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TMI Blog2015 (8) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... at the cost of acquisition and the cost of improvement have to be inflated to arrive at . The indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under Section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee. See CIT v. Manjula J. Shah [2011 (10) TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d property devolved on the nonresident assessee on the basis of inheritance, on the demise of Mrs. Nazneen Ahmed Ali. The property was previously owned by Mrs. Nazneen. She got the property by way of gift from her mother in the year 1953. As per the letter of the administration granted by the High Court of Madras, all the 7 clause III legal heirs had to share 75% of the estate. After the death of Mrs. Nazneen Ahmed Ali on 06.06.2005, the assessee along with the other coowners inherited the property and sold the same during the assessment year 2006-07. 3. The property consisting of land and building was sold on 18.01.2006 for a total consideration of Rs..14,25,00,000/-. The share belonging to the III class legal heirs after deducting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Assessing Officer. 6. None appeared on behalf of the assessee despite service of notice. Hence, we proceed to decide the issue on merits after hearing the ld. DR. 7. We have heard the ld. DR and perused the materials on record and gone through the orders of authorities below. The only issue involved in these appeals is whether, for the purpose of computation of capital gains, indexed cost of acquisition has to be computed with reference to the year in which the previous owner was held the assessee or the year in which the assessee become owner by way of inheritance? The very same issue has been considered by the Hon ble Bombay high Court in the case of CIT v. Manjula J. Shah (supra), wherein the Hon ble High Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 49(1) of the Act, the capital gains liability has to be computed by considering that the assessee held the said asset from the date it was held by the previous owner and the same analogy has also to be applied in determining the indexed cost of acquisition. 22. The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per the CBDT Circular No.636 dated 31/8/1992 [see 198 ITR 1 (St)] a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at . The indexed cost of acquisition and the indexed cost of improvem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause 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 of the property due to inflation. This is the object or purpose in allowing benefit of indexed cost of improvement, even if the improveme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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