9911796707
TMI Blog2012 (9) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the assessee. 2. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in relying upon the provisions of explanation 1 (i) (b) to Section 2 (42A) in contravention of the provisions of explanation (iii) to Section 48, although explanation 1 (i) (b) to section 2 (42A) is only for the purpose to distinguish about the asset being Short Term or Long Term, whereas explanation (vii) to Section 48 specifically provides for the manner of computation of capital gains. 2. The facts are that the assessee acquired a property by way of will from his father who expired on 3.10.2010. The property had been acquired by the assessee's father in 1973. The fair market value of the property as on 1.4.1981 was estimated at Rs. 6,07,000/-. The assessee claimed benefit of indexation since 1981 and computed the indexed cost of acquisition at Rs. 35,12,630/-, taking the cost of acquisition at Rs. 6,77,000/-, the Cost Inflation Index for Assessment Year 1980-81 at 100,the Cost Inflation Index of F.Y. 2006-07 at 519. Before the Assessing Officer, the assessee relied on the Special Bench Tribunal decision in the case of DCIT vs. Manjula J. Shah 318 ITR 417 (Mum) (SB). The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand, has placed reliance on the order under appeal, contending that the matter now stands decided squarely in favour of the assessee by the decisions in the following cases:- i) Commissioner of Income-tax-XII vs. Manjula J. Shah (Bom) (copy placed on record). ii) DCIT 12 (2) vs. Manjula J. Shah 35 SOT 205 (Mum) (SB). iii) Arun Shungloo Trust vs. Commissioner of Income-tax (Del). 6. Relying on the aforementioned decisions, the ld. Counsel for the assessee has submitted that in view of these decisions, it now stands settled that Clause (iv) of the Explanation to Section 48 does not refer to the date on which the asset was held by the assessee; that the cost of improvement would include the cost of improvement made by the previous owner; that the benefit of indexed cost of improvement would be available even if the asset is acquired by the assessee under, inter alia, a will, as in the present case. 7. We have heard the parties and have perused the material available on the record. The Assessing Officer, as noted above, relied on Kishore Kanungo (supra) and Arun Shungloo Trust (supra). Now, Kishore Kanungo, it is seen, was specifically overruled by the Special Bench of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why the legislative would want to deny or deprive an assessee benefit/advantage of the previous holding for computing "indexed cost of acquisition" while allowing the said benefit for computing "indexed cost of improvement". [Para 14] 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. [Para 15] 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 of the property due to inflation. This is the object or purpose in allowing benefit of indexed cost of improvement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 47(iii) of the Act provides that where a capital asset is transferred under a gift or will, then, such transaction shall not be regarded as transfer and in such a case the liability to pay capital gains tax would not arise. Liability to pay capital gains tax, however, would arise when the assessee transfers the capital asset acquired under a gift or will for valuable consideration. [Para 10]. The mode and the manner of computing the capital gains is provided under Section 48 of the Act. As per Section 48, the income chargeable under the head "capital gains" is liable to be computed by deducting from the full value of the consideration received on transfer of the capital asset, the amount of expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. Where the assessee acquires any capital asset under a gift or will without incurring any cost of acquisition, there would be no capital gains liability. However, Section 49(1)(ii) of the Act provides that in the case of an assessee acquiring an asset under a gift or will, the cost of acquisition of the asset shall be deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the Act by treating that the assessee held the capital asset from 29/1/1993, then, naturally in determining the indexed cost of acquisition under Section 48 of the Act, the assessee must be treated to have held the asset from 29/1/1993 and accordingly the cost inflation index for 1992-93 would be applicable in determining the indexed cost of acquisition. [Para 17]. If the argument of the revenue that the deeming fiction contained in Explanation 1(i)(b) to Section 2(42A) cannot be applied in computing the capital gains under Section 48 of the Act is accepted, then, the assessee would not be liable for long term capital gains tax, because, it is only by applying the deemed fiction contained in Explanation 1(i)(b) to Section 2(42A) and Section 49(1)(ii) of the Act, the assessee is deemed to have held the asset from 29/1/1993 and deemed to have incurred the cost of acquisition and accordingly made liable for the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 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. In Section 48, 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 Act, then the gains arising on transfer of a 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. [Para 20]. 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) of the Act, not only the cost of improvement incurred by the assessee but also ..... 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