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TMI Blog2014 (10) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in the case of the assessee by applying the indexed cost of acquisition in which the previous owners first held the shares – Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... es through gift from her two sons namely Sh. Varun and Sh. Karan and also from her father Sh. Bhagwan Malani. Accordingly, the AO concluded that the case of assessee was covered u/s 49(1)(ii) of the I.T. Act which provides that where the capital asset become the property of assessee under the gift, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. He further pointed out that 'previous owner of the property' has been explained in relation to any capital asset owned by assessee as the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (ii) of section 49(1) of the I.T. Act. Accordingly, he concluded that benefit of indexation allowable in accordance with second proviso to section 48 of the I.T. Act will be subject to Explanation (iii) of section 48. He, therefore, pointed out that in order to work out the correct indexed cost of the acquisition of shares sold in accordance with Explanation (iii) to section 48 of the I.T. Act, 1961, it would be relevant to find out the cost of acquisition of shares by the previous owner and also assessee. Afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2003. Copy of the will as well as statement of affairs of that date has been submitted with the letter dated 27.09.2011 (point no. 7). The remaining shares of GUVISO Holdings and other three companies were received as gift from her father Lt. Shri Bhagwan Malani. Copies of gift deeds have already been filed with the letter dated 27.09.2011. A copy of the will dt. 15.10.1999 has also been filed with letter dated 27.09.2011 in support that he held the shares. It may be added that he, who was 81 met with a very serious accident at Bangalore and since then he was lying in Coma and on 03.10.2011 breathed his last." 3. The AO disallowed the assessee's claim, inter-alia, observing in para 7 & 7(a) as under: 7. "I have considered the assessee's submission and also the facts of the case and in light of legal provisions and various judicial pronouncement on the issue. The section 2(42AA)(b) of the I.T. Act, 1961 according to which in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in [sub-section(1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year beginning on the 1st day of April,1981, whichever is later. The intent of law is amply clear that the beneficiary owner should get the benefit of indexation from the date of acquisition of property. Infact this is the reason that acquisition by a different mode has been provided in section 49(1) of the I.T. Act, 1961 and a different mode of calculation for indexed cost of acquisition is mentioned in specific provisions of explanation (iii) to section 48 of the I.T. Act, 1961. Thus, there is no scope of extension of indexation benefit to the beneficiary assessee who became the owner of capital asset through a mode mentioned in section 49(1) of the I.T. Act, 1961 by including the period of holding of asset by previous owner. According to the 2(42A)(b) and also section 55(2)(b), the only benefit extended to the beneficiary assessee is treatment of capital gain after inclusion of the period for which the asset was held by the previous owner along with assessee. Thus, allowing the beneficiary assessee for taxation of the capital gain at a lower rate even though the assessee may have become owner of the property in the same year in which the property was sold, is the only intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee during the year 75,75,001/- 5. The AO determined the net taxable gain at ₹ 92,58,05,358/- as against ₹ 92,33,99,486/- determined by assessee. The assessee preferred appeal before ld. CIT(A), who allowed the assessee's claim observing in para 7.3 to 8 as under: "7.3 Thus, a conjoint reading of section 2(42A), section 48 and section 49(1) of the Income-tax Act, 1961 would make it abundantly clear that the benefit of indexation cost of acquisition for the purpose of computing long term capital gains must be made available to the appellant from the date of acquisition by the previous owner and not from the date of inheritance. This is because the Act has allowed the assessee to start the journey from the date on which the ancestor of the assessee acquired the property in cases where the cost of the property is required to be ascertained or where the nature of the asset is to be ascertained. However, when it comes to the ascertaining the amount of capital gains, it allows the assessee to start journey only from the date on which the assessee acquires the asset. This is in inequitable and could not have been the intention of law. This view is expressed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 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." 7.7 The AR of the appellant has also submitted before me the copy of the judgment of the Hon'ble Mumbai High Court dt. 5.7.2012 in the case of CIT vs. Ms. Janhavi S. Desai in support of the appellant case, wherein it has been held that the indexed cost of acquisition of the capital asset has to be computed with reference to the year in which previous owner first held the asset. 7.8 Further, the Hon'ble Delhi High Court in the case of Arun Shungloo Trust (2012) 18 Taxman.com 261 (Del) has also held that benefit of indexation cost of improvement by previous owners in cases covered by section 49 would be allowed. 8. In view of the facts and circumstances of the instant case and in the light of the various judicial pronouncements, I hold that while computing the capital gains arising on sale of shares acquired by the appellant by way of gift, the indexed cost of acquisition is to be computed with reference to the year in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. and IWAI Electronics P. Ltd. The assessee and her above noted family members and also Sh. Gulu L. Mirchandani held shares of various companies of MRIC Electronics Ltd. and other Associate Companies who is owner of the brand name 'Onida'. Both Gulu L. Mirchandani (GLM Group) and Sonu L. Mirchandani (SLM Group) are real brothers. Both the brothers decided that in view of expanded families and in order to avoid dispute, differences and misunderstanding within the family members, it would be in the interest of both the GLM Group and the SLM Group that they separate their businesses. Accordingly, a family settlement agreement/memorandum was entered into on 31st May, 2008. As per this settlement, in consideration of ₹ 93,88,81,656/-, the 59,988 equity shares in GUVISO Holdings Pvt. Ltd. and 4,978 shares in IWAI Electronics Pvt. Ltd. held by the assesse Smt. Soni Sonu Mirchandani were to be transferred to Sh. Gulu L. Mirchandani. The AO further examined the mode of acquisition of the shares by assessee. He noted that out of 59,988 shares of GUVISO sold by the assessee, 30,000 shares were received by her from her two sons namely Sh. Varun & Sh. Karan in March, 2008 (i.e. 15,000 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2006 The donor brought these shares at Par in May, 2001. Please see annex- V to letter dated 12.10.2011 and Explanation regarding computation In the letter (para-2). The cost in The hands of donor is accordingly ₹ 1,00,000/-. 9. The assessee relied on the decision of Spl. Bench in the case of Deputy CIT vs. Manjula J. Shah in ITA No. 7315/Mum./2007 dated 16/10/2009 in support of its contention that the indexed cost of acquisition of capital assets, which had become property of the assessee under gift, has to be computed with reference to the year in which the previous owner first held the assets. The assessee, inter-alia, pointed out as under: "Given in Annex-18 to the letter dated 23.09.2011. The cost adopted is the cost of shares in the hand of previous owners of shares from whom the assessee received shares as gift. 30000 shares of GUVISO were received by the assessee as gift from her sons Mr. Varun S. Mirchandani & Mr. Karan S. Mirchandani in March, 2008 who in turn inherited 14990 shares each from their grand mother late Mrs. P.L. Mirchandani as per her will on 19.10.2003. Copy of the will as well as statement of affairs of that date has been submitted with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,05,358/- (h) Deduction u/s 54EC as claimed in ITR ₹ 50,00,000/- (i) Net taxable long term capital gain (g-h) ₹ 92,58,05,358/- The long term capital gain on sale of shares is determined at ₹ 92,58,05,358/- will be taxed accordingly." 11. Ld. CIT(A) allowed the assessee's appeal relying on following decisions: a) DCIT vs. Manjula J. Shah, which was approved by Hon'ble Mumbai High Court vide its judgment dated 11th October, 2011. b) Mrs. Pushpa Safad vs. ITO, 81 ITD (Chd.) (SMC). c) CIT vs. Ms. Janhavi S. Desai (Mum.) dated 05/07/2012. d) Delhi High Court Arun Shungloo Trust vs. CIT (2012) 18 Taxman, ITA No. 116/2011 dated 13/02/2012. 12. Thus, the entire controversy revolves around the meaning of previous owner. 13. Section 49 deals with cost with reference to certain modes of acquisition while computing capital gains chargeable u/s 45. As per this section if assessee acquired any capital asset, inter-alia, by way of gift or will then the cost of acquisition of the asset is to be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee-respondent sold the property during the assessment year 2005-06 for ₹ 9.50 crores declaring a long term capital gain of ₹ 38,44,247/-. The assessee-respondent considered the date of acquisition of the property for the purpose of calculating the capital gains to be prior to 01/04/1981. 15.2 The AO, however, held that the actual date of acquisition must be considered for calculating the capital gains. He held the date on which the respondent inherited the property to be the relevant date and, accordingly, recomputed the capital gains. The recomputation was on the basis of 50% of the property having been inherited by the assesseerespondent from his father on 21/08/1988 and the other 50% thereof having been inherited by him from his mother on 21/02/2000 and, accordingly, applied the cost inflation index. 15.3 Ld. CIT(A) allowed the assessee-respondent's appeal holding that the period for determining the long term capital gain included the period for which the original owner held the assets that devolved upon the legal heir. 15.4 The revenue challenged the order of CIT(A) before the ITAT. The ITAT held that the period for holding 50% of the property inherited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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