2005 (4) TMI 267 - AT - Income Tax

Issues Involved:
1. Whether the learned CIT(A) erred in not following the valuation report in respect of property No. N117, Panchsheel Park, New Delhi.
2. Whether the CIT(A) erred in allowing exemption under section 54 of the IT Act when the property in question is not registered in the name of the assessee.

Issue-wise Detailed Analysis:

1. Valuation Report and Fair Market Value (FMV):

On the facts and circumstances of the case, the learned CIT(A) has erred in law and on facts in not following the valuation report in respect of property No. N117, Panchsheel Park, New Delhi.

Mr. RK. Mathur owned 1/3rd share of the property at N-119, Panchsheel Park, New Delhi. Upon his death, his wife and two daughters inherited his share, each receiving 1/9th of the whole property. The property was sold for Rs. 3,25,00,000 in the relevant assessment year, and each assessee received Rs. 36,11,111.

The dispute centered on the cost of acquisition for calculating capital gains. Under section 55(2)(b)(i), the assessees opted for the Fair Market Value (FMV) as on 1st April 1981. The AO relied on a DVO report from a co-owner's case, which deducted 50% of unearned increase in rent due to the leasehold nature of the land, a practice recognized by the Supreme Court in CWT vs. P.N. Sikand and codified in Rule 7 of Schedule III to the WT Act.

The AO confronted the assessee with the DVO report, but the assessee provided a registered valuer's report without such deductions. The AO rejected the assessee's contentions, holding that the correct FMV should deduct unearned increase.

The CIT(A) ruled against using the DVO report from another case and did not address the merits of the unearned increase deduction. Upon appeal, it was argued that the AO could rely on Rule 7 of Schedule III to the WT Act to deduct unearned increase while determining FMV.

The Tribunal held that the CIT(A) was incorrect in rejecting the DVO report and confirmed that the AO could use Rule 7 of Schedule III to the WT Act. However, it concluded that FMV for capital gains should not deduct unearned increase, as the IT Act's definition of FMV focuses on the price the asset would fetch in the open market. Therefore, the FMV without unearned increase deductions was accepted, and the capital gain was directed to be computed accordingly.

The order of CIT(A) is confirmed but for different reasons as given above.

2. Exemption under Section 54:

'On the facts and in the circumstances of the case, the learned CIT(A) has erred in law and on facts in allowing of exemption under s. 54 of the IT Act, when the property in question is not registered in the name of the assessee."

This issue pertains to Deepti Patni and Aditi Sharma, who claimed deductions under section 54 for purchasing new properties. The AO denied the claims because the properties were not registered in their names. However, the CIT(A) accepted the claims based on evidence of payment, possession, and enjoyment of the flats, referencing the Supreme Court ruling in CIT vs Poddar Cement (P) Ltd. that ownership for tax purposes does not require registered documents.

The CIT(A) forwarded the assessee's submissions to the AO, who agreed that the conditions for section 54 were met, except for the lack of registration. The CIT(A) directed the AO to allow the deductions, and the Tribunal upheld this decision, citing the Bombay High Court ruling in CIT vs. Dr. Lakshmichand Narpal Nagda, which supported allowing exemptions under similar circumstances.

The order of the CIT(A) is, therefore, confirmed and these grounds of appeal of the Revenue are also dismissed.

Conclusion:

In the result, the appeals by the Revenue are dismissed.

← Previous Next →