9911796707
TMI Blog2012 (9) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000 Long Term Capital Gain taxable ₹ 10,06,515 However, in the revised return the working of long term capital gain was shown as under: Sale price of Property as per Sale Deed dated 09-03-2006 ₹ 56,00,000 Add : Damage given by Court ₹ 12,00,000 Less : Legal Expenses & Advocate fees ₹ 5,00,000 Less : Indexed price ₹ 59,19,270 Less : Amount invested in NABARD Bonds u/s. 54EC ₹ 26,00,000 Long Term Capital Gain Taxable NIL 2.1 The assessee's brother Shri H.K. Mody was the original owner of the property which was sold by the assessee during the year under consideration. Shri H.K. Mody died in December 1982. Vide following release deeds, the other brother, sisters and wife of Shri H.K. Mody relinquished their rights in the said property in favour of the assessee. Name Date of Release Deed 1. Ms. J.F. Irani (Sister of assessee) 27-04-1995 2. Mr. C.K. Mody (brother of assessee) 09-05-1995 3. Ms. Nargis J. Parakh (Sister of assessee) 15-05-1995 4. Mrs. Mani H. Mody (Wife of assessee's brother) 04-09-1997 Moreover, Shri H.K. Mody was also entitled to a compensation of ₹ 12.00 lakhs awarded by Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/281 = 12,63,901] 12,63,901 C11 of 1995-96 is 281 6. Cost of Acquisition on relinquishment of rights by brother's wife (2,38,200 X 497)/331 = 3,57,660 3,57,660 C11 of 1997-98 is 331 7. Total indexed cost of acquisition 27,07,666 8. Investments in NHB Capital Gain Bonds u/s. 54EC of I.T. Act, 1961 260 bonds-of ₹ 10,000/- @ 5.5% interest NHB. 26,00,000 9. Legal expenses & advocate fees 8,00,000 Net Long Term Capital Gain [2-(4-5-6-8-9)] 9,92,334 3. Before the CIT(A) the assessee filed detailed written submissions. Relying on a couple of decisions it was submitted that since there is no cost of acquisition, therefore, there will not be any capital gain. It was further submitted that assessee has filed the return taking the indexation as on 01-04-1981 for the entire consideration on the ground that cost as on 01-04-81 pertaining to Sri H.K. Mody, the original owner has to be taken into account on the basis of the provisions of section 49(1)(iii) of the Income Tax Act read with explanation 1(b) to section 2(42A) of the Income Tax Act. For this proposition the assessee relied on various decisions including the decision of the Special Bench of the Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer as well as the learned CIT(A) in the matter be vacated/rejected. 2. The learned CIT(A) has erred in holding that release deeds executed by co- owners of the property in favour of the assessee are not covered within the meaning and definition of devolution as provided under the provisions of Section 29(1)(iii)(a) of the I.T. Act, 1961. It may please be held that the release deeds executed in favour of the assessee by co-owners on various dates are covered within the meaning and provision of Section 49(1)(iii)(a) of the I.T. Act 1961 and all the consequential reliefs be granted to the assessee while computing the Capital Gains. 3. Without prejudice to Ground No. 2 above and by way of an alternate submission the assessee submits that the release deeds executed by co-owners of the property in favour of the assessee amount to gift within the meaning and provisions of section 47(iii) of the I.T. Act 1961 and all the consequential reliefs be granted to the assessee while computing the Capital Gains. 4. It may please be held that while computing the Long Term Capital Gains on sale of property at K-21, Hauz Khas Enclave New Delhi, the indexed cost of acquisition of the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-2006 the property was sold for a consideration ₹ 56 lakhs. Referring to Page 31 of the Paper Book the learned counsel for the assessee submitted that after the death of Sri H.K. Mody on 29-12-1982 and the death of his father and mother on 15-05- 1983 and 12-06-1984 respectively the following persons were legal heirs : 1. Mrs. T.J. Cooper (assessee) 2. Mr. C.K. Mody( Brother of assessee) 3. Mrs. Nergish J. Parakh (Sister of assessee) 4. Dr. Mrs. J.F. Irani (Sister of assessee) 5. Mrs. Mani H. Mody (Wife of assessee's brother) He submitted that vide release deed dated 27-04-1995 Dr. Mrs. J.F. Irani relinquished her rights in the property in favour of Mrs. T.J. Cooper. Similarly vide release deed dated 09-09-95 Sri C.K. Mody relinquished his rights in favour of Mrs. T.J. Cooper. Vide release deed dated 15-05-95 Mr. Nergish J. Parakh relinquished her eights in favour of Mrs. T.J. Cooper. Vide release deed dated 04-09-97 Mrs. M.H. Mody relinquished her rights in the property in favour of Mrs. T.J. Cooper. 7. Referring to the book "Conveyancing and other instruments" by D'souza (12th economy edition) the learned counsel for the submitted that " r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs is concerned he submitted that it was an erroneous calculation by the AO. Referring to Page Nos. 79 to 92 of the Paper Book he submitted that Sri H.K. Mody had filed a suit against Sri K.D. Sharma for recovery of compensation against property No.K-22, Hauz Khas Enclave, New Delhi which is in the nature of mesne profit. The matter travelled upto Hon'ble Supreme Court and the Hon'ble Supreme Court vide Civil Appeal No.5469/1999 order dated 10-02-2005 upheld the interim order passed by the Single Judge trying the suit on the original side according to which the Hon'ble Court vide its order dated 08-01-1998 had fixed the mesne profits @ ₹ 10,000/- per month w.e.f. 16-12-1993. Referring to the decision of Special Bench of the Tribunal in the case of Narang Overseas (P) Ltd. Vs. ACIT reported in 111 ITD 1 (SB) he submitted that the Hon'ble Special Bench has held that mesne profits awarded under decree by way of compensation for wrongful possession of property after termination of leave and licence agreement is capital receipt not chargeable to tax. 9. So far as the issue relating to tax on earnest money is concerned, the learned counsel for the assessee referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. J.F. Irani 5. Mrs. Mani H. Mody 13. From the various details furnished by the assessee we find the persons mentioned at Sl.No. 2 to 5 vide release deeds of separate dates relinquished the rights in the undivided share of the property, i.e. property situated at Hauz Khas Enclave, New Delhi in favour of Mrs. T.J. Cooper due to love and affection. According to the learned counsel for the assessee such relinquishment of right by release deeds on account of love and affection amounts to gift. We find the Hon'ble Supreme Court in the case of Kuppuswamy Shettiar Vs. A.S.P.A. Arumugam Chettiar and Another reported in 1967-(001)-SCR-0275-SC has held as under : "Counsel next submitted that Ex.B-1 being a release deed could not operate as a conveyance. Exhibit B-1 was styled a deed of release. The Paper Book does not show whether it was stamped as a release or as a conveyance. After reciting that Kannammal was the owner of the properties and she died leaving the appellant as her heir, the operative part of the deed stated : "I hereby execute a release deed in your favour to the effect that I do not claim any huq or right whatever in the immovable properties mentioned h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Section 49 where the capital asset became the property of the assessee under a gift or by succession, inheritance or devolution, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee as the case may be. Therefore, once the transfer of the property through release deeds are held as transfer of the property by the respective co-owners through gift then the cost of acquisition of the asset shall be deemed to be the cost to the original co-owners. 16. The Hon'ble Bombay High Court in the case of CIT Vs. Manjula Saha reported in (2011) 16 Taxmann.com 42 (Bombay) at Para 20 to 24 of the order has held as under : "20. To accept the contention of the revenue that the words used in clause (iii) of the Explanation to Section 48 of the Act has to be read by ignoring the provisions contained in Section 2 of the Act runs counter to the entire scheme of the Act. Section 2 of the Act expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of an assessee covered under Section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee. 23. Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. 24. In the result, we hold that the ITAT was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the first". 17. Since Mr. Mody had held the property since 1968 and since the co-owners by release deeds ..... X X X X Extracts X X X X X X X X Extracts X X X X
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