Holding period computed from date of Family settlement

By | April 14, 2016
(Last Updated On: April 14, 2016)

Facts of the case

The facts, in brief, are that the assessee acquired some property vide family arrangement dated 10/08/2006. This flat was received by the assessee as per wishes and intent of his grandmother Ms. Kantaben K. Shah, who expired on 10/12/1999. Since, the grandmother died intestate (without will), therefore, in order to transfer the said residential premises, as per last wish known to all family members, and also as per family arrangements necessary procedure was required to be undergone to transfer the said property. The assessee inherited the property w.e.f. 10/12/1999 (on death of the grandmother). In order to get the property transferred in the name of the assessee, various representations were made to the society, who after obtaining the legal opinion, asked the assessee to file an affidavit, declaration, duly notarized, from all the legal heir of the grandmother. The assessee obtained the affidavit cum declaration from other heir namely Shri Chandrakant Shah and Bhupat K Sha (Sons) on 08/08/2006 and Ms. Snehlata H. Shah and Ms. Meera P. Shah (married daughters) on 05/08/2006 and 08/08/2006 respectively. The assessee sold the immovable property for a consideration of Rs.36,56,000/- vide registration deed dated 29/07/2009. The assessee claimed exemption u/s 54EC of the Act by investing the amount of Rs.37 lakh in NHAI bonds, which was denied by the Assessing Officer.

Issue

What is the holding period of the property, whether from the date when it was held by the grandmother or the period when it was transferred in the name of the assessee ?

Held

Thus, capital gain tax is to be computed by taking into consideration the provisions of section 49(1)(iii)(e), i.e. taking the cost of acquisition of the asset in question to be the cost of acquisition in the hands of the previous owner. The flat in question was inherited by the assessee from his grandmother and the assessee obtained the affidavit cum declaration in August 2006 and thereafter the society carried out the transfer in the name of the assessee. In fact, the assessee did not inherit the property directly from her grandmother but from sons and daughters of grandmother. Even as per the provision of the Act, it is the cost of the “previous owner” which has to be reckoned, thus, in view of section 2(45A) of the Act r.w. Explanation-1 and the circumstances mentioned in section 49(1) of the Act, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it as increased by the cost of any improvement of the asset incurred or borne by the assessee, as the case may be. The two sons/daughters who in turn gifted the property to the assessee on 08/08/2006, thus, this is the relevant date with respect to the term previous owner. The assessee sold the property on 27/09/2008 before the period of 36 months, thus, the capital gain arising there from cannot be said to be long term capital gains and is certainly a short term capital gain as the sale was effected almost within a period of 2 years. In this case, the “previous owners” are sons and daughters of Smt. Kantaben Shah (grandmother) and from whom the property came to the assessee. The property directly did not come to the possession of the assessee from the grandmother, therefore, the stand of the ld. Commissioner of Income Tax (Appeals) is affirmed.

IN THE ITAT MUMBAI BENCH ‘B’

Nitul B. Shah

v.

Income-tax Officer, Ward- 19 (1) (1), Mumbai

JOGINDER SINGH, JUDICIAL MEMBER
AND RAJESH KUMAR, ACCOUNTANT MEMBER

IT APPEAL NO. 5756 (MUM.) OF 2012
[ASSESSMENT YEAR 2009-10]

NOVEMBER  5, 2015

Paresh Shapari for the Appellant. Vijay Kumar Soni for the Respondent.

ORDER

Joginder Singh, Judicial Member – The assessee is aggrieved by the impugned order dated 20/07/2012 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal, pertains to confirming of long term capital gain on sale of immovable property of Rs.35,86,000/- as short term capital gain, thereby denying claim of deduction u/s 54EC of the Income Tax Act, 1961 (hereinafter the Act).

2. During hearing of this appeal, the crux of argument advanced by Shri Paresh Shoparia, ld. counsel for the assessee is identical to the ground raised by explaining that the flat in question was inherited by the assessee and there was a delay on the part of the society to transfer the shares/property to the assessee for which the assessee should not be penalized. Our attention was invited to various pages of the paper book. On the other hand, Shri, Vijay Kumar Soni, ld. DR, defended the conclusion arrived at in the impugned order by contending that it was rightly treated as short term capital gain.

2.1 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee acquired some property vide family arrangement dated 10/08/2006. This flat was received by the assessee as per wishes and intent of his grandmother Ms. Kantaben K. Shah, who expired on 10/12/1999. Since, the grandmother died intestate (without will), therefore, in order to transfer the said residential premises, as per last wish known to all family members, and also as per family arrangements necessary procedure was required to be undergone to transfer the said property. The assessee inherited the property w.e.f. 10/12/1999 (on death of the grandmother). In order to get the property transferred in the name of the assessee, various representations were made to the society, who after obtaining the legal opinion, asked the assessee to file an affidavit, declaration, duly notarized, from all the legal heir of the grandmother. The assessee obtained the affidavit cum declaration from other heir namely Shri Chandrakant Shah and Bhupat K Sha (Sons) on 08/08/2006 and Ms. Snehlata H. Shah and Ms. Meera P. Shah (married daughters) on 05/08/2006 and 08/08/2006 respectively. The assessee sold the immovable property for a consideration of Rs.36,56,000/- vide registration deed dated 29/07/2009. The assessee claimed exemption u/s 54EC of the Act by investing the amount of Rs.37 lakh in NHAI bonds, which was denied by the Assessing Officer.

On appeal, before the ld. Commissioner of Income Tax (Appeals), the stand taken in the assessment order was affirmed by observing that the grandmother of the assessee died intestate (without will), therefore, the law of succession of property, first, devolved on the sons and the daughters of Ms Kantaben K Shah and the property was acquired by way of family arrangements, therefore, the capital gain, arose on sale of property is short term capital gain. The assessee is in further appeal before this Tribunal.

If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the assessee became the owner of the property by way of family arrangement from all the legal heirs of the original owner of the property i.e. the grandmother. The assessee on 10/08/2006 wrote a letter to the society for transfer of shares/property and finally, the transfer of the flat under consideration was effected on 29/07/2008. The assessee invested in the bonds u/s 54EC of National Highway Authority of India on 31/10/2008. The order u/s 143(3) was passed on 19/12/2011 assessing the income at Rs.49,26,480/- against the declared income of Rs.13,30,880/-, filed by the assessee on 31/03/2010. The Assessing Officer denied the claimed exemption u/s 54EC of the Act by treating the claim long term capital gain, on sale of immovable property of Rs.35,86,000/- as short term capital gain. However facts remains that the flat in question was inherited by the assessee from his grandmother and the transfer/procedure in the books of the accounts was carried out during August 2006. Now, we are expected to analyze section 2(42A) r.w.s 49(1) of the Act with respect to reckoning of holding period of the property, whether from the date when it was held by the grandmother or the period when it was transferred in the name of the assessee. Before we proceed further, we are also expected to analyze what the short term capital gain is? As per section, 2(42B) of the Act, inserted w.e.f. 01/04/1998 by the Finance Act, 1987 (11 of 1987) defines the expression ‘short term capital gain’ so as to mean- capital gain arising from the transfer of short term capital asset (as define in section 2(42A) of the Act). As per section 2(42A) of the Act, short term capital asset, means, a capital asset held by an assessee not more than

(a)12 months (up to 31/03/1969,)
(b)24 months (between 01/04/1969 and 31/03/1974),
(c)60 months (between 01/04/1974 and 31/03/1977) and
(d)36 months (w.e.f 01/04/1978)
Immediately preceding the date of its transfer

So far as, the determination of holding period, exclusion and/or inclusion, is concerned according to clause (i) of Explanation 1 (up to 31/03/1995) Explanation, to section 2(42A) of the Act, in determining the period for which any capital asset is held by the assessee-

(a)In the case of a share held in company in liquidation, there shall be excluded, the period subsequent to the date on which the company goes into liquidation,
(b)In case of a capital asset which becomes the property of the assessee in the circumstances mentioned in section 49(1) (up to 31/03/1967) clauses (i) to (iii) of section 49), there shall be included the period for which the asset was held by the previous owner referred to section 49,
(c)With effect from 01/04/1967, in case of a capital asset, being a share or shares in an Indian Company, which becomes the property of the assessee in consideration of a transfer referred to in section 47(vii), there shall be included- the period for which the share or shares in the amalgamating company were held by the assessee.
(d)With effect from 01/04/1995, in case of a capital asset being a share or any other security (hereafter in section 2(42A) of the Act referred to as the financial asset, subscribed by the assessee on the basis of his right to subscribe to such financial asset or subscribed to by the person in whose favour, the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset.
(e)With effect from 01/04/1995, in case of a capital asset, being the right to subscribe any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of offer of such right by the company or institution, as the case may be, making such offer.

If the provision of section 2(42A) is analyzed with respect to section 49 which deals with cost with reference to certain mode of acquisition, sub-section (1) says where the capital asset became the property of the assessee,

(i)On any distribution of asset on the total or partial partition of the Hindu Undivided family,
(ii)Under a gift or will,
(iii)(a) by succession, inheritance of devolution, or
(b) on any distribution of asset on the dissolution of a firm, body of individual, or other association of person, where such dissolution has taken place at any time before 1st day of April, 1987 or
(c) On any distribution of asset on the liquidation of the company or
(d) Under transfer to a revocable or an irrevocable trust or
(e) Under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (vicb) or clause (xiii) or clause (xiiib) or clause (xiv) of section 47
(iv)Such assessee being a Hindu undivided family, by the mode referred to sub-section 2 of section 64 at any time after the 31st day of December, 1969.

The cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee, as the case may be.

It has been further clarified by way of explanation, the expression ‘previous owner of the property’ in relation to any capital asset owned by the assessee means the last previous owner of the capital asset, who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section. Thus, capital gain tax is to be computed by taking into consideration the provisions of section 49(1)(iii)(e), i.e. taking the cost of acquisition of the asset in question to be the cost of acquisition in the hands of the previous owner. The flat in question was inherited by the assessee from his grandmother and the assessee obtained the affidavit cum declaration in August 2006 and thereafter the society carried out the transfer in the name of the assessee. In fact, the assessee did not inherit the property directly from her grandmother but from sons and daughters of grandmother. Even as per the provision of the Act, it is the cost of the “previous owner” which has to be reckoned, thus, in view of section 2(45A) of the Act r.w. Explanation-1 and the circumstances mentioned in section 49(1) of the Act, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it as increased by the cost of any improvement of the asset incurred or borne by the assessee, as the case may be. The two sons/daughters who in turn gifted the property to the assessee on 08/08/2006, thus, this is the relevant date with respect to the term previous owner. The assessee sold the property on 27/09/2008 before the period of 36 months, thus, the capital gain arising there from cannot be said to be long term capital gains and is certainly a short term capital gain as the sale was effected almost within a period of 2 years. In this case, the “previous owners” are sons and daughters of Smt. Kantaben Shah (grandmother) and from whom the property came to the assessee. The property directly did not come to the possession of the assessee from the grandmother, therefore, the stand of the ld. Commissioner of Income Tax (Appeals) is affirmed.

Finally, the appeal of the assessee is dismissed.

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