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TMI Blog2012 (2) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ust managed by the appellant, i.e., Arun Shungloo Trust. 5. During the period relevant to the assessment year 2001-02, the appellant Trust sold and transferred the acquired property to a third party. The substantial question of law mentioned above relates to the computation of long term capital gains. The contention of the Revenue which has been accepted by the Tribunal is that appellant is entitled to indexed cost of acquisition for the period on or after 5th January, 1996, i.e., the date on which the appellant-Trust had acquired the property upto the date of sale. The contention of the appellant assessee is that it is entitled to the benefit of indexed cost of acquisition from 1.4.1981, i.e. for the period during which Mr. Arun Shungloo also held the property before it was transferred to the appellant-Trust on 5.1.1996. 6. In order to appreciate the controversy, the provisions of Section 45, 48 and 49 of the Income Tax Act, 1961 („Act‟, for short) may be noticed. The relevant portions of the said sections read as under:- "Section 45:(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st day of April, 1981, whichever is later; (iv) "Indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; (v)............ xxxx xxxx xxxx Section 49 (1) Where the capital asset became the property of the assessee - (i) On any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) Under a gift or will; (iii) (a) By succession, inheritance or devolution, or (b) On any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987, (c) On any distribution of assets on the liquidation of a company, or (d) Under a 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 caluse (vica)] or [clause (vicb)] or clause (xiiib) of section 47]; [ (iv) Such assessee being a Hindu undivid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition by the previous owner. Similar benefit/ advantage is given in respect of cost of improvement. Sections 48 and 49 have to be read harmoniously to give full effect to the legislative intent. 11. This brings us to the Explanation to Section 48 which defines, for the purpose of the said Section, the "indexed cost of acquisition" and "indexed of any improvement". 12. Learned counsel for the Revenue has emphasized and submitted that in Clause (iii) of Explanation to Section 48, indexed cost of acquisition has to be computed from the first year in which the capital asset was held by the assessee. He states and submits that the scope of the term "income" has been widened to bring capital gains to tax. It is, accordingly, submitted that the word/expression "held by the assessee" used in Clause (iii) of Explanation refers to the "first year in which the asset was held by the assessee" and not the date on which the previous owner had acquired the capital asset. The legislature has deliberately withheld benefit/ advantage mentioned in Section 49. He submits that Section 49 has a limited application, as it only makes reference to the computation of cost of acquisition and the same ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ider that this should not lead to absurdity, contradiction or stultification of the statutory objective. Literal construction should be avoided, if it leads to unwarranted repugnances or inconsistencies. In such circumstances the expression/words can be interpreted by the courts to avoid absurdities and inconsistencies between the provisions. In the present case, as noticed above, the construction placed by the Revenue will lead to inconsistency and incongruities, when we refer to Section 49 and clause (iv) to Explanation (1) to Section 48. This will result in absurdities because the holding of predecessor has to be accounted for the purpose of computing the cost of acquisition, cost of improvement and indexed cost of improvement but as per the Revenue not for the purpose of indexed cost of acquisition. As noticed below, even for the purpose of deciding whether the transaction is a short term capital gain or long term capital gain, the holding by the predecessor is to be taken into consideration. 16. Benefit of indexed cost of inflation is given to ensure that the taxpayer pays capital gain tax on the "real" or actual „gain‟ and not on the increase in the capital value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom), wherein a similar controversy/question was examined and it was held as under: "17. 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‟. Since the expression „held by the assessee‟ is not defined under Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2 (42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29/1/1993, as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29/1/1993. By reason of the deemed holding of the asset from 29/1/1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under Section 48 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 assessee, then that object cannot be defeated by excluding 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 the 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. 20. 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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