Rohan Developers Pvt. Ltd. v. ITO (IT)

Case snapshot

Sections / provisions: 195

Questions before the Court / Tribunal

• 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…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

228_WP339_11.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.339 OF 2011 Rohan Developers Pvt. Ltd. ) a private limited company, registered under ) the Companies Act, 1956 and having its ) registered office at Gordhan Building No.II, ) 12/14 Dr. Parekh Street, Prathana Samaj, ) Mumbai 400 004. ) ... Petitioner Vs. 1. Income-tax Officer (International Taxation)-3) (1), Mumbai having office at Ground Floor, ) Scindia House, Narottam Morarji Marg, ) Ballard Estate, Mumbai 400 038. ) 2. Director of Income-tax (International Taxation) -II Mumbai, having his office at Scindia House) Narottam Morarji Marg, Ballard Estate, ) Mumbai 400 038. ) 3. Union of India through the Secretary, ) Department of Revenue, Ministry of Finance, ) North Block, New Delhi 110 001. ) ...

Petitioner had decided to buy that 1/8 th share of seller and since Mr. Pesh Rustom Framjee (seller) was a non-resident in so far as the Income Tax Act, 1961 (the Act) is concerned and he had not filed his return of income for any of the earlier years as there was no taxable income in India in those years in his hands, petitioner filed an application before respondent No.1 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. 2/12 ::: Uploaded on - 08/02/2022 ::: Downloaded on - 10/02/2022 18:49:48 :::

228_WP339_11.doc 4. By an order dated 21 st December 2010, respondent No.1 directed petitioner to deduct tax of Rs.28,74,100/-. It is this order, which is impugned in this petition. Admittedly, petitioner has deposited this amount of Rs.28,74,100/- with the Revenue even though it is petitioner’s case that the amount directed to be deducted as tax at source has been incorrectly calculated and according to petitioner, only a sum of Rs.74,523/- was the tax that had to be deducted. For ease of reference, the computation, as given in the petition, is reproduced hereunder:- As per petitioner As per respondent No.1 Calculation of indexed cost Value as on 01 04 1981 2,77,22,348 2,77,22,348 Cost inflation index for 1981 Cost inflation index for FY 1992-93 Cost inflation index for FY 2009-11

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) 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 198182.

228_WP339_11.doc 7. According to petitioner, the view of respondent No.1 is contrary to the decision of the Special Bench of the Income Tax Appellate Tribunal (ITAT) in the case of DCIT Vs. Manjula J. Shah1. 8. Pursuant to the above, petitioner has, on or about 7th January 2011, paid over tax of Rs.28,74,100/- and interest thereon of Rs.43,112/-. It is petitioner’s case that the direction in the impugned order dated 21st December 2010 determining the capital gains at Rs.1,39,51,463/- and consequently tax thereon at Rs.28,74,100/- is contrary to the provisions of the Act. Petitioner is, therefore, seeking the following two prayers in the petition:- “a) for a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner’ s case and after examining the legality and validity of the said impugned order dated 21 st December, 2010 (being Exhibit “F” hereto) quash and set aside the same; b) for a Writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India directing Respondent No.1 to determine the long term capital gains arising on account of transfer of the 1/8 th (one eighth) share of Mr.

Appellant / petitioner / assessee submissions

228_WP339_11.doc cost inflation index for the first year in which the asset was held by the assessee and, in the present case, as the assessee held the asset with effect from February 1, 2003, the first year of holding the asset would be the financial year 2002-03 and, accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. We see no merit in the above contention. As rightly contended by Mr . Rai, learned counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was “held by the assessee”.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

228_WP339_11.doc 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 are also to be included in the period of holding of 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.

Manjula J. Shah 3. This Court confirmed the findings of the Full Bench of ITAT and while dismissing the appeal held, (i) that when the Legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will the capital gains under section 48 have to be computed applying the deemed fiction. Therefore, the fiction contained in Explanation 1(i)(b) to section 2(42A) has to be applied in determining the indexed cost of acquisition under section 48; (ii) that by applying the deeming provision contained in Explanation 1(i)(b) to section 2(42A) the assessee was deemed to have held the asset from January 29, 1993 to June 30, 2003, by including the period for which the asset was held by the previous owner and, accordingly, held liable for long-term capital gains tax.

Therefore, when the Legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under section 48 of the Act has to be computed by applying the deemed fiction, it is not possible to accept the contention of Revenue that the fiction contained in Explanation 1(i)(b) to section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under section 48 of the Act. It is true that the words of a statute are to be understood 7/12

Therefore, if the object of the Legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to assessee. In other words, in the absence of any indication in clause (iii) of the Explanation to section 48 of the Act that the words “asset was held by the assessee” has to be construed differently, the said words should be construed in accordance with the object of the statute, that is, in the manner set out in Explanation 1(i)(b) to section 2(42A) of the Act.

To accept the contention of the Revenue that the words used in clause (iii) of the Explanation to section 48 of the Act has to be read by ignoring the provisions contained in section 2 of the Act runs counter to the entire scheme of the Act. Section 2 of the Act expressly provides that unless the context otherwise requires, the provisions of the Act have to be construed as provided under section 2 of the Act. In section 48 of the Act, the expression “asset held by the assessee” is not defined and, therefore, in the absence of any intention to the contrary the expression “asset held by the assessee” in clause (iii) of the Explanation to section 48 of the Act has to be construed in consonance with the meaning given in section 2(42A) of the Act.

If the meaning given in section 2(42A) is not adopted in construing the words used in section 48 of the Ac, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the capital asset acquired under a gift or will be outside the purview of the capital gains tax which is not intended by the Legislature. Therefore, the argument of the Revenue which runs counter to the legislative intent cannot be accepted. Apart from the above, section 55(1)(b)(2)(ii) of the Act provides that where the capital asset became the property of the assessee by any of the modes specified under section 49(1) 8/12

Operative decision and relief

Since the assessee, in the present case, is held liable for long-term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. In the result, we hold that the Income-tax Appellate Tribunal was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset.” 9/12

228_WP339_11.doc since the present case does not fall either under clause (a) or (b) of Section 244A of the Act. In the absence of an express provision as contained in clause (a), it cannot be said that the interest is payable from the 1st of April of the assessment year . Simultaneously, since the said payment is not made pursuant to a notice issued under Section 156 of the Act, Explanation to clause (b) has no application. In such cases, as the opening words of clause (b) specifically referred to “as in any other case”, the interest is payable from the date of payment of tax. The sequel of our discussion is the resident/deductor is entitled not only the refund of tax deposited under Section 195(2) of the Act, but has to be refunded with interest from the date of payment of such tax.” 20. Therefore, interest shall be paid at the rate prescribed under Section 244A(1)(b) for the period from the date of payment of tax, i.e., 7th January, 2011. 21. Petition disposed accordingly. (N. J. JAMADAR, J.) (K. R. SHRIRAM, J.) 12/12 Minal Parab ::: Uploaded on - 08/02/2022 ::: Downloaded on - 10/02/2022 18:49:48 :::

Ratio and legal principle

The narrow proposition associated with Rohan Developers Pvt. Ltd. v. ITO (IT) concerns 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… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in WRIT PETITION NO.339 OF 2011.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Disposed / relief as recorded” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: 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… Its practical value lies in the way the Bombay High Court connected the governing provisions—195—to the procedural posture and evidence before it.

The authority level is High Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 195 and the decision date 2022-02-03; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Rohan Developers Pvt. Ltd. v. ITO (IT), the proceeding is WRIT PETITION NO.339 OF 2011, and the decision is dated 2022-02-03. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as K. R. SHRIRAM & N. J. JAMADAR, JJ.. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 195. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Disposed / relief as recorded. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 195 — apply the exact version considered in the judgment.

Case network

• State of Karnataka & Anr etc v. State of Meghalaya & Anr etc — Supreme Court of India · Disposed / relief as recorded
• Adityaraj Builders v. State of Maharashtra — Bombay High Court · Quashed / set aside
• Rajesh R. Hemrajani v. ITAT — Bombay High Court · Partly allowed
• Pr. CIT v. Tata Power Company Ltd. — Bombay High Court · Operative order controls

Related Finin2min resources

• Case Law Hub
• Search all 592 judgments
• Explore International Tax & Transfer Pricing

Full judgment and source control

Read / download packaged judgment record

Source class: OFFICIAL_PRIMARY_SEARCH_PENDING · Repository status: PUBLISH_READY