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TMI Blog2013 (7) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... s right when stating that the indexed cost of acquisition shall have to be worked out with reference to 1.4.1981 - in the present case the asset was acquired by the previous owner of the property - an asset acquired prior to 1.4.1981 the indexed cost of acquisition would be the cost of acquisition multiplied by the ratio of the Cost Inflation Index in the year in which assessee’s asset is transferred to the Cost of Inflation Index for the year beginning on 1.4.1981 - by virtue of a deeming fiction provided in sub-section(1) of section 49, cost of acquisition in hands of the assessee would be the cost for which the previous owner of the property acquired it - It is for this purpose that we need to fall back on computation provision of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation(iii) which clearly states that inflation index would apply for the first year when the asset was first held by the assessee? 2. Question pertains to computing of capital gain of the respondent assessee. Brief facts necessary to understand the issue are as under:- 2.1) For the assessment year 2005-2006, assessee had filed his return of income on 30.12.2006 declaring a total income of Rs.84,34,643/- in which he had shown long term capital gain of Rs.59,04,692/-. This capital gain had accrued to the assessee upon sale of land with a dwelling house situated in the city of Baroda. 2.2) The return was taken in scrutiny. The Assessing Officer inquired with the assessee with respect to the computation of the capital gain. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered the submissions of the learned DR and perused the orders of the AO and the CIT(A). We find that the property in question was acquired by the assessee by way of gift in the year 1995 from his brother. Accordingly, the mode of acquisition is as provided under section 49(i)(ii) of the I.T.Act. The provision of section 49 of the IT Act lays down that where the capital asset become the property of the assessee in a gift or will, the cost of acquisition of the asset shall be deemed to be a cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee as the case may be. In this case, admittedly, the property in question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are however, of the opinion that CIT(Appeals) as well as Tribunal committed no error. We may recall that in the present case, since the assessee had acquired the property through gift, in normal understanding of law, there would be no cost of acquisition attached to such property. Section 49 of the Act, however, makes a deeming provision for computing the cost of acquisition in such cases. Relevant portion of section 49 reads as under : 49. Cost with reference to certain modes of acquisition: (1) Where the capital asset became the property of the assesseexxx (ii) under a gift or will; xxxx the cost of acquisition of the asset shall be deemed to be the total cost for which the previous owner of the property acquired it, as increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as the Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later. 7. Under section 48 of the Act, thus capital gain is computed by deducting from the full value of the consideration received or accruing as a result of the transfer, the amounts of expenditure incurred wholly and exclusively in connection with such transfer, the cost of acquisition of the asset and the cost of any improvement thereto. Term cost of acquisition of the asset is explained in expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee would be the cost for which the previous owner of the property acquired it. It is for this purpose that we need to fall back on computation provision of section 48. When we do so, we work out the cost of acquisition of the asset in the hands of previous owner. While doing so, we cannot transpose the assessee in explanation (iii) of section 48. Doing so, would amount to falling short of giving full effect to the deeming fiction contained in sub-section(1) of section 49. To our opinion such deeming fiction must be allowed to have its full play. As is often stated, a deeming fiction must be allowed its full application and should not be allowed to boggle. 8. Additionally, we notice that in sub-section(1) of section 49, the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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