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TMI Blog2011 (4) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... p; That the ld. CIT(A) is not justified in holding that the market value of land as on 1-4-1981 is not to be taken for computing capital gain under the facts and circumstances of the case. 5. That the ld. CIT(A) is not justified in upholding the action of assessing authority in denying the benefit of indexation under the facts and circumstances of the case. 6. That the appellant disputes the quantum of addition made. 7. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal till the disposal of the same." 2. The assessee, an undertaking under the Government of Punjab, filed its return of income for the assessment year under appeal on 8-11-2007 returning total income at Rs. 30,82,48,000. Assessment under section 143(3) of the Income-tax Act was completed on 30-12-2009 assessing the total income of the assessee at Rs. 50,71,57,998. The subject matter of dispute in the present appeal is whether the capital gain shown by the assessee on transfer of property located at City Centre, Amritsar should be treated as long term capital gain as contended by the assessee or as short term capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company, namely, Amritsar Hotel Ltd., for assessment year 2004-05, i.e., the first year of its existence, was completed by the Assessing Officer under section 143(3) of the Income-tax Act in which the assessee was allowed depreciation on its assets including the hotel building. (v) The absolute ownership including legal title and possession of the impugned property was conveyed/transferred by the Department of Tourism (Government of Punjab) to the assessee-company by the order of the Principal Secretary, Tourism and Cultural Affairs of the Government of Punjab vide Notification dated 2-11-2004 Reference No. 12/79/01/ITC/2585 to the assessee-company. Thus the assessee-company was vested with the absolute ownership over the impugned property on 2-11-2004. (vi) The impugned property was sold by the assessee-company to M/s. Sanger Finlease Private Ltd., vide agreement dated 27-9-2006, for which conveyance deed was executed on 4-1-2007. There is a specific recital in the said conveyance deed dated 4-1-2007 that the assessee got the absolute ownership and possession of the impugned property from the Department of Tourism and Cultural Affairs, Government of Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was duly approved by the Ministry of Corporate Affairs w.e.f. 1-4-2003, and therefore the period of holding the impugned property should be computed, in the alternative, with reference to 1-4-2003 being the appointed date fixed by the Ministry of Corporate Affairs for de-merger. The Assessing Officer however rejected the claim of the assessee in this behalf for the reasons given in the assessment order. The Assessing Officer has computed the period of holding of the impugned property with reference to the date on which the assessee was vested with the absolute ownership and possession of the impugned property by the order of the Government of Punjab, i.e., 2-11-2004. In the aforesaid view of the matter, the Assessing Officer held that the capital arising on transfer of the impugned property was short term capital gain as the said property was held by the assessee for less than 36 months. On appeal, the ld. CIT(A) held that the period of holding of the impugned property by the assessee should be computed with reference to the date on which the scheme of de-merger of Punjab Development Corporation was approved by the Ministry of Corporate Affairs, i.e., 1-9-2004 and therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008] 112 ITD 103 (Pune); 6. Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003] 260 ITR 491/129 Taxman 497 (Bom.); 7. Dayameshwar N Mulik v. Asstt. CIT [2005] 98 TTJ 179/[2006] 152 Taxman 25 (Mag.) (Pune); 8. CIT v. Smt. Laxmidevi Ratani [2008] 296 ITR 363/[2005] 147 Taxman 642 (MP); 9. CIT v. C.F. Raju [2007] 158 Taxman 310 (Ker.); 10. CIT v. Poddar Cements (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 (SC); and 11. CIT v. Ved Prakash & Sons (HUF) [1994] 207 ITR 148/73 Taxman 70 (Punj. & Har.). (iv) The Ministry of Corporate Affairs has already fixed 1-4-2003 (being the appointed date or effective date) as the date on which the scheme of demerger would come into effect and hence the said date would be the date on which the property would stand transferred from PTDC to the assessee-company and therefore the said date is the relevant date for reckoning the period of 36 months for determining as to whether capital gain is in the nature of long term capital gain. By allowing depreciation on the property in A Y 2004-05 to the assessee, the Department has also accepted the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental Representative opposed all the ubmissions made by the ld. authorized representative for the assessee. His submissions as made before us, in brief, are as under: (i) His first submission is that it was the assessee who had made a declaration in the conveyance deed dated 4-1-2007 to the effect that it acquired absolute ownership and possession of the property in question under the orders of the Governor of Punjab vide Notification dated 2-11-2004 and therefore the assessee cannot be allowed to deny the truth of the aforesaid declaration/statement made in the conveyance deed. (ii) His second submission is that Explanation 7-A to sub-section (1) of section 43 was relevant in the context of the provisions of sections 28 to 41 and not in the context of the provisions of section 45 of the Income-tax Act and therefore the reliance placed by the ld. authorized representative on the said Explanation was not only out of context but also completely misplaced and irrelevant for deciding the issue under appeal. (iii) His third submission is that the reliance placed by the ld. authorized representative for the assessee on clause (vib) of section 47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest which a man has in lands and chattels to the exclusion of others. The word "property" does not mean merely physical property but also means the right, title or interest in it. A person may have different kinds of rights and interests in a property, e.g., as an absolute owner, as a mortgagee, as a lessee or on account of part performance of an agreement in terms of section 53A of the Transfer of Property Act, etc. 10. Sub-section (14) of section 2 comes into play only when capital asset being property of any kind is held by an assessee. The use of the phrase "held by an assessee" in the expression "property of any kind held by an assessee" in section 2(14) makes it absolutely clear that the capital asset may not necessarily be owned by an assessee. A person can hold the property without being its absolute owner. The phrase "held by an assessee" is wider in scope than the phrase "owned by an assessee" and therefore includes a property "owned by an assessee". If a person is an absolute owner of the property, then and then only it can be said that he has all the rights and interest in that property, that is to say, right to title, right to alienate, right to possession, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest in the property as a mortgagee. He cannot transfer absolute ownership and title over the property. Likewise, if a person has interest or right in the property as a lessee, he cannot transfer absolute ownership and title over the property. In other words, a holder of property can transfer the same interest or right which he has in the property. It is only when the holder of a property acquires absolute ownership and title over the property that he can transfer the absolute ownership and title over the property. The relevant question therefore is as to what has been transferred by the assessee in the present case and when was the same acquired by the assessee. In the present case, the assessee has transferred absolute ownership and title. The assessee must therefore first acquire absolute ownership and title as he cannot transfer absolute ownership and title without first acquiring it. It is thus the date of acquisition of absolute ownership and title and the date of transfer of absolute ownership and title giving rise to gain or profit, which is relevant for determining the issue as to whether the assessee has held the property, i.e., absolute ownership and title over the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty was mutated in the name of the assessee-company by Amritsar Improvement Trust by its order dated 2-6-2006. 14. The deed of conveyance of immovable properties, upon their registration under the Registration Act, is a public document. Having recited that the assessee became the absolute owner of the property on 2-11-2004 by virtue of the order issued by the Government of Punjab, and all concerned having acted on the basis of the aforesaid declaration, the assessee-company, in our view, cannot be allowed to turn around at this stage and deny the aforesaid fact stated and held out by it on the principle Nemo contra factum suam venire potest, i.e., No man can contravene or contradict his own deed (p.1037 of Black's Law Dictionary - Sixth Ed.). An estoppel is a special plea in bar, which arises where a man has done some act, or executed some deed, which estops or precludes him from averring any thing to the contrary. Besides, the Notification conveying the absolute ownership of the property to the assessee-company on 2-11-2004 was issued by the Government of Punjab and hence there is a presumption in favour of regularity and correctness of the aforesaid official action that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in existence as a legal entity on 1-4-2003. It was therefore legally impossible for the assessee-company to acquire and hold absolute ownership and title over the property on 1-4-2003 as it was not in existence on 1-4-2003. It is stated at page 10 of the appellate order passed by the CIT(A) that the assessee-company was incorporated on 9-7-2003 and therefore the assessee-company can, by no stretch of imagination, be regarded as the owner of the property as on 1-4-2003. Without prejudice to the aforesaid, the purpose behind the scheme of demerger is to effectuate demerger of a de-merged company. The scheme of demerger cannot by itself create absolute ownership or title in favour of a resulting company with effect from a date on which the resulting company was not even in existence or even in favour of a de-merged company. As already stated earlier, a person can acquire absolute ownership and legal title over the property by an instrument duly executed by its owner in favour of the person claiming ownership and by no other mode. In the present case, the assessee, as stated earlier, has not produced any evidence that the owner of the property had executed any instrument transferrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is therefore not correct to say that the Assessing Officer has allowed depreciation on land and building. Three, and without prejudice to the aforesaid, allowance for depreciation is granted on the fulfilment of the conditions specified in section 32 of the I.T. Act. One of the conditions for grant of depreciation allowance is that the asset should be "owned, wholly or partly" by an assessee and used for the purposes of his business. What is sufficient for allowance of depreciation, inter alia, is that the asset should be "owned, wholly or partly". The concept of ownership in section 32 is different from absolute ownership/legal title, which has been transferred or conveyed by the assessee-company. In the present case, the assessee has not transferred the ownership of the nature contemplated by section 32 but the absolute ownership together with legal title, which it acquired through notification dated 2-11-2004 and not through assessment order. Therefore the issue of acquisition of absolute ownership and legal title has to be examined with reference to the instrument by which it was acquired de hors the assessment order. Four, the mere fact that depreciation has been allowed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the appointed date fixed for de-merger by the Ministry of Corporate Affairs and therefore it was the owner of the property on 1-4-2003, being the appointed date. The aforesaid argument has to be necessarily rejected mainly for the reason that the assessee-company itself was not in existence on 1-4-2003, i.e., the date on which it claims to have acquired possession of the property. Besides, what is relevant for determining the period of holding in terms of section 2(42A) is the date on which the property together with its title/ownership, which was subsequently transferred/sold, was acquired by the assessee and not the date on which the assessee acquired the possession of the property. Absolute ownership of the property and right to possession or right to enjoyment of property are completely different from each other. If an assessee transfers absolute ownership of the property, it is the date of acquisition of absolute ownership which is relevant and not the date of acquiring the possession of the property or right to enjoy the property. In the present case the assessee became absolute owner of the property on 2-11-2004 as per recital in the deed of conveyance (supra). Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt of section 45, i.e., computation of income from capital gains. 21. Section 49 deals with the determination of cost with reference to certain modes of acquisition. It provides that the cost of acquisition of the asset would be deemed to be the cost for which the previous owner of the property acquired it if the asset has been acquired in any of the modes specified therein. The assessee-company has not acquired the impugned property through any of the modes specified in section 49 and hence section 49 cannot be pressed into service. There is thus no provision in Chapter IV-E of the Income-tax Act under which the cost of acquisition of the previous owner can be treated as cost of acquisition in the hands of the transferor-assessee, namely, the assessee (resulting company), in cases of demerger. 22. The ld. authorized representative for the assessee has referred to a large number of judgments/decisions in support of the proposition that the concept of ownership under the Income-tax Act is different from the concept of ownership as understood in common law or the Transfer of Property Act or the Registration Act. We are in complete agreement with the aforesaid submission. But that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property on 2-11-2004, which it subsequently transferred by agreement dated 27-9-2006. There is no evidence or instrument on record to hold that the assessee acquired absolute ownership of the property before 2-11-2004 from its previous owner. Ground No. 3 is dismissed. (iv) Apropos Ground No. 4, we have already confirmed the action of the Assessing Officer in taking 2-11-2004 as the date of acquisition of absolute ownership of the property and hence the Assessing Officer was justified in rejecting the plea of the assessee for adopting fair market value of the property as on 1-4-1981 as cost of acquisition. Ground No. 4 is dismissed. (v) Apropos Ground No. 5, the benefit of indexation under section 48 is available only where long term capital gain arises from the transfer of a long term capital asset and not where short term capital gain arises from transfer of a short term capital asset. Since the impugned capital gain arising from transfer of the impugned property is assessable as short term capital gain, the assessee is not entitled to the benefit of indexation under section 48. Ground No. 5 is dismissed. (vi) Ground Nos. 6 and 7 are general in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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