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TMI Blog2019 (12) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered recomputation of the claim of the assessee of capital gain. Whether the indexation of the property shall be allowed to the assessee from the date of allotment of property or from the date on which the possession was given to the assessee/the date of registration? - Date on which the assessee paid the booking money for allotment of the house, he held the property from that date, he might have acquired/ purchased the property on later date. The basic reason for granting indexation of the cost of acquisition, which is linked with the cost inflation index, is to tax only the real income of the assessee and not the capital gain being appreciation of the property including inflation in the price (increase in the cost of living). Therefore, as the intention is to tax only the appreciation in the property excluding the appreciation in the price of the property due to inflation, the assessee must be granted the indexation of the cost in the financial year in which it has incurred/paid, irrespective of the fact that house property is subsequently registered in the name of the assessee or the possession is granted to the assessee of that property later on. In view of this, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of appeal in ITA No. 1532/Del/2019 for the Assessment Year 2015-16:- 1. Ground No. 1: That the Learned Commissioner of Income tax (Appeals) [ Ld CIT(A) ] has erred in law and on facts in upholding the addition of INR 20,49,007 made by the Learned Assistant Commissioner of Income-tax Circle 19(2), New Delhi ( Ld. AO ) on account of wrong denial of benefit of indexation for the purpose of computing capital gain from the Financial Year ( FY ) 2005-06. 2 Ground No. 2: That the Ld. CIT(A) has erred on facts in holding that indexation was done by Appellant from FY 2007-08, when the Appellant has calculated the same from FY 2005-06 in the original income tax return. 3. Ground No. 3: That Ld. CIT(A) has erred in law and on facts, in splitting the total consideration received on sale of shares allotted to the Assessee under an Employee Stock Option Plan, and taking the sale value above fair market value as Income from other sources under section 56(2)(vii) of Income-tax Act, 1961 ( the Act ) 4 Ground No. 4: That Ld CIT(A) has erred in consequently denying benefit under section 54F of the Act on the amount which has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT A upheld the addition made by the learned AO with respect to the capital gain on sale of the property. With respect to the sale of shares of Pine labs Ltd, he split the total consideration received on sale of shares under the head income from other sources applying provisions of section 56 (2) (Vii) of the act. Consequently, he confirmed denial of benefit u/s 54F of The Act. 7. Coming to the 1st issue of computation of capital gain in respect of residential property sold by the assessee, facts shows that assessee declared a long-term capital gain of INR 30762604/ on sale of residential property 264, Espace Nirwana Country, Sector 70 at Gurgaon. The cost of acquisition of the above property was taken at INR 10808674, indexed from financial year 2007 08 taking the cost inflation index of 551. During the course of assessment proceedings, assessee filed a revised computation of income and claimed indexation benefit from financial year 2005 06 on part of the cost paid during that FY. 2005 06. Assessee computed indexation on the basis of the date of payments i.e. date of booking of house, made in respect of the said property stating that legal right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y making an addition of INR 2049007 to the total income of the assessee under the head capital gains. 9. The learned CIT A, applying the ratio of the decision of the honourable Supreme Court in case of Goetz (India) Ltd vs CIT [ 258 ITR 323] , held that claim need not be accepted by the learned assessing officer when made by the assessee through a letter if same is not claimed in the return filed u/s 139 of the act. Accordingly, he upheld the action of the learned AO in rejecting the claim of the assessee. 10. Against this decision of the learned CIT A , assessee is in appeal before us. In ground number 1 of the appeal stating that the learned CIT A has erred in law and on facts in upholding the addition of INR 2049007/ made by the learned assessing officer on account of wrong denial of benefit of indexation for the purpose of computing capital gain from the financial year 2005 06 instead of 2007 08 as claimed by the learned AO. 11. We have heard the rival parties on this issue. Short issue involved before us is whether the assessee is entitled to the indexation of the cost of acquisition from the date of allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessed in seeking modification of the order of assessment passed by the Income Tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessed to raise an additional ground in accordance with law and reason. ITA 261/2002 Page 5 of 6 The same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ) in Niravan Country , Gurgaon. Total consideration of above property was 10278774/ . At the time of executive the buyers agreement the assessee was to pay a sum of INR 1 594890/ . Possession of the above property was tentatively to be given within 18 months from the date of the buyers agreement. The sale deed was to be exact and get registered in favour of the purchaser after the premises has been completed and receipt of total sale consideration. According to that agreement, Assessee paid a sum of INR 1594890/ to the developer by agreement dated 27/05/2005. Subsequently in the financial year ending on 31st of March 2006, assessee paid the consideration of INR 9 764832/ , including the initial payment made at the time of entering into the buyers agreement. In the next financial year i.e. FY 2007 2008 assessee paid a further sum of INR 1 043842/ . Therefore the total cost of acquisition to the assessee was INR 1 0808674/ . At the time of filing of the return of income assessee index the total cost of acquisition of INR 1 0808674 by applying the cost inflation index for financial year 2007 2000 date of 551. Thus the indexed cost of acquisition was claimed at rupe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of allotment of property which is relevant for the purpose of computing holding period and not the date of registration of conveyance deed. He further relied upon the plethora of decisions stating that assessee s claim of indexation should be considered from the date of allotment of the property on payment basis. For this proposition he referred to the reply of the assessee dated 1/12/2017 filed before the learned assessing officer as well as the copy of the buyers agreement dated 27/5/2005 entered by the appellant with the builder for purchase or allotment of the above residential house property. Therefore according to him the cost of acquisition should be allowed to the assessee to be indexed from financial year 2006 2007, that is the financial year in which the assessee for entered into the buyers agreement for the property sold. 15. The learned departmental representative vehemently supported the order of the learned assessing officer and the learned CIT A. On the merits of the issue he submitted that assessee should only be granted the deduction of the cost of acquisition of the property from the date on which the property was first h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the cost of acquisition, which is linked with the cost inflation index, is to tax only the real income of the assessee and not the capital gain being appreciation of the property including inflation in the price (increase in the cost of living). Therefore, as the intention is to tax only the appreciation in the property excluding the appreciation in the price of the property due to inflation, the assessee must be granted the indexation of the cost in the financial year in which it has incurred/paid, irrespective of the fact that house property is subsequently registered in the name of the assessee or the possession is granted to the assessee of that property later on. In view of this, we are of the view that assessee must be granted indexed cost of acquisition on INR 9 764832 of the sum paid in financial year 2005 2006 by applying the cost inflation index applicable to financial year 2005 2006 of 497 instead of cost inflation index of 551 applicable for financial year 2007 2008 (the year in which the possession of the property was given) to the assessee. Therefore, we reverse the finding of the lower authorities and allow ground number 1 and 2 of the appeal of assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r thereof shall be characterized as a business income and shall not qualify as capital gain. As the learned assessing officer has treated the gain arising on transfer of such shares as business income, consequently the deduction claimed by the assessee u/s 54F of the act was also denied. 18. The assessee approached the learned CIT A, he held that the book value of the shares that were transferred is INR 1 22/ per share, value of the share as per the valuation report on the discounted cash flow method is INR 2 23.24 per share and the sale price of the share is INR 500 per share. Therefore he held that the payment over and above the fair market value shall be covered u/s 56 (2) (vii) of the income tax act. Thus he held that capital gain will be worked by taking the value of the share of INR 2 23.24 per share, the difference in price above the fair market value of the share i.e. ₹ 500 minus ₹ 223.24 = ₹ 276.76 per share shall be treated as income from other sources u/s 56(2) (vii) of the act. 19. The learned authorised representative vehemently reiterated the facts as stated by us hereinabove and submitted that the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares. With respect to the provisions of section 56 (2) (vii) of the act he submitted that the provisions of those sections do not apply on the facts of the case because assessee has sold the shares and has not received any other property but it is transferred its own property to somebody else. Therefore he submitted that the order of the lower authorities disturbing the claim of the capital gain of the assessee deserves to be decided in favour of the assessee. 20. The learned departmental representative vehemently supported the order of the lower authorities and submitted that the income of the assessee is required to be taxed under that business income only. He extensively referred to finding of learned assessing officer as well as learned CIT A. According to that, it was submitted that the income of the assessee should be chargeable to tax under the head business income as assessee has entered into a share purchase agreement which is placed at page number 89 115 of the paper book. It was further claimed that if the assessee has not transferred the controlling interest of such company then there was no need for the assessee to enter into such a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther or not connected with his business or profession, but does not include any stock-in-trade or personal assets subject to certain exceptions. As regards shares and other securities, the same can be held either as capital assets or stock-intrade/ trading assets or both. Determination of the character of a particular investment in shares or other securities, whether the same is in the nature of a capital asset or stock-in-trade, is essentially a fact-specific determination and has led to a lot of uncertainty and litigation in the past. 2. Over the years, the courts have laid down different parameters to distinguish the shares held as investments from the shares held as stock-in-trade. The Central Board of Direct Taxes ('CBDT') has also, through Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007, summarized the said principles for guidance of the field formations. 3. Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this backgroun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of shares and securities. 22. Further in letter dated 2/5/2016, CBDT has clarified with respect to the consistency and taxability of income or loss arising from transfer of unlisted shares also which provides that:- LETTER F.NO.225/12/2016/ITA.II, DATED 2-5-2016 Regarding characterisation of income from transactions in listed shares and securities, Central Board of Direct Taxes ('CBDT') had issued a clarificatory Circular no. 6/2016 dated 29th February, 2016, wherein with a view to reduce litigation and maintain consistency in approach in assessments, it was instructed that income arising from transfer of listed shares and securities, which are held for more than twelve months would be taxed under the head 'Capital Gain' unless the taxpayer itself treats these as its stock- in-trade and transfer thereof as its business income. It was further stated that in other situations, the issue was to be decided on the basis of existing Circulars issued by the CBDT on this subject. 2. Similarly, for determining the tax-treatment of income arising from transfer of unlisted shares for which no formal market ..... X X X X Extracts X X X X X X X X Extracts X X X X
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