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2018 (6) TMI 1514 - HC - Income TaxCost of acquisition of the asset - Mode of computation - sale of tenancy rights - Benefit of indexation - Cost of acquisition to be taken as NIL for Fair Market Value (FMV) as on 1.4.1981 - Scope of section 55(2)(a) and 55(2)(b) - Held that - Section 55 (2)(b) of the Act is a residuary clause dealing with the cost of acquisition of the capital assets which are not covered by Section 55(2)(a). Capital asset in this case being tenancy rights is covered by Section 55(2)(a). Appellant cannot avail of Section 55(2)(b) of the Act. It is in the above context that the impugned order holds that the indexation by substituting cost of capital assets to the previous owners who acquired the property before 1st April, 1981 by the market value as on 1st April, 1981 which is specifically referred to in Section 55 (2)(b) (ii) of the Act, would have no application to determine the cost of acquisition of tenancy rights which was a subject matter of sale. Cost of acquisition of tenancy, cannot be substituted by the fair market value as on 1st April, 1981, restored the issue to the Assessing Officer for the limited purposes to determine the cost of acquisition. This, in terms of Section 55(3) i.e. cost of acquisition to the previous owners or the market value on the date on which the capital asset become the property of the previous owner for the purposes of determining the income chargeable under the head capital gain in respect of the sale of tenancy rights. No impediment in the Appellants challenging the order passed by the Assessing Officer, before the Appellate Authorities, consequent to the remand by the impugned order of the Tribunal under the Act and in accordance with law. No liberty for the same is required.
Issues Involved:
- Interpretation of Section 55(2)(b)(ii) of the Income Tax Act, 1961 for determining the cost of acquisition of tenancy rights inherited before April 01, 1981. - Applicability of indexation under Section 55(2)(b)(ii) to determine the cost of acquisition of tenancy rights. - Whether the Tribunal correctly restored the issue to the Assessing Officer for determining the cost of acquisition of tenancy rights inherited from the previous owner. Analysis: Issue 1: Interpretation of Section 55(2)(b)(ii) - The Appellants sold their tenancy rights and sought indexation of the fair market value of the property as on April 01, 1981. - The Assessing Officer denied indexation under Section 55(2)(a) and treated the cost of acquisition as 'Nil'. - The CIT(A) upheld the Assessment Orders, stating that Section 55(2)(b) does not apply to the sale of tenancy rights. - The Tribunal held that indexation under Section 55(2)(b)(ii) does not apply to tenancy rights acquired before April 01, 1981. - The Tribunal restored the issue to the Assessing Officer to determine the cost of acquisition in accordance with Section 55(3) for the previous owners. Issue 2: Applicability of Indexation - Section 48 and Section 49 of the Act govern the computation of capital gains and cost of acquisition based on the full value of consideration received. - Section 55(2)(a) specifies that for assets like tenancy rights, the cost of acquisition is either the purchase price or nil if acquired through inheritance. - Section 55(2)(b) deals with the cost of acquisition for assets not covered by Section 55(2)(a), making it inapplicable to tenancy rights. - The Tribunal's decision was based on a plain reading of the provisions, concluding that the Appellants cannot avail of Section 55(2)(b)(ii) for indexation. Issue 3: Restoration of Issue to Assessing Officer - The Tribunal's decision to restore the issue to the Assessing Officer aligns with Section 55(3) for determining the cost of acquisition of tenancy rights inherited from the previous owner. - The Appellants were granted the liberty to challenge the Assessing Officer's order before the Appellate Authorities as per the remand by the Tribunal. Conclusion: - The Appeals were dismissed, and no costs were awarded. - The Tribunal's interpretation of Section 55(2)(b)(ii) and the restoration of the issue to the Assessing Officer for determining the cost of acquisition of tenancy rights inherited before April 01, 1981, were upheld. - The Appellants were allowed to challenge the Assessing Officer's order through the Appellate Authorities without requiring further liberty.
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