- Indexation in respect of inherited property
Where the capital asset became the
property of the assessee by succession, inheritance or devaluation, the cost of
acquisition of 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
assets incurred or borne by the
previous owner or the assessee, as the case may be. In the case before us, the
assessee became owner of property
by inheritance. The said property was acquired by his father in 1965 and
was expanded in 1971. Therefore, the fair market value of the property in the
hands of assessee has to be taken as was in the hands of his father
i.e. as on 1.04.1981. Further clause (b) of Explanation 1 to sec. 2(42A) provides 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 in the circumstances
mentioned in sec. 49(1), the period for which the asset was held by the previous
owner shall be included. Sec. 2(42A) defines the expression “short-term capital
asset” and means a capital asset held by an assessee for not more than
thirty-six months immediately preceding the date of its transfer. Therefore,
from the Explanation 1 to sec. 2(42A), it is
clear that for determination of period of holding in respect of a capital asset,
the period for which the capital asset was held by the previous owner has to be
included. Therefore, the period from 1.04.1981 till the death of previous owner
shall be included in the period of holding by the assessee for the purpose of
determination of indexation cost of the property. Our
view is in line with the decision of ITAT, Special Bench in the case of
Manjula J. Shah ( supra). Respectfully following this decision
of Special Bench of the Tribunal, it is held that
indexation cost of the asset transferred has to be
taken from 1.04.1981and not from the date on which the assessee became owner of
the property. Accordingly, we do not find any infirmity in the order passed by
the learned CIT(A) holding that benefit of indexation
cost will be available to the
assessee with reference to fair market value of the asset as on 1.04.1981.
Availability of S.54 Benefit on
Property Purchased in Joint name
As regards second issue, the
assessee had invested entire amount of Rs. 80,00,000/- in the new asset and the
name of his wife Smt. Ritu Verma has been entered in the sale agreement just for
the purpose of security reasons. Under sec. 64(1)(iv) subject to provisions of
sec. 27(i), the income as arises directly or indirectly to the spouse of an
individual from the assets
transferred directly or indirectly to the spouse by such
individual otherwise than for adequate consideration
or in connection with the agreement to live apart shall be included in the
income of such individual. Therefore, if the new asset
as held by Mrs. Ritu Verma is let out and the income is earned, the same will be
clubbed in the hands of the assessee. Further, sec. 27 also provides that where
an individual who transfers otherwise than for
adequate consideration any house property to his or her spouse, not being a
transfer in connection with an agreement to live apart, or to a minor child not
being a married daughter, shall be deemed to be the owner of the house property
so transferred. Therefore, within the meaning of provision of sec. 27, the
assessee will be the owner of the whole property and therefore, the income will
be assessable in the hands of assessee. Once the assessee is owner, the capital
gain, if any, on sale will be assessable in the hands of the assessee only.
Therefore, the apprehension of the learned Sr. DR is without any basis that Smt.
Ritu Verma has become owner of the property. Since Shri Suresh Verma, the
assessee for the purpose of sec. 22 to 26 is the owner of the new property, in our considered opinion the
assessee will be eligible for benefit of entire amount spent on acquisition of
new asset, which is jointly held by him with his wife Smt. Ritu Verma. In view
of above facts, in our considered opinion, the learned CIT(A) was justified in
allowing the benefit of sec. 54 in respect of entire amount of Rs.
80,00,000/-.
IN THE ITAT DELHI BENCH
‘G’
Assistant Commissioner of
Income-tax,
v.
Suresh
Verma
IT APPEAL NO. 3732 (DELHI) OF
2010
[ASSESSMENT YEAR
2007-08]
Date of pronouncement –
27.01.2012
ORDER
K.D. Ranjan, Accountant Member –
This appeal by the Revenue for Assessment Year 2007-08 arises out of the order
of the Commissioner of Income-tax (Appeals)-XXVI, New Delhi.
2. The grounds of appeal raised
by the Revenue are reproduced as under:-
“1. The Ld. CIT(A) has erred in deleting the
addition made by the AO by admitting the assessee’s claim with regard to benefit
of indexation available to
him from the year it was acquired by the 1st owner as against the year it was
held by the assessee.
2. The Ld. CIT(A) has further erred in allowing
deduction u/s 54 in respect of the whole of the amount invested by the assessee
in purchase of residential house in the absence of no provision in law to allow
deduction u/s 54 to the assessee for the portion of the new residential property
owned by his wife.”
3. The first issue for
consideration relates to deleting the addition made by the Assessing Officer
with regard to benefit of indexation. The facts of the
case stated in brief are that the assessee declared long term
capital gain of Rs. 1,37,02,500/- on sale of residential property at
Chandigarh (½ share) and after claiming deduction of Rs. 80,00,000/- under sec.
54 and Rs. 40,00,000/- under sec. 54EC, declared
taxable long term capital gain at Rs. 17,02,500/-.
During the course of assessment proceedings, it was observed by the Assessing
Officer that the assessee became owner of the ½ share of property along with his
brother as per Will of his father dated 4.04.1988. Later on, the father of the
assessee expired on 6.04.1990, when the assessee became owner of the property to
the extent of ½ share. Since the above property was built by his father in 1965
and was expanded in 1971, the assessee took cost of acquisition at Rs.
2,50,000/- being the fair market value of the property as on 1.04.1981. The
assessee accordingly worked out the indexed cost of acquisition with reference
to the acquisition of property as on 1.04.1981. However, the Assessing Officer
interpreted the provisions of Explanation
(iii) to section 48 of the Act in such a way that the assessee could
get benefit of indexation only from the date when the
asset was first held by him. The AO allowed benefit of
indexation with reference to F.Y. 1990-91 and not for
F.Y. 1980-81 as claimed by the assessee. The AO relied on the decision of ITAT,
Delhi Bench in the case of Arun Shungloo Trust [IT Appeal No. 1336/Delhi/2005
dated 25th January, 2008]. The AO computed the cost of acquisition at Rs.
7,12,912/-.
4. The second issue for
consideration is in relation to allowing deduction under sec. 54 of the Act in
respect of the whole of the amount invested by the assessee in the purchase of
residential house. The assessee purchased residential property at C-602, The
Residency, Ardee City, Gurgaon in joint name with his wife Smt. Ritu Verma and
claimed deduction under sec. 54 of the Act in respect of amount of Rs.
80,00,000/- invested in
residential property. However, the AO restricted the deduction under sec.
54 to the extent of Rs. 40,00,000/- as the property was jointly held by the
assessee with his wife.
5. Before the CIT(A) it was
submitted that the Explanation 1 to sec.
2(42A) for the purpose of determination of 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 in the circumstances mentioned in sub-sec.(1) of sec. 49, the
period for which the asset was held by the previous owner referred to in section
49(1) of the Act is to be included. It was, therefore, submitted that in terms
of provisions of sec. 2(42A), the period of holding by the previous owner has to
be included for the purpose of working out cost of
indexation. The learned Authorized Representative of
the assessee relied on the decision of ITAT in the case of Dy. CIT v.
Manjula J. Shah [2010] 35
SOT 105 (Mum.) (SB). As regards second ground, it was submitted that the
whole purchase consideration in respect of property at C-602, The Residency,
Ardee City, Gurgaon, was paid by the assessee only out of sale proceeds of the
property. The name of his wife in the agreement to transfer was included only to
avoid future hassle due to old age of the assessee. His wife has not contributed
towards purchase of property nor does her name get reflected in the possession
certificate. It was further submitted that the assessee had fulfilled the
conditions of sec. 54 before making the claim of exemption. His attention was
also drawn to the provisions of sec. 27 and sec. 64 by submitting that if there
was any capital gain on transfer of such house property, such capital gain shall
first be computed in the hands of transferee and thereafter, the same will be
clubbed with the income of transferor in view of provisions of sec. 27(i) and
sec. 64(1)(iv). The learned AR of the assessee relied on several decisions to
support his contention.
6. The learned CIT(A) as regards
the first ground of appeal, after considering the submissions made by the
assessee, observed that the assessee held the property upon the death of his
father with effect from 6.04.1990. Explanation 1 to sec. 2(42A)
provides that in determining the period of holding where such an asset was
acquired in the circumstances mentioned under sec. 49(1), the period of holding
by previous owner shall be included. Since father of assessee acquired the
property prior to 1.04.1981 and the period of previous owner was to be included,
the learned CIT(A) held that cost inflation index was to be applied with
reference to 1.04.1981 and not from the date on which he became owner of the
property. As regards second issue, the learned CIT(A) observed that the assessee
had invested Rs. 80,00,000/- in the house property, which was jointly held by
him with his wife, his wife is a joint owner and did not have any source of
income. The new property was purchased only by the assessee by deploying long
term capital gain on sale of property, which he received on inheritance. It was
also clarified that at the time of purchase of new property, the same was
originally transferred to assessee only, a fact duly documented by agreement to
transfer and in the possession certificate. It was also informed that at a later
stage, the name of the wife of assessee was included in order to avoid future
hassle as both the assessee and his wife are old persons. The learned CIT(A) in
view of above facts, has held that the assessee meets all conditions required
under sec. 54 as the sale proceeds of the capital gains have been invested in
the new residential house within the prescribed time. The learned CIT(A) in view
of above, allowed the appeal in favour of the assessee on both the points.
7. Before us, the learned Sr. DR
submitted that the assessee became owner of the property on 6.04.1990 and
therefore, the indexation benefit should be allowed from this date and not from
1.04.1981. As regards second issue, the learned Sr. DR submitted that the amount
of Rs. 40,00,000/- out of sale proceeds has been invested in the name of Smt.
Ritu Verma, wife of the assessee who has become the owner of ½ share of the
property. Therefore, for all purposes the property owned by her and on later
date if the property is sold, the capital gain which should be assessable in the
hands of the assessee, would be assessable in the hands of Smt. Ritu Verma.
Therefore, the benefit of Rs. 40,00,000/- in the hands of assessee cannot be
given. She therefore, supported the order of the AO.
8. We have heard both the
parties and gone through the material available on record. U/s 49(1)(iii), where
the capital asset became the property of the assessee by succession, inheritance
or devaluation, the cost of acquisition of 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 assets incurred or borne by the previous owner or
the assessee, as the case may be. In the case before us, the assessee became
owner of property by inheritance. The said property was acquired by his father
in 1965 and was expanded in 1971. Therefore, the fair market value of the
property in the hands of assessee has to be taken as was in the hands of his
father i.e. as on 1.04.1981. Further clause (b) of Explanation
1 to sec. 2(42A) provides 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 in the circumstances mentioned in sec. 49(1), the
period for which the asset was held by the previous owner shall be included.
Sec. 2(42A) defines the expression “short-term capital asset” and means a
capital asset held by an assessee for not more than thirty-six months
immediately preceding the date of its transfer. Therefore, from the
Explanation 1 to sec. 2(42A), it is clear that for determination of
period of holding in respect of a capital asset, the period for which the
capital asset was held by the previous owner has to be included. Therefore, the
period from 1.04.1981 till the death of previous owner shall be included in the
period of holding by the assessee for the purpose of determination of indexation
cost of the property. Our view is in line with the decision of ITAT, Special
Bench in the case of Manjula J. Shah ( supra). Respectfully
following this decision of Special Bench of the Tribunal, it is held that
indexation cost of the asset transferred has to be taken from 1.04.1981and not
from the date on which the assessee became owner of the property. Accordingly,
we do not find any infirmity in the order passed by the learned CIT(A) holding
that benefit of indexation cost will be available to the assessee with reference
to fair market value of the asset as on 1.04.1981.
9. As regards second issue, the
assessee had invested entire amount of Rs. 80,00,000/- in the new asset and the
name of his wife Smt. Ritu Verma has been entered in the sale agreement just for
the purpose of security reasons. Under sec. 64(1)(iv) subject to provisions of
sec. 27(i), the income as arises directly or indirectly to the spouse of an
individual from the assets transferred directly or indirectly to the spouse by
such individual otherwise than for adequate consideration or in connection with
the agreement to live apart shall be included in the income of such individual.
Therefore, if the new asset as held by Mrs. Ritu Verma is let out and the income
is earned, the same will be clubbed in the hands of the assessee. Further, sec.
27 also provides that where an individual who transfers otherwise than for
adequate consideration any house property to his or her spouse, not being a
transfer in connection with an agreement to live apart, or to a minor child not
being a married daughter, shall be deemed to be the owner of the house property
so transferred. Therefore, within the meaning of provision of sec. 27, the
assessee will be the owner of the whole property and therefore, the income will
be assessable in the hands of assessee. Once the assessee is owner, the capital
gain, if any, on sale will be assessable in the hands of the assessee only.
Therefore, the apprehension of the learned Sr. DR is without any basis that Smt.
Ritu Verma has become owner of the property. Since Shri Suresh Verma, the
assessee for the purpose of sec. 22 to 26 is the owner of the new property, in
our considered opinion the assessee will be eligible for benefit of entire
amount spent on acquisition of new asset, which is jointly held by him with his
wife Smt. Ritu Verma. In view of above facts, in our considered opinion, the
learned CIT(A) was justified in allowing the benefit of sec. 54 in respect of
entire amount of Rs. 80,00,000/-.
10. In the result, the appeal
filed by the revenue is dismissed.
SOURCE:TaxGuru
No comments:
Post a Comment