882. 6. Proper computation of capital gains. Detailed Analysis: 1. Enhancement of Assessment Without Notice: The appellants contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred by enhancing the assessment without issuing a notice of enhancement, violating principles of natural justice. 2. Adherence to Tribunal's Remand Directions: The appellants argued that the CIT(A) failed to follow the Tribunal's directions for "de novo" consideration, instead merely repeating conclusions from the previous order. The Tribunal had remanded the matter for independent evaluation, but the CIT(A) did not adjudicate issues regarding indexation of cost and exemptions under sections 54 and 54EC independently. 3. Classification of Transferred Asset as Short-Term Capital Asset: The CIT(A) held that the transferred property was a short-term capital asset, not considering the period of holding by the previous owner as required under section 49(1) of the Income Tax Act. The appellants argued that the property, acquired through a settlement deed, should be considered a long-term capital asset. 4. Withdrawal of Indexation Benefits and Deductions Under Sections 54 and 54EC: The CIT(A) withdrew the benefits of indexation and deductions under sections 54 and 54EC, reasoning that the property was not inherited and thus did not qualify under section 49(1). The appellants contended that the property was acquired through a valid settlement deed, entitling them to these benefits. 5. Applicability of Section 46 of the Transfer of Property Act, 1882: The appellants argued that the CIT(A) wrongly dismissed the applicability of section 46 of the Transfer of Property Act, 1882, which allows persons with distinct interests in a property to share the sale consideration proportionately. The CIT(A) did not accept this contention, as the appellants failed to show that their father's share of the sale consideration was offered to tax in his hands. 6. Proper Computation of Capital Gains: The Tribunal found that the appellants' father had a lifetime enjoyment right over the property, which was extinguished upon sale, making the appellants the absolute owners. The Tribunal cited section 2(47)(ii) of the Income Tax Act, which includes extinguishment of rights as a transfer, and section 46 of the Transfer of Property Act, supporting the appellants' claim. The Tribunal directed the Assessing Officer to compute capital gains considering the appellants' father's share and allow indexation benefits and deductions under sections 54 and 54EC, as the property was a long-term capital asset. Conclusion: The Tribunal set aside the CIT(A)'s order, directing the Assessing Officer to: - Recognize the appellants' father's share of the sale consideration. - Compute capital gains for the appellants based on their respective shares. - Allow indexation benefits and deductions under sections 54 and 54EC, considering the property as a long-term capital asset. Result: Both appeals filed by the appellants were allowed.
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