Mr. John Ettimootil Samuel, Coimbatore v. ITO, Coimbatore

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH A : CHENNAI [BEFORE SHRI HARI OM MARATHA JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER] I.T.A.NO.385/MDS/2009 ASSESSMENT YEAR : 2005-06 SHRI JOHN EETTIMOOTIL SAMUEL 202 RATHNA MOUNT ENCLAVE RACE COURSE ROAD COIMBATORE 641 018 VS THE ITO WARD III93) COIMBATORE [PAN - ALMPS6292B ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.RAGHU RESPONDENT BY : SHRI SHAJI P. JACOB O R D E R PER HARI OM MARATHA JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 2005-06 IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) COIMB ATORE DATED 27.1.2009. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS REGARDIN G COMPUTATION OF CAPITAL GAINS ON THE SALE OF A PROPERTY SITUATED AT 35-37 ATT COLONY COIMBATORE. THE FACTS APROPOS THE IMPUGNED ISSUE ARE THAT THE ASSESSEE SOLD A PROPERTY COMPRISING OF LAND M EASURING 17 598 SQ FT [EQUIVALENT TO 40 CENTS] ALONGWITH BUILDING C ONSISTING OF GROUND ITA 385/09 :- 2 -: AND FIRST FLOOR SITUATED AT THE ABOVE GIVEN ADDRESS TO ONE SHRI M.NARAYANASAMY VIDE REGISTERED SALE DEED DOCUMENT N O.811/04 DATED 17-7-2004 FOR A CONSIDERATION OF ` 1 74 00 000/-. CONSEQUENT UPON THE SALE OF THIS PROPERTY NIL LONG TERM CAP ITAL GAIN (LTCG) WAS SHOWN BECAUSE HE HAS CLAIMED EXEMPTIONS UNDER S ECTIONS 54N AND 54EC OF THE INCOME-TAX ACT 1961 (HEREINAFTER R EFERRED TO AS 'THE ACT' FOR SHORT). THE ASSESSEE HAS WORKED OUT THE INDEXED COST OF ACQUISITION OF THE SAID PROPERTY AS UNDER: 'COST OF ACQUISITION PURCHASED ON 22-8-55 VIDE DOCUMENT NO.2890/1955 REGISTERED AT THE OFFICE OF RO COIMBATORE AND BUIL DING CONSTRUCTED THEREON FAIR MARKET VALUE ESTIMATED AS ON 1-4-1981 LAND 40 CENTS @ RS.15 000 PER CENT ` 6 00 000 BUILDING 4500 SQ.FT. @ 240 PER SQ.FT. ` 10 80 000 INDEXED COST OF RS.16 80 000 X 480/100 ` 80 64 000.' 3. AS AGAINST THIS THE ASSESSING OFFICER HAS DONE THE FOLLOWING COMPUTATION: TOTAL SALE CONSIDERATION ` 1 74 00 000 LESS: SALE EXPENSES BROKERAGE & LEGAL CHARGES ` 3 59 250 ` 1 70 40 750 LESS: INDEXED COST OF ACQUISITION LAND 40 CENTS @ ` 9 000/- PER CENT ` 3 60 000 BUILDING 4500 SQ FT (AS DISCUSSED IN PARA 4) ` 3 53 394 ` 7 13 394 ITA 385/09 :- 3 -: INDEXED COST OF ` 7 13 394X480/447 ` 7 66 061 LESS: AMOUNT INVESTED IN CAPITAL GAIN A/C SCHEME EXEMPTED U/S 54 ` 50 30 000 LESS: AMOUNT INVESTED IN NABARD CAPITAL GAIN BONDS & REC BONDS EXEMPTED U/S 54EC ` 40 00 000 TOTAL LTCG ` 72 44 689 4. IN THIS WAY THE ASSESSING OFFICER HAS COMPUTED TH E TOTAL LONG TERM CAPITAL GAINS AT ` 72 44 689/- AS AGAINST NIL SHOWN BY THE ASSESSEE. THE ASSESSEE FELT AGGRIEVED SO HE FILE D APPEAL BEFORE THE LD. CIT(A) WITH A PRAYER THAT THE COMPUTATION DONE BY THE ASSESSING OFFICER IS NOT CORRECT AND THE COMPUTATION DONE BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED. IN FIRST APPEAL THE AS SESSEE WAS NOT SUCCESSFUL IN GETTING ANY RELIEF. NOW HE HAS FURT HER RAKED UP THE SAME ISSUE IN THIS APPEAL BY TAKING FOLLOWING GRO UNDS: 1. THE ORDER OF THE LEARNED CIT (APPEALS) CONFIRMING THE ASSESSMENT AS SUCH MADE BY THE ASSESSING OFFICER IS OPPOSED TO LAW AND UNSUSTAINABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 2. THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT T HE LONG TERM CAPITAL GAINS ON SALE OF RESIDENTIAL PROP ERTY AS COMPUTED IS EXCESSIVE AND IS UNSUSTAINABLE IN LAW A ND IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT I F THE INDEXED COST OF ACQUISITION CANNOT BE ADOPTED WITH REFERENCE TO THE PREVIOUS OWNER THE APPELLANT WOUL D NOT BE LIABLE TO TAX UNDER THE HEAD 'CAPITAL GAINS' AT ALL IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. ITA 385/09 :- 4 -: 4. THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT T HE PROVISIONS OF TAXATION LAWS CANNOT BE INTERPRETED S O AS TO MAKE THEM DISCRIMINALY AND RENDER THEM VOID. 5. THE LEARNED CIT (APPEALS) BY UPHOLDING THE COST IN FLATION INDEX AT 447 INSTEAD OF 100 HAS RENDERED THE COMPU TATION OF CAPITAL GAINS UNWORKABLE AND HENCE THE LEVY OF T AX ON SUCH INCOME IS UNSUSTAINABLE. 6. THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING T HE FAIR MARKET VALUE OF THE PROPERTY AS ON 01/04/1981 AS A DOPTED BY THE ASSESSING OFFICER IN THE PLACE OF FAIR MARK ET VALUE OF THE PROPERTY AS ON 10/04/1981 ADOPTED BY THE AP PELLANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW. 7. THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT T HE ASSESSING OFFICER DID NOT HAVE JURISDICTION TO REFE R TO THE VALUATION OFFICER THE QUESTION OF VALUATION OF THE FAIR MARKET VALUE OF THE PROPERTY AS ON 01/04/1981 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 8. THE LEARNED CIT (APPEALS) OUGHT TO HAVE HELD THAT T HE FAIR MARKET VALUE AS ON 01/04/1981 ADOPTED BY THE APPE LLANT AS CORRECT AND TO BE ADOPTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 9. THE LEARNED CIT (APPEALS) HAS ERRED IN NOT ADOPTING THE COST OF ` 76 48 425/- OF THE NEW RESIDENTIAL BUILDING CONSTRUCTED BY THE APPELLANT AS EXEMPT UNDER SECTI ON 54 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW. 10. THE LEARNED CIT (APPEALS) HAS ERRED IN HOLDING THAT THE APPELLANT IS ENTITLED TO EXEMPTION UNDER SECTION 54 ONLY TO THE EXTENT OF ` 50 30 000/- AS PER THE RETURN OF INCOME AND NOT MORE THAN WHAT IS CLAIMED IN THE RETURN IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 11. FOR THESE AND OTHER ADDITIONAL GROUNDS OF APPEAL TH AT MAY BE RAISED AT THE TIME OF THE HEARING THE ORDER OF THE IS OPPOSED TO LAW AND UNSUSTAINABLE IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CIRCU MSPECTED THE ENTIRE RECORDS AVAILABLE BEFORE US. UNDENIABLY THE ASSESSEE HAS ITA 385/09 :- 5 -: CLAIMED EXEMPTION IN THE SUMMARY OF TOTAL INCOME ANNEXED WITH THE RETURN AS UNDER: AMOUNT INVESTED IN CAPITAL GAINS ACCOUNT SCHEME (ACCOUNT NO. 307586 AT SBT PAPPANAICKEN PALAYAM BR) ON 16.07.2004 ` 72 00 000 ON 30.07.2004 ` 18 30 000 LESS : EXEMPTION U/S 54 (AMOUNT UTILISED FOR PURCHASE OF RESIDENTIAL FLAT) RATHNA MOUNT ENCLAVE- ( ` 49 72 880+41 000+1 00 000) LESS : EXEMPTION U/S.54EC (AMOUNT INVESTED IN NABARD CAPITAL GAIN BONDS & REC SPECIFIED U/S 54EC ` 40 00 000/-) RESTRICTED TO OTHER SOURCES ; INTEREST FROM SB A/C 51104 LESS : DEDUCTION U/S 80L 12000 TAX DUE THEREON AT NORMAL RATES AT SPECIAL RATES U/S 115E @ 10% ADD : SURCHARGE @ 10% (INCOME BELOW ` 10 LAKHS) ADD : EDUCATION CESS TAX PAYABLE 5 030 000 4 000 000 9 030 000 ADJUSTED TOTAL INCOME 8976750 - 39104 39104 NIL NIL NIL NIL _________ NIL ========== 6. IN THIS WAY HE HAS ARRIVED AT NIL LTCG. THE OTHER UNDISPUTED FACTS OF THE CASE ARE THAT THE PROPERTY IN QUESTION WAS INHERITED BY THE ASSESSEES MOTHER THROUGH A WILL IN THE YEAR 1955. ITA 385/09 :- 6 -: LATER SHE DIED IN THE YEAR 2002. THIS PROPERTY WA S INHERITED BY THIS ASSESSEE ON HER DEATH IN THE YEAR 2002. SUBSEQUENT LY THIS PROPERTY WAS SOLD IN THE YEAR 2005. IT WAS ARGUED BY THE LD .AR THAT THE PROPERTY WAS ACQUIRED THROUGH TRANSFER THEREFORE INDEXATION OF COST HAS TO BE DONE WITH REFERENCE TO THE YEAR IN WHICH PREVIOUS OWNER ACQUIRED THE ASSET. WE ARE IN AGREEMENT WITH THE L D.AR SO FAR AS HIS CONTENTION IS CONCERNED AS THE PROVISIONS OF SECTIO N 2(42A) EXPLANATION 1(B) (29A) SEC.48 EXPLANATION (III) SECTION 49(1) AND CBDT CIRCULAR 636 DATED 31.8.1992 REPORTED IN 198 ITR (STATUTE) PAGE 1 WHEN READ CUMULATIVELY SPEAK SO. THIS VIE W IS FORTIFIED BY THE SPECIAL BENCHS DECISION IN THE CASE OF DY. CIT VS MANJULA J SHAH 318 ITR AT 417 (MUMBAI SPECIAL BENCH). IN THIS CASE IT HAS BEEN HELD AS UNDER: UNDER SECTIONS 2(42A) EXPLANATION 1(B) 2(29A); 48 AND 49(1) OF THE INCOME-TAX ACT 1961 READ TOGETHER NO CAPITAL GAINS ARE CHARGEABLE TO TAX ON A GIFT AS A TRANSACTION I NVOLVING A GIFT OF A CAPITAL ASSET IS NOT REGARDED AS A TRANSFER FOR THE PURPOSE OF SECTION 45. HOWEVER; WHERE SUCH CAPITAL ASSET BECOMING THE PROPERTY OF THE ASSESSEE UNDER A GIFT IS SUBSEQUENT LY TRANSFERRED AS ENVISAGED IN SECTION 45 THE CAPITAL GAINS ARISING FROM SUCH TRANSFER ARE CHARGEABLE TO TAX AND THE DATE AND COS T OF ACQUISITION OF THE PREVIOUS OWNER ARE ADOPTED AS THE COST AND D ATE OF ACQUISITION OF THE ASSESSEE FOR THE PURPOSE OF COMP UTATION OF SUCH CAPITAL GAINS. THE ENTIRE CAPITAL GAINS INCLUDING T HE CAPITAL GAINS ITA 385/09 :- 7 -: WHICH WOULD HAVE BEEN CHARGEABLE AS A RESULT OF TRA NSFER OF THE CAPITAL ASSET BY THE PREVIOUS OWNER TO THE ASSESSEE AS A RESULT OF GIFT BUT FOR THE PROVISIONS OF SECTION 47 THUS ARE MADE CHARGEABLE TO TAX AT THE SECOND STAGE WHEN THE CAPITAL ASSET B ECOMING THE PROPERTY O/THE ASSESSEE UNDER GIFT IS TRANSFERRED BY HIM. 7. RESULTANTLY THE FAIR MARKET VALUE OF THE SAID PROP ERTY FOR THE PURPOSE OF ARRIVING AT ITS COST HAS TO BE ESTIMATED AS ON 1.4.1981. THE ASSESSEE HAS ESTIMATED FAIR MARKET VALUE AS ON 1.4. 1981 AT ` 16 80 000/-. THE COMPUTATION TO ARRIVE AT THIS FIG URE HAS BEEN RECORDED IN THE EARLIER PART OF THIS ORDER. THE B ASIS FOR ADOPTION OF THE COST OF THE LAND AT ` 15 000/- PER CENT IS A GIFT DEED DATED 31.3.1982 IN RESPECT OF A PROPERTY LOCATED IN T.S. NO.584 WARD 10 NEAR RAM NAGAR COIMBATORE A COPY OF WHICH WAS FIL ED BEFORE THE ASSESSING OFFICER ALSO. THIS ESTIMATION WAS NOT A CCEPTED BY THE ASSESSING OFFICER AND HE HAS ADOPTED THE VALUE OF T HE LAND AS ON 1.4.1981 AT ` 9 000/- PER CENT ON THE BASIS OF THE CIRCLE RATES PREVALENT ON THAT DATE AND OBTAINED FROM THE OFFICE OF THE J OINT REGISTRAR-I COLLECTORATE COIMBATORE. APART FROM THIS THE ASS ESSEE ALSO PRODUCED COPY OF A SALE DEED DATED 22.5.1986 IN RESPECT OF A NEARBY PROPERTY IN WHICH THE COST OF THE PROPERTY IS STATED TO BE ` 35 000/- PER CENT. THE VALUE OF ` 9 000/- PER CENT ADOPTED BY THE ASSESSING OFFICER BASED ON THE GUIDELINE VALUE OBTAINED FROM STAMP VALUATIO N AUTHORITY IS ITA 385/09 :- 8 -: DEFINITELY A RELEVANT PIECE OF EVIDENCE HAVING REFE RENCE TO THE VALUE OF THE PROPERTY OBTAINING ON 1.4.1981. BUT AS THE REA LITY OF LIFE GOES AS PER COMMON PLACE KNOWLEDGE INVARIABLY THE FAIR MA RKET VALUE OF A PROPERTY ON A GIVEN DATE IS MORE THAN THE GUIDELINE VALUE BARRING SOME SPECIFIC INSTANCES. THE ASSESSEE HAS PRODUCED COPY OF GIFT DEED DATED 31.3.1982 IN WHICH FAIR MARKET VALUE OF THE L AND ADJACENT TO THE LAND IN QUESTION IS SHOWN AS ` 15 000/- PER CENT. IN THE SALE DEED DATED 22.5.1986 AGAIN THE FAIR MARKET VALUE OF AN A DJACENT LAND HAS BEEN SHOWN AT ` 35 000/- PER CENT. WHEN IT COMES TO ASCERTAIN THE COST OF THE PROPERTY FOR CAPITAL GAINS THE DEPARTM ENT WANTS TO REDUCE ITS COST TO ARRIVE AT ITS FAIR MARKET VALUE BY REL YING ON ONE EVIDENCE OR THE OTHER BUT FOR DETERMINING SALE CONSIDERATION I T DOES THE EXACT OPPOSITE. IN THE SAME MANNER THE ASSESSEE PLAYS E XACT ROLE. HOW TO DO JUSTICE TO THE PARTIES BECOMES A MILLION DOLLAR QUESTION IN SUCH QUAGMIRE SITUATIONS. WE CANNOT IGNORE RELEVANT P IECES OF EVIDENCE WHICH ARE AVAILABLE ON RECORD. IN SUCH SITUATIONS THE BALANCE IS TO BE STRUCK ON THE BASIS OF GIVEN FACTS AND CIRCUMSTANCE S OF A CASE. IN THE CASE OF SHRI R.SUGANTHA RAVINDRAN VS ITO IN I.T.A. NO. 2126/MDS/08 FOR ASSESSMENT YEAR 2005-06 ORDER DATED 30.6.2009 [A COPY OF WHICH IS ENCLOSED AT PAGES 8 TO 11 OF THE PAPER BOOK] SI MILAR SITUATION HAS BEEN TACKLED WITH BY ARRIVING AT A RATE OF ` 15 000/- PER CENT WHEN ITA 385/09 :- 9 -: ASSESSEE HAD ADOPTED ` 28 938/- PER CENT AND ASSESSING OFFICER HAD ADOPTED ONLY ` 5400/- PER CENT. IN THAT CASE THE ASSESSEE HAD R ELIED ON A PROPOSED SALE AGREEMENT WHICH WAS NOT EXECUTED SUBSEQUENTLY IN WHICH THE SALE VALUE WAS ` 28 938/- AS ON 21.10.1983. IN THIS CASE ALSO ALMOST SIMILAR SITUATION ARISES. IN OUR VIEW THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) HAVE FAILED IN THEIR DUTY BY NOT CONSIDERING THE SALE INSTANCES PRODUCED BEFORE THEM RESPECTIVE LY ALTHOUGH THEY RELATED TO FEW YEARS LATER THAN THE YEAR 1981. IN CHENNAI BENCH DECISION (SUPRA) THE ASSESSING OFFICER HAD PLACED RELIANCE ON THE COST ADOPTED BY THE STAMP VALUATION AUTHORITY. TO MEET THE ENDS OF JUSTICE AND TO BE FAIR TO BOTH THE PARTIES WE DEEM IT FIT TO TAKE THE AVERAGE COST AT ` 12 000/- PER CENT [15 000+90002] AND THUS DIRECT THE ASSESSING OFFICER TO ADOPT THIS VALUE TO ESTIMA TE THE COST OF THE LAND AS ON 1.4.1981. THE INDEXED COST OF ACQUISITI ON SHALL BE ARRIVED AT BY ADOPTING THE RATE OF ` 12 000/- PER CENT. WE MAY MENTION THAT THE ASSESSEE IS ENTITLED O EXEMPTION U/S 54 OF THE ACT WHICH HAS BEEN DULY CLAIMED AND ALLOWED BY THE ASSESSING OFFICER A S WELL. NO OTHER MATERIAL ISSUE HAS BEEN RAISED IN THIS APPEAL. A CCORDINGLY THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA 385/09 :- 10 - : 8. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 10.2.2011. SD/- SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER ( HARI OM MARATHA ) JUDICIAL MEMBER DATED: 10 TH FEBRUARY 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR