S. 195 : Deduction at source – Non-resident – Lower deduction of tax – Indexation – Binding precedent – Order of Tribunal is binding on lower Authorities – Capital gains – Cost of acquisition of the property in the hands of seller is deemed to be the cost for which the said property was acquired by previous owner – Excess tax paid by the petitioner was directed to be refunded with interest. [S. 2(29A), 2(42A), 45, 48, 49(1)(ii), 55(2)(b)(ii), 195(2), 244A(1)(b), Art. 226]

Petitioner filed an application under Section 195(2) of the Act requesting him to issue a low tax rate Certificate for Deduction of Tax at Source in respect of consideration for purchase of immovable property from seller. According to the petitioner the cost of acquisition under Section 49(1)(ii) of the Act in the hands of the seller is deemed to be the cost for which the said property was acquired by Late Mrs. Dolly Jehangir Gazdar. It is also petitioner’s case that under clauses (29A) and (42A) of Section 2, the period of holding of late Mrs. Dolly Jehangir Gazdar, Mrs. Rhoda Rustom Framjee and Mr. Rustom Framjee is also to be included in the period of holding of the seller for ascertaining whether the said property is held by him as a short-term capital asset or as a long-term capital asset. Therefore, in its application under Section 195(2) of the Act, petitioner annexed a copy of draft computation of long-term capital gains of the seller in respect of the transfer of the said property. While computing the capital gains the petitioner took the benefit of the option provided in the provisions of Section 55(2)(b)(ii) of the Act, which provides that where a capital asset became the property of the assessee by any of the modes specified in Section 49(1) of the Act and the capital asset became the property of the previous owner before the 1st day of April 1981, cost of acquisition means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April 1981 at the option of the assessee. Based on the scheme of the Act as is provided in Section 49(1)(ii), clauses (29A) and (42A) of Section 2 and Section 55(2)(b)(ii) of the Act, petitioner claimed that indexation of the cost of acquisition under the second proviso to Section 48 should be available from the financial year 1981- 82. The petitioner relied on the Judgement of Special Bench in the case of DCIT v. Manjula J. Shah (2009) 126 TTJ 145 (SB) (Mum.)(Trib). The application for lower tax was rejected. The petitioner paid the tax under protest and filed the writ for rejection of application for lower rate of tax. Allowing the petition, the Court held that the mere fact that the order of the appellate authority is not acceptable to the department or is the subject matter of an appeal cannot be a ground for not following it unless its operation has been suspended by a competent court. This has been reiterated by this Court in its order Karanja Terminal & Logistic Private Limited v. CIT (WP No. 1397 of 2020 dated January 31, 2022) (Bom.)(HC). The Court directed the department to accept the computation of the capital gains after taking into consideration the index cost and cost of the previous owner. The court also directed the revenue to pay interest under Section 244A(1)(b) of the Act for the period from the date of payment of tax, i.e., 7th January, 2011 till date. (WP. No. 331 of 2011 February 3, 2022)

Rohan Developers Pvt. Ltd. v. ITO (IT) (Bom.)(HC) www.itatonline.org
[Coram : Hon’ble Shri Justice K. R. SHRIRAM & Hon’ble Shri Justice N. J. JAMADAR]