2016 (5) TMI 67 - AT - Income Tax

Beneficial ownership of property established since 1963; indexation benefits from April 1, 1981

Income-Tax Officer Versus P.M. Rungta (HUF)

The Tribunal determined that the assessee was the beneficial owner of the property since 1963, and the indexation benefits should be applied from April 1, ... LTCG - Benefit of indexation - cost incurred by the previous owner - beneficial owner - CIT(A) directing to allow the cost of acquisition of the property as a market value as on April 1, 1981, and indexation allowed on that cost - rights in the impugned land in pursuance of a family arrangement - Held that:- In the given facts of this case, the assessee was the beneficial owner of the impugned asset, and in any case, on the event of family partition, there was at the best improvement in 'title' of the assessee over the property, which the assessee was already having. Thus, from the above discussion, it is clear that the term 'held', used in the context of section 2(42A) is of wide amplitude and scope. The asset need not be necessarily held as 'owner' by the assessee. Thus, in view of the aforesaid legal position and facts of the case, it can be said that the assessee was holding this property since 1963. Even otherwise, the case of the assessee would fall in the situations envisaged in section 49(1). Therefore, in our view, in any case, the cost incurred by the previous owner shall be adopted while computing capital gains in the hands of the assessee, and also, the period of holding of the assets in the hands of the assessee should also be reckoned from 1963, and, accordingly, for the purpose of taking cost of acquisition, the value as on April 1, 1981, should be adopted in the hands of the assessee for the purpose of computing the taxable amount of capital gain. The benefit of indexation should accordingly be provided with effect from April 1, 1981. Therefore, we find that the findings of the learned Commissioner of Income-tax (Appeals) are correct as per law and facts, no interference is called for therein, and the same are upheld. - Decided against revenue Issues Involved:1. Determination of the acquisition date of the property for the purpose of calculating capital gains.2. Application of indexation benefits from the correct date.Issue-wise Detailed Analysis:1. Determination of the Acquisition Date of the Property:The primary issue in this case is whether the property sold by the assessee was acquired before April 1, 1981, or after that date. The Revenue contended that the property was acquired by the assessee in 1987 based on an award issued by the High Court of Bombay. Therefore, they argued that the property should be deemed to be held from 1987, and the benefit of indexation should be granted from that date only.However, the assessee argued that he had been in ownership of the property since 1963 through a family partnership firm. The Commissioner of Income-tax (Appeals) accepted the assessee's submission, stating that the family settlement cannot be termed as a transfer and relied on the judgment of the Madras High Court in the case of CIT v. Shanthi Chandran [2000] 241 ITR 371 (Mad). The Commissioner concluded that the assessee was the owner of the property since 1963, and the value as of April 1, 1981, should be taken as the cost of acquisition, with indexation benefits provided from that date.The Tribunal examined the facts and found that the property was originally acquired by the family partnership in 1963. The family members decided to separate and distribute the assets among themselves, recorded in an agreement dated November 15, 1985. The immovable properties were settled as per award No. 70 of 1986, approved by the High Court of Bombay on January 21, 1987. The Tribunal held that the family arrangement should not be regarded as a transfer under section 45 of the Act, referencing section 47, which excludes such distributions from being considered transfers.The Tribunal concluded that the family arrangement only reinstated or redetermined the rights the assessee already had since 1963. Thus, the assessee was the beneficial owner of the property since 1963, and the holding period should be reckoned from that date.2. Application of Indexation Benefits:The Tribunal further analyzed the meaning of 'held by the assessee' as used in section 2(42A) of the Act, which is not confined to ownership but includes possession and beneficial interest. Citing various judgments, including CIT v. Frick India Ltd. [2014] 369 ITR 328 (Delhi) and CIT v. Ved Parkash and Sons (HUF) [1994] 207 ITR 148 (P&H), the Tribunal emphasized that the term 'held' has a broad meaning and includes beneficial ownership.The Tribunal concluded that the assessee was holding the property since 1963, and the cost of acquisition should be the value as of April 1, 1981. Consequently, the indexation benefits should be provided from April 1, 1981. The Tribunal upheld the findings of the Commissioner of Income-tax (Appeals), dismissing the grounds raised by the Revenue.Conclusion:The appeal of the Revenue was dismissed, and the order pronounced in the open court on November 18, 2015, confirmed that the assessee was the beneficial owner of the property since 1963, and the indexation benefits should be applied from April 1, 1981.