TaxTMI 
TaxTMI 
2009 (10) TMI 618
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....e executants of the sale deed and the amounts received by them are listed below: Sl. No. Name Amount 1. Smt. P. Padmavathi 51,50,313 2. Smt. K. Venkatalakshmi 37,50,313 3. Smt. C. Kasturibai 51,50,313 4. Smt. N. Sivaparvathi 51,50,313 5. Smt. M. Varalakshmi 14,66,667 6. Smt. M. Satyavathi 14,66,667 7. Smt. S. Seetaramalakshmi 14,66,667 8. Smt. K. Lakshmi Soujanya 14,00,000 Smt. P. Padmavathi is the wife of Shri P. Venkateswara Rao, Smt. Venkatalakshmi, Smt. Ch. Kasturibai and Smt. N. Sivaparvathi are his daughters. The last mentioned person Smt. K. Lakshmi Soujanya is the daughter of Smt. K. Venkatalakshmi and sin& she was a major at the time of executing the sale deed, she was also included as a vendor for safer course. According to the assessees herein. the remaining three persons viz., Smt. M. Varalakshmi, Smt. M. Satyavathi and Smt. S. Seetaramalakshmi also claimed themselves as daughters of Sri P. Venkateswara Rao, born through his concubine named Smt. Achanta Rajeswari (hereinafter called "Masetty family"). According to the assessees herein, these three persons were included as vendors in orde....
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....O arrived at tl1e long-term capital gains at Rs. 3,24,76,210. The AO allocated the capital gains in proportion to the sale consideration received by each of these three assessees, i.e., the AO treated the Masetty family also as one of the co-owners of the property. 5. Aggrieved by the order of the AO, these assessees carried the matter in appeal before the learned CIT(A). The first appellate authority gave a finding that Smt. P. Padmavati, Smt. K. Venkata Lakshmi, Smt. Kasturi Bai and Smt. M. Siva Parvathi are the legal heirs and the co-owners and hence the capital gains has to be allocated between them equally. Since the Revenue has not objected to the said decision of the learned CIT(A), the issue whether the "Masetty family" are one of the co-owners or not does not require any consideration. 5.1 The learned CIT(A) confirmed the order of the AO on the following issues: (a) Applicability of s. 50C on the impugned transfer of assets. (b) Disallowance of expenses claimed by the assessee as described in para 4(b) supra. (c) Restriction of constructed area of the building to 2,000 sq. ft. in ground floor and 1,000 sq. ft. in 1st floor. (d) Ado....
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....provisions of s. 50C and the same was also confirmed by learned CIT(A). 7.1 The submissions of the learned Authorised Representative are that the parties to the sale deed initially entered into an agreement to sell the impugned property for a consideration of Rs 2.71 crores, way back in August, 2001. However, due to disputes created by the persons who also claimed themselves to be the heirs of Shri P. Venkateshwara Rao coupled with the non-availability of urban land clearance certificate, the sale could not be completed immediately at that time. After settling all disputes, the vendors could get the sale deed registered only in October, 2004. At the time of entering into an agreement of sale, s. 50C was not in the statute book. In any case, at the time of entering into the agreement, the stamp duty value stood at Rs. 3,800 per sq. yd., whereas the sale value determined by the parties to the sale agreement was more than Rs. 3,800 per sq. yd. This fact clearly proves that the value agreed to by the parties is fair consideration and there is no intention to suppress the same. The stamp duty value is increased periodically by the State Government and consequently, at the time of act....
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.... that time s. 50C had came into operation. The stamp duty value was determined at Rs. 3.34 crores. The AO adopted the stamp duty value for the purpose of computation of capital gains by applying the provisions of s. 50C. In those peculiar, circumstances the Hon'ble Tribunal held that only the provisions of Chapter XX-C would be applicable to the said transfer and the provisions of s. 50C introduced later are not applicable. The Hon'ble Tribunal also held that, in the interest of substantial justice also, the assessee should not be made to suffer simply because of delay on the part of the Appropriate Authority in granting sanction under the Chapter XX-C. By placing reliance on the ratio of the said decision, learned Authorised Representative contended that, in the instant case also, the delay in getting the transfer registered was for the reasons beyond the control of the assessee and hence in the interest of substantial justice, the assessee should not be subjected to the provisions of s. 50C of the Act. The learned Authorised Representative, by placing reliance on the following case law, submitted that if there is a change in law after a transaction is entered into, then t....
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....he case of K.P. Varghese was rendered in the context of then existing s. 52 of the Act and not on s. 50C, now under consideration. In any case, the Hon'ble apex Court has held that, under then existing s. 52, the burden of proving suppression of actual consideration lies upon the Revenue, whereas under s. 50C of the act the burden of proof is placed upon the assessee. He further submitted that the Hon'ble Madras High Court in the case of Ambattur Clothing Co. Ltd. vs. Asstt. CIT (2009) 221 CTR (Mad) 196 : (2008) 16 DTR (Mad) 142 has held that s. 50C provides sufficient opportunity to the assessee to contest his case before IT authorities, in addition to that opportunity provided for under Stamp Act. Accordingly, the High Court in that case approved the adoption of the value determined for the purposes of payment of stamp duty for the purpose of computation of capital gains. However, in the instant case, these assessees have failed to avail the opportunities provided for in s. 50C as well as those provided under relevant Stamp Act and hence they should not object to the application of s. 50C at this stage. 8. We have heard the rival contentions on this issue and carefully....
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....declared. Once the ITO is satisfied that this condition exists, he can proceed to invoke the provision in s. 52, sub-s. (2), and take the FMV of the capital asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for the transfer of the capital asset and compute the capital gains on that basis. No more is necessary to be proved, contended the Revenue. To introduce any further condition such as understatement of consideration in respect of the transfer would be to read into the statutory provision something which is not there; indeed, it would amount to rewriting the section. This argument was based on a strictly literal reading of s. 52, sub-s. (2), but we do not think such a construction can be accepted. It ignores several vital considerations which must always be borne in mind when we are interpreting a statutory provision. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must al....
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....tain price and before the sale is completed pursuant to the agreement and it is quite well-known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement the market price shoots up with the result that the market price prevailing on the date of sale exceeds the agreed price, at which the property is sold, by more than 15 per cent of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no understatement of consideration in respect of the transfer and the transaction is perfectly honest and bona fide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gains which have not accrued or arisen to him? It would indeed be most harsh and inequitab....
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....d to this well recognized rule of interpretation, a fair and reasonable construction of s. 52, sub-s. (2), would be to read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee. There are several important considerations which incline us to accept this construction of s. 52, sub-s. (2)." The Hon'ble Supreme Court also observed that while interpreting a section it would be legitimate to consider what was the mischief and defect, which was sought to be remedied by an enactment. In that connection the Speech made by the Finance Minister while moving the amendment is extremely relevant as it throws a considerable light on the objectives and purpose of enactment. However, as pointed out by learned Authorised Representative the purpose of introduction of s. 50C was not mentioned by the Finance Minister at the time of moving....
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....erty, which was held for less than 24 months, as short-term capital asset. Subsequently, consequent to an amendment made the Finance Act, 1973 w.e.f. 1st April, 1974, the period of holding upto which the capital asset would remain as short-term capital asset was extended to 60 months instead of 24 months. The plots were held by the assessee therein for more than 24 months but less than 60 months. While the assessee claimed the gain on sale of plots as long-term, the AO treated the same as short-term. The Hon'ble Gujarat High Court held that the question whether the said transfer is of long-term capital asset or short-term capital asset will have to be determined as on the date of taxable event i.e., the date of transfer as per the law existing on the date. (b) CIT vs. Laxman Singh. In this case the assessee sold certain jewellery between 29th March, 1972 to 31st March, 1972. On those dates, the definition of 'capital asset', for the purpose of assessing the capital gain, did not include jewellery. However, w.e.f. 1st April, 1973 jewellery articles were included in the definition of capital asset. The Hon'ble Rajasthan High Court held that no capital gain oc....
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....the property gets a pre-emptive right over the property. In view of such pre-emptive right only, the advocates for the buyer have issued a public caution notice cautioning the public about the existence of agreement of sale. This fact also supports the existence of a sale agreement. In view of the foregoing, there is no reason to suspect about the existence of sale agreement. 8.5 In our opinion, the parties have sufficiently explained the causes for the delay in registering the sale deed. From the submission of the assessees, which is also supported by the caution notice issued by the buyer, the vendors were under an obligation to obtain urban land clearance permission and were also under an obligation to settle certain disputes. The assessees have filed a copy of the proceedings of the Special Officer and Competent Authority of Urban Land Ceiling Act at pp. 27 to 29 of the paper book compiled by them in support of their contentions in this regard. The assessees have submitted that certain persons claimed themselves to be the legal heirs of Shri P. Venkateshwara Rao (from whom the assessees have inherited the property) and those persons also claimed right over the property and t....
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....ee of fairness and justice that in such cases, where there is clearly no understatement of consideration in respect of the transfer and the transaction is perfectly honest and bona fide and, in fact, in fulfilment of a contractual obligation, the assessee, who has sold the property, should be liable to pay tax on capital gains which have not accrued or arisen to him? It would indeed be most harsh and inequitable to tax the assessee on income, which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carried out such a contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income, which has neither arisen to the assessee nor has been received by him." 8.7 In the instant case also, the assessees herein have fulfilled a contractual obligation in October, 2004, which they are bound by law to carry out as....
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.... entered into. From these details, it is noticed that there is no understatement or suppression of actual consideration. It may be noted that the Revenue has also not brought any other material to show that there was suppression of actual consideration. 8.9 In the case of Neville De Noranha vs. Asstt. CIT, the provisions of Chapter XX-C and the provisions of s. 50C overlapped f each other for a period of 3 months from 1st April, 2002 to 30th June, 2002. The assessee therein was granted no objection certificate under Chapter XX-C only in April, 2002 and by the time the provisions of s. 50C had come into operation. The Hon'ble Kolkata Tribunal held that only the Chapter XX-C shall apply to that transaction. The Hon'ble Tribunal also held that in the interest of substantial justice the assessee should not be made to suffer simply because of delay on the part of Appropriate Authority in granting sanction under Chapter XX-C, who was also a part of Department. In the instant case, the delay has occurred not only due to the delay in getting urban land clearance permission, but also due to rival claims from other persons. Hence, from the angle of substantive justice also, the as....
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....ittamma, the AO noticed that the deed of confirmation dt. 18th Jan., 2005 executed by A. Chittamma and others was typed on a stamp paper dt. 19th Jan., 2005. Accordingly the AO concluded that the deed of confirmation was a fabricated one. The assessees also could not produce Smt. A. Chittamma for examination before the AO. Accordingly the AO disallowed the payment made to Smt. Chittamma. The learned CIT(A) treated the payment made to Masetty family as well as Smt. A. Chittamma as an application of income and accordingly held that the same is not deductible for the purpose of computation of capital gains. 9.1 We have heard the parties on this point and carefully perused the record. The property was originally purchased by Shri P. Venkateshwara Rao, Smt. P. Padmavathi, Smt. K. Venkata Lakshmi, Smt. CH. Kasturi Bai and Smt. M. Siva Parvathi are the legal heirs. Since the Masetty family also claimed themselves to be the daughters of Shri P. Venkateshwara Rao through his concubine Smt. Achanta Rajeshwari, they were also included as vendors in the sale deed. Through the sale deed. the members of Masetty family were given a sum of Rs. 44 lakhs. Similarly Smt. A. Chittamma also claimed ....
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....le apex Court as reported in (2002) 253 ITR (St) 80. In all these cases it has been held that the expenditure incurred for the removal of encumbrances is deductible. Further it is apposite to extract below the observations of the Hon'ble Supreme Court in V. Jaganmohan Rao & Ors. vs. CIT (1970) 75 ITR 373 (SC), though the said decision was rendered in the context of capital versus revenue expenditure. This observation was extracted by Hon'ble Bombay High Court in the case of Hardiallia Chemicals Ltd. vs. CIT (1996) 134 CTR (Bom) 35 : (1996) 218 ITR 598 (Bom). "It is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be a capital payment and not a revenue payment." Hence, in our opinion, the decision of learned CIT(A) in treating the payment made to Masetty family as well as Smt. A. Chittamma as an application of income is not correct and is against the judicial pronouncements discussed above. Further in such kind of disputes, there may not be co-operation between the rival parties. Accordingly we reverse the order of learned CIT(A) and direct the ....
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....the connection between the parties is disconnected permanently, there is some difficulty in making the recipients to oblige to the request of the payers that too after a gap of several years. For similar reasons, it will be difficult to produce those persons for examination. At the same time, for want of foolproof evidences, the expenditure claimed by the assessee could not be altogether ruled out, more particularly, when the payments claimed to have been made by the assessees correspond to the timing of payments received by the assessees. We notice that learned CIT(A) has allowed the payment of Rs. 50,000 made to a lawyer on the basis of circumstantial evidence, even though no confirmation letter was obtained from that lawyer. Hence, in our view, a reasonable estimate should be made towards the expenses and the same should be allowed in computation of capital gains. On a conspectus of the matter, we are of the view that an estimate of Rs. 8 lakhs towards the payment made to the tenants and brokers would meet the ends of justice and we order accordingly. We direct the AO to allow the said amount of Rs. 8 lakhs in computation of capital gains. 12. The next common issue relates to....
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....as increased by the cost of any improvement incurred by the previous owner or the assessee, as the case may be. For the purpose of computation of capital gain, the cost of the asset should be revised upwards by applying the appropriate cost inflation index. If the asset was acquired prior to 1st April, 1981, the cost inflation index relating to the financial year 1981-82 is required to be applied for the purpose of arriving at the indexed cost of the asset. The AO applied the cost inflation index relating to the financial year 1989-90 for the purpose of computation of the capital gain for the reason that the asses sees have inherited the property only in that financial year. However learned CIT(A) has held that the cost inflation index relating to the financial year 1981-82 should be adopted as the impugned property was acquired by the previous owner prior to 1st April, 1981. 14.1 We have heard the parties and carefully perused the record. The learned Departmental Representative relied upon the decision of Tribunal, Mumbai in the case of Dy. CIT vs. Kishore Kanungo (2006) 104 TTJ (Mumbai) 560 : (2006) 102 ITD 437 (Mumbai) wherein it was held that the indexation is to be allowed ....
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.... separate residential houses, i.e., a sum of Rs. 27.48 lakhs on construction of a residential house and a sum of Rs. 17 lakhs on purchase of a flat. The learned CIT(A) restricted the exemption under s. 54 of the Act to Rs. 27.48 lakhs and rejected the claim of the assessee for exemption for the second house, by following the decision of Special Bench of Mumbai Tribunal in the case of ITO vs. Ms. Sushila M. Jhaveri (2007) 109 TTJ (Mumbai)(SB) 299 : (2007) 107 ITD 321 (Mumbai)(SB). The operative portion of the said decision has been extracted by the learned CIT(A) which reads as under: "had the legislature intended for investment in more than one asset, it could have easily used the words 'in any residential house' in s. 54 and s. 54F instead of the words 'a residential house'; superfluous words are not used by the legislature. Different words like 'a' and 'any' have been deliberately used by the legislature to convey different meanings. Therefore, the legislature used the words 'a', where it intended investment in one residential house only and used the word 'any', where it intended investment in one or more assets. Thus the i....