The order of the Bench was delivered by
Chandra Poojari (Accountant Member)- This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) dated February 9, 2016, for the assessment year 2006-07.
2. The grievance of the assessee in this appeal is with regard to the period of holding of property, which is inherited by the assessee from his father and thereby wrongly applying the cost of acquisition in terms of section 49(1)(iii)(a) of the Income-tax Act, 1961 and determining the capital gains on the sale of capital asset as short-term capital gains instead of long-term capital gains and refusing the exemption under section 54 of the Act.
3. The facts of the case are that the Assessing Officer received the information that the assessee had sold immovable property measuring an extent of three grounds and 858 square feet for Rs. 5,50,00,000 out of which one-sixth share of the assessee being Rs. 91,66,667. The assessee had not filed his return of income for the assessment year 2006-07. In order to verify whether the assessee had paid tax on the capital gains arising out of the above transaction, notice under section 148 dated March 12, 2001, was issued and served on the assessee. In response to the notice, the assessee has stated that the property was originally purchased by his father, Shri Harichand, along with his brother, Shri Vashdev, and their father, the late Keshavdas, in the year 1971. On the death of their father, i.e., Keshevdas on June 24, 2001, the assessee's father and his brother became entitled to half share each in the property. Out of his half share in the property, the assessee's father, i.e., Shri Harichand gifted one-third share in the property by deed of settlement dated November 20, 2005. The assessee became entitled to one-sixth share in that property. In the computation of total income submitted by the assessee, he has adopted the cost inflation index of 100 relevant for the financial year 1981-82 for arriving at the indexed cost but the property has been transferred to the assessee by settlement deed dated November 20, 2005. Therefore, the cost inflation index of 497 was adopted by the Assessing Officer. The assessee has computed capital gains by taking the cost of acquisition of the previous owner which is the fair market value on April 1, 1981, and indexed it to the year of sale. As the contention of the assessee was not acceptable, the Assessing Officer issued show-cause notice and reopened the assessment. The assessment was completed under section 143(3) read with section 147 of the Act on March 24, 2014, assessing the income of Rs. 48,88,895 by taking the cost of inflation index of 497 relevant for the financial year 2005-06 being the year of possession of the asset and thereby reworked the long-term capital gains and arrived at a tax demand of Rs. 11,71,780. Aggrieved, the assessee went in appeal before the Commissioner of Income-tax (Appeals).
4. On appeal, the Commissioner of Income-tax (Appeals) observed that the assessee's father got the said property after the demise of his father on June 24, 2001. The gift settlement deed does not mention whether the assessee's father has got this property through will or otherwise. The assessee's father got the property through will, whether the same will was probated after the demise of the assessee's grandfather, is not brought on record. Therefore, the Commissioner of Income-tax (Appeals) observed that there is no document to state when the assessee's father became the owner of the ancestral property. According to the Commissioner of Income-tax (Appeals), it is not possible to accept that the period of holding the property by the assessee's grandfather should also be taken into account. Before the Commissioner of Income-tax (Appeals), the assessee could not establish with a title deed or encumbrance certificate when the assessee's father became the owner of the said ancestral property. In the absence of the same, the Commissioner of Income-tax (Appeals) observed that it is not acceptable that the assessee's father was holding the said property to take advantage of Explanation 1(i)(b) to section 2(42A) of the Act. According to the Commissioner of Income-tax (Appeals), the assessee acquired the property under consideration on November 20, 2005, which was sold within two and half months on February 2, 2006. Therefore, the assessee sold the property under consideration for less than 36 months and, hence, capital gains should be assessed as short-term capital gains and the assessee is not entitled for corresponding deduction under section54 of the Act. Against this, the assessee is in appeal before us.
5. We have heard both the sides and perused the material on record. In this case, the assessee's grandfather acquired the property along with his two sons jointly in the year 1971. After the demise of the assessee's grandfather on June 24, 2001, the assessee's father and his uncle became legal heirs of the said property. Thereafter, the assessee's father through a gift/ settlement deed, gifted to the assessee's share of property on November 20, 2005. The assessee sold his share in the said property on February 2, 2006, within a gap of two and half months from the date of the assessee became the owner of the property. The assessee's contention is that the cost of inflation index of the said property to be computed from April 1, 1981, and, thereafter, indexation cost to be done. On the other hand, the contention of the learned Departmental representative is that the assessee's father became the legal heir of the impugned property after the demise of his grandfather on June 24, 2001. The settlement deed does not mention whether the assessee's father got the property through will or otherwise. If the assessee's father got the property through will, whether the same will was probated after the demise of the assessee's grandfather, is not brought on record and the will, which was produced before the Tribunal was not at all before the lower authorities. As such, it is not possible to accept that the period of holding of the property by the assessee's grandfather should also be taken into account.
6. As discussed earlier, the property was acquired in the year 1971 by the assessee's grandfather and his two sons. The assessee's grandfather died on June 24, 2001, and after the death, the assessee's father and his uncle became entitled to half share each in the said property. Out of this half share in the property, the assessee's father gifted one-third share in the property by deed of settlement dated November 20, 2005. The assessee became entitled to one-sixth share in that property. As per section 49(1)(iii)(a) of the Act, whereas the capital asset became the property of the assessee 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 incurred by the previous owner of the assessee, as the case may be. For the purpose of computation of capital gains, the cost of asset should be revised upwards by applying the appropriate cost of inflation index. If the asset was acquired prior to April 1, 1981, the cost of inflation index relating to the financial year 1981-82 is required to be applied for the purpose of arriving at the index cost of asset. The Commissioner of Income-tax (Appeals) observed that the assessee became the owner of the property under consideration only on November 20, 2005, which was sold on February 2, 2006, within a gap of two and half months and it is resulted in short-term capital gains. According to the Commissioner of Income-tax (Appeals), the assessee became the owner of the property only on November 20, 2005, and there is no question of consideration of cost of asset in terms of section 49(1)(iii)(a) of the Act.
7. It is to be noted that this Tribunal in the case of Smt. Mina Deogun v. ITO [2008] 19 SOT 183 (Kol), after considering the Memorandum Explaining the Finance Bill, 1992, and the Central Board of Direct Taxes Circular No. 636, dated August 31, 1992 ([1992] 198 ITR (St.) 1; [1992] 107 CTR (St.) 1), held that indexation is to be allowed in respect of the period of holding of the asset and not in relation to the individuality of the assessee. Accordingly, it was held that for the purpose of determining the period of holding, intermediate transfers on account of succession are to be ignored. Similarly, in the case of Mrs. Pushpa Sofat v. ITO [2002] 81 ITD 1 (Chandigarh), the Chandigarh Bench of this Tribunal has expressed a similar view. We also noticed that as per the provisions of section 2(42A), Explanation 1(i)(b), it is stipulated that in determining the period for which any capital asset is held by the assessee, in the case of a capital asset which becomes the property of the assessee by way of succession, inheritance, etc., the period for which the asset was held by the previous owner shall also be included.
8. It is also to be noted that in the case of Deputy CIT v. Kishore Kanungo [2007] 290 ITR (AT) 298 (Mum) ; [2006] 102 ITD 437 (Mum), the Mumbai Bench of this Tribunal, held that indexation is to be allowed only from the year in which the assessee became the owner of the property. Contrary to this, the Vishakhapatnam Bench in the case of M. Siva Parvathi v. ITO [2011] 7 ITR (Trib) 468 (Visakhapatnam) held that the assessee having inheritant property purchased by the previous owner in the year 1974, the cost of acquisition for the purpose of computation of capital gains on the sale of such property had to be computed by applying the cost of inflation index by the financial year 1981-82 and not by the financial year 1989-90, i.e., the year of inheritance by the assessee. Thus, it is a settled proposition that when two views are possible, a view which is in favour of the assessee, has to be adopted. In this regard, we make a reference to the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). In view of this, we hold that in the present case, the assessee inherited the property on November 20, 2005. However, the said property was purchased by the assessee's ancestors, i.e., grandfather, the late Keshavdas on June 14, 1971, and after that it was bequeathed to the assessee's father, Shri Harichand, on the death of his grandfather on June 24, 2001. Thereafter, the property was gifted to the assessee on November 20, 2005. Accordingly, the cost of indexation to be applied as on April 1, 1981, after fixing the value of asset as on April 1, 1981, and it cannot be said that the assessee acquired the property under dispute on November 20, 2005, so as to compute the capital gains as short-term capital gains. In other words, capital gains has to be assessed as long-term capital gains by fixing the cost of asset as on April 1, 1981, and, thereafter, applying the cost of inflation index in terms of section49(1)(iii)(a) of the Act and, consequently, the assessee is also entitled for exemption under section 54 of the Act.
9. In the result, the appeal of the assessee is allowed.
The order pronounced in the open court on Friday, the May 27, 2016 at Chennai.