TaxTMI 
TaxTMI 
2025 (8) TMI 626
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....ed the fact that the assessee has not determined the capital gain per the Income Tax Act considering the handing over the possession of the property to the buyer in the year of 2007 and complete consideration received in the year of 2007. 3) The CIT(A) has ignored that the assessee was earning income from investment of the amount received from sale of the property for last ten years. 4) The Ld. CIT(A) erred in law by deleting the addition of Rs.11,81,85,000/- made u/s 56(2)(vii)(c) of the Act. 5) The Ld. CIT(A) erred in law by ignoring the provisions of section 49(4) of the Income Tax Act which was introduced to determine cost with reference to certain modes of acquisition and acquisition of bonus shares is not exempt therein. 6) The Ld. CIT(A) erred in law by ignoring the judgment of various courts which has been referred in the assessment order." 4. At the time of hearing, ld. DR of the Revenue submitted that the Ground of Appeal Nos.1 to 3 relate to the first issue of addition on account of Long Term Capital Gain (LTCG). In this regard, he brought to our notice the relevant facts. He brought to our notice page 2 of the assessment order and ....
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....143(3) of Income Tax Act. 4.1.12 The sale deed has been executed during FY 2016-17 and the appellant has offered the capital gains to tax in A Y 2017-18. Section 48 of Income Tax Act prescribes the mode of computation of capital gains which is reproduced below: "Mode of computation. 48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset- the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto; [(iii) in case of value of any money or capital asset received by a specified person from a specified entity referred to in subsection (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner:] Provided that in the case of an assessee, who is a non-resident, capital gains ari....
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....ey is added to the sale consideration by adding cost of borrowing of such funds by adopting BPLR of the State Bank of India from 28.12.2007 to 22.08.2016 and accordingly recomputed long term capital gain at Rs. 11,84,76,479/-. It is held that there is no such procedure for computation of capital gain prescribed under the Income Tax Act. The Assessing Officer has attempted to tax notional income which is incorrect since the Income Tax Act has specifically provided mode of computation of capital gain in section 48 of Income Tax Act. Moreover, income earned by the appellant on the amount received in December, 2007 has been declared by the appellant in respective years and tax has been paid thereon. 4.1.15 Hon'ble Supreme Court in the case of K.P.Vargehse vs ITO 131 ITR 597 held as follows: "15 .... It may be noted that section 52 is not a charging section but is a computation section. It has to be read along with section 48 which provides the mode of computation and under which the starting point of computation is "the full value of the consideration received or accruing". What in fact never accrued or was never received cannot be computed as capital gains under ....
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....see in AY 2008-09 and received the sale consideration of Rs.7.20 crores and also handed over the possession but the sale deed was executed only on 22.08.2018 i.e. AY 2017-18. The relevant capital gain was offered to tax in AY 2017-18. His case was that assessee ought to have increased the sale consideration by including the notional interest income on such sale consideration which was received in AY 2008-09. He submitted that ld. CIT (A) has deleted the abovesaid addition on the ground that if transfer had taken place in AY 2008-09, there was no question of recognizing any capital gain in AY 2017-18 and in any case, the methodology of computing sale consideration as adopted by the AO is not recognized by any provision of the Act including section 48 and he supported the findings of the ld. CIT (A) and submitted that various judicial decisions are enclosed in the paper book as under :- (i) CIT vs. Balbir Singh Maini - (2017) 398 ITR 0531 (SC); (ii) K.P. Varghese vs. ITO & Anr. (1981) 131 ITR 0597 (SC); (iii) E.D. Sasson & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 0027 (SC); (iv) CIT vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 0144 (SC); (v) CI....
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....n mentioned in the sale deed executed and the law prescribes claim of deduction of expenditure incurred on such transfer, indexation cost of acquisition and improvement. Therefore, there is no mechanism to determine the notional income or deemed income earned by the assessee which can be taxed. It is not the case of the AO that the property was not sold in AY 2017-18. Be that be the case, there is no mechanism to go back to AY 2008-09 to determine the capital gain in AY 2017-18. We are in agreement with the ld. CIT (A)'s observation that when the AO determines the notional benefit earned by the assessee, at the same time assessee has registered the document in AY 2017-18 even the assessee has incurred loss by registering the sale consideration as agreed in AY 2008-09. After considering the speaking order of the ld. CIT (A), we do not see any reason to disturb the findings of the ld. CIT (A). Accordingly, ground nos.1 to 3 raised by the Revenue are dismissed. 9. Coming to Ground Nos.4 to 6 raised by the Revenue, the relevant facts are brought on record by the ld. DR of the Revenue that during assessment proceedings, the AO observed that assessee has claimed Short Term Capital Gai....
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....s the loss in value of the original shares is the consideration for issue of the bonus shares. The same has been held by various judicial rulings. 5. It may also be submitted that even otherwise bonus shares are not 'property' since the same are not even in existence until after they are issued by a company. 6. That it is for the same reason that the cost of bonus shares is defined as 'nil' under the express provisions of the Act. And once the 'cost' has been defined, there is no case for treating the ex-bonus market value of the shares as the value of the bonus shares since the said value is not even available on the date of the bonus issue. The appellant begs to rely on the following further submissions Why the Bonus shares are not property and no liable to tax as they are created only at the time of issue. The Explanatory Memorandum to Finance Bill 2010 explaining the rationale of introduction of the said section 56(2)(viia), interalia provided that, "In order to prevent the practice of transferring unlisted shares at prices much below their market value, it is proposed to amend Section 56(2) to also i....
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....a shareholder gets a bonus shares the value of the original share held by him goes down. In effect, the shareholder gets to shares instead of one held by him in and the market value as well as the intrinsic value of the 2 shares put together will be same so nearly the same as the value of the original share before the bonus issue.. " ITAT Mumbai Bench in the case of Sudhir Menon HUF vs Astt. CIT-21(2), (i) The provisions of section 56(2)(vii) of the Act would not apply to bonus shares, and the argument alluding thereto arises only on account of mis -conception in respect thereof (ii) Issue of bonus shares is by definition capitalization of its profit by the issuing company. There is neither any increase nor decrease in the wealth of shareholder (or of the issuing company) on account of a bonus issue and his percentage holding therein remains constant. (iii) What in effect transpires is that a share gets spilt (in the same proposition for all the shareholders), as for example by a factor of two in case of a 1: 1 bonus issue. (iv) Reference in this regard may be to the decision in CIT vs Dalmia Investment Co. Ltd. [1964) 52 ITR 567 (SC) as well as ....
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....your honour as the same is of the Jurisdictional ITAT and considering the principles of jurisprudence and judicial hierarchy it is mandatory for the subordinate authority to follow the judgement of the superior authority, and principle of following of judicial precedents have time and again been reiterated by the Hon'ble Apex Court. In CIT v. Dalmia Investment Co. Ltd. [1964J 52 ITR 567 (SC), the Court held as under: 'Can we then say that the bonus shares are a gift and are acquired for nothing? At first sight, it looks as if they are so, but the impact of the issue of bonus shares has to be seen to realise that there is an immediate detriment to the shareholder in respect of his original holding. ... by the issue of bonus shares pro rata, which ranked pari passu with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares. This will ordinarily be the case but not when the shares do not rank pari passu and we shall deal with that case separately. When the shares rank pari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus s....
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....e company Number of bonus shares received Number of bonus shares mentioned in the other Difference Rate Difference value HINDPETRO 100000 25000 75000 403.95 30296250 GAIL 33333 285000 -251667 379.25 -95444710 -65148460 Thus the addition made by the Ld. A.O. is excessive by Rs.6,51,48,460.00. In view of the above the appeal filed by the appellant be allowed in favour of the appellant as the additions made are wrong on facts and in law and if any adverse inference is to be drawn then a reason thereof and an opportunity of hearing be provided to the appellant for the same." 11. Further assessee submitted written submissions through email dated 29.07.2021 on the ITBA Portal as under :- "In continuation of our earlier submissions and as regards the disallowance pertaining to exemption claimed u/s 54F of the Act Amounting to Rs 2,09,07,085.00 it is also most humbly submitted that: a) That the Provisions of Section 54F of the Act are being reproduced hereunder: 54F. (1) Subject to the provisions of sub-section (4), where, in the c....
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....e than 1 residential house. That in the case of the appellant the appellant only had a proportionate 1/4th "Right" in the Property and the "Ownership" of the property was transferred on a later date in the month of March 2017 when the property was "mutated". The disallowance under Section 54F of the Act does not arises on having a "Right" in the property. The appellant has in his earlier submissions placed on record before your honour the judgments of the Hon'ble Supreme Court wherein the apex court has distinguished the "Right" and "Ownership" held in a property. d) Further, the disallowance is warranted in respect of a Residential House whose income is chargeable under the head "Income from House Property". That in the case of the appellant the L.D A.O has claimed the Residential Property at "New Friends Colony, New Delhi" to be owned by the appellant, though on facts the said property has been claimed as a "Self Occupied" property by the mother of the appellant in her return filed by her Legal heir. The copy of the computation of income of the mother of the appellant is attached as per Annexure No 1 wherefrom the facts stated by the appellant are evident." 12. Af....
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.... no scope for any property being received on said allotment of shares and, consequently, provisions of section 56(2)(vii)(c) did not apply to difference in book value and face value of additional shares. The operative part of the judgment is reproduced below: "4.3 We observe no absurdity or unintended consequences as flowing from the per se application of the provision of s. 56(2)(vii)(c) to right shares, which by factoring in the value of the existing holding operates equitably. It would be noted that the section, as construed, would apply uniformly for all capital assets, i.e., drawing no exception for any particular class or category of the specified assets, as the 'right' shares. No addition u/s. 56(2)(vii)(c) would thus arise in the undisputed facts of the instant case, and the assessee succeeds. Conclusion 4.6 We may finally discuss the issue from the stand point of interpretation of statutes, which was urged before us with reference to some case law, viz., C. Ws. (India) Ltd. v. CIT [19941208 ITR 649173 Taxman 174 (SC) ; CIT v. J H Gotla [19851156 ITR 323123 Taxman 14J (SC);Addl. CITv. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1....
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....cularly considering the burden that the Revenue would otherwise be called upon to discharge, i.e., to prove otherwise, even as the receipt of the asset by the assessee is established. No ambiguity or absurdity or unintended consequence has been either observed by us or brought to our notice, even as we have endeavoured to examine the provision from all angles; it being well excepted, also excluding cases of business reorganization. The provision is well founded, even as it is settled that hardship in a case would not by itself lead to supplying casus omissus or reading down the provision. In fact, we have also observed the same to be in accord with the trend in the legislative field in the recent past where in view of the increasing complexity of business or economic transactions, fair market value, also providing rules for its determination, is being increasingly adopted for uniform application as a basis for commercial transactions for the purpose of taxing statutes. The reliance on the argument made in this regard would thus be of no assistance to the assessee. No property however being passed on to the assessee in the instant case, i.e., on the allotment of the additio....
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....out consideration and secondly, where it is received for consideration less than the fair market value. The issue of bonus shares by capitalization of reserves is merely a reallocation of the companies funds. There is no inflow of fresh funds or increase in the capital employed, which remains the same. The total funds available with the company remains the same and issue of bonus shares does not result in any change in respect of capital structure of the company. [See: 'General Insurance Corporation (supra)). Thus, there is no addition or alteration to the profit making apparatus and the total funds available with the company remain the same. In substance, when a shareholder gets a bonus shares, the value of the original share held by him goes down and the market value as well as intrinsic value of two shares put together will be the same or nearly the same as per the value of original share before the issue of bonus shares. Thus, any profit derived. by the assessee on account of receipt of bonus shares is adjusted by depreciation in the value of equity shares held by him. In the instant case, there is no material on record to infer that bonus shares have been transferred with ....
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....res from HPCL and GAIL. Since the assessee has acquired the bonus shares at Rs.NIL to the extent of value of bonus shares based on the price of shares existed on the date of issue of bonus shares. He brought to tax the value of bonus shares as income under section 56(2)(vii)(c) of the Act. After considering the submissions of both the parties, we observe that assessee has received 1,00,000 bonus shares from HPCL and 33,330 bonus shares from GAIL whereas the AO has considered in the assessment order 25,000 shares and 2,85,000 shares respectively. Based on the actual figure itself, the AO has proceeded to make the excess addition to the extent of Rs.6,51,48,460/- as determined by the ld. CIT (A). Further the issue is whether the provisions of section 56(2)(vii)(c) are attracted on receipt of bonus shares. In this regard, we observe that the coordinate Bench in the case of Smt. Mamta Bhandari (supra) held that the provisions of section 56(2)(vii)(c) would not apply to bonus shares. Further similar findings were given by the ITAT, Delhi Bench in the case of Meenu Satija (supra) wherein they came to the conclusion that the provisions of section 56(2)(vii)(c) are not attracted in the cas....
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.....00 made by the A.O without considering the fact that the death of the mother of the appellant happened during the year under appeal and the legal rights in the immovable property were transferred in the appellant's name only after the mutation of the property in March 2017 and therefore there was no violation of the conditions prescribed under Section 54F of the Act as on the date of the transfer of the original asset i.e. August 2016 the appellant was not in ownership of more than 1 property other than the "new asset". 4. The L.D CIT(A)-24 New Delhi erred in law as well as on facts in upholding the disallowance of exemption of Rs 2,09,07,085.00 made by the A.O without considering the fact that unless the property is mutated in the name of the appellant or any document of title is created in the favor of the appellant, the appellant us not the legal owner of the property. The Right in 1/4th share of a property is distinguishable from ownership of 1/4th property. 5. Without prejudice to the above it is stated that the L.D CIT(A)-24 New Delhi erred in law as well as on facts in upholding the disallowance of exemption of Rs.2,09,07,085.00 made by the A.O without....
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....f the Act." 19. After considering the same, the Assessing Officer rejected the submissions of the assessee and observed that the property at New Friends Colony, Delhi, acquired by the assessee through Will dated 11.07.2015. As per the Will, the assessee had received the right in the above property w.e.f. 11.07.2015 for the purpose of section 22 of the Act. Since the assessee had a right to receive the rent, the position of law on right to receive rent is well settled and registration of the property is not a prerequisite for claiming right to receive income from house property. Therefore, the conditions specified in proviso to section 54F of the Act gets specified as soon as assessee has property whose income is chargeable to tax under the head income from house property. In view of the above, he rejected the clam of the assessee and proceeded to make the addition of Rs.2,09,07,085/-. 20. Aggrieved, assessee preferred an appeal before the ld. CIT (A). After considering the submissions of the assessee, ld. CIT (A) dismissed the grounds raised by the assessee by observing as under :- "4.2.9 I have considered facts of the case as well as written submission of the appell....
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.....2011 (Mds); (iv) Amit Gupta vs. ACIT (2015) 43 ITR 0427 (Del.); (v) CIT vs. Gita Duggal (2013) 357 ITR 0153 (Del.); (vi) Mukesh Arvindlal Vakharia vs. ITO (2023) 153 taxmann.com 55 (Surat-Trib.); (vii) Manoj Tekriwal vs. DCIT - ITA No.4147/Mum/2015 dated 13.07.2022. 22. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities and relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Podar Cement (P.) Ltd. (1997) 92 taxman 541 (SC). 23. Considered the rival submissions and material placed on record. We observe from the record that the Assessing Officer observed that the assessee was owner of two residential flats at the time of investment in new assets to claim deduction u/s 54F of the Act. Based on the above information, the Assessing Officer has denied the benefit claimed by the assessee u/s 54F of the Act. Before us, ld. AR of the assessee submitted that the property at C-7/27, New Friends Colony, New Delhi in which assessee is not the exclusive owner of the property. It was submitted that owing to the death of the mother of the assessee, he received 25% of the shares in the above property....
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....udgment by the Supreme Court in the favour of the revenue. The ld Counsel placed reliance on the following judgments: i. Khoday Distilleries Ltd. vs. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd. - Civil Appeal No. 2432/2019 ii. Smt. Tej Kumari vs. CIT (2001) 247 ITR 210 (Patna HC) 18. The ld Counsel further submitted that Hon`ble Madras High Court in case of Dr. (Smt.) P. K. Vasanthi Rangarajan Vs. CIT (2012) 23 taxmann.com (299) wherein it was held that where the assessee held the property jointly with her husband in equal proportion, it cannot be said that she is the owner of the house property at the time of the sale for availing the deduction u/s 54F of the Act. It is to be noted that w.e.f. 01.04.2001, there was the amendment in section 54F to the effect that assessee could be owner of one house at the time of the sale. Here in the case of the assessee he was sole owner of only one house and other houses under the joint ownership are not required to be considered as per the judgment of the Hon`ble Madras High Court in case of Dr. (Smt.) P. K. Vasanthi Rangarajan (supra). 19. We also note that on the identical facts, the Coordinate Bench o....