2007 (8) TMI 375 - AT - Income Tax

Tribunal Orders AO to Use FMV for Golf Links Property & Treat Panchsheel Park Rental as House Property Income.

Smt. Mina Deogun. Versus Income-Tax Officer.

The Tribunal allowed the appeal, directing the AO to adopt the FMV as determined by the Registered Valuer for the property at 47, Golf Links, New Delhi. ... Computation of Capital Gain - Determination of fair market value of property - Cost Of Acquisition u/s 55(2) - transfer of residential house property - Valuation to the DVO - Determining indexed cost of acquisition u/s 48(2) - Determination 'owner' of a residential let out property. Determination of fair market value of property - Cost Of Acquisition u/s 55(2)(b)(ii) - HELD THAT:- If we accept the report of the Registered Valuer, the value of the property results in increase of 18 times of the value estimated in 1981, which favourably compares with general rate of inflation and increase in the values of property in particular. On the other hand, if we adopt the value estimated by the DVO then the increase in value is 30 times over 1981 prices which appears too high and excessive. If during 1981 and 2003 the cost inflation index announced by the Government u/s 48 recorded increase of 4.6 times then in comparison the increase of 18 times in real estate prices appears reasonable and therefore in our considered opinion the value estimated by the Registered Valuer does not appear to be excessive, unreasonable or incorrect. Moreover, in his report the Registered Valuer gave cogent reasons and considered numerous facts affecting the value of the subject property and therefore, we do not find any infirmity in the valuation report of the Registered Valuer. Thus, we uphold the value of the property as estimated by the Registered Valuer and direct the AO to adopt the value of the assessee's 1/4th share in the property and compute the capital gains. Since we have accepted the value estimated by the Registered Valuer, the assessee's challenge to the legality of the reference made to Valuation Officer u/s 55A has become only academic and we do not deem it necessary to decide the same. Application of the correct cost inflation index for determining indexed cost of acquisition u/s 48(2) - HELD THAT:- In the present case the AO himself allowed the benefit of 'FMV' of the property as on 1st April, 1981 to be cost under s. 55 (2)(b)(ii) of the Act. Under s. 2 (42A) the period of holding of the capital asset in the hands of the assessee was the period commencing from 16th April, 1958 till the date of transfer. It is therefore quite clear that as on 1st April, 1981 the asset was statutorily considered to be held, by the assessee u/s 55(2)(b)(ii) r/w s. 2(42A) of the Act. In our considered opinion therefore, the cost inflation index applicable for financial year 1981-82 and not to financial year 1998-99 should have been applied by the AO. A similar view was taken in the case of Smt. Pushpa Sofat [2001 (7) TMI 269 - ITAT CHANDIGARH]. In that case house property was inherited by the assessee from her father which was sold in AY 1993-94. The father of the assessee acquired the property in 1972 and therefore, the assessee opted for FMV of 1st April, 1981 to be the cost of acquisition. The assessee computed the indexed cost of acquisition with reference to the cost of inflation index of 1st April, 1981 being 100 per cent. Assessee's father expired on 17th Feb., 1991 and the AO allowed the indexation of cost with reference to the cost inflation index of financial year 1990-91 as against inflation index of 100 per cent. The Tribunal, however held that the assessee was entitled to compute capital gain by applying cost inflation index of 1st April, 1981. Similar view was also taken in the case of Mrs. Meera Khera [2003 (8) TMI 465 - ITAT MUMBAI]. Considering the totality of the facts and the scheme of the IT Act relating to taxation of capital gains, we are of the considered opinion that as per the schematic interpretation the cost of inflation index should be made applied with reference to the year in which the capital asset was first acquired by the previous owner. If only for the purpose of computing indexed cost of acquisition, the date of acquisition by the previous owner is excluded then it will lead to absurd result. Such interpretation of s. 48 will be against the intent and object of the enactment and will be against the overall scheme of taxation of capital gains in case of inherited assets. We, therefore, direct the AO to re-compute the capital gains by applying cost inflation index of 100 per cent applicable for financial year 1981-82. Determination of 'owner' of a residential let out property - In the present case the facts on record establish that 1/3rd cost of construction of the Panchsheel property was incurred by the assessee and in all past assessments the Revenue considered the assessee to be the 1/3rd owner thereof. In the wealth-tax assessment 1/3rd share of property was charged to wealth-tax treating her to be the owner. Thus, we hold that the AO was not justified in not considering the assessee as the 1/3rd owner of the property at Panchsheel Park. In our considered opinion the 1/3rd rent received by the assessee from the letting of the residential house property was assessable under the head 'House property' and the assessee was entitled to statutory deduction u/s 24 of the Act. In the result, the assessee's appeal is hereby allowed. Issues Involved:1. Determination of fair market value of property at 47, Golf Links, New Delhi as on 1st April, 1981.2. Application of the correct cost inflation index for determining indexed cost of acquisition.3. Assessment of rental income from property at Panchsheel Park, New Delhi under the head 'House property' or 'Other sources'.Issue-wise Detailed Analysis:1. Determination of Fair Market Value of Property at 47, Golf Links, New Delhi:The assessee inherited a residential house property at 47, Golf Links, New Delhi, initially acquired by her father in 1958. Upon his demise, the property was inherited by the assessee's mother and subsequently by the assessee and her siblings. The assessee opted to substitute the fair market value (FMV) as on 1st April 1981 as the cost of acquisition, which was determined by a Registered Valuer at Rs. 73,60,975. The AO referred the valuation to the DVO under s. 55A of the IT Act, who estimated the FMV at Rs. 46,62,280. The CIT(A) averaged the two valuations, resulting in a cost of acquisition of Rs. 15,02,907 for the assessee's 1/4th share. The Tribunal found the reference to the DVO by the AO to be based on subjective and inadequate reasons and upheld the valuation by the Registered Valuer, directing the AO to adopt the value of Rs. 18,40,244 for the assessee's 1/4th share and compute the capital gains accordingly.2. Application of the Correct Cost Inflation Index for Determining Indexed Cost of Acquisition:The property in question was acquired by the assessee's mother in 1968. The AO applied the cost inflation index for the financial year 1999-2000, the year the assessee inherited the property. The Tribunal, however, held that the cost inflation index applicable to the financial year 1981-82 should be applied, as the period of holding by the previous owner (assessee's mother) should be included under s. 2(42A) of the IT Act. The Tribunal directed the AO to re-compute the capital gains by applying the cost inflation index of 100% applicable for the financial year 1981-82.3. Assessment of Rental Income from Property at Panchsheel Park, New Delhi:The assessee and her husband jointly constructed a residential building on a plot leased to her husband. The assessee incurred 1/3rd of the cost of construction. The AO assessed the rental income from the property under the head 'Other sources' instead of 'House property', as the land was registered in the name of the assessee's husband. The Tribunal noted that in past assessments, the rental income was consistently assessed under 'House property', and the assessee's 1/3rd share was recognized in wealth-tax assessments. Citing the principle of consistency and relevant case law, the Tribunal held that the assessee should be considered the 1/3rd owner of the property, and the rental income should be assessed under the head 'House property', allowing statutory deductions under s. 24 of the IT Act.Conclusion:The Tribunal allowed the appeal, directing the AO to adopt the FMV as determined by the Registered Valuer, apply the cost inflation index for the financial year 1981-82, and assess the rental income from the Panchsheel Park property under the head 'House property'.