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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 ..... 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 hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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. - HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA AND HON'BLE MR. JUSTICE SANJAY VASHISTH Present: For the Appellant : Mr. Pankaj Jain, Senior Advocate, assisted with Mr. Divya Suri, Advocate, Mr. Sachin Bhardwaj, Advocate and Mr. Yogesh Mittal, Advocate. For the respondent-Income Tax Department : Ms. Urvashi Dhugga, Senior Standing Counsel,. SANJEEV PRAKASH SHARMA, J. 1. This Appeal has been preferred by the appellant-assessee (Rajiv Mehra) assailing order dated 30.03.2013 passed by the Income Tax Appellate Tribunal (hereinafter referred to as ITAT ). 2. This Appeal was admitted on 07.07.2014 by this Court, for determination of the following substantial questions of law:- i. Whether under the facts and circumstances of the case, the additional evidences admitted by the first fact finding authority having material bearing to case proceedings is sustainable action? ii. Whether according to the facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additions were made in the assessment, treating the acquisition of the house w.e.f. 02.09.2003 i.e. the date of memorandum of family settlement, working out the indexed cost from that date instead of the cost taken earlier as on 01.04.1981 and reducing the claim for exemption under Section 54 of the Act of 1961, since declined payments were to be treated as investment made in new residential house after determining the assessed income at an amount of Rs. 90,69,880/-, vide order dated 30.12.2010. 7. The order dated 30.12.2010 was challenged in Appeal before the Commissioner of Income Tax (Appeals) (for short the CIT(A) ) and further additional grounds were also taken in that Appeal. 8. The Appeal of the Appellant-Assessee was partly allowed by the CIT(A) vide order dated 01.09.2011. The said order passed by the CIT(A) on 01.09.2011 was challenged in Appeal by the Revenue before the ITAT. During the pendency of the Appeal, the Appellant-Assessee filed a paper-book with material facts containing all his particulars. The Appeal filed by the Revenue was allowed by the ITAT vide its order dated 19.03.2013, but it did not take into consideration the documents filed by the AppellantAssess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271. 12. In the present case, the Assessing Officer (AO) has passed an assessment order on 30.12.2010. The AO has noticed that during verification, the 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 on 02.09.2003 and therefore, the indexation cost acquisition of the residential house has been taken as per the provision of Section 48 and 49 of the Act of 1961 to be 551/463 while the Appellant-Assessee had claimed indexation cost by multiplier of 551/100 while it should be 551/463. 13. It is noticed that no Will was produced bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, and (b) the subsidiary company is an Indian company; (v) any transfer of a capital asset by a subsidiary company to the holding company, if (a) the whole of the share capital of the subsidiary company is held by the holding company, and (b) the holding company is an Indian company : Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade; (vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company; (via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian company, by the amalgamating foreign company to the amalgamated foreign company, if (a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company, and (b) such transfer does not 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allotment to him of any share or shares in the successor co-operative bank [or to the converted banking company]. Explanation . For the purposes of clauses (vica) and (vicb), the expressions business reorganisation , [ converted banking company ,] predecessor co-operative bank and successor cooperative bank shall have the meanings respectively assigned to them in section 44DB; (vicc) any transfer in a demerger, 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 demerged foreign company to the resulting foreign company, if (a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and (b) such transfer does not attract tax on capital 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 cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share or unit or interest in the resultant fund. Explanation . For the purposes of clauses (viiac) and (viiad), (a) original fund means (A) a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions, namely: (i) the fund is not a person resident in India; (ii) the fund is a resident of a country or a specified territory with which an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A has been entered into; or is established or incorporated or registered in a country or a specified territory as may be notified by the Central Government in this behalf; (iii) the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; and (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 indirectl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, by a non-resident to another non-resident. Explanation. For the purposes of this clause, Government Security shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (viic) any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an assessee being an individual; (viid) any transfer of a capital asset, being conversion of gold into Electronic Gold Receipt issued by a Vault Manager, or conversion of Electronic Gold Receipt into gold. Explanation For the purpose of this clause, the expressions Electronic Gold Receipt and Vault Manager shall have the meaning respectively assigned to them in clauses (h) and (i) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (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, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions) Act, 1985 (1 of 1986); (xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company : Provided that (a) all the assets and liabilities of the firm or of the association of persons or body of individuals relating to the business immediately before the succession become the assets and liabilities of the company; (b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital 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 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; (ea) the total value of the assets as appearing in the books of account of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed five crore rupees; and (f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion. Explanation . For the purposes of this clause, the expressions private company and unlisted public company shall have the meanings respectively assigned to them in the Limited 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 succes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning assigned to it in clause (38) of section 10; (d) mutual fund means a mutual fund specified under clause (23D) of section 10; (xix) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund. Explanation . For the purposes of this clause, (a) consolidating plan means the plan within a scheme of a mutual fund which merges under the process of consolidation of the plans within a scheme of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under 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 Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section:] [Provided also that no deduction shall be allowed in computing the income chargeable under the head Capital gains in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.] Explanation . - For the purposes of this section,- (i) foreign currency and Indian currency shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973); (ii) the conversion of Indian currency 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) indexe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) 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 amalgamating company. (2A) Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of a transfer referred to in clause (x) or clause (xa) of section 47, the cost of acquisition of the asset to the assessee shall be deemed to be that part of the cost of debenture, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act of 1961, specifically lays down that any transfer of a capital asset under a gift or will or an irrevocable trust would not be covered by the provisions of Section 45(1) of the Act of 1961 and taking into consideration the transfer of capital asset cannot be computed in terms of Section 45 of the Act of 1961. Thus, the present transfer of property has to be examined in terms of Section 47 of the Act of 1961 which specifically takes into consideration Section 47(i) of the Act of 1961 as any distribution of capital assets on the total or partial partition of a Hindu undivided family. In the present case, there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts to creation of an interest by the ward in property which was under the superintendence of the Court of Wards and in support of his contention relies on Man Singh v Nowlakhbati, 53 Ind App 11. In the first place once it is held that the transaction being a family settlement is not an alienation, it cannot amount to the creation of an interest. For, as the Privy Council pointed out in Mst. Hiran Bibi's case, AIR 1914 Privy Council in a family settlement each party takes a share in the property by virtue of the independent title which is admitted to that extent by the other parties. It is not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of property. 22. In the case of Sahu Madho Das Vs. Mukand Ram; AIR 1955 Supreme Court 481 the Supreme Court has held as under:- It is well settled that a compromise or family arrangement is based on the assumption that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what that title is, each party relinquishing all claims to property other than that falling to his share and recognising the right of the others, as they had previously asserted it, to the portions allotted to them respectively. XXXX XXXX XXXXX 23. In another judgment 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 expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory objective. Literal construction should be avoided, if it leads to unwarranted repugnance s or inconsistencies. In such circumstances the expressions/words can be interpreted by the Courts to avoid absurdities and inconsistencies between the provisions. In the present case, as noticed above, the construction placed by the Revenue will lead to inconsistency and incongruities, when we refer to s. 49 and cl. (iv) of Expln. (1) to s. 48. This will result in absurdities because the holding of predecessor has to be accounted for the purpose of computing the cost of acquisition, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the assessee would be the cost for which the previous owner of the property acquired it. It is for this purpose that we need to fall back on computation provision of section 48. When we do so, we work out the cost of acquisition of the asset in the hands of previous owner. While doing so, cannot transpose the we assessee in explanation (111) of section 48. Doing so, would amount to falling short of giving full effect to the deeming fiction contained in sub-section (1) of section 49. To our opinion such deeming fiction must be allowed to have its 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Registration Act and is, therefore, not compulsorily registrable; (5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has no title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owner, then the antecedent title must be assumed and the family 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Dolly Jehangir Gazdar, Mrs. Rhoda Rustom Framjee and Mr. Rustom Framjee are also to be included in the period of holding of seller for ascertain the period for which the property was held by the seller. Based on the Scheme of the Act, as provided in Section 49 (1) (ii), clauses (29A) and (42A) of Section 2 and Section 55 (2) (b) (ii) of the Act, indexation of the cost of acquisition under the second proviso to Section 48 should be available from the financial year 19811982. Therefore, on this ground alone, we will have 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 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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