2022 (2) TMI 581 - HC - Income Tax

Computation of capital gains - benefit of indexation - cost to the previous owner - inherited property under will and again by will - According to petitioner, indexation should be granted from financial year 1981-82 as a previous owner, who had acquired the property by any means other than those specified in Section 49 was late predecessor, who had acquired her share in the said property in the year 1972, i.e., before 1981, while, respondent No.1 has granted such indexation from financial year 1992-93 - HELD THAT - The cost of acquisition of the said property in the hands of seller is deemed to be the cost for which the said property was acquired by late Mrs. Dolly Jehangir Gazdar and the period of holding of late Mrs. Dolly Jehangir Gazdar, Mrs. Rhoda Rustom Framjee and Mr. Rustom Framjee are also to be included in the period of holding of seller for ascertaining the period for which the property was held by the seller. Based on the Scheme of the Act, as provided in Section 49(1)(ii), clauses (29A) and (42A) of Section 2 and Section 55(2)(b)(ii) of the Act, indexation of the cost of acquisition under the second proviso to Section 48 should be available from the financial year 1981-1982. Therefore, on this ground alone, we will have to grant prayer clause (a) as quoted earlier. Refund of excess tax paid - From the assessment order annexed to the affidavit in rejoinder, it does appear that the Revenue had selected the return of the seller for scrutiny and an assessment order dated 24th February 2014 under Section 143(3) of the Act has been passed. In the said order, department has accepted the capital gains at ₹ 3,85,613/-, and in the absence of any claim of TDS of ₹ 28,74,100/-, has not allowed any credit or refund of the same. In fact, the department has raised the demand of ₹ 91,360/- as seller s tax along with interest under Section 234B of the Act. There is no sur-rejoinder filed by department to this affidavit in rejoinder, denying any of the averments in the affidavit though more than four years have passed since rejoinder was filed in the Court on 15th December, 2017 when time was granted on that date to respondents to consider the affidavit in rejoinder. It is not clear whether the seller has paid the tax amount of ₹ 91,360/- demanded from him pursuant to the assessment order dated 24th February, 2014. At this point of time, we would, therefore, permit the department to retain this amount (₹ 91,360/-) and return the balance out of ₹ 28,74,100/-. The department will also refund the proportionate interest of ₹ 43,112/- after recalculating, by taking capital gains that should have been deposited at ₹ 3,85,613/- and not ₹ 1,39,51,463/-. Interest on refund and the date from which the interest has to be paid - HELD THAT - As relying on M/S TATA CHEMICALS LTD. 2014 (3) TMI 610 - SUPREME COURT interest shall be paid at the rate prescribed under Section 244A(1)(b) for the period from the date of payment of tax, i.e., 7th January, 2011.

Summary

Issues Involved:

1. Determination of indexed cost of acquisition for capital gains tax calculation.
2. Compliance with judicial precedents and ITAT decisions.
3. Refund of excess tax paid and interest thereon.

Detailed Analysis:

1. Determination of Indexed Cost of Acquisition for Capital Gains Tax Calculation:

The petitioner, a company involved in property development, purchased a 1/8th share of a property from a non-resident seller. The primary issue was the computation of the indexed cost of acquisition for calculating long-term capital gains tax. The petitioner argued that the indexation should be granted from the financial year 1981-82, as the property was originally acquired by Mrs. Dolly Jehangir Gazdar in 1972. The respondent, however, granted indexation from the financial year 1992-93.

The petitioner relied on Section 49(1)(ii), clauses (29A) and (42A) of Section 2, and Section 55(2)(b)(ii) of the Income Tax Act, 1961, which state that the cost of acquisition and the period of holding by the previous owners should be considered. The court referred to the decision in Commissioner of Income Tax Vs. Manjula J. Shah [2013] 355 ITR 474 (Bom), which confirmed that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset.

2. Compliance with Judicial Precedents and ITAT Decisions:

The court emphasized the importance of judicial discipline, stating that subordinate authorities must follow the orders of higher appellate authorities unless suspended by a competent court. The respondent's action was contrary to the ITAT's decision in DCIT Vs. Manjula J. Shah, which was upheld by the Bombay High Court. The court reiterated that the indexed cost of acquisition must be determined from the year the previous owner first held the asset, aligning with the legislative intent to tax gains arising from assets acquired under a gift or will.

3. Refund of Excess Tax Paid and Interest Thereon:

The petitioner sought a refund of the excess tax paid, arguing that the correct tax amount should be ?74,523 instead of ?28,74,100. The court noted that the seller had not claimed any credit for the TDS of ?28,74,100 paid by the petitioner. The assessment order for the seller for the Assessment Year 2011-12 accepted the capital gains at ?3,85,613, with no credit for the TDS paid by the petitioner.

The court directed the department to retain ?91,360 (the tax amount demanded from the seller) and refund the balance of ?28,74,100, along with proportionate interest of ?43,112. The interest on the refund was to be paid from the date of payment of tax, i.e., 7th January 2011, as per the Supreme Court's decision in Union of India Vs. Tata Chemicals Limited [2014] 363 ITR 658 (SC).

Conclusion:

The court granted the petitioner's prayer to quash the impugned order and directed the respondent to determine the long-term capital gains and tax thereon as claimed by the petitioner. The court also ordered the refund of the excess tax paid with interest from the date of payment. The petition was disposed of accordingly.