Market value of property as on 1/4/1981 can be taken as its cost even if only possession was acquired before 1/4/1981

Facts:

a) Govt. of Tamil Nadu assigned property to the assessee with subject to certain conditions.

b) Assessee acquired possession of the property much before 1st April 1981 by paying entire consideration thereof but due the various conditions imposed by the Tamil Nadu Government, sale deed in favour of assessee was executed in April 1994.

c) Later on in year 2003, assessee sold the property and claimed capital gain loss by taking fair market value (FMV) of property as on 1st April 1981 as its cost of acquisition.

d) CIT took the view that assessee couldn’t take FMV of property as on 1st April 1981 as its cost of acquisition for computation of capital gain as he became the legal owner of the property in 1994 when the sale deed was executed. Accordingly, CIT directed AO to compute capital gain by taking date of acquisition of property as 19.4.1994.

e) Aggrieved by the order of CIT, assessee filed the instant appeal before the tribunal.

The Tribunal held in favour of assessee as under:

1) The expression “where the capital asset became the property of the Assessee before 1st April, 1981 in the context of Section 55(2)(b)(i) does not speak of the date of vesting of legal title to the property.

2) The above expression should not be equated to legal ownership as the provisions of section 2(47)(v) & (vi) which defines what is “transfer”, considers possessory rights as akin to legal 3) In the instant case, assessee had acquired vital interest over the property much before 01.04.1981 by paying the entire sale consideration and complying with the other terms of the deed of assignment.

4) Therefore, CIT was not justified in directing the AO to adopt 19.04.1994 as the date of acquisition of the property for the purpose of computing capital gain. [2016] 67 taxmann.com 41 (Kolkata - Trib.)