Assessment year: 2006-2007 Page 1 of 12 IN INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA Before Shri P.M. Jagtap, Accountant Member I.T .A. No. 723 /KOL/ 2015 Assessment Year: 2006-2007 Shib Narayan Kehettry-HUF, Appellant 44, Ram Dulal Sarkar Street, Kolkata-700 006 [PAN: AAGHS 7318 B] -Vs.- Income Tax Officer Respondent Ward-38(4), Kolkata Appearances by: Shri S.K. Tulsian, A.R., for assessee Smt. Sucheta Chattopadhyay, JCIT, D.R., for Department Date of concluding th e hearing : Ju ly 25 , 2016 Date of pronouncing order : September 28, 2016 ORDER This appeal filed by assessee is directed against order of ld. Commissioner of Income Tax (Appeals)-11, Kolkata dated 10.03.2015 and issues involved therein relate to computation of long-term capital gain arising to assessee from sale of his property situated at 9, Amartola Street, Kolkata-700 001. 2. assessee in present case is HUF, which derives income from rent, service charges and investment. return of income for year under consideration was filed by it on 01.08.2006 declaring total income of Rs.12,32,357/-. In said year, property situated at 9, Amartola Street, Kolkata was sold by assessee for consideration of Rs.48,00,000/- and after claiming deduction on account of indexed cost of acquisition at Rs.48,01,020/-, long-term capital loss of Rs.1,020/- was disclosed by assessee in return of income. During course of assessment proceedings, it was noticed by Assessing Officer that value of property sold by assessee was taken at Rs.1.69 crores for Assessment year: 2006-2007 Page 2 of 12 purpose of determining stamp duty by Registering Authority. He, therefore, made reference to Departmental Valuation Officer for valuation of property of assessee as on 01.04.1981 and 30.03.2006. In valuation report submitted to Assessing Officer, value of property of assessee was determined by DVO at Rs.9,66,900/- as on 01.04.1981 and Rs.78,01,000/- as on 30.03.2006. When valuation report of DVO was confronted by Assessing Officer to assessee, it was submitted by assessee that stamp duty valuation originally done at Rs.1.69 crores was subsequently reduced to Rs.61,99,950/- by order of Governor. It was also submitted by assessee that property in question was received by family in Grant from Collector, Kolkata on 06.02.1899 and since said Grant was free of cost, cost of acquisition of property in question, which had been partitioned from time to time, was not ascertainable. Relying on decision of Hon ble Supreme Court in case of CIT vs.- Srinivasa Setty (B.C.) reported in 128 ITR 294, it was contended by assessee that sale of property in question, whose cost of acquisition was not ascertainable could not give rise to any capital gain chargeable to tax. This contention of assessee was not found acceptable by Assessing Officer. According to him, Governor by relevant Notification had given only concession in Stamp Duty payable on sale of property in question and there was no reduction in market value of said property as taken for purpose of payment of Stamp Duty. He also held that cost of acquisition of property in question sold by assessee was definitely ascertainable and, therefore, decision of Hon ble Supreme Court in case of Srinivasa Setty (B.C.) was not applicable. In this regard, he relied on subsequent decision of Hon ble Supreme Court in case of CIT vs.- D.P. Sandu Bros., Chembur (P) Limited reported in 273 ITR 1 (SC), wherein it was held that asset which is capable of acquisition at cost would be included within provisions pertaining to head Capital Gains as opposed to assets in acquisition of which no cost at all can be conceived. He also relied on decision of Special Bench of ITAT in Assessment year: 2006-2007 Page 3 of 12 case of Vijaysinh R. Rathod [106 ITD 153], wherein it was held that cost of acquisition in hands of forefathers of assessee being previous owner, if cannot be ascertained, is to be fair market value on date on which capital assets became property of previous owner and in that case also, assessee would be entitled to substitute fair market value as on 01.04.1981 under section 55(2) of Act. Accordingly, long-term capital gain arising from transfer of property of assessee in question was determined by Assessing Officer at Rs.29,95,507/- after reducing indexed cost of acquisition of Rs.48,05,493/- (Rs.9,66,900 x 497 /100) from total sale consideration of Rs.78,01,000/- as taken on basis of D.V.O s valuation in assessment completed under section 143(3) vide order dated 28.11.2008. 3. Against order passed by Assessing Officer under section 143(3), appeal was preferred by assessee before ld. CIT(Appeals) and after considering submissions made by assessee as well as material available on record, ld. CIT(Appeals) upheld order of Assessing Officer determining long-term capital gain arising from sale of property of assessee at Rs.29,95,507/- for following reasons given in his impugned order:- submission of assessee and facts are duly considered. claims of assessee are not acceptable. It is held that Income Tax Act 1961 has scope for determining Capital Gains in respect of assets whose cost of acquisition is not ascertainable. amendments brought in Act after decision in B.C. Srinivasa Setty (Supra) case have changed scenario. Supreme Court in CIT vs. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) had held that if cost of acquisition of capital asset was not determinable, then even though sale consideration received would be capital receipt but it would not be taxable, because cost of acquisition was incapable of being ascertained and computation as envisaged under Section 48 of Act was not possible. effect thereof was that in such cases Assessment year: 2006-2007 Page 4 of 12 assessee would not be liable to pay capital gains tax on sale consideration received. aforesaid decision was in relation to consideration received for transfer of goodwill. said principle was extended to tenancy rights, by .Delhi High Court in Bawa Shiv Charan Singh vs. CIT, Delhi, [1984] 149 ITR29, observing that tenancy right had no cost of acquisition and, therefore, capital gains cannot be computed. Faced with aforesaid decisions, Legislature inserted Section 55(2) on statute and amendments were made stipulating that in specified transactions, including payment received for surrender or relinquishing tenancy rights, where it was not possible to ascertain cost of acquisition, cost of acquisition would be taken to be NIL for computing capital gains. However, where it was possible to ascertain cost of acquisition, such cost would be taken into consideration for computing taxable gains under Sections 48 and 49 of Act. said insertion is applicable with effect from assessment year 1994-95. Thus law of B. C. Srinivasa Setty has been largely overruled by legislature. Subsequently Supreme Court while dealing with case of A.Y. 1987-88 (prior to insertion section 55(2) of me Act) in CIT vs. D.P. Sandu Bros. Chembur (P) Ltd. [2005] 273 ITR 1 (SC) still held that when tenancy right gets acquired with effect from particular date it would be possible that it was acquired at cost and this was question of fact. Reference was made to decision of Supreme Court in A.R. Krishnamurthy & Anr. Vs. CIT [1989] 176 ITR 417 (SC), wherein it has been held that it cannot be said conceptually that there would be no cost of acquisition for grant of lease and cost of acquisition of lease hold rights could be determined. Thus, Supreme Court in categorical terms has held that judgment in case of B.C. Srinivasa Setty's case (supra) would not be applicable to capital gains earned on surrender of tenancy rights. These cases clearly pay down that intention must be to ascertain cost of acquisition, been of tenancy rights. More recently Full Bench of High Court of Punjab & Haryana in case of Commissioner of Income- tax v.Raja Malwinder Singh[2012] 206 Taxman 137 (P& H)(Mag.) held that in relation to section 49 of Act, when cost of acquisition of capital asset cannot be ascertained but asset has market value, capital gain will be attracted by taking cost of acquisition to be fair market value as on date of acquisition. In this case assessee sold certain plots of land on which tax under Assessment year: 2006-2007 Page 5 of 12 head 'Capital gains' was sought to be levied. assessee contested levy by submitting that cost of acquisition by previous owner was incapable of being ascertained. previous owner was ex-ruler of Pepsu State and asset was acquired under instrument of annexation and, thus, its cost of acquisition could not be ascertained. This plea was rejected and Assessing Officer proceeded to assess capital gain taking cost of acquisition equal to market value as on 1- 1-1954/1-1- 1964 depending on dates specified under section 55(2) as applicable to year of assessment. On appeal, Commissioner (Appeals) also rejected plea of assessee that cost of acquisition being incapable of ascertainment, no capital gain was attracted. However, Tribunal reversed said view following judgment of Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (S.C.), On revenue's appeal High Court held that in instant case, theassdssde had acquired property by succession from previous owner. According to stand of assessee, cost of acquisition by previous owner could not be ascertained. However, he failed to exercise option of going either by market value on date of acquisition or by cost to previous owner in which case only option available to Assessing Officer was to proceed to compute capital gain by taking cost of asset to be fair market value on specified date, i.e ., 1-1-1954 as per applicable provision for assessment year 1977-78 and as on 1-1-1964 for assessment year 1978-79. Court held that even in case where cost of acquisition cannot be ascertained, section 55(3) statutorily prescribes cost to be equal to market value on date of acquisition. This being position, capital gain is not excluded even on plea that value of asset in respect of which capital gain is to be charged was incapable of being ascertained. If market value can be ascertained, it has to be taken to be equal thereto and if value cannot be ascertained, it has to be equal to market value on specified date at option of assessee. It was not case of assessee that land had no market value at all on date of its acquisition. contention that value was incapable of being ascertained was to be rejected and value in such case has to be taken as being equal to market value on specified date. In this case stand of Revenue that principle of excluding taxability of capital gains where asset is not capable of being valued, such as goodwill, Assessment year: 2006-2007 Page 6 of 12 cannot extend to capital assets like land which are capable of being valued. judgment of Hon'ble Supreme Court in B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) was not applicable to such situation. Full Bench High Court did not follow its earlier Division Bench judgment in case of CIT v. Amrik Sing [2008] 299 ITR 1 (P&H) and judgment of Madhya Pradesh High Court in CIT v. H.H Maharaja Sahib Shri Lokendra Singhji [1986] 162 ITR 93 (MP) which were given on basis of principle laid down in B.C. Srinivasa Setty [1981] 128 ITR 294 (SC). Full Bench also held that even in case where cost of acquisition cannot be ascertained, section 55(3) statutorily prescribes cost to be equal to market value on date of acquisition. This being position, capital gain is not excluded even on plea that value of asset in respect of which capital gain is to be charged was incapable of being ascertained. Subsequently High Court of Punjab & Haryana in case of Thakur Dwara Shri Krishanji Maharaj Handiyaya v.Commissioner of Income-tax, Patiala(2014) 366 ITR 381 (P&H)has passed similar order. In this case agricultural land of assessee was situated within municipal limits of Bamala which was acquired by Improvement Trust, Bamala and compensation of Rs. 2.77 crores was awarded to assessee. assessee contended that since land was gifted to assessee by Maharaja of Patiala, cost of acquisition of said land was same as that was in hands of Maharaja. Since Maharaja did not incur any cost, land was not chargeable to tax under section 45 of Act. Assessing Officer rejected said plea of assessee by holding that as per provisions of section 55(3), even in cases where cost of acquisition of previous owner could not be ascertained, same had to be computed by taking into account fair market value of assets as on 1-4-1981. Hence, Assessing Officer adopted market value of land as on 1-4-1981 and computed capital gains in relation to acquisition of land. On appeal, Commissioner (Appeals) set aside order passed by Assessing Officer and deleted addition on account of capital gains made by Assessing Officer. On revenue's appeal, Tribunal accepted appeal by placing reliance on Full Bench decision of this Court in CIT v. Raja Malwinder Singh [2011] 334 ITR 48(P&H). In this case also assessee- appellant had submitted that cost of acquisition in present case had to be taken as cost to previous owner under Section 49 of Act and Assessment year: 2006-2007 Page 7 of 12 explanation to Section 49 specifically provides that previous owner is one who has acquired asset by mode other than referred to in clauses 1, 2, 3 and 4 of this sub section. It was further argued that previous owner under Act is person who has acquired asset by payment of money i.e. cost incurred for acquisition of asset. In case previous owner has not incurred any cost neither provisions of Section 55(2) (b) nor provisions of Section 55 (3) of Act would apply. Support was drawn from judgment of Apex Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294(SC). High Court rejected such contention and held in favour of Revenue. Further on 28.8.2014 similar decision has been passed by High Court of Delhi in case of Commissioner of Income-tax v. Gulab Sundri Bapna[2014] 227 Taxman 161 (Delhi)(Mag.).In this case Assessee had tenancy rights in land and Sub-lease was for 17 years and assessee constructed factory thereon. On land acquisition, assessee claimed that they were entitled to compensation, Value of sub-lease rights of assessee was ascertained and compensation was assessed and paid. assessee contended that enhance compensation is not liable to Capital Gains. High Court held that ratio of Supreme Court decision in CIT v. D.P. Sandu Bros. Chember (P.) Ltd. [2005] 273 ITR 1 (S.C.) has to be applied and Court has to proceed on basis that cost of acquisition of leasehold rights could be determined and was capable of being ascertained and this was position even before section 55(2) was amended by Finance Act, 1994 with effect from 1st April, 1995. Applying ratio of decision of Supreme Court in D.P. Sandu Bros.'s case (supra), it has to be held that tenancy right had computable cost of acquisition and, therefore, consideration received on surrender or acquisition was taxable as capital gains even prior to 1st April, 1995. Court noted that in this case sub- lease was for 17 years and even construction had been raised by predecessors of respondent assessee.In D.P. Sandu's Bros. case (supra), Supreme Court in categorical terms has held that cost of acquisition could be computed in case of acquisition of tenancy rights. In present case, sub-lease in question was for period of 17 years and respondent assessee also had constructed super-structure, factory, which was constructed by predecessor of respondent assessee. Court noted that assessees were entitled to compensation on acquisition of their land under Assessment year: 2006-2007 Page 8 of 12 sub-lease and they were paid accordingly too. Court held that this indicates that tenancy right had value and, therefore, compensation was paid and once it is held that it was possible to ascertain cost of acquisition of tenancy rights then it follows that capital gains could be computed and shall be payable. Applying above case laws, it is held that appeal of assessee in this connection cannot be accepted for several reasons. Grant of land as Puttah to certain loyalists was directly connected to payment of consideration and economic benefit to erstwhile occupiers of India. Puttah was given to one Gokool Chand Khettry and its transmission to Ram Narayan Kshettry is not explained. Further when his son Shib Narayan Khettry filed Suit for Partition, award was passed in his favour in respect of only one plot of land i.e. premises no. 9 Amratolla Street. manner in which other heirs or claimants were paid off (in kind or in cash or through portion of estate etc) has not been spelt out. cost of litigation is not given either. Subsequently Shib Narayan Kshettry constructed property on said plot which is indicator of complete ownership. These incidents indicate that Puttah had cost and same can be estimated on many basis. Further Supreme Court in case of CIT vs. D.P. Sandu Bros. Chembur (P) Ltd. [2005] 273 ITR 1 (SC) has held that tenancy rights also have cost of acquisition. amendmentsIn section 55(2) of Act wherein clause 55(2)(b) of Act as well as provisions of section 55(3)of Act have largely made issue of capital gains on transfer of land free of ruling in case ofB.C. Srinivasa Shetty case (supra). decisions of Full Bench of High Court of Punjab & Haryana in Commissioner of Income-tax v. Raja Malwinder Singh [2012] 206 Taxman 137 (P& H) (Mag.)is directly on issue at hand and facts are same. Hon'ble High Court has rejected argument that cost in hands of erstwhile Ruler was Nil and hence machinery provisions of section 48 of Act were unworkable. This order has been repeated in case of Thakur Dwara Shri Krishanji Maharaj Handiyaya v. Commissioner of Income- tax, Patiala [2014) 366 ITR 381 (P&H). High Court of Delhi also in case of Commissioner of Income-tax v. Gulab Sundri Bapna[2014] 227 Taxman 161 (Delhi)(Mag.) has attributed value to Assessment year: 2006-2007 Page 9 of 12 tenancy rights. case laws relied upon by assessee are either not related to land or are cases of succession by Will etc U/S 49(1)(iii a) of Act. In present case assessee is HUF and property under dispute has been claimed as HUF property only and in such case there is no succession, inheritance or devolution involved as ownership never changed. Further decisions cited above in Revenue's favour are more closer to facts of case . Aggrieved by order of ld. CIT(Appeals), assessee has preferred this appeal before Tribunal on following grounds:- (1)The orders of lower authorities are arbitrary, unreasoned, void, erroneous and bad in law, to extent to which they are prejudicial to interests of appellant. (2) On facts and in circumstances of case, learned CIT(A) erred in dismissing claim of appellant that since property at 9, Amratola Street, Kolkata-70000 1, did not have any cost of acquisition, no Capital Gains tax was chargeable on transfer of such property. (3) On facts and in circumstances of case, learned CIT(A) erred in upholding finding of A.O. that even if there was no cost of property since land had been acquired by forefathers of members of appellant HUF without paying any consideration, value of property as on 01.04.1981 was to be considered as cost of acquisition for purpose of computation of Capital Gains on transfer of property. (4) On facts and in circumstances of case, learned CIT(A) erred in neglecting to take into consideration fact that although valuation of property transferred for Stamp Duty purpose was originally Rs.1,69,99,800/-, later on, however, said valuation was reduced by order of Governor to Rs.61,99,950/- only as against valuation of Rs.78,01,000/- adopted by District Valuation Officer . 4. I have heard arguments of both sides and also perused relevant material available on record. Ground No. 1 raised by Assessment year: 2006-2007 Page 10 of 12 assessee in this appeal is general, which does not call for any specific adjudication as agreed even by ld. counsel for assessee. 5. As regards issue raised in Grounds No. 2 and 3 challenging very taxability of long-term capital gain arising from transfer of property in question of assessee, ld. counsel for assessee at time of hearing before me has raised same contention as raised before authorities below that since said property did not have any cost of acquisition, it was not possible to determine capital gain arising from sale thereof and there was no question of levy of any capital gain tax as held by Hon ble Supreme Court in case of Srinivasa Setty (B.C.) (supra). However, as rightly held by authorities below and further reiterated by ld. D.R. at time of hearing, decision of Hon ble Supreme Court in case of Srinivasa Setty (B.C.) (supra) is applicable when cost of acquisition of property is not ascertainable and this position has been clarified by Hon ble Supreme Court in its subsequent decision rendered in case of D.P. Sandu Bros., Chembur (P) Limited (supra) by holding that asset which is capable of acquisition at cost would be included within provisions pertaining to head Capital Gains as opposed to assets in acquisition of which no cost at all can be concealed. ratio of various decisions of Hon ble High Courts as well as Tribunal as referred to and relied upon by Assessing Officer and by ld. CIT(Appeals) in their respective orders further supports case of Revenue on this issue and respectfully following same, I find no infirmity in impugned order of ld. CIT(Appeals) upholding order of Assessing Officer in bringing to tax long-term capital gain arising to assessee from sale of its property in question. Grounds No. 2 & 3 of assessee s appeal are accordingly dismissed. 6. As regards issue raised in Ground No. 4 relating to claim of assessee that valuation as determined for purpose of payment of Stamp Duty originally at Rs.1.69 crores was subsequently reduced to Assessment year: 2006-2007 Page 11 of 12 Rs.61,99,950/- by order of Governor, it is observed that this claim of assessee was rejected by Assessing Officer as well as by ld. CIT(Appeals) on ground that there was reduction in Stamp Duty only by order of Governor and not reduction in value of property as adopted originally for purpose of payment of Stamp Duty. copy of relevant order of Governor is placed by ld. counsel for assessee at page no. 36 of paper book along with copy of relevant Gazette at page no. 37. perusal of same, however, shows that relevant details as regards basis on which Stamp Dut y concession was given are not available. It is also not clear as to whether such concession was given by way of reducing market value of property for purpose of Stamp Duty as claimed by assessee. I, therefore, consider it just and proper to restore this matter to file of Assessing Officer for deciding same afresh after giving proper and sufficient opportunity of being heard to assessee and after verifying claim of assessee from relevant record. Ground No. 4 is accordingly treated as allowed for statistical purposes. 7. In result, appeal of assessee is treated as partly allowed for statistical purposes. Order pronounced in open Court on September 28, 2016. Sd/- (P.M. Jagtap) Accountant Member Kolkata, 28 t h day of September, 2016 Copies to : (1) Shib Narayan Kehettry-HUF, 44, Ram Dulal Sarkar Street, Kolkata-700 006 (2) Income Tax Officer, Ward-38(4), Kolkata (3) Commissioner of Income Tax (Appeals)-11, Kolkata; (4) Commissio ner of Income Tax- , Assessment year: 2006-2007 Page 12 of 12 (5) Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. Narayan Kehettry v. Income-tax Officer, Ward-38(4), Kolkata