Monday, August 5, 2013

[aaykarbhavan] Re: [IT Reporter] Judgment, Useful Maxims.



Dear Respected Sirji,
                                 I am just retired person only. This is my passion.
As far as your query is concerned, to my mind ,  6 months are to expedite the matter only. 
                Let  me take to one a fine example in my life.
There was one assesseee one chartered accountant ( U K Citizen). He file his return through one Senior C A of Ahmedabad. There was a refund of Rs 75000/- . He also paid Rs 10000 U/s 140 A. He took money Rs 750 Fee and and Rs 10000 for refund. There was no refund for 2 years. !!! When he came from U K he met to Senior C A . Asked about Refund. He bluntly said that he is not responsible for refund. He did whatever he was required to do. Form the end of ITO ( A C I T Level of Ward ) a brilliant exercise did. Unbelievable!!! Instead of Refund of Rs 75000 + Interest raised demand of Rs 75000!!!!!!!
At the same time the service part of completion of Assessment order was not done by him. He did not served the Assessment order for 3 years, neither Chalan, nor Form 7 .!!! At the same time when 35 days of demand was over the file was not transferred to I T O Recovery Cell!!!!! File was not traceable. !!!
                    He was my cousin. He consulted to me. I tried to get the actual position. But I failed to get any relief from  the Grievance Cell for 6 months reminder and reminder sent !!!! No result. Under this situation ACIT ( I T O ) closed my all doors of filing rectification application remedy, filing an appeal, filing revision petition to C I T . Under the situation all the doors were closed. After some time when he came back from U K I told to take some harsh action in this situation. It was suggested by me that A Writ Petition can be filed . Believe me on returnable date after 21 days of filling Petition , Government Pleader  told to Hon. Judges that they are issuing refunds. Interest was also allowed , claimed by me, on Self Assessment Tax Paid.
                    This is how some I T O people do in justice to Asses see  and also sitting in Chair as Judge !!!!!
Regards,
C A Shah D J
USA

1.1 Under the Income-tax Act (the Act), various provisions are made for rectification of orders passed. S. 254(2) provides for rectification of orders passed by the Income Tax Appellate Tribunals (Tribunal). It is provided that the Tribunal may amend its order at any time within a period of four years from the date of the order with a view to rectifying any mistake apparent from the report and the Tribunal shall make such amendment if the mistake is brought to its notice by the assessee or Assessing Officer. Accordingly, S. 254(2) enables the Tribunal to rectify its own order suo moto or when the mistake is brought to its notice by the concerned party.
1.2 The time limit for rectifying the orders u/s. 254(2) is four years from the date of the order. In the past, the issue had come up as to whether the Tribunal is empowered to pass rectification order even after the expiry of the time limit of four years, in a case where the application for the requisite rectification is made within the specified time limit of four years. The Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (256 ITR 767) had taken a view that if the assessee has moved the application within the specified period of four years, the Tribunal is bound to decide the application on merit and not on the ground of limitation, and accordingly held that the Tribunal can pass such rectification orders even after the expiry of the specified period of four years, if the application is moved within the specified period of four years. However, the Madras High Court had dissented from this view.
1.3 In view of the above-referred conflicting judgments of the High Court, the issue was under debate as to whether the Tribunal can pass the rectification order u/s.254(2) after the specific period of four years in a case where the application for rectification is made within the specified period of four years.
1.4 S. 154(7) also provides for time limit of four years from the end of the financial year in which the order sought to be amended was passed. This enables the Income-tax authorities to rectify their orders within the specified time limit. S. 154(8) also provides that the Income-tax authorities shall pass such order of rectification within six months from the end of the month in which the application is received by it. According to the Courts, this time limit of six months is within the overall period of time limit of four years.
1.5 Recently the Apex Court had an occasion to consider the issue referred to in para 1.3 above in the case of Sree Ayyanar Spinning & Weaving Mills Limited, and the issue is now resolved. Hence, considering the importance of the issue in day-to-day practice, it is thought fit to consider the same in this column.
CIT v. Sree Ayyanar Spinning Weaving Mills Limited, 296 ITR 53 (Mad.)
2.1 In the above case, an assessment was completed for the A.Y. 1989-90 assessing income u/s. 115J. There was some dispute with regard to the working of Book Profit on the issue of the adjustment of earlier years' depreciation on account of change in the method of depreciation made by the assessee in the relevant previous year. The order was confirmed by the First Appellate authority and the matter came up before the Tribunal. It was remanded back to the Assessing Officer with certain directions. Again the same order was passed by the Assessing Officer and the same was also confirmed by the First Appellate authority. In this second round of appeal, the Tribunal confirmed the order of the Assessing Officer and took the view that the depreciation relating to the earlier years should not be adjusted while computing the Book Profits. If such an adjustment is made, the profit and loss account of the year in question would not reflect the correct picture. It seems that this order was passed by the Tribunal on 9-12-1996.
2.2 On 2-8-2000, the assessee moved miscellaneous application for rectification of above order of the Tribunal u/s.254(2) and raised certain points therein. Although at the time of making such application, a judgment of the Apex Court in the case of Apollo Tyres Limited (255 ITR 273) was not available, relying on the said judgment, the Tribunal finally passed the rectification order dated 31-1-2003, recalling its earlier order and subsequently, the consequential order was passed on 12-6-2003. In substance, it appears that the Tribunal allowed the claim of the assessee in the rectification proceedings relying on the judgment of the Apex Court in the case of Apollo Tyres Limited (supra).
2.3 On the above facts, the rectification order passed by the Tribunal was questioned by the Revenue before the Madras High Court. On behalf of the Revenue, it was, inter alia, contended that the Tribunal was not justified in passing the rectification order u/s.254(2) after the expiry of specified period of four years, though the application for such rectification was moved by the assessee within the specified period of four years; S. 254(2) specifies the time limit for passing such an order and hence such order cannot be passed beyond that specified period. The assessee further contended that in the case of Income-tax authorities, the rectification of mistake is governed by S. 154 and even though S. 154(8) provides that the rectification order shall be passed within the specified period of six months, the same shall be read into the total period of four years provided in S. 154(7). The statute provides the specific outer time limit and it may not be proper for the Court to go beyond the same.
2.4 On behalf of the assessee, it was, inter alia, contended that the Tribunal is bound to decide the application on merit and not on the ground of limitation once the application is made within the specified time limit of four years. For this, reliance was placed on the judgment of the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (supra). It was further contended that Circular No. 68, dated 17-11-1971 provides that a mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute a mistake apparent from the record and hence, the Tribunal was justified in relying on the judgment of the Apex Court in the case of Apollo Tyres Limited (supra), though the said judgment was not available at the time of passing the original order when the application for rectification was moved.
2.5 After considering the arguments of both the sides and after referring to the provisions dealing with rectification contained in S. 254 as well as S. 154, the Court took the view that the authority is barred from passing the order of rectification beyond the period of four years specified in S. 154(7) and likewise the Tribunal also should pass the order of rectification u/s.254(2) only within the specified period of four years. The Court also did not agree with the view of the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (supra).
2.6 While deciding the issue in favour of the Revenue, the Court finally held as under (page 62) :
". . . . it cannot be construed that the power of the Appellate Tribunal to rectify the mistake could be extended indefinitely beyond four years, which time is specifically spelled out by the Legislature in S. 254(2) itself for passing an order of rectification, either suo motu by the Tribunal or on application either by the assessee or by the Assessing Officer. The mere usage of 'and' between two limbs of S. 254(2) will not, in any way, enlarge the limitation prescribed for passing the order of amendment u/s.254(2) of the Act. Consequently, any order of amendment that would be passed by the Appellate Tribunal beyond the period of four years would lack jurisdiction, assuming the Appellate Tribunal has got a right to pass an order of rectification to rectify the mistake in the light of the subsequent interpretation of law by any Court, as per Circular No. 68, dated November 17, 1971 [see (1972) 83 ITR (ST.) 6]. Therefore, it follows that in any case of rectification, the Income-tax authorities and the Appellate Tribunal are within their power and jurisdiction to amend their respective orders u/s.154 and u/s.254, respectively, in the light of subsequent interpretation of law by the Courts, but such power and jurisdiction could be exercised statutorily only within the time of four years, not beyond the period of four years."
CIT v. Sree Ayyanar Spinning & Weaving Mills Limited, 301 ITR 434 (SC) :
3.1 The above-referred judgment of the Madras High Court came up for consideration before the Apex Court, wherein the only issue to be considered was whether the Tribunal can pass the order of rectification u/s.254(2) beyond the specific period of four years when the application for such rectification is moved within the specified period of four years. To consider the issue, the Court noted the relevant facts and the issues raised before the High Court and the grounds on which the Tribunal had passed the order u/s.254(2). The Court also noted that in the appeal before it, the Court is not concerned with the merits of the case, i.e., reworking of computation made by the Assessing Officer. The Court also heard both the parties, wherein on behalf of the Revenue it was contended that on the facts of the case of the assessee, the judgment of the Apex Court in the case of Apollo Tyres Limited (supra) was not applicable. However, the Court stated that though we have referred to the submissions of both the sides on merits, in this case, we are only concerned with the interpretation of S. 254(2) regarding the powers of the Tribunal in the matter of rectification of mistake apparent from the record.
3.2 Having clarified the issue under consideration, the Court noted the controversy raised on account of the rectification order passed by the Tribunal in response to miscellaneous applications dated 2-8-2000 filed by the assessee and the order of the Tribunal dated 31-1-2003 recalling its order dated 9-12-1996. The Court also noted the conclusion of the High Court and also the fact that the High Court did not go into the merits of the case.
3.3 The Court then referred to the provisions of S. 254(2) and observed as under (page 432) :
"Analysing the above provisions, we are of the view that S. 254(2) is in two parts. Under the first part, the Appellate Tribunal may, at any time, within four years from the date of the order, rectify any mistake apparent from the record and amend any order passed by it U/ss.(1). Under the second part of S. 254(2), the reference is to the amendment of the order passed by the Tribunal U/ss.(1) when the mistake is brought to its notice by the assessee or the Assessing Officer. Therefore, in short, the first part of S. 254(2) refers to the suo motu exercise of the power of rectification by the Tribunal, whereas the second part refers to rectification and amendment on an application being made by the Assessing Officer or the assessee pointing out the mistake apparent from the record. In this case, we are concerned with the second part of S. 254(2). As stated above, the application for rectification was made within four years. The application was well within four years. It is the Tribunal which took its own time to dispose of the application. Therefore, in the circumstances, the High Court had erred in holding that the application could not have been entertained by the Tribunal beyond four years."
3.4 The Court then referred to the judgment of the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (supra), relied on by the counsel appearing on behalf of the assessee and noted the view of the Rajasthan High Court as appearing in the head notes of the said judgment as under (page 438) :
"Once the assessee has moved the application within four years from the date of appeal, the Tribunal cannot reject that application on the ground that four years have lapsed, which includes the period of pendency of the application before the Tribunal. If the assessee has moved the application within four years from the date of the order, the Tribunal is bound to decide the application on the merits and not on the ground of limitation. S. 254(2) of the Income-tax Act, 1961, lays down that the Appellate Tribunal may at any time within four years from the date of the order rectify the mistake apparent from the record, but that does not mean that if the application is moved within the period allowed, i.e., four years, and remains pending before the Tribunal, after the expiry of four years the Tribunal can reject the application on the ground of limitation."
3.5 Having considered the above-referred view of the Rajasthan High Court, the Court decided the issue in favour of the assessee and held as under (page 438) :
"We are in agreement with the view expressed by the Rajasthan High Court in the case of Harshwardhan Chemicals and Minerals Limited (2002) 256 ITR 767.
For the aforesaid reasons, we set aside the impugned judgment of the High Court and restore T.C. (A) No. 2/2004 on the file of the Madras High Court for fresh decision on the merits of the matter as indicated hereinabove. All contentions on the merits are expressly kept open. We express no opinion on the merits of the case whether rectification application was at all maintainable or not and whether the judgment in the case of Apollo Tyres (2002) 255 ITR 273 was or was not applicable to the facts of this case. That question will have to be gone into by the High Court in the above T.C. (A) No. 2/2004."
Conclusion :
4.1 In view of the above judgment of the Apex Court, now it is clear that once the application for rectification is moved within the specific period of four years, the Tribunal can pass order u/s.254(2) even if such a period has expired.
4.2 The above position will also equally apply for passing rectification order u/s.154 by the Income-tax authorities. Therefore, once such a period is expired, it would not be correct for the Income-tax authorities to take a view that it has no power to pass the rectification order u/s.154, even if the application is made within the specified period of limitation.
4.3 So far as the powers of the Income-tax authorities to rectify their order are concerned, there is also time limit of six months provided in S. 154(8). In many cases, this time limit is not observed by the authorities. Even in such cases, it would not be correct for the Income-tax authorities to later on take a stand that since specified mandatory time limit of six months has expired, they have no power to pass the requisite rectification order. With the above judgment of the Apex Court, in our view, even this position becomes clear.
4.4 Interestingly, there is also time limit for passing order for refusing or granting registration to charitable trusts, etc. u/s.12AA, wherein it is provided that every order of granting or refusing the registration under the said provision shall be passed before the expiry of six months from the end of the month in which the relevant application is received — [Refer S. 12AA (2)]. In the context of these provisions, the Special Bench of the Tribunal (Delhi) in the case of Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust [(2007) 17 SOT 281] has taken a view that if such an order u/s.12AA(2) is not passed within the specified period of six months, registration shall be deemed to have been granted.

From: Nagarajan.R <nagarajan.raju@gmail.com>
To: It_law_reported@yahoogroups.com
Sent: Monday, 5 August 2013 3:33 AM
Subject: Re: [IT Reporter] Judgment, Useful Maxims.

 
Dear Mr.Deepak Shak,
First of all I would like to congratulate you for uploading latest case laws, circulars, instruction etc. You are also taking pain in answering the genuine queries raised by the members of ITGOA and also by the retired Officers of the department.l
I have a doubt with regard to time-limit for passing a rectification order by the AO. As per Act, u/s.154, if an application for rectification is filed by an assessee, the AO should pass an order u/s.154 on the said application within six months from the month in which such application was received from the assessee. However, if the AO issues a notice u/s.154 to the assessee, the time limit is four years. In fact, as per the recent instruction of the CBDT, (consequent to the Delhi High Court suo moto judgement), every AO has to maintain a register of rectification application and make an entry in respect of all the applications are received from the assessee, such petitions are to be disposed off within 6 months. However, as per the Citizens Charert, such applications are to be finalised  by the AO within two months. Most of the Assessing Officers are not disposing of the rectification applications even after a lapse of 4 years. When the assessee files a petitiion seeking TDS credit or to rectify the calculations mistakes in the order passed by the AO in respect of interests, taxes etc., such applications are not disposed off by the AO even after the lapse of 4 years. Supposing the AO rejects the claim of the assesee by passing an order beyond the time limit of 6 months prescribed in the Act, what would be the remedy of the assessee to contest the action of the AO. Without going to the merits, whether the assessee can contest that the order passed by AO beyond 6 months is time-barred. Please offer your valuable opinion in this regard
R.Nagarajan
Incometax Officer (retd) Chennai


On Mon, Aug 5, 2013 at 6:58 AM, Dipak Shah <djshah1944@yahoo.com> wrote:
 
[Attachment(s) from Dipak Shah included below]
IT: Relinquishment of right over property in case of a family settlement falls under definition of 'transfer' and exigible to capital gains tax
IT: Cost of acquisition in case of property received as gift has to be reckoned with reference to cost to previous owner
IT: Cost of improvement to property by previous owner should be included in cost of acquisition
IT: Period for which asset was held by previous owner has to be added to period of holding of assessee
■■■
[2013] 35 taxmann.com 371 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Mrs. Lalitha Rathnam
v.
Income-tax Officer*
H.L. KARWA, VICE-PRESIDENT
AND T.R. SOOD, ACCOUNTANT MEMBER
IT APPEAL NO. 1308 (CHD.) OF 2010
[ASSESSMENT YEAR 2007-08]
AUGUST  29, 2012 
I. Section 2(47) of the Income-tax Act, 1961 - Capital gains - Transfer [Relinquishment, in case of family settlement] - Assessment year 2007-08 - Whether release/relinquishment of right over family property against receipt of a sum would be covered by definition of 'transfer' in section 2(47)(i) and where share in property is released against receipt of cash, instrument of release cannot be called a family settlement and would be covered by term 'transfer' and exigible to capital gains tax - Held, yes [Para 8] [In favour of revenue]
Words and phrase : 'Transfer' as defined in section 2(47) of the Income-tax Act, 1961
II. Section 49, read with section 48, of the Income-tax Act, 1961 - Capital gains - Cost with reference to certain modes of acquisition [Gift] - Assessment year 2007-08 - Whether cost of acquisition in case of property received as gift has to be reckoned with reference to cost to previous owner and valuation can be adopted on basis of valuation report in absence of any other material on record - Held, yes [Para 9] [In favour of assessee]
III. Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of [Cost of improvement] - Assessment year 2007-08 - Whether cost of improvement to property by previous owner is to be included and indexation benefit has to be allowed on such cost of improvement from year of improvement - Held, yes [Para 10] [In favour of assessee]
IV. Section 2(42A) of the Income-tax Act, 1961 - Capital gains - Short-term capital assets/gains [Period of holding] - Assessment year 2007-08 - Whether period for which asset was held by previous owner has to be added to period of holding of assessee and once period of holding of previous owner is added and period of holding becomes more than three years, then asset has to be treated as long term capital asset - Held, yes [Para 11] [In favour of revenue]
CASES REVIEW
 
Dy. CIT v. Manjula J. Shah [2010] 35 SOT 105 (Mum.) (SB) (para 9) followed.
CASES REFERRED TO
 
Dy. CIT v. Manjula J. Shah [2010] 35 SOT 105 (Mum.) (SB) (para 9).
Harry Ricky for the Appellant. N.K. Saini for the Respondent.
ORDER
 
T.R. Sood, Accountant Member - In this appeal the assessee has raised various grounds out of which ground No. 5 was not pressed and the same is dismissed as not pressed. Other grounds of appeal are as under :
"1.  That the order of the learned CIT(A). Shimla is defective both in law and facts of the case.
2.  That the learned CIT(A), Shimla is not justified in upholding the addition of Rs. 29,30,000 made by the AO on account of short-term capital gains as the appellant had received this amount as part of a family settlement which is not taxable. This addition is uncalled for and deserves to be deleted.
3.  That the learned CIT(A), Shimla is not justified in upholding the order of the AO on account of not allowing the benefit of indexed cost of acquisition and construction as the appellant had duly submitted the valuation report of a Government approved registered valuer in support of her claim which was rejected by the AO without any strong basis and she is not a technical person.
4.  That the learned CIT(A), Shimla is not justified in upholding the order of the AO on account of period of holding and treating the transaction as short-term capital gains. The said transaction is a long-term capital gains as per ss. 2(42A), 47, 48, 49, 55 and the other provisions of the IT Act, 1961 as the period of holding was much more than three years."
2. Ground No. 1 is of general nature and does not require any Separate adjudication.
3. Ground Nos. 2, 3 and 4 : Brief facts of the case are that the assessee's grandfather had acquired property in financial year 1977-78. This property came to assessee's father by way of partition between his father and brother vide partition deed dt. 8th Dec, 1983 which was duly registered as document No. 2385 of 1983-84 at pp. 58 to 68 involving 2890 of book No. 1 in the office of Senior Sub-Registrar, Central Records, Shivajinagar, Bangalore. Assessee's father gifted this property to his son and daughter in the ratio of 60 per cent and 40 per cent on 2nd Dec. 2006. Since it was not possible to share the property to 60:40, therefore, family arrangement was entered on 14th Feb., 2007 by which the assessee released her share in favour of her brother by receiving lump sum payment of Rs. 30 lakhs. The receipt of this sum was declared exempt by the assessee because the same was on account of family settlement. The AO did not accept this as family settlement because from the affidavit of Kumar Jahgirdar, brother of the assessee, it transpired that the assessee has not received a sum of Rs. 30 lakhs as gift as claimed by the assessee but it was on account of consideration for release of 40 per cent of share of immovable property wherein No. 36 (old No. 8/4), Osborne Road, Bangalore-560 042 being a three-storyed house and the land appurtenant thereto measuring 2,500 sq. ft. (for short "said property"). The AO observed that surrender of right in the property in lieu of monetary consideration amount received from such transaction even if the transaction could be termed as gift and the same has to be treated as transfer of the right for the property which will be subject to capital gain tax. Therefore, the assessee was asked to furnish the cost of acquisition. The assessee furnished the valuation report dt. 22nd Dec, 2009 showing the valuation report as on 1st April, 1981 and further amounts were claimed towards construction because originally it was a single storey house and further construction was done in the year 1987. The AO observed that the valuation report was made on the basis of information supplied by the assessee and there was no evidence regarding the year of construction. Therefore, the same was not accepted. Ultimately the cost of acquisition was treated at Rs. 1,50,000 in 1983. He further observed that since the property was acquired on 2nd Dec, 2006 and was sold on 19th Feb., 2007. therefore, the same was to be treated as short-term capital gains and cost of acquisition was treated at only Rs. 1,50,000 and capital gain was computed as under :
Cost of acquisition in 1983 of her father1,50,000
Indexed cost of acquisition in 20061,50,000/519*519 = 1,50,000
40% share of the assessee70,000
Sale consideration 30,00,000
Capital gains 30,00,000 - 70,000 = 29,30,000
4. On appeal before the learned CIT(A), it was contended that in view of the provisions of s. 49(1) of the Act, fair market value of the property has to be considered as on 1st April, 1981 as against cost of acquisition and thereafter indexation is required to be applied. Further since the property acquired by the father of the assessee was only a single storey building, improvement cost incurred in the form of further construction and cost of construction has also to be considered.
5. The learned CIT{A) agreed that the cost of acquisition has to be considered as fair market value as on 1st April, 1981 and thereafter the AO was directed to work out the cost of acquisition. However, he maintained the findings of AO that the same has to be considered as short-term capital gains.
6. Before us, the learned counsel of the assessee made detailed submissions which could be summarized as under :
(1)  The assessee got 40 per cent of the said property from her father through gift deed dt. 2nd Dec, 2006. He referred to the gift deed and pointed out what was given by her father is in a particular share of the property i.e. 40 per cent share in the overall property. Thus this property could not have been divided to receive share because her younger brother had received 60 per cent of the share of the said property, through same gift deed. Therefore, the assessee had released her share in favour of her brother through deed dt. 14th Feb., 2007 which should be construed as family settlement and cannot be called a transfer and therefore, money received in the family settlement has to be treated as exempt.
(2)  In the alternative he contended that since this property was originally acquired by the grandfather of the assessee in the year 1977, the cost of acquisition has to be considered as per cost in the hands of the previous owner. In this regard he referred to provisions of s. 49 wherein it is clearly provided that wherever the property has been received through gift, the cost has to be taken as cost of acquisition to the previous owner of the property and the Explanation makes it clear that the previous owner would mean last owner of the property. In this regard he also relied on the decision of Special Bench of the Tribunal in case of Dy. CIT v. Manjula J. Shah [2010] 35 SOT 105(Mum.). Since the property was acquired in 1977 therefore, the assessee has right to adopt the fair market value as on 1st April, 1981 and the property has been valued on 1st April, 1981 at Rs. 3,57,694.
(3)  The assessee's father received this property by way of partition deed in 1983 when it was only a single storey house and thereafter made further construction in the year 1987 and constructed two more storeys with cost of construction in form of two storeys to be considered as cost of improvement and indexation has to be allowed on such cost of improvement before computing the capital gain in the hands of the assessee.
(4)  He also contended that capital gain computed by the assessing authority has been wrongly treated as short-term capital gains. In this regard he referred to s. 2(42A), Expln. 1, cl. (b) which clearly provides that period of holding by previous owner has to be added to the period of holding of the present owner.
7. On the other hand, the learned Departmental Representative for the Revenue submitted that the AO has clearly given a finding that the assessee's brother had given an affidavit through which it has been stated that he has paid a sum of Rs. 30 lakhs as full and final settlement for the said property. Therefore, it is clear case, of transfer of right to property and not case of family settlement. In case of family settlement the assessee would have got alternative property or some other right and not simple cash. In respect of other issues he strongly relied on the orders of AO and the learned CIT(A).
8. We have heard the rival submissions carefully and do not find any force in the submissions with regard to ground No. 2 i.e. the amount received by the assessee on account of gift from her brother. The fact remains that the assessee got 40 per cent share of the property by way of gift from her father and remaining 60 per cent of the share of the said property has gone to her brother though the property was not divisible and the assessee preferred to release/transfer her right loner brother in lieu of the consideration of Rs. 30 lakhs. First of all (even the case of release/relinquishment of right would be covered by the definition of transfer given in s. 2(47)(i) which reads as under :
'2(47) "transfer", in relation to a capital asset, includes,-
(i)  the sale, exchange or relinquishmentof the asset; or
(ii)  the extinguishment of any rights therein; or'
Even otherwise in case of family settlement when various properties are involved a member may get lesser share or such share for consideration of release of share but in case before us only the property involved was share in the said property which has been released against the receipt of cash and therefore, instrument of release cannot be called a family settlement.
9. As far as other issues are concerned, we find force in the submissions of the learned counsel of the assessee. Sec 49 is clear that cost of acquisition-in case of property received under gift has to be reckoned with reference to the cost of previous owner and the previous owner has been defined in the Explanation to s. 49 as the last owner. In any case the learned CIT(A) has already accepted this position and directed the AO to consider the cost of acquisition as on 1st April, 1981 and the Revenue has not filed any appeal against this finding. Since the property has been acquired before 1981 therefore, the assessee has a right to adopt the fair market value as on 1st April, 1981. There is no evidence available regarding the valuation as on 1st April, 1981, therefore valuation can be adopted on the basis of valuation report in the absence of any other material on record. In this regard Special Bench in case of Dy. CJT v. Manjula J. Shah (supra) has already decided that the cost of acquisition has to be taken on the basis of indexed cost of property. The headnote reads as under :
"Capital gains.—Cost of acquisition-Indexed cost of property received through gift-For the purpose of computing long-term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Expln. (iii) to s. 48 after taking into account the period for which the said capital asset was held by the previous owner-In that view of the matter, the indexed cost of acquisition of such capital asset has to be computed with reference to the year in which the previous owner first held the asset-Legislative intention behind enacting the provisions is very clear to treat the date as well as cost of acquisition of capital asset of the previous owner to be the date and cost of acquisition of the assessee for the purpose of computing capital gain in terms of s. 48-If Expln. (iii) to s. 48 is interpreted in the way sought by the Departmental Representative by taking the date on which the capital asset received by the assessee under a gift becoming his property for the purpose of working out the indexed cost of acquisition, it will certainly not be in consonance with the scheme of the Act and will also defeat the very purpose of introducing the concept of 'indexed cost of acquisition'."
Therefore, we direct the AO to allow the assessee to adopt fair market value as on 1st April, 1981 as cost of acquisition and is further directed to give indexation benefit.
10. We also find force in the submissions that if assessee's father has made further construction then even the amount of such construction has to be treated as cost of improvement and indexation benefit has to be allowed on such cost of improvement from the year of improvement. Therefore, we set aside the order of learned CIT(A) and direct the AO to consider even the cost of improvement in the form the construction of two storeys in the year 1987 before computing capital gain.
11. We also find force in the submissions that the capital gain has to be treated as long-term capital gains in view of definition of s. 2(42A). Expln. (l)(b) which reads as under :
'(42A) "short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer :
  (2)******
Explanation 1.—(i) In determining the period for which any capital asset is held by the assessee—
(a)  in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation;
(b)  in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in sub-s. (1) of s. 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section;
(c)  in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in cl. (vii).'
Thus, this Explanation clearly shows that (period for which the-asset was held by the previous owner has to be added to the period of holding of the assessee. Therefore, once the period of holding of the previous owner is added, period of holding becomes more than three year thus this asset has to be treated as long-term capital asset Therefore, we set aside the order of learned CIT(A) and direct the AO to treat the capital gain as long term capital gains and assess the same accordingly.
12. In the result, appeal filed by the assessee is partly allowed.

--
Regards,

Pawan Singla
BA (Hon's), LLB
Audit Officer



--
Nagarajan.R
Income-Tax officer
#31,Voc street, Rajakilpakkam
Off Velachery Road
Chennai-600073
(M) 98413 41118




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