2022 (2) TMI 581 - HC - Income Tax

Court grants indexation from asset acquisition year for capital gains tax. Petitioner prevails, entitled to refund.

Rohan Developers Pvt. Ltd. Versus Income-tax Officer (International Taxation) -3 (1), Mumbai, Director of Income-tax (International Taxation -II Mumbai, Union of India

Rohan Developers Pvt. Ltd. Versus Income-tax Officer (International Taxation) -3 (1), Mumbai, Director of Income-tax (International Taxation -II Mumbai, ... Issues Involved:1. Determination of indexed cost of acquisition for capital gains tax calculation.2. Compliance with judicial precedents and ITAT decisions.3. Refund of excess tax paid and interest thereon.Detailed Analysis:1. Determination of Indexed Cost of Acquisition for Capital Gains Tax Calculation:The petitioner, a company involved in property development, purchased a 1/8th share of a property from a non-resident seller. The primary issue was the computation of the indexed cost of acquisition for calculating long-term capital gains tax. The petitioner argued that the indexation should be granted from the financial year 1981-82, as the property was originally acquired by Mrs. Dolly Jehangir Gazdar in 1972. The respondent, however, granted indexation from the financial year 1992-93.The petitioner relied on Section 49(1)(ii), clauses (29A) and (42A) of Section 2, and Section 55(2)(b)(ii) of the Income Tax Act, 1961, which state that the cost of acquisition and the period of holding by the previous owners should be considered. The court referred to the decision in Commissioner of Income Tax Vs. Manjula J. Shah [2013] 355 ITR 474 (Bom), which confirmed that the indexed cost of acquisition should be computed with reference to the year in which the previous owner first held the asset.2. Compliance with Judicial Precedents and ITAT Decisions:The court emphasized the importance of judicial discipline, stating that subordinate authorities must follow the orders of higher appellate authorities unless suspended by a competent court. The respondent's action was contrary to the ITAT's decision in DCIT Vs. Manjula J. Shah, which was upheld by the Bombay High Court. The court reiterated that the indexed cost of acquisition must be determined from the year the previous owner first held the asset, aligning with the legislative intent to tax gains arising from assets acquired under a gift or will.3. Refund of Excess Tax Paid and Interest Thereon:The petitioner sought a refund of the excess tax paid, arguing that the correct tax amount should be Rs. 74,523 instead of Rs. 28,74,100. The court noted that the seller had not claimed any credit for the TDS of Rs. 28,74,100 paid by the petitioner. The assessment order for the seller for the Assessment Year 2011-12 accepted the capital gains at Rs. 3,85,613, with no credit for the TDS paid by the petitioner.The court directed the department to retain Rs. 91,360 (the tax amount demanded from the seller) and refund the balance of Rs. 28,74,100, along with proportionate interest of Rs. 43,112. The interest on the refund was to be paid from the date of payment of tax, i.e., 7th January 2011, as per the Supreme Court's decision in Union of India Vs. Tata Chemicals Limited [2014] 363 ITR 658 (SC).Conclusion:The court granted the petitioner's prayer to quash the impugned order and directed the respondent to determine the long-term capital gains and tax thereon as claimed by the petitioner. The court also ordered the refund of the excess tax paid with interest from the date of payment. The petition was disposed of accordingly.