SMT. MINA DEOGUN v. INCOME TAX OFFICER
[Citation -2007-LL-0803-6]

Citation 2007-LL-0803-6
Appellant Name SMT. MINA DEOGUN
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 03/08/2007
Assessment Year 2004-05
Judgment View Judgment
Keyword Tags co-operative housing society • computation of capital gain • indexed cost of acquisition • short-term capital loss • computing capital gain • capitalization method • wealth-tax assessment • residential building • cost inflation index • cost of construction • statutory deduction • cost of improvement • date of acquisition • immovable property • fair market value • registered valuer • valuation officer • value of property • valuation report • approved valuer • comparable sale • house property • capital asset • rental income • sale instance
Bot Summary: As the said property was owned by the predecessor in title to the assessee prior to 1st April, 1981, the assessee has option to substitute the fair market value of the said property as on 1st April, 1981 to be the cost of acquisition. The AO has held that since the land on which the building was constructed is in the name of Shri R.N. Deogun, husband of the assessee, the assessee is not the owner of the building and accordingly, treated the rental income of the assessee from the said building as income from other sources. On careful analysis of the orders passed by the Departmental authorities in the light of the rival submissions of both the parties as well as the authorities relied on by them in support of their contentions, we find that the assessee has raised the following material issues: Determination of fair market value of property at 47, Golf Links, New Delhi as on 1st April, 1981 opted by the assessee as cost of acquisition under s. 55(2)(b)(ii) of the IT Act. Before the CIT(A) the assessee had submitted that assessee s property overlooked the main Golf course and therefore enjoyed better aesthetic view and therefore commanded much higher price as compared with other properties in Golf Link area. In the wealth-tax assessment under s. 16(3), assessee s 1/3rd share in the property at Panchsheel Park, New Delhi, was assessed by applying rental capitalization method thereby accepting that the assessee was 1/3rd owner of the said property. Ltd. upheld the assessment of capital gains on sale of a house property in the hands of the assessee even though the assessee s wife was the legal owner in the property records. 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 under s. 24 of the Act.


This appeal is filed by assessee having been aggrieved by order of CIT(A) dt. 29th March, 2007 for asst. yr. 2004-05 in case of assessee. assessee has raised following issues in its grounds of appeal: "1. For that on facts and in circumstances of case, CIT(A) was unjustified in adopting fair market value of appellant s 1/4th share in immovable property at 47, Golflinks, New Delhi at Rs. 15,02,907 as against Rs. 18,40,244 estimated by Registered Valuer. For that on facts and in circumstances of case, CIT(A) was unjustified in not striking down reference to Valuation Officer made by AO under s. 55A of Act and was not justified in upholding reference under s. 55A(2)(b) even though said provision was not applicable. For that on facts and in circumstances of case, appellant having adopted fair market value of transferred immovable property as per value estimated by Registered Valuer authorities below should have determined Capital Gain with reference to fair market value of property as on 1st April, 1981 determined by Registered Valuer. For that on facts and in circumstances of case, AO be directed to assess capital gains with reference to cost of acquisition under s. 55 as on 1st April, 1981 at Rs. 18,40,244 as against Rs. 15,02,907 arbitrarily estimated by CIT(A). For that on facts and in circumstances of case, CIT(A) was unjustified in upholding AO s action of determining indexed cost of acquisition with reference to cost inflation index applicable for financial year 1999-2000 as against cost inflation index applicable for financial year 1981-82. For that on facts and in circumstances of case, appellant having inherited property on passing away of her mother and said property having been owned by previous owner prior to 1st April, 1981, authorities below should have determined indexed cost of acquisition with reference to cost inflation index applicable for financial year 1981-82. For that on facts and in circumstances of case, CIT(A) failed to appreciate that cost of acquisition to assessee was to be determined under s. 49(i)(ii) r/w s. 55(2)(b)(ii) of Act. Indexed cost of acquisition should have also been determined with reference to such cost, by adopting cost inflation index applicable to year of acquisition in hands of previous owner . For that on facts and in circumstances of case, AO be directed to recompute indexed cost of acquisition by applying base cost inflation index of 100 in place of 389 as adopted by AO and be further directed to recompute income under head Capital gains . For that on facts and in circumstances of case, CIT(A) was unjustified in law and in fact in upholding assessment of rental income derived from property at Panchsheel Park, New Delhi under head Other sources as against House property . For that on facts and in circumstances of case, assessing authorities having held and treated appellant as owner of said house property in income-tax and wealth-tax assessments for past 25 years, authorities below were not justified in assessing rental income under head Other source as against house property only in asst. yr. 2004-05. For that on facts and in circumstances of case, appellant being owner of residential building at New Delhi, by dint of incurring 1/3rd of cost of construction, authorities below should have held appellant as owner of house property and should have assessed rental income under head House property . For that on facts and in circumstances of case, AO be directed to assess rental income in respect of property at Panchsheel Park, New Delhi under head House property and be further directed to allow statutory deductions permissible under s. 24 of IT Act." Both parties were heard regarding issues raised by assessee Both parties were heard regarding issues raised by assessee and its legal implications. During course of hearing, learned representative of assessee has vehemently argued assailing orders passed by Departmental authorities contending, inter alia, that Departmental authorities have not properly appreciated materials placed before them and not properly applied required provisions under IT Act in adjudicating issues before them. Both orders passed by Departmental authorities suffer from misapplication of provisions as well as misinterpretation of provisions to undisputed facts before authorities. Therefore, orders passed by Departmental authorities are not sustainable for legal scrutiny. Accordingly, he sought for setting aside same by allowing appeal of assessee. Contrary to this, learned Departmental Representative has vehemently argued supporting orders passed by Departmental authorities and assailing issues raised by assessee in appeal and accordingly, sought for upholding them by dismissing appeal of assessee. On careful consideration of materials made available with Tribunal and analyzing same in light of rival submissions of both parties as well as authorities relied on by them in support of their respective contentions, undisputed facts relating to issues are as follows. assessee is individual and filed return for asst. yr. 2004-05 declaring total income of Rs. 10,85,730. assessment was made under s. 143(3) determining total income taxable in hands of assessee at Rs. 82,67,260. factual aspects involving issues are that assessee has inherited residential house property at 47, Golf Links, New Delhi, on demise of her mother. It was originally acquired by father of assessee in 1958. After his demise, assessee s mother became its owner. After demise of mother, assessee inherited same along with other heirs and share of assessee is undisputedly 1/4th in said property. As said property was owned by predecessor in title to assessee prior to 1st April, 1981, assessee has option to substitute fair market value of said property as on 1st April, 1981 to be "cost of acquisition". Accordingly, assessee has obtained valuation report from Registered Valuer. As per that valuation report, fair market value of property was determined at Rs. 73,60,975. 1/4th share of assessee s share came to Rs. 18,40,244 and was considered as cost of acquisition under s. 55 of IT Act, while arriving at capital gain to be taxable in hands of assessee. During course of assessment proceedings, assessee has filed report issued by Registered Valuer and AO has referred matter of valuation to DVO under s. 55A of Act. DVO has estimated market value of property at Rs. 46,62,280 and thereby arrived at 1/4th share of assessee at Rs. 11,65,570. Taking this into account, AO has determined capital gain taxable in hands of assessee. Apart from that, assessee has purchased and sold units of mutual funds during period under consideration and thereby earned unit dividend. AO has taken same as short-term capital loss at Rs. 95,074 and not permitted to claim loss invoking provision contained in s. 94(7) of IT Act. Another issue is that assessee is joint owner of house property at New Delhi from which she is deriving rental come. land on which building is constructed was leased to Shri R.N. Deogun, husband of assessee. However, building constructed in land is jointly owned by assessee and her husband in ratio of 1/3rd and 2/3rd, respectively, basing on contribution to construction of said building. AO has held that since land on which building was constructed is in name of Shri R.N. Deogun, husband of assessee, assessee is not owner of building and accordingly, treated rental income of assessee from said building as income from other sources. Aggrieved with these orders of assessment, assessee went in appeal before CIT(A) and is unsuccessful. Hence, present appeal is filed before Tribunal. On careful analysis of orders passed by Departmental authorities in light of rival submissions of both parties as well as authorities relied on by them in support of their contentions, we find that assessee has raised following material issues: (i) Determination of fair market value of property at 47, Golf Links, New Delhi as on 1st April, 1981 opted by assessee as "cost of acquisition" under s. 55(2)(b)(ii) of IT Act. (ii) Whether cost inflation index applicable for financial year 1981-82 or financial year 1999-2000 should be applied for determination of indexed cost of acquisition. (iii) Whether assessee can be regarded as owner under s. 22 of IT Act in respect of her 1/3rd share in residential let out property, situated at Panchsheel Park, New Delhi. facts giving rise to first two material issues are as follows: residential house property at 47, Golf Links, New Delhi, was purchased by Sardar Pratap Singh, father of appellant on 16th April, 1958 at cost of Rs. 34,600. On his death on 29th June, 1968; his wife Smt. Bhajan Pratap Singh became its owner. She expired on 16th Sept., 1999 and assessee along with her 3 sisters became co-owner of said property by virtue of succession. During financial year 2003-04 said property was transferred by co- owners for Rs. 12 crores and appellant s 1/4th share was Rs. 3 crores on which assessee was liable to pay capital gain tax. As per s. 49(1)(ii), cost of acquisition to "previous owner" constituted cost of acquisition to assessee. Further, under s. 55(2)(v)(ii) of Act "fair market value" on 1st April, 1981 could be opted for by assessee as cost of acquisition. assessee so opted and adopted fair market value of property as on 1st April, 1981 as cost of acquisition for assessing her capital gains liability. Registered Approved Valuer in his valuation report estimated fair market value of Golf Links property as on 1st April, 1981 at Rs. 73,60,975. This inter alia included estimated value of building at Rs. 5,67,500 and land at Rs. 67,93,475 at rate of 6,500 per sq. mtr. In AO s opinion FMV estimated by Registered Valuer prima facie indicated substantial increase over cost of acquisition and therefore, made reference of valuation under s. 55A(b)(ii) to DVO at New Delhi. DVO, New Delhi estimated value of said property at Rs. 46,62,280. In valuing property DVO estimated value of land at rate of Rs. 3,910 per sq. mtr. at Rs. 40,94,780. He however, accepted Registered Valuer s estimate of building at Rs. 5,67,500. Accordingly, assessee s 1/4th share in property was estimated by Registered Valuer at Rs. 18,40,244 whereas DVO estimated it at Rs. 11,65,570. AO completed assessment by adopting valuation report of DVO. In first appeal assessee challenged valuation of DVO both on legal grounds and on facts. CIT(A) rejected assessee s objections regarding reference made under s. 55A. CIT(A) however averaged out two valuations and adopted Rs. 15,02,907 as cost of acquisition of assessee s 1/4th share in said property under s. 55(2)(b)(ii) as on 1st April, 1981 and directed AO to re- compute capital gains. CIT(A) also agreed with AO that cost of inflation index applicable to financial year 1999-2000 was to be adopted as base since in said year assessee first held asset on demise of her mother. Against order of CIT(A), assessee has filed present appeal raising first two material issues. Before us representative of assessee objected to reference made to Valuation Officer under s. 55A(b)(ii) of Act. According to Authorised Representative, assessee s case was covered by cl. (a) of s. 55A and, therefore, cl. (b) was not applicable. As per Authorised Representative assessee had relied on market value determined by Registered Valuer and same being higher and not lower, AO did not have authority to refer valuation of capital asset to Valuation Officer under s. 55A(b)(ii). In support of this proposition he relied on following decisions: (i) Ms. Rubab M. Kazerani vs. Jt. CIT (2005) 97 TTJ (Mumbai)(TM) 698: (2004) 91 ITD 429 (Mumbai)(TM); (ii) Smt. Krishnabai Tingre vs. ITO (2006) 103 TTJ (Pune) 216: (2006) 101 ITD 317 (Pune); (iii) Sajjankumar M. Harlalka vs. Jt. CIT (2006) 102 TTJ (Mumbai) 974: (2006) 100 ITD 418 (Mumbai). Referring to both valuation reports, copies of which were placed in paper book, assessee s representative stated that both Registered Valuer and DVO in estimating land value had taken into consideration auction rate of DDA in respect of plot of land in Safdarjung Enclave area which had realized sale price @ Rs. 3,128 per sq. mtr. DVO admitted that Golf Links area was better location and himself increased price by 25 per cent. On other hand Registered Valuer mentioned that impugned property enjoyed strategic location as it was situated on main road. It had ideal shape and dimension and several multinational companies owned properties in this area which substantially increased value. Land rate for commercial properties was Rs. 6,000 per sq. mtr. and auction rate in Safdarjung Enclave was Rs. 3,128 per sq. mtr. for residential plot. He also referred to sale instance of plot of land at Vasant Vihar which was auctioned at Rs. 8,000 per sq. mtr. in 1985. Since Golf Links area was much better than Safdarjung Enclave and Vasant Vihar areas he estimated value of land at Rs. 6,500 per sq. mtr. According to Authorised Representative, DVO admitted that Golf Links was much better area but did not give any reasons for allowing token increase of 25 per cent. Registered Valuer on other hand gave several reasons for estimating land @ Rs. 6,500 per sq. mtr. before CIT(A) assessee had submitted that assessee s property overlooked main Golf course and therefore enjoyed better aesthetic view and therefore commanded much higher price as compared with other properties in Golf Link area. This fact was overlooked by DVO. Authorised Representative further pointed out that assessee realized Rs. 12 crores for property measuring 1045.12 sq. mtr. which translated into per sq. mtr. realization of Rs. 1,15,000 approx. Such high realization was possible only because property enjoyed better locational advantages. CIT(A) was not justified in averaging out 2 valuations because he was not expert in matter of valuation. According to learned Authorised Representative when DVO himself admitted that Golf Links property was better located but allowed mere 25 per cent increase without giving any reasons, CIT(A) should have followed valuation report of Registered Valuer w h i c h had statutory recognition under s. 55A of Act. learned Departmental Representative on other hand supported order of CIT(A). We have considered rival submissions and perused valuation reports of DVO and Registered Valuer. reference to DVO was made by AO on mere surmise that value estimated by Registered Valuer was much higher as compared with cost incurred in 1958. There was no material basis for AO to reach objective satisfaction that FMV of property as on 1st April, 1981 was lower or higher than value estimated by Registered Valuer. Both valuation reports i.e., of DVO and Registered Valuer establish that there had been substantial increase in market value of immovable properties in Delhi during period 1958 to 1981. We therefore, find that reasons for which AO made reference were both subjective and inadequate as there was no basis for AO to doubt correctness of report of Registered Valuer. Be same as it may, we also find that DVO accepted value of building as estimated by Registered Valuer and point of difference related only to valuation of land. We note that in both valuation reports reference was made of comparable sale instance in respect of land in Safdarjung Enclave which fetched price of Rs. 3,128 per sq. mtr. Both valuers agreed that Golf Links area where subject property was situated was much better compared with Safdarjung Enclave. In valuing market value of any property, consideration should not only be given to locality but also to other facts relatable to specific property. In DVO s report reference is made only to Golf Link locality in general and being better locality token increase of 25 per cent was given by him without giving any specific reasons. DVO did not even discuss relative advantages or disadvantages of impugned property. On other hand Registered Valuer discussed advantages enjoyed by property in question. He has mentioned that property was strategically located on main road. plot area and shape was ideal for residential purpose. property was facing Main Golf Course and therefore enjoyed locational advantage which fetched much better price. Registered Valuer also referred to sale instance of plot of land in Vasant Vihar area which fetched Rs. 8,000 per sq. mtr. in 1985. Since Golf Links area in general was better locality compared with Safdarjung Enclave and Vasant Vihar and further considering other locational advantages enjoyed by property in question, DVO estimated value of land @ Rs. 6,500 per sq. mtr. We thus find that Registered Valuer gave cogent reasons for valuing land @ Rs. 6,500 per sq. mtr. whereas DVO granted token increase of 25 per cent for Golf Links locality in general but without setting out objective basis. We also note that on sale, assessee realized average sale price of Rs. 1,15,000 per sq. mtr. in 2003. If we adopt rate estimated by DVO, it results in 30-fold increase over estimated value in 1981. On other hand, if we adopt value estimated by Registered Valuer it gives 18-fold increase in value during period 1981 and 2003. In India prices of real estate have gone up more than general rate of inflation. cost inflation index which is prescribed under s. 48 is based on "wholesale price index" and during period 1981 and 2003 cost inflation index recorded increase of 4.6 times. If we accept report of Registered Valuer, value of property results in increase of 18 times of value estimated in 1981, which favourably compares with general rate of inflation and increase in values of property in particular. On other hand, if we adopt value estimated by DVO then increase in value is 30 times over 1981 prices which appears too high and excessive. If during 1981 and 2003 cost inflation index announced by Government under s. 48 recorded increase of 4.6 times then in comparison increase of 18 times in real estate prices appears reasonable and therefore in our considered opinion value estimated by Registered Valuer does not appear to be excessive, unreasonable or incorrect. Moreover, in his report Registered Valuer gave cogent reasons and considered numerous facts affecting value of subject property and therefore, we do not find any infirmity in valuation report of Registered Valuer. For these reasons therefore we uphold value of property as estimated by Registered Valuer and direct AO to adopt value of assessee s 1/4th share in property at Rs. 18,40,244 and compute capital gains. Since we have accepted value estimated by Registered Valuer, assessee s challenge to legality of reference made to Valuation Officer under s. 55A has become only academic and we do not deem it necessary to decide same. second material issue relates to application of correct cost inflation second material issue relates to application of correct cost inflation index for determining indexed cost of acquisition under s. 48(2) of Act. impugned property in question was acquired by Smt. Bhajan Pratap Singh on demise of her husband in 1968. Accordingly, she was owner of property on 1st April, 1981. As per provisions of s. 2(42A) of Act in determining period of holding of capital asset period for which previous owner held asset was includible. As per s. 2(42A) assessee was deemed to have held said capital asset since 1958. According to Authorised Representative, if provisions of s. 2(42A), s. 47(ii), s. 49(1)(iii)(a) and s. 55(2)(b)(ii) are cumulatively and harmoniously read then in case of succession date of acquisition, cost of acquisition and period of holding is to be computed with reference to acquisition of capital asset by first previous owner. He therefore, submitted that different considerations could not apply for purpose of applying base cost inflation index. Referring to Explns. (iii) and (iv) to s. 48, he submitted that if cost of inflation index is adopted with reference to year of succession, then it leads to assured results. Relying on ratio of decision of Supreme Court in case of CIT vs. Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC), he submitted that in interpreting words used in formula incorporated in s. 48, one should give schematic interpretation and not literal interpretation. Authorised Representative then referred to Memorandum Explaining Provisions of Finance Bill, 1992 and Circular No. 636, dt. 31st Aug., 1992 [(1992) 107 CTR (St) 1] which explained provisions of Finance Act, 1992. According to Memorandum and Board Circular indexation of cost of acquisition was to be allowed with reference to period of holding of asset and it was not material as to which particular person held asset. According to him, since under s. 2(42A) period of holding of capital asset by assessee includes period of holding by previous owner also, in computing indexed cost of acquisition; cost inflation index applicable to year of acquisition by previous owner should be considered. According to Authorised Representative provisions should be interpreted keeping in view purpose and object of enactment and not merely words used which are capable of more than one meaning. In this regard Authorised Representative made reference to Board s Circular No. 31, dt. 21st Sept., 1962 issued in context of provisions of ss. 48, 49 r/w s. 55(2)(ii) of Act. Authorised Representative also relied on decisions of Tribunal Chandigarh Bench in case of Mrs. Pushpa Sofat vs. ITO (2004) 89 TTJ (Chd) 499: (2002) 81 ITD 1 (Chd) and Mumbai Bench in case of Dy. CIT vs. Smt. Meera Khera (2004) 136 TAXMAN 174 (Mumbai)(Mag). learned Departmental Representative, on other hand, relied on order of AO and learned CIT(A). According to him under Expln. (iii) to s. 48 cost inflation index applicable to year in which asset first held by assessee is to be considered. As there was no infirmity in AO s order, he relied on order of authorities below. In present case AO has interpreted Expln. (iii) to s. 48 and has applied cost inflation index applicable for financial year 1999-2000 being year in which assessee inherited property from her mother. words "the year in which assessee first held capital assets" is interpreted by him to be year in which assessee succeeded to assets of her mother. We find that s. 2(42A) also uses somewhat similar expression. Explanation 1 to s. 2(42A) provides that in determining period for which any capital asset is held by assessee, in case of capital asset which become property of assessee, in any of circumstances mentioned in s. 49(1), there shall be included period for which asset is held by previous owner. If for purpose of determining period of holding of capital asset by assessee, period for which previous owner has held capital asset is to be included, then different consideration cannot be applied for purpose of s. 48. If ss. 2(42A), 47(iii), 49(1)(ii)(iii) and s. 55(2)(b)(ii) are read co-jointly then it appears that in law no "transfer" of "capital asset" is considered to take place on inheritance and succession. liability for capital gain arises only when capital asset is actually transferred by successor, it is only when ultimate successor transfers capital asset for consideration capital gains are assessed to tax. In assessing capital gain in hands of successor, date of acquisition and period of holding, is determined taking into consideration date on which and cost of which first owner acquires capital asset. It is for this reason s. 2(42A) uses expression "in determining period for which capital asset is held by assessee". Sec. 48 of IT Act incorporates computation mechanism for qualifying capital gain and therefore expressions used in computation formula should be given schematic interpretation. scheme of taxation of "capital gain" can however, be understood by applying provisions of ss. 2(42A), 2(47), 47(ii), 48, 49(i)(ii) and 55(2)(b)(ii) of Act. As per provisions of these sections, where assessee sells inherited capital asset capital gain is computed with reference to period of holding and cost of acquisition incurred by previous owner. It is so because in fact successor assessee does not actually incur any cost. If for applying other provisions relating to computation of capital gains, period of holding and cost incurred by previous owner is considered, then it will be improper to apply only cost inflation index, applicable to year of inheritance. provisions of s. 48 prescribing indexed cost of acquisition were enacted by Finance Act, 1992. Memorandum explaining Provisions of Finance Bill, 1992 explained that old provisions relating to taxation of capital gain were unfair because deduction under s. 48 was being allowed in respect of cost of acquisition which did not relate to period of time for which asset was held. old system of computation of capital gain did not take into account inflation which occurred over period of time. new system was therefore, enacted for computing capital gain which allowed cost of asset to be adjusted for general inflation before deducting it from sale proceeds. statutory objective of new system was to favour those assessees where capital gains accrued over long period. CBDT, in Circular No. 636, dt. 31st Aug., 1992, explained provisions of Finance Act, 1992 relating to amended scheme of capital gains. In this circular Board explained that in scheme prior to 1992 specified percentage was allowed as deduction under s. 48(2) which was unrelated to length of period of holding of capital asset. Under new system fair method of allowing relief was enacted to link cost of acquisition to period of holding. For this purpose cost of acquisition and cost of improvement of asset was to be inflated to arrive at indexed cost of acquisition. circular further clarified that if asset was acquired before 1st April, 1981, market value of capital asset as on 1st April, 1981 would be taken for purpose of indexation. co-joint reading of Memorandum explaining Finance Bill, 1992 and CBDT Circular No. 636 shows that indexation is to be allowed in respect o f period of holding of asset and not in relation to individuality of assessee. For purpose of determining period of holding intermediate transfers on account of succession are to be ignored. This proposition is quite clear from para 35 of Circular No. 636, dt. 31st Aug., 1992 which states that if asset was acquired before 1st April, 1981 then market value of capital asset as on 1st April, 1981 is to be taken for indexation. In present case AO himself allowed benefit of "FMV" of property as on 1st April, 1981 to be cost under s. 55(2)(b)(ii) of Act. Under s. 2(42A) period of holding of capital asset in hands of assessee was period commencing from 16th April, 1958 till date of transfer. It is therefore quite clear that as on 1st April, 1981 asset was statutorily considered to be held, by assessee under s. 55(2)(b)(ii) r/w s. 2(42A) of Act. In our considered opinion therefore, cost inflation index applicable for financial year 1981-82 and not to financial year 1998-99 should have been applied by AO. similar view was taken by Chandigarh Bench of Tribunal in case of Smt. Pushpa Sofat (supra). In that case house property was inherited by assessee from her father which was sold in asst. yr. 1993-94. father of assessee acquired property in 1972 and therefore, assessee opted for FMV of 1st April, 1981 to be cost of acquisition. assessee computed indexed cost of acquisition with reference to cost of inflation index of 1st April, 1981 being 100 per cent. Assessee s father expired on 17th Feb., 1991 and AO allowed indexation of cost with reference to cost inflation index of financial year 1990-91 as against inflation index of 100 per cent. Tribunal, however held that assessee was entitled to compute capital gain by applying cost inflation index of 1st April, 1981. Similar view was also taken by Mumbai Bench of Tribunal in case of Mrs. Meera Khera (supra). Considering totality of facts and scheme of IT Act relating to taxation of capital gains, we are of considered opinion that as per schematic interpretation cost of inflation index should be made applied with reference to year in which capital asset was first acquired by previous owner. If only for purpose of computing indexed cost of acquisition, date of acquisition by previous owner is excluded then it will lead to absurd result. Such interpretation of s. 48 will be against intent and object of enactment and will be against overall scheme of taxation of capital gains in case of inherited assets. cardinal principles of interpretation of statutes is that if literal meaning of statute leads to absurdity then statute should be interpreted in manner which will result in harmonious interpretation which avoids absurdity and promote objective of enactment. We, therefore, direct AO to re- compute capital gains by applying cost inflation index of 100 per cent applicable for financial year 1981-82. third material issue is whether assessee can be said to be considered as "owner" of residential let out property at Panchsheel Park, New Delhi under s. 22 of Act. brief facts giving rise to dispute are as follows: Panchsheel Co-operative Housing Society Ltd. allotted and leased Plot No. F-256, Panchsheel Park, New Delhi, to Sri R.N. Deogun, husband of assessee. In municipal records property stands in name of Sri R. N. Deogun. Sri R.N. Deogun along with assessee constructed residential building on said plot. assessee incurred cost of construction of Rs. 40,600 out of aggregate cost of construction of Rs. 1,22,595. This property was let out since 1973-74 and in all past assessments of assessee and her husband till asst. yr. 2003-04, 1/3rd of rental income was assessed in assessee s hands under head "Income from house property". In wealth- tax assessments of assessee till asst. yr. 1992-93, Revenue assessed 1/3rd share in said property as immovable property and valued it on rent capitalization method. In impugned assessment order AO however, held that since land on which building was constructed, was registered in name of Sri R.N. Deogun, assessee was not owner of house property and therefore 1/3rd rent received was assessable under head "Other source" and not under head "House property". AO accordingly assessed income under "Other source" head and denied statutory deduction under s. 24 of Act. learned representative of assessee submitted that in income- tax assessment of Sri R.N. Deogun for asst. yr. 1972-73, his AO admitted assessee to be 1/3rd owner of property. He also relied on wealth-tax assessments under s. 16(3) of assessee for asst. yrs. 1987-88 to 1992- 9 3 wherein 1/3rd share in said property was assessed under head "Immovable property". Though assessee incurred cost of Rs. 40,600 only, in wealth-tax assessments value was assessed on rent capitalization method at Rs. 2,40,612. He stated that in all past till asst. yr. 2003-04 rental income was always assessed, as "house property". There being no change in factual matrix of case, AO could not have changed head of income merely to deny deduction under s. 24. He further submitted that under s. 23 annual value of house property is assessed and therefore, it is to be ascertained who is real owner of building and not land underneath, as s. 23 does not bring to tax annual value of land. Merely because land on which property was constructed was registered in name of Sri R.N. Deogun, he could not be considered as sole (owner) of entire property. assessee s representative relied on decisions of Calcutta High Court rendered in case of Tinsukia Development Corporation Ltd. vs. CIT (1979) 120 ITR 476 (Cal) and in case of CIT vs. Ajit Kumar Roy (2001) 170 CTR (Cal) 187: (2001) 252 ITR 468 (Cal), Hon ble Rajasthan High Court rendered in case of Saiffuddin vs. CIT (1985) 48 CTR (Raj) 197: (1985) 156 ITR 127 (Raj) and Hon ble Calcutta High Court rendered in case of Sri Ganesh Properties Ltd. vs. CIT (1962) 44 ITR 606 (Cal) and submitted that person who actually incurs cost of construction of building is "owner" of house property under s. 22 of Act and rental income is assessable in hands of such owner. From perusal of assessment order under s. 143(3) for asst. yr. 1972-73 i n case of Sri R.N. Deogun it appears that Revenue accepted that cost of construction of said property was Rs. 1,22,595 and assessee s contribution thereto was Rs. 40,600. In that assessment AO also examined assessee s sources of incurring cost of construction of said property. In income-tax assessment for past several years Revenue assessed 1/3rd rent in hands of assessee under head "House property" and remaining 2/3rd in hands of her husband. In wealth-tax assessment under s. 16(3), assessee s 1/3rd share in property at Panchsheel Park, New Delhi, was assessed by applying rental capitalization method thereby accepting that assessee was 1/3rd owner of said property. No new facts have been brought on record and no material change took place in asst. yr. 2004-05 to take different view. Hon ble Supreme Court in case of Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267: (1992) 193 ITR 321 (SC) has held that where fundamental aspect permeating through different assessment years has been found as fact one way or other and parties have allowed position to be sustained by not challenging that order, it would not be proper to all position to be changed in subsequent years. In wealth-tax assessments under s. 16(3) of past years Revenue assessed assessee s 1/3rd share to wealth-tax treating her to be owner, then it is not open for Department to challenge her ownership only for denying statutory deduction under s. 24 of Act. We also find that Calcutta High Court in case of Tinsukia Development Corpn. Ltd. (supra) upheld assessment of capital gains on sale of house property in hands of assessee even though assessee s wife was legal owner in property records. Court however, noted that entire cost of property was incurred by assessee and hence he was real owner though legal ownership was of wife. Court therefore did not take cognizance of legal ownership and assessed capital gains in assessee s hands. In case of Saifudin (supra), assessee owned land on which residential building was jointly constructed with his two brothers. rental value of building was assessed in assessee s hands as he was owner of land. Court observed that since cost of construction was incurred jointly by 3 persons property was jointly owned and therefore entire rental value was not assessable in assessee s hands. In present case facts on record establish that 1/3rd cost of construction of Panchsheel property was incurred by assessee and in all past assessments Revenue considered assessee to be 1/3rd owner thereof. In wealth-tax assessment 1/3rd share of property was charged to wealth-tax treating her to be owner. Under facts and circumstances of case, we, therefore, hold that AO was not justified in not considering assessee as 1/3rd owner of property at Panchsheel Park. In our considered opinion 1/3rd rent received by assessee from letting of residential house property was assessable under head "House property" and assessee was entitled to statutory deduction under s. 24 of Act. In result, assessee s appeal is hereby allowed. *** SMT. MINA DEOGUN v. INCOME TAX OFFICER
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