Delhi H.C : Capital gains arises in hand of owner only

High Court Of Delhi

CIT Vs. Shashi Charla

Block period : 1-4-1996 to 24-9-2002

Section : 49

Badar Durrez Ahmed And V.K. Jain, JJ.

IT Appeal Nos. 1322, 1323, 1326 And 1328 Of 2009

May 6, 2010

JUDGMENT

Badar Durrez Ahmed, J.

CM 17469/2009, CM 17471/2009, CM 17474/2009 & CM 17478/2009

The delay in re-filing the appeals is condoned.

These applications stand disposed of.

ITA 1322/2009, ITA 1323/2009, ITA 1326/2009 & ITA 1328/2009

These appeals filed by the revenue pertain to the block period 1-4-1996 to 24-9-2002 and arise out of the Income-tax Appellate Tribunal’s order dated 29-12-2008 in IT(SS) A Nos. 92, 93, 94 and 95/Delhi/2007.

2. A company by the name of Ambitious Gold Nibs Company Private Limited (hereinafter referred to as ‘Ambitious Gold’) acquired a property measuring 2829 sq. yds. at C-101, Maya Puri Industrial Area on 17-1-1966 from the DDA. The said property was sold by the said company on 29-11-1999. During search operations conducted in the residential premises of the assessees herein, who are directors in Ambitious Gold, a document entitled “family arrangement” and which purported to have been reduced to writing on 1-9-1997, was recovered. The said document was apparently effective from 31-7-1992. According to the assessees, by virtue of the said family arrangement, half of the company’s said property came to the share of the present assessees and the other half went to the share of another family group. The half that came to the share of the present assessees was sold for an amount of Rs 2.09 crores. The Assessing Officer assessed capital gains at the hands of the present assessees on the basis of the said seized document.

3. Thereafter, the matter travelled to the Income-tax Appellate Tribunal on the question of what would be the proper cost of acquisition of the said property so as to arrive at the correct computation of capital gains at the hands of the assessees. The assessees herein sought to invoke the provisions of section 49(1) of the Income-tax Act, 1961 (hereinafter referred to as ‘the said Act’). The said plea was accepted by the Tribunal and the revenue is in appeal before us on this issue.

4. While examining the issue of applicability of section 49(1) of the said Act, we find that the same is not at all applicable. Section 49(1) deals with the computation of cost with reference to certain modes of acquisition. It, inter alia, provides that where the capital asset became the property of the assessee on any distribution of assets on the total or partial partition of a Hindu Undivided Family or on any distribution of assets on the liquidation of a company, then 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 assets incurred or borne by the previous owner or the assessee, as the case may be. In the present case, we find that the asset in question, namely, C-101, Maya Puri Industrial Area was not the property of a Hindu Undivided Family. Secondly, it was owned by the said company, namely, Ambitious Gold and there was no distribution of its assets because there was no liquidation of the company. Consequently, the said capital asset continued to be owned by Ambitious Gold and did not become the property of the assessees herein and, therefore, section 49(1) would not apply.

5. While examining the issue of applicability of section 49(1), we noticed that the Assessing Officer and the authorities below were all wrong in computing capital gains at the hands of the respondents/assessees because they never became the owners of the property. It is an admitted fact that the said property was sold by the said company, namely, Ambitious Gold. Consequently, any money received by the respondents/assessees in their capacity as directors, would be for and on behalf of the company and it would not be a sale by the assessees but by the said company. This is also borne out from the fact that the company had been showing the capital asset in its balance sheets up to the date of the sale. Therefore, it was wrong on the part of the Assessing Officer and the authorities below to compute capital gains at the hands of the respondents/assessees and the question of capital gains ought to have been examined in the assessment of the company, that is, Ambitious Gold. Unfortunately, that has not been done.

6. Consequently, the respondents/assessees could not have been subjected to payment of capital gains and, therefore, the capital gains would be at the hands of the company, namely, Ambitious Gold. It goes without saying that once this is done, then the amounts paid by way of tax on capital gains by the respondents/assessees would have to be adjusted against the dues from the company on account of the capital gains to be paid in the hands of the company. If, while adjusting the tax already paid by the respondents/assessees, it is found that the tax paid is more than the tax due from the company, then the surplus would be refunded to the respondents/assessees. The counsel for the respondents/assessees submits that no benefit has been taken by the respondents/assessees in respect of the tax on capital gains paid by them. If any benefit has been taken, the same would have to be reversed in accordance with law.

7. In view of the aforesaid observations and directions, we set aside the orders passed by the lower authorities on this aspect of the matter. The Assessing Officer would have to compute the capital gains in the hands of the said company in the light of the directions given above. We also place it on record that the counsel for the respondents/assessees has fairly consented to this order being passed.

These appeals stand disposed of in the aforesaid terms.

[Citation : 334 ITR 129]

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