2010 (5) TMI 70 - HC - Income Tax

Cost of acquisition computation of capital gains applicability of section 49 cost of the previous owner - assets disposed of under family arrangement - According to the assessees, by virtue of the said family arrangement, half of the company s said property came to the share of the present assessees and the other half went to the share of another family group. The half that came to the share of the present assessees was sold for an amount of Rs 2.09 crores. The Assessing Officer assessed capital gains at the hands of the present assessees on the basis of the said seized document. - The assessees herein sought to invoke the provisions of Section 49(1) of the Income Tax Act, 1961. The said plea was accepted by the Tribunal and the revenue is in appeal before us on this issue. Held that Section 49(1) deals with the computation of cost with reference to certain modes of acquisition. It, inter alia, provides that where the capital asset became the property of the assessee on any distribution of assets on the total or partial partition of a Hindu Undivided Family or on any distribution of assets on the liquidation of a company, then 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 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, we find that the asset in question, namely, C-101 Maya Puri Industrial Area was not the property of a Hindu Undivided Family. Secondly, it was owned by the said company, namely, Ambitious Gold and there was no distribution of its assets because there was no liquidation of the company. - Section 49(1) same is not at all applicable. Decided against the assessee

Summary

Issues:
1. Applicability of Section 49(1) of the Income Tax Act, 1961 for computing capital gains.
2. Assessment of capital gains at the hands of the respondents/assessees.
3. Proper adjustment and refund of tax paid on capital gains.

Issue 1: Applicability of Section 49(1) of the Income Tax Act, 1961 for computing capital gains.

The appeals filed by the revenue concern the block period from 01.04.1996 to 24.09.2002 and stem from the Income Tax Appellate Tribunal's order dated 29.12.2008. The case revolves around a property acquired by a company, Ambitious Gold, and subsequently sold. During search operations at the residential premises of the directors of Ambitious Gold, a "family arrangement" document was found, suggesting a division of property shares. The Assessing Officer assessed capital gains based on this document, leading to an appeal regarding the proper cost of acquisition. The Tribunal accepted the plea invoking Section 49(1) of the Income Tax Act, prompting the revenue's appeal on this issue.

Issue 2: Assessment of capital gains at the hands of the respondents/assessees.

The judgment clarifies that Section 49(1) does not apply in this case as the property in question was not part of a Hindu Undivided Family and was owned by Ambitious Gold, not distributed due to liquidation. Therefore, the property remained with the company, and the directors did not become owners. The Assessing Officer erred in assessing capital gains for the directors, as the sale proceeds belonged to the company, not the individuals. The capital gains should have been examined in the company's assessment, not the directors'. The judgment directs the capital gains to be computed for Ambitious Gold, with any tax paid by the directors to be adjusted against the company's dues, ensuring a refund if necessary.

Issue 3: Proper adjustment and refund of tax paid on capital gains.

The judgment sets aside previous orders and instructs the Assessing Officer to calculate capital gains for Ambitious Gold. It mandates the adjustment of tax paid by the directors against the company's dues, with any excess tax to be refunded to the directors. The judgment emphasizes that any benefit received by the directors from the tax paid must be reversed if required by law. The counsel for the directors consents to this order, leading to the disposal of the appeals based on the outlined directions.

This comprehensive judgment addresses the intricate issues surrounding the computation and assessment of capital gains, ensuring proper application of tax laws and equitable treatment for all parties involved.