Case Law Details

Case Name : Dhanveer Singh Gambhir Vs ITO (ITAT Indore)
Appeal Number : I.T.A. No. 561/Ind/2014
Date of Judgement/Order : 19/11/2014
Related Assessment Year : 2010-11
Courts : All ITAT (7336) ITAT Indore (67)

Dhanveer Singh Gambhir Vs ITO (ITAT Indore)

The issue under consideration is whether the Section 50C need to be complied at the time of computation of exemption u/s 54 or 54F?

ITAT states that, Section 54 and Section 54F are exemption provisions and a complete code in itself and since it is a complete code in itself, computation of eligible exemption has to be worked out within its framework as far as possible and deeming fiction contained in any other provision cannot be brought into section 54F. The deeming fiction created by virtue of section 50C in determining ‘capital gain’ from transfer of any long-term capital asset for purpose of section 54F has to be worked out by applying section 48 without imposing section 50C into it. Thus, it was held that for computing Capital Gain, Section 50C is to be taken into consideration but the exemption u/s 54F or 54 being a complete code in itself, exemption has to be worked out as per the provisions of that section itself. As per the provisions of Section 54, exemption is allowable with reference to the amount of Capital Gain and not with reference to the amount of net consideration. Therefore, the issue which arose with reference exemption u/s 54F wherein exemption is allowed with reference to amount of net consideration does not arise in granting exemption u/s 54. ITAT, therefore, dismiss this contention of the AR of the assessee.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the assessee against the order of the Commissioner of Income-Tax (Appeals)-I, Indore dated 22.05.2014 for the Assessment Year 2010-11 and also stay petition for that assessment year.

2. At the time of hearing, the AR of the assessee submitted that in the Return of Income filed the assessee had claimed index cost of the property sold as on 24.05.1993. He submitted that this property was acquired by the assessee from his father who had acquired the said residential property on 13.09.1969. It was his submission that although the assessee had considered the indexed-cost of the acquisition of the property as on 24.05.1993, but during the course of hearing before the Assessing Officer, the assessee filed a report of the Registered Valuer determining the value of the property on 01.04.1981 u/s 49(1) of the Act. It was his submission that the Assessing Officer had not accepted the submission of the assessee for considering the indexed-cost of the property as on 01.04.1981 as in the Return of Income filed by the assessee the assessee himself has claimed index cost as on 24.05.1993. The assessee filed appeal before the CIT(A) and the CIT(A) also confirmed the action of the Assessing Officer on the ground that the assessee has changed his-own stand without any proof or explanation. Therefore, it was his submission that the index cost as on 01.04.1981 should be considered while determining the capital given on sale of house property. Further, the AR of the assessee submitted that the provisions of section 50c does not apply in the case of the assessee when the assessee takes benefit u/s 54 of the Act. He, therefore, submitted that as the assessee has claimed benefit u/s 54 of the Act, the actual sale consideration stated in the registered documents should be considered as the sale consideration for exempt u/s 54 of the Act. For this, he relied upon the decision of the Bangalore Bench of the Tribunal in the case of Shri Gouli Mahadevappa v. ITO, [2011] 128 ITD 503 (Bang.), wherein it was held that “the deeming fiction created by virtue of section 50c in determining ‘capital gain’ from transfer of any long­term capital asset for purpose of section 54F has to be worked out by applying section 48 without imposing section 50c of the Act”. Further, the AR of the assessee submitted that the Assessing Officer disallowed the amount of Rs.6 lacs spent for renovation and repairs to the new residential house. He submitted that the renovation and repairs was made to make value addition to the residential house and it was a capital expenditure and therefore, added to the cost of purchase of new residence. The Assessing Officer was not justified in disallowing the same and the CIT(A) was not justified in confirming the same.

3. On the other hand, the DR submitted that the Assessing Officer was justified in taking the indexed-cost of the house property as on 05.1993 as the assessee himself had taken the indexed-cost as on that date and it was the change of stand taken by the assessee during the course of assessment proceedings without filing a revised return. Further, with regard to the sale consideration determined u/s 50C should be considered for determining the exemption allowable u/s 54 of the Act, the DR relied on the order of the Hon’ble Karnataka High Court in the case of Gouli Mahadevappa v. ITO [2013] 33 taxmann.com 47 (Karnataka) and the decision of Mumbai Bench of the Tribunal in the case of Raj Babbar v. ITO [2013] 29 taxmann.com 11 (Mumbai-Tribunal) and submitted that the issue has been decided in favour of the Revenue in these cases. As regard to the cost of improvement for Rs.6 lacs on the new house property, he submitted that the Assessing Officer and the CIT(A) were fully justified in not considering the same for the purposes of section 54 of the Act as there is no basis to claim renovation or repair in a newly purchased house, especially when neither nature of such work was explained nor proof of such expense in form of bills or proof of such payment was given.

4. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that the assessee sold a residential house situated at Polo Ground, Udaipur on 25.09.2009 for Rs.1,10,00,000/-. Further, the value adopted by the Stamp Authorities of the said property on the date of sale was Rs.1,73,42,754/- is also not in dispute. In the Return of Income, the assessee has shown Long Term Capital Gain of Rs.65,03,475/- in respect of the above sale of residential house by deducting Rs.44,96,525/- from Rs.1,10,00,000/- and claimed the said Long Term Capital Gain as exempt u/s 54 on account of investment of Rs.66,11,670/- in acquiring a new residential house. The assessee claimed indexed-cost of Rs.44,96,525/- in the Return of Income by showing the date of acquisition of the said property on 24.05.1993.

5. During the course of the assessment proceedings u/s 143(3), the assessee filed a revised calculation of capital gain as under:-

calculation of capital gain

6. In the revised calculation of capital gain, the assessee admitted that due to deeming provisions of Section 50C, the Capital Gain is to be calculated by taking sale consideration at Rs.1,73,42,754/- in place of actual sale consideration of Rs.1,10,00,000/-. Further, the assessee claimed that the house property in consideration was acquired by him by way of inheritance from his father who acquired the property on 13.09.1969 and therefore, the fair market value of 01.04.1981 should be taken as cost of acquisition and accordingly indexed-cost should be taken which he claimed at Rs.1,09,71,520/- on the basis of Registered Valuer Report which determined the fair market value as on 01.04.1981 at Rs.17,36,000/-.

7. According to the Assessing Officer, the assessee became the owner of the property by written agreement dated 24.05.1993, therefore, the Assessing Officer allowed indexation with reference to 24.05.1993 only and accordingly calculated the indexed-cost at Rs.44,95,525/-.

8. Further, the Assessing Officer allowed exemption u/s 54 at 60,11,670/- in place of Rs.66,11,670/- claimed by the assessee in accordance with the sale deed of new house property, the total cost of assessee’s new residential house came to Rs.60,11,670/- and not accepted the assessee’s contention of further investment of Rs.6,00,000/- in the acquisition of the said residential house on the ground of absence of evidences. Thus, the Assessing Officer determined taxable Long Term Capital Gain of the assessee at Rs.68,35,559/-.

9. On appeal, the CIT(A) confirmed the action of the Assessing Officer. The CIT(A) not accepted the claim of the assessee of determining the indexed-cost on the basis of fair market value of 0 1.04.1981 on the ground that in his opinion no material was brought on record to show that the property was acquired before 24.05.1993.

Further, the CIT(A) has also not accepted the additional cost of Rs.6,00,000/- for acquisition of new residential house because in his opinion renovation of new house is not acceptable in absence of proper material.

10. We find that the Assessing Officer observed in the assessment order as under:-

“From the facts narrated in the sale deed of house property situated at Polo Ground, Udaipur it is noticed that Dr. Mahendra Singh Gambhir father of the assessee purchased a plot admeasuring 13664.6 sq. ft. situated at Polo ground, Udaipur from Udaipur Development authority on 13.09.1969 and constructed a house thereupon. After the death of Dr. Mahendra Singh Gambhir the property devolved amongst his wife Smt. Satwant Kaur w/o Dr. Mahendra Singh and his two sons’ viz. Shri Dhanvir Singh s/o Dr. Mahendra Singh Gambhir and Shri Parvinder Singh s/o. Dr. Mahendra Singh Gambhir. As per oral agreement the property was divided in three parts amongst the three legal heirs and everyone took the possession of his share. To avoid any dispute in future all the three legal heirs decided to write down the contents of oral agreement on 24.05.1993. Therefore the assessee had shown cost of acquisition at Rs.44,96,525/- as on 24.05.1993. Subsequently due to dispute the matter went to court and as per order of court assessee got his share in property admeasuring 4892 sq. ft. which has been sold for Rs.1,10,00,000/- the market value of the same has been determined by the stamp valuing authority at Rs. 1,73,42,754/-.”

11. In view of the above narration in the assessment order, in our considered view, the CIT(A) was not justified in not accepting the claim of the assessee for adopting the fair market value as on 04.1981 as the cost of the property and allowing indexation with reference to the same. As per the provisions of Section 49(1) of the Income-tax Act, when a property is acquired by the assessee by inheritance, then the cost of acquisition of the previous owner is taken as the cost of the assessee and the period of holding of the previous owner is also taken as the period of holding of the assessee. In the instant case, it is not in dispute that the assessee received the property in question by way of inheritance on the death of his father who acquired the property on 13.09.1969. Therefore, in our considered view, the assessee is deemed to be holding the property since 13.09.1969. As the assessee is deemed to be holding the said residential property from a period prior to 01.04.1981 as per the provisions of Section 55 of the Act, the assessee is entitled to adopt the fair market value as on 01.04.1981 as the cost of the property and also entitled for indexation from 01.04.1981. We, therefore, set aside the orders of the lower authorities in respect of this part of the issue and direct the Assessing Officer to allow indexed-cost of the fair market value as on 01.04.1981 by allowing indexation with reference to 01.04.1981.

12. Further, in respect of the cost of the new residential house which the assessee claimed at Rs.66,11,670/- but was allowed by the lower authorities at Rs.60,11,670/-, we find that the assessee has claimed to have incurred an additional cost of Rs.6,00,000/- besides the amount stated in the relevant registered sale deed. Before us, the AR of the assessee stated that the Assessing Officer as well as CIT(A) has wrongly disallowed the amount spent for additions i.e. renovation & repair, made to the new residential house of Rs.6,00,000/- without looking at the facts of the case. The renovation and repairs was made to make value addition to the residential house and also it is a capital expenditure, therefore, can be added to the cost of purchase of new residential house. We find that the additional cost of Rs.6,00,000/- claimed by the assessee was not accepted by the lower authorities on the ground that evidence in respect of the same was not produced before them. We find that no evidence could either be produced before us. Further, also no details as to how the payments were made in respect of the above alleged renovation expenditure was made was brought on record either before the lower authorities or before us. In absence of the same, we do not find any infirmity in the orders of the lower authorities in respect of this part of the issue.

13. Further, the AR of the assessee also contended before us that while allowing deduction u/s 54 of the Act from Long Term Capital Gain Section 50C is not applicable. The AR of the assessee relied upon the order of the Bangalore Bench of the Tribunal in the case of Shri Gouli Mahadevappa v. ITO, [2011] 128 ITD 503 (Bang.),

14. We find that the above contention of the AR is devoid of any merit and the decision relied upon is distinguishable and does not support the case of the assessee. In the aforesaid decision of Bangalore Bench of the Tribunal in the case of Shri Gouli Mahadevappa (supra), the issue was in respect of exemption u/s 54F, wherein the Tribunal held that “Section 54F is an exemption provision and a complete code in itself and since it is a complete code in itself, computation of eligible exemption has to be worked out within its framework as far as possible and deeming fiction contained in any other provision cannot be brought into section 54F. The deeming fiction created by virtue of section 5OC in determining ‘capital gain’ from transfer of any long-term capital asset for purpose of section 54F has to be worked out by applying section 48 without imposing section 5OC into it.” Thus, it was held that for computing Capital Gain, Section 5OC is to be taken into consideration but the exemption u/s 54F or 54 being a complete code in itself, exemption has to be worked out as per the provisions of that section itself. As per the provisions of Section 54, exemption is allowable with reference to the amount of Capital Gain and not with reference to the amount of net consideration. Therefore, the issue which arose with reference exemption u/s 54F wherein exemption is allowed with reference to amount of net consideration does not arise in granting exemption u/s 54. We, therefore, dismiss this contention of the AR of the assessee. Therefore, the appeal of the assessee is partly.

15. As we have decided the appeal itself, the stay petition filed by the assessee has become infructuous and therefore, dismissed.

16. In the result, the appeal of the assessee is partly allowed and the stay petition filed by the assessee is dismissed.

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