Indexation benefit against the cost of acquisition shall be available to the assessee on the basis of index of the year in which the payments were actually made by the assessee. The payment made up-to the date of agreement i.e. 18/10/2007 shall be indexed by applying the index for Financial Year 2007-08. Accordingly, subsequent payments made in different financial years shall be indexed by applying the respective indexes of those years.
FULL TEXT OF THE ITAT JUDGMENT
1. Aforesaid appeal by assessee for Assessment Year [AY] 2013-14 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-55 [CIT(A)], Mumbai, Appeal No.CIT(A)-55/IT-114/2015-16 dated 05/10/2016 by raising following grounds of appeal:-
1. “On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred in holding that for the purpose of computation of Long Term Capital gains, the indexed cost of acquisition of property has to be calculated, based on the schedule of payments made, relying on the decision of the Hon. ITAT, Mumbai Bench “F” Mumbai in ITA NO.6120/Mum/2010 in the case of Shri Vikas P. Bajaj vs. ACIT 14(3), Mumbai and not on the basis of Financial Year 2007-08 in which the agreement for acquiring the property was entered into and registered, as claimed by the appellant, which is supported by the decision of the Hon. ITAT, Mumbai Bench “D”, Mumbai in ITA No.6578/Mum/2010 in the case of ACIT CIT 9(3), Mumbai vs. Shri Ramprakash Bubna.
2. “On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) further erred in directing the Assessing Officer not to allow the benefit of indexation in respect of payments of Rs.18,32,137/- and Rs.13,44,187/- stating these payments have been made in F.Y.2011-12, being less than 36 months from the date of sale, thereby ordering enhancement of income and that too without issue of any show cause to the appellant to this effect.
An additional ground of appeal has been filed by the Ld. Auhtorized Representative for Assessee [AR] which reads as under:-
3. “On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred in not providing any finding on the submissions of the Appellant with regard to VAT paid of Rs.11,35,167/- on purchase of flat.
The Ld. Departmental Representative [DR] has opposed the same. However, we find that the submissions in this regard were duly made by the assessee before lower authorities also and therefore, we admit the same in terms of judgment of Hon’ble Apex Court rendered in NTPC Ltd Vs CIT [229 ITR 383]. The assessment for impugned AY was framed by Ld. Income Tax Officer (International Taxation)-2(1)(1),Mumbai [AO] u/s 143(3) of the Income Tax Act,1961 on 11/03/2016 wherein the income of the assessee has been determined at Rs.167.56 Lacs after certain adjustments as against returned income of Rs.102.98 Lacs filed by the assessee on 20/07/2013. The only subject matter of the appeal is manner of computation of cost of acquisition of the certain capital asset sold by the assessee during impugned AY which has been assessed under the head Capital Gains. The status of assessee in the impugned AY was a non-resident assessee deriving income from capital gains & other sources.
2.1 Brief facts are that during impugned AY, the assessee sold a property Flat No. 8002 situated at Lodha Bellissimo, 30th Floor, A-wing, Jivraj Boricha Marg, Off. N.M.Joshi Marg, Mahalaxmi, Mumbai-400 011 on 25/07/2012 for sale consideration of Rs.732 Lacs, which is undisputed. The said property was stated to be purchased by the assessee for Rs.367.14 Lacs (excluding incidental expenses) in the year 2007 vide registered Agreement dated 18/10/2007. The purchase price was construction linked and paid to the builder in installments during period between financial years 2006-07 to 2011-12, the schedule of which has been extracted at para-4.1 of the quantum assessment order. However, the assessee indexed the full cost of Rs.419.32 Lacs by applying index of FY 2007-08 (index=551) and worked out cost of acquisition for the purpose of capital gains as Rs.648.38 Lacs. From the computations, it is evident that broker fees as well as Tax Advisor Fees aggregating to Rs.8.88 Lacs paid by the assessee at the time of sale / transfer, have also been indexed by applying the index for FY 2007-08. Similarly, incidental expenses paid in the shape of interest charges, legal, electric & water connection, maintenance, infrastructure charges, society formation, service tax, property tax, stamp duty, MVAT etc. paid during FY 2011-12 were also indexed by applying the index for FY 2007-08. Accordingly, the net capital gains of Rs.83.61 Lacs, as per above computations made by assessee, was offered in the return of income as Long Term Capital Gains [LTCG].
2.2 However, not convinced with working of the assessee, Ld. AO, by applying index of respective years in which the payments were actually made, worked out LTCG of Rs.148.20 Lacs and added the differential amount of Rs.64.58 Lacs in the hands of the assessee. The indexation against the incidental expenses i.e. broker’s fees / lawyer fees / tax advisor fees aggregating to Rs.8.88 Lacs was denied to the assessee
3. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 05/10/2016, wherein the matter was concluded in the following manner:-
6.2 1 have gone through the issue. While purchasing the property, some of payments were made by the assessee after 2007-08, but as per working of tong tern capital gains, the assessee had claimed indexed cost at Rs.6,48,38,735/- from the date on which the purchase agreement was registered i.e.2007-08. The first date of payment was Rs.29.09.2006 and the last date of payment was 29.8.2012. And, the AO has allowed the indexation as per the dates of payments for acquiring the property. The assessee has placed his reliance on the decision of the Hon’ble ITAT, Mumbai Bench-D Mumbai in the case of ACIT Cir 9(3), Mumbai vs. Ramprakash Bubna in ITA No.6578/Mum/2010 vide order dated 11.05.2012, wherein the Hon’ble ITAT has held as under: –
“Respectfully following the chow decisions we hold that the benefit of indexation will be given from the date when the assessee entered into the agreement for acquiring the two flats in question and not on the basis of various date of payments made for acquiring the said properties and the computation filed by the assessee in the revised return is accordingly upheld. Thus, we affirm the findings of the CIT and consequently, the ground raised by the Department is dismissed”
However, the facts of the assessee’s case are that the assessee claimed indexation as on the date of first transaction. After considering the facts of the assessee, the AO allowed indexation as per the details of payments made. Similar facts have been dealt by the Hon’ble ITAT in the below mentioned judgment.
6.3 In the case of Shri Vikas P. Bajaj vs. ACIT in ITA No.6120/Mum/2010 dated 08.02.2013, it is held that the benefit of indexation has to be granted to the assessee on the basis of payments made by him for acquiring the asset. The relevant paragraphs of the said order reproduced below: –
“6. We have considered the rival submissions and also perused the relevant” material on record. It is observed that the issue involved in the present case as well as all the facts relevant thereto are similar to that of the case of Praveen Gupta (supra) inasmuch as the assessee in the said case had entered into an agreement for purchase of lat in the year 1995-96 and after paying the purchase price of the flat in installments in the year 1996-97, 1997-98, 1999-2000 and 2001-02, the possession of the flat was taken in December, 2001. The said flat was subsequently sold by the assessee in the previous year relevant to assessment year 2007-08 and while computing the long term capital gain arising from the said sale, indexed cost of acquisition was claimed by the assessee as deduction as worked out by taking into consideration the dates of purchase agreement and instalments paid. The AO as well as the learned CIT (Appeals), however, worked out the indexed cost of acquisition taking into consideration the date of taking of possession of flat and when the matter reached to the Tribunal in an appeal filed by the assessee, the Tribunal accepted the claim of the assessee for the following reasons given in paragraph No. 26 to 29.
“26. Now, coming to the second question, which relates to the date from which the indexed cost of acquisition is to be computed. Here, it has been the case of the assessee that on the date of allotment of flat, the property was identified. The assessee got the right over the said property and from that date the indexation benefit has to be given to the assessee. Explanation (iii) to s. 48 reads as under which makes entitle the assessee to the indexation benefit:
“(iii) ‘indexed cost of acquisition’ means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April 1981, whichever is later.”
27. Learned Authorized Representative had pleaded that the language employed in explan. (iii) is in pari material with the language employed in s. 2(42A) where describing the definition of ‘short -term capital asset” the work “held” is used
28. Explanation (iii) to s 48 refers to the words ‘the asset’. It means some capital asset which is subject-matter of sale on which long-term capital gain is to be computed. The capital asset is defined in s. 2(14) as under:
“2(14) ‘capital asset’ means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include-
(i) Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;
(ii) Personal effects, that is to say, movable property (including erring apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes-
(b) Archaeological collections;
(e) Sculptures; or
(f) Any work of article.”
29. According to the aforementioned definition capital asset means property of any kind held by an assessee whether or not connected with the business or profession and it excludes certain items which while considering the facts of the present case are not relevant. Therefore, it has to be seen that whether by entering into an agreement vide which the assessee was allotted a particular flat by allotment letter whether the assessee has held any asset or not By entering into an agreement to allot a flat, the assessee has identified a particular property which he intended to buy from the built and the builder is also bound to provide the applicant with that property by accepting certain advance amount and making agreement for balance payment as scheduled in the agreement.
Thus, going into the provisions, it is not necessary that to constitute a capital asset the assessee must be the owner by way of a conveyance deed in respect of that asset for the purpose of computing capital gain. The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word ‘held’ used in s. 2(14) as well as Explanation to s. 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. By making the payment to the builder and having received allotment letter in lieu thereof, the assessee will be holding capital asset and, therefore, the benefit of indexation has to be granted to the assessee on the basis of payments made by him for acquiring the said asset and the assessee has rightly claimed the indexation benefit from the dates when he has made the payments to the builder. Therefore, we see force in the claim of the assessee. The AO is directed to provide the benefit of indexation to the assessee in the manner in which the assessee has claimed. The coordinate bench of this Tribunal thus has decided a similar issue involving identical facts in favour of the assessee in the case of Praveen Gupta (supra) and that too after taking into consideration the provisions of Explanation (iii) to section 28 which have been relied upon by the learned DR at the time of hearing before us in support of the Revenue’s case. The issue involved in the present case thus is squarely covered in favour of the assessee by the said decision of the Tribunal and respectfully following the same, we direct the AO to allow deduction on account of indexed cost of acquisition while computing the capital gain as claimed by the assessee.”
6.4 As the above decision of the Hon’ble ITAT is subsequent to the decision in the case of Ramprakash Bubna (supra), respectfully following the above decision of the Hon’ble ITAT, the AO’s action of computation of capital gain as per the dates of payments is upheld. However, it is noticed that out of the total payments, Rs.18,32,137/- and Rs.13,44,187/- have been made in FY 2011-12, which are less than 36 months from the date of sale. Hence, the AO is directed not to allow indexation of these two payments. Accordingly, Ground NO.1 is dismissed.
Aggrieved, the assessee is in further appeal before us.
4. The Ld. Authorized Representative for Assessee [AR], Shri Biren Gabhawala supported the workings made by the assessee which has been controverted by Ld. Departmental Representative [DR], Shri Rajesh Kumar Yadav.
5. We have carefully heard the rival contentions and perused the relevant material on record including cited judicial pronouncements. We find that Ld. CIT(A) has referred to two decisions of this Tribunal. Upon perusal, it is found that in the case of Ramprakash Bubna (supra), the benefit of indexation has been provided from the date of agreement for acquisition of the property whereas the decision rendered by this Tribunal in Vikas P.Bajaj (supra) has primarily drawn strength from the decision of Delhi Tribunal rendered in Praveen Gupta Vs ACIT 137 TTJ (Del.) 307. The case of Vikas P.Bajaj as well as Praveen Gupta dealt with a situation in which the assessee himself offered capital gains by indexing the actual payments made in the respective AYs by applying the indexes for those years and therefore, is not directly on the issue under hand since the Tribunal, in both the case laws, has confirmed the workings / computations adopted by the assessee.
6. So far as the statutory provisions as contained in Section 48, Explanation (iii) as extracted in the impugned order is concerned, we find that indexed cost of acquisition has been defined to mean an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee. We find that the expression used is ‘held’ as against ‘acquired’ or ‘purchased’ as used in other Sections like section 54 / 54F which shows that legislatures were conscious while making use of this expression. The expressions like ‘owned’ / ‘acquired’ has not been used for allowing the indexation benefit to the assessee. However, the important question that arises for consideration, at this juncture, is that whether the indexation benefit of even the future installments would also be allowable to the assessee from the year in which the asset is first held by the assessee. For this, our attention has been drawn to the decision of Hon’ble Gujarat High Court rendered in Nirmal Kumar Seth Vs CIT [17 Taxmann.com 127] wherein Hon’ble court has decided the issue as under:-
6. We have heard both the parties at length and gone through the material available on record.
7. From the record, it appears that the land in question was purchased from the Lucknow Development Authority on instalments basis for which registration was made on 01.12.1982 by paying a sum of Rs. 3000/- only. The remaining payment was made in instalments to Lucknow Development Authority, as per the chart given in the AO’s order. As per the agreement, the right to get the sale deed registered in favour of the assessee was acquired, though subject to the full and final payment. After making the full and final payment, the assessee got the allotment letter in his favour in the year 1985. On getting the allotment letter, the assessee also obtained the valuable right to have a sale deed in his favour. Thus, the assessee has acquired the capital asset.
8. In the instant case, the plot was sold during the assessment year under consideration. The period is more than 3 years. So, we are in agreement with the observations made by the Tribunal that long term capital gain will have to apply in the assessee’s case as per the payment chart.
9. It may be mentioned that the expression “cost of acquisition” is defined in Section 55(2) of the Act. The date of acquisition will have a relevance in determining the cost of acquisition. As per the ratio laid down in the case of CIT v. Srinivasa Rao  166 ITR 593 / 31 Taxman 466 (AP) the expression of “cost of acquisition” is exhaustive and the language employed is peremptory. It is not open to the Court to introduce any other facts of meaning to the expression “cost of acquisition”.
10. From the record, it also appears that the actual amount was paid from time to time after the date of issuance of allotment letter, which has to be considered for the purpose of indexation with reference to the date of payments. The Tribunal has rightly asked to compute the long term capital gain as per the payment schedule. There is nothing wrong in the Tribunal’s order, which is based on the well established legal position as well as the CBDT Circular, which have already been mentioned in the impugned order passed by the Tribunal.
11. During the course of argument, we were told that the long term capital gain has already been deposited as per the computation made by the A.O. in the manner claimed by the assessee. When it is so then nothing survives in the appeal.
12. Hence, we decline to interfere with the impugned order passed by the Tribunal, which is hereby sustained along with the reasons mentioned therein.
13. The answer to the substantial questions of law is in favour of the revenue and against the assessee.
Respectfully following the wisdom of higher judicial forum, we hold that the indexation benefit against the cost of acquisition shall be available to the assessee on the basis of index of the year in which the payments were actually made by the assessee. The payment made up-to the date of agreement i.e. 18/10/2007 shall be indexed by applying the index for Financial Year 2007-08. Accordingly, subsequent payments made in different financial years shall be indexed by applying the respective indexes of those years. Ground Number-1 stand dismissed.
7. As a logical consequence, the directions of Ld. CIT(A) in not allowing the indexation benefits to payments of Rs.18.32 Lacs & Rs.13.44 Lacs in FY 2011-12 could not be sustained since the payments made within a period of 36 months before the date of transfer of asset could not alter the nature of gains earned by the assessee and the same remain Long Term Capital Gain in nature only. Ground Number-2 stand allowed.
8. In additional Ground of Appeal, the assessee is aggrieved by non-adjudication of VAT paid for Rs.11.35 Lacs by Ld. CIT(A). The supporting documents, in this regard, have been placed on record. We find that this issue has not been considered even by Ld. AO. Therefore, the matter stand remitted back to the file of Ld. AO to consider this claim with a direction to the assessee to substantiate the same. This ground stand allowed for statistical purposes. It is also noted that the figures of stamp duty & Registration has wrongly been picked by Ld. AO as 18,32,137/- as against correct figures of Rs.18,49,700/-. Therefore, Ld. AO is directed to pick up the correct figures and re-ompute the income of the assessee, in terms of our above order.
9. Resultantly, the appeal stand partly allowed in terms of our above order.
Order pronounced in the open court on 03rd October, 2018.