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2024 (11) TMI 32 - HC - Income TaxCapital gain computation - cost of acquisition would relate back to date of transfer through will to the beneficiary (son) - Determination of indexation cost acquisition of the residential house - residential house sold, has been the ancestral property of the family, and was acquired by the Appellant-Assessee as a result of memorandum of family settlement arrived at between the parties Admissibility of Additional Evidence by ITAT - Whether the additional evidence as produced by the Appellant-Assessee before the ITAT should have been considered by it? - As noticed that no Will was produced before the Assessing Officer and CIT(A), however, at the stage of Appeal before the ITAT, the Appellant-Assessee produced the Will which was considered by it. The ITAT has found that there was no application moved under Section 46-A of the Rules of 1962 and the additional evidence as well as grounds regarding the Will having been executed in favour of the Appellant-Assessee, could not have been considered. We are in agreement with the view taken by the ITAT in this regard. The provisions of the Act of 1961 are to be read as it is. No addition or subtraction can be made in the Rules of 1962 nor any principles of natural justice, where not applicable, can be applied, nor can any other provisions regarding equity be made applicable while construing the provisions of the Rules. It is an admitted position that there was a violation of Rules 46-A of the Rules of 1962 and therefore, such documents could not be taken into consideration. No reason has come forward for not placing the so-called Will during the time of assessment. Accordingly, question No.(i) is answered in favour of the Revenue and against the Appellant-Assessee. Determination of Cost of Acquisition and Indexed Cost for Capital Gains Tax - selection of date when the property was initially acquired by the previous owner OR date of the family settlement - In the present case, since there was admittedly a family settlement whereafter, it has been held by the ITAT that the assessee became the owner/title holder of the capital asset, then his case has to be examined in terms of Section 49 (i) of the Act of 1961. Thus, the said family settlement cannot be treated as transfer of property. The question as to whether the family settlement is required to be compulsorily registered is no longer res integra. The law was already settled by the Supreme Court in Sahu Madho Das s case 1955 (3) TMI 39 - SUPREME COURT Thus, if the family arrangements records a previous settlement already arrived at between the parties which they are adhering to, the same would not require registration. Thus we find that the family settlement arrived at between the parties, which was duly available on record, which recorded the earlier settlement already arrived at between the parties was, therefore, a valid family settlement to be noticed for the purpose of computation and computation of capital gains in terms of Section 49 (1) (i) of the 1961 Act. The cost inflation index is to be calculated with reference to the year 01.04.1981 by treating the acquisition of the property as purchased by the father of the petitioner Permanand Mehra on 01.04.1963 through registered-deed dated 06.06.1963. Thus, we find that a family settlement is not required to be compulsorily registered. In the case of C.A. Natrajan 1973 (5) TMI 3 - MADRAS HIGH COURT it was held that a primary condition must be satisfied before a tax is levied on a capital gain. A family arrangement, in the interest of settlement, may involve movement of property or payment of money from one person to another. Several judgments have held that there is no transfer involved in a family arrangement. Therefore, there is no question of capital gains tax index under a family arrangement. Thus, even though the documents relating to Will may not have been accepted by the ITAT, still the calculation has to be done treating the indexation as on 01.04.1981 and merely because the family settlement was arrived in the year 2003 would not make any difference, and the order passed by the CIT (A), is therefore, found to be correct although the CIT (A) has applied Section 49 (i) (ii) of the Act of 1961. We, therefore, agree with the submissions of the senior learned counsel for the Appellant-Assessee that even if the existence of the Will may be ignored, so far as the Appellant-Assessee is concerned, he has become the holder of the property on the basis of a family settlement and the cost of acquisition shall be with reference to 01.04.1981 alone. The calculation, therefore, has to be done accordingly and the order passed by the CIT (A) was not required to be interfered with. Decided in favour of assessee.
Issues Involved:
1. Admissibility of Additional Evidence by ITAT. 2. Determination of Cost of Acquisition and Indexed Cost for Capital Gains Tax. Issue-wise Detailed Analysis: 1. Admissibility of Additional Evidence by ITAT: The primary issue was whether the ITAT should have considered the additional evidence submitted by the Appellant-Assessee. The court examined Rule 46-A of the Income Tax Rules, 1962, which governs the production of additional evidence before appellate authorities. The rule specifies that additional evidence can only be admitted under certain circumstances, such as when the Assessing Officer has refused to admit evidence that should have been admitted, or when the appellant was prevented by sufficient cause from producing the evidence earlier. In this case, the ITAT did not consider the additional evidence because the Appellant-Assessee did not file an application under Rule 46-A. The court agreed with ITAT's decision, stating that the provisions of the Act must be strictly followed, and no additional evidence could be considered without complying with Rule 46-A. Thus, the court ruled in favor of the Revenue on this issue. 2. Determination of Cost of Acquisition and Indexed Cost for Capital Gains Tax: The second issue concerned the determination of the cost of acquisition for calculating capital gains tax. The court examined Sections 2(47), 47, 48, and 49 of the Income Tax Act, 1961, which relate to the computation of capital gains. The Appellant-Assessee argued that the cost of acquisition should relate back to 01.04.1981, the date when the property was initially acquired by the previous owner, rather than the date of the family settlement in 2003. The court noted that under Section 49(1), the cost of acquisition of a capital asset acquired through inheritance or family settlement is deemed to be the cost at which the previous owner acquired it. The court cited several precedents, including judgments from the Supreme Court and High Courts, which supported the view that the indexed cost of acquisition should be calculated from the date the previous owner acquired the asset. The court concluded that the family settlement did not constitute a transfer under the Act and that the cost of acquisition should indeed relate back to 01.04.1981. Therefore, the court ruled in favor of the Appellant-Assessee on this issue. Conclusion: The appeal was allowed, setting aside the ITAT's order and restoring the CIT(A)'s order, which had correctly applied the provisions of the Income Tax Act regarding the cost of acquisition and indexation. The court emphasized that the family settlement did not require registration and upheld the principle that no capital gains tax arises from a family arrangement. All pending applications in the case were disposed of accordingly.
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