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TMI Blog2024 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... nable action? ii. Whether according to the facts and circumstances of the case, under Section 2 (47) (i) (ii), 47(iii), 48, 49 of the Income Tax Act, 1961, the cost of acquisition would 'relate back' to date of 'transfer through will' to the beneficiary (son)? 3. The Appellant-Assessee (Rajiv Mehra) was adopted by Permanand Mehra through adoption deed dated 07.06.1965. Property namely House No. 21, Khasra No. 291 measuring 3 Kanals 4-1/2 Marlas situated at Tungbala Urban, Maqbool Road, Tehsil & District Amritsar was purchased by Permanand Mehra by way of Registered Deed dated 06.06.1963. A Will was executed by Permanand Mehra in favour of the Appellant-Assessee on 26.04.1983. The Appellant-Assessee's father expired on 21.05.1997. In his Will, he gave life interest to his wife Vimal Kumari, but did not gave her right of title, nor a right to sell, mortgage or alienate the house. The Appellant-Assessee's mother, Vimal Kumari Mehra also bequeathed all her property, moveable or immovable in the name of her son, Rajiv Mehra, Appellant-Assessee herein and to his Hindu Undivided Family. 4. The settlement was also arrived at between Rajiv Mehra and Sudha Arora on 02.09.2003, wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 19.03.2013, but it did not take into consideration the documents filed by the AppellantAssessee as there was no application moved by the Appellant-Assessee under Rule 46A of the Act of 1961 for admitting additional evidence under the provisions of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules of 1962"). 9. The question No. (i) is whether the additional evidence as produced by the Appellant-Assessee before the ITAT should have been considered by it. 10. While in civil proceedings, the provisions contained under Order 41 Rule 27 CPC, enables the appellate Court to take additional evidence under exceptional circumstances, but in cases relating to Income Tax, Rule 46-A of the Rules of 1962 will have to be taken into consideration. 11. Rule 46-A of the Rules of 1962 provides as under:- "46A. Production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals). (1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d claimed indexation cost by multiplier of 551/100 while it should be 551/463. 13. It is 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. 14. 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 ans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t attract tax on capital gains in the country, in which the amalgamating company is incorporated; (viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution. Explanation.-For the purposes of this clause,- (i) "banking company" shall have the same meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) "banking institution" shall have the same meaning assigned to it in sub-section (15) of section 45 of the Banking Regulation Act, 1949 (10 of 1949); (viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if- (A) at least twenty-five per cent of the shareholders of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gains in the country in which the demerged foreign company is incorporated: Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not apply in case of demergers referred to in this clause; (vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking; (vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if- (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company, and (b) the amalgamated company is an Indian company; (viia) any transfer of a capital asset, being bonds or Global Depository Receipts referred to in sub-section (1) of section 115AC, made outside India by a non-resident to another non-resident; (viiaa) any transfer, made outside India, of a capital asset being rupee denominated bond of an Indian company issued outside India, by a non-resident to ..... 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(iv) fulfils such other conditions as may be prescribed; (B) an investment vehicle, in which Abu Dhabi Investment Authority is the direct or indirect sole shareholder or unit holder or beneficiary or interest holder and such investment vehicle is wholly owned and controlled, directly or indirectly, by the Abu Dhabi Investment Authority or the Government of Abu Dhabi: or (C) a fund notified by the Central Government in the Official Gazette in this behalf subject to such conditions as may be specified;] (b)"relocation" means transfer of assets of the original fund, or of its wholly owned special purpose vehicle, to a resultant fund on or before the 31st day of March, 2023, where consideration for such transfer is discharged in the form of share or unit or interest in the resulting fund to,- (i) shareholder or unit holder or interest holder of the original fund, in the same proportion in which the share or unit or interest was held by such shareholder or unit holder or interest holder in such original fund, in lieu of their shares or units or interests in the original fund; or (ii) the original fund, in the same proportion as referred to in sub-clause (i), in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a (Vault Managers) Regulations, 2021 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992). (viii) any transfer of agricultural land in India effected before the 1st day of March, 1970; (ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution as may be notified by the Central Government in the Official Gazette to be of national importance or to be of renown throughout any State or States. Explanation. 3-For the purposes of this clause, "University" means a University established or incorporated by or under a Central, State or Provincial Act and includes an institution declared under section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes of that Act; (x) any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company; (xa) any transfer by way of convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital accounts stood in the books of the firm on the date of the succession; (c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and (d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession; (e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992); (xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Ex ..... 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Liability Partnership Act, 2008 (6 of 2009); (xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company : Provided that- (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company; (b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and (c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; (xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subject to the guidelines issued by the Securities and Exchange Board of India, established under section 3 of the Secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Securities and Exchange Board of India Act, 1992 (15 of 1992); (b)"consolidated plan" means the plan with which the consolidating plan merges or which is formed as a result of such merger; (c)"mutual fund" means a mutual fund specified under clause (23D) of section 10. [(xx) any transfer of a capital asset, being an interest in a joint venture, held by a public sector company, in exchange of shares of a company incorporated outside India by the Government of a foreign State, in accordance with the laws of that foreign State. Explanation-For the purpose of this clause, "joint venture" shall mean a business entity, as may be notified by the Central Government in the Official Gazette.] Section 48 MODE OF COMPUTATION The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: Provided that in the case of an assessee, who is a non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf; (iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later; (iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place;] (v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent. of average rise in the Consumer Price Index for urban non-manual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf.] Section 49. COST WITH REFERENCE TO CERTAIN MODE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture, debenture-stock, bond or deposit certificate in relation to which such asset is acquired by the assessee. (2AA) Where the capital gain arises from the transfer of specified security or sweat equity shares referred to in sub-clause (vi) of clause (2) of section 17, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account for the purposes of the said sub-clause. (2AAA) Where the capital asset, being rights of a partner referred to in section 42 of the Limited Liability Partnership Act, 2008 (6 of 2009), became the property of the assessee on conversion as referred to in clause (xiiib) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the company immediately before its conversion. (2AB) Where the capital gain arises from the transfer of specified security or sweat equity shares, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account while computing the value of fringe benefits under clause (ba) of sub-section (1) of section 115WC. (2C) The cost of acquisition of the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a settlement arrived at between the members of the Hindu undivided family (HUF). Accordingly, the cost with reference to the acquisition of property would have to be assessed as per Section 49 (1) (i) of the Act of 1961. 17. From the perusal of the aforesaid, it is apparent that a capital asset can be treated to be transferred where there is a consideration involved and would also include sale, exchange or relinquishment of an asset, or where a right of any person is extinguished. However, if there is any transfer of a capital asset like property by way of a gift or a Will or an irrevocable trust, provisions of Section 45 of the Act of 1961 would have no application. Sections 48 and 49 of the Act of 1961 provide the method and manner of computation of income chargeable under the head of capital gains. 18. For assessing the cost with reference to certain modes of acquisition has been now treated as per the Explanation (iii) to Section 48 of the Act of 1961, to be the First day of April, 1981 or the cost of acquisition for the year in which the asset is transferred to the same proportion as cost of first year in which the asset held by the assessee, whichever is later. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot necessary, as would appear from the decision in Rangasami Gounden v. Nachiappa Gounden, 46 Ind. App 72, that every party taking benefit under a family settlement must necessarily be shown to have, under the law, a claim to a share in the property. All that is necessary is that the parties must be related to one another in some way and have a possible claim to the property or a claim or even a semblance of a claim on some other ground as, say, affection. In the second place, in the case relied upon by Mr. Sinha there was no question of the transaction being a family settlement. It was sought to be supported upon the ground that it was a surrender. The Privy Council, however, held that it was not a bona fide surrender evidently because the widow was to get a very substantial amount for maintenance from the reversioners in whose favour she had purported to surrender the estate and also held that there was in fact no necessity for a surrender of interest of the widow. Since it was not a bona fide surrender it was regarded as one creating only an interest in the property which was under the superintendence of the Court of Wards. Had' it been a bona fide surrender Section 60 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Commissioner of Income Tax Vs Manjula (2012) 249 CTR 270, cited by learned counsel for the appellant, the Bombay High Court has succinctly examined the provisions relating to the property which became a capital asset by way of gift of the assessee. Relevant extract of the judgment is as under:- "17. We see no merit in the above contention. As rightly contended by Mr. Rai, learned counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee'. Since the expression 'held by the assessee' is not defined under s. 48 of the Act, that expression has to be understood as defined under s. 2 of the Act. Explanation 1(i)(b) to s. 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29th Jan., 1993, as per Expln. 1(i) (b) to s. 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29th Jan., 1993. By reason of the deemed hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition, cost of improvement and indexed cost of improvement but as per the Revenue not for the purpose of indexed cost of acquisition. As noticed below, even for the purpose of deciding whether the transaction is a short-term capital gain or gain, the holding by the predecessor is to be taken into consideration. 16. Benefit of indexed cost of inflation is tax on the "real" or actual "gain" and not on the increase in the capital value of the property due to inflation. This is the object or purpose in allowing benefit of indexed cost of Improvement, even if the improvement was by the previous owner in cases covered by s. 49. Accordingly there is no justification or reason to not allow the benefit of indexation to the cost of acquisition in cases covered by s. 49. This is not the legislative intent behind cl. (iii) of Explanation to s. 48 of the Act." 25. The Division Bench of Gujarat High Court has also taken a similar view in Tax Appeal No. 13 of 2013 - Commissioner of Income Tax-1 vs Rajesh Vitthalbhai Patel, decided on 17.04.2013, Per. Akil Kureshi, J. (as his Lordship then was), in which it has been held as under:- "7. Under section 48 of the Act, thus capital gain is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s full play. As is often stated, a deeming fiction must be allowed its full application and should not be allowed to boggle. 8. Additionally, we notice that in sub-section (1) of section 49, the legislature has provided that cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired, as increased by any cost of improvement of the assets incurred or borne by the previous owner or the assengee as the case may be. If the interpretation of the counsel for the Revenue was correct, this later reference to the cost of improvement borne by the assessee would not have been necessary since section 48 itself would take care of any improvement on the capital asset to be included for the cost of acquisition. It is precisely because such improvement referred to in section 48 would have reference only to that made by the previous owner that the additional provision had to be made in the deeming fiction provided in sub-clause (1) of section 49. Further the interpretation sought to be given by the Revenue would be unacceptable because there is no provision under which the cost of acquisition in the hands of the assessee in cases such as g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily arrangement will be upheld and the courts will find no difficulty in giving assent to the same; (6) Even if bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement. 11. The principles indicated above have been clearly enunciated and adroitly adumbrated in a long course of decisions of this Court as also those of the Privy Council and other High Courts, which we shall discuss presently. 29. The law was already settled by the Supreme Court in Sahu Madho Das's case (supra). 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. 30. The Delhi High Court while deciding Execution Petition bearing Ex. P. No. 26 of 2019 Himani Walia vs Hemant Walia and others, decided on 23.03.2022, held as under:- "10. Thus, it is clear that family settlements are not required to be compulsorily registered, and stamp duty is not required to be compulsorily paid in respect of the same, when the settlement has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to grant prayer clause (a) as quoted earlier." 35. In the case of C.A. Natrajan Vs. CIT, 92 ITR 347 (Mad), 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. 36. 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. 37. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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