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TMI Blog2015 (10) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. Apart from the above, s. 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 s. 49(1) of the Act, not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under s. 48 of the Act. The question of deducting the cost of improvement incurred by the previous owner in the case of an assessee covered under s. 49(1) of the Act would arise only if the period for which the asset was held by the previous owner is included in determining the period for which the asset was held by the assessee Therefore, it is reasonable to hold that in the case of an assessee covered under s. 49(1) of the Act, the capital gains liability has to be computed by consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expired in 1976 who was a partner in the said firm. The assessee has taken the cost of the property as on 01/04/1981, while computing long term capital gain, at ₹ 44,32,500/- as against the cost price given by the valuer as ₹ 44 lakh. For the purpose of claiming rights in the property, the accounts of the firm were made up on the date of sale and sale consideration so received was distributed among all the legal heirs of the partners of the firm. The assessee received 1/8th share out of the total sale consideration and the same was offered for tax in his return under the head income from long term capital gain. The Assessing Officer was of the view that the right on the property arise in the hands of the assessee after the dissolution of the firm, therefore, cost inflation index will be allowable after the dissolution of the firm and not as on 01/04/1981. The Assessing Officer estimated the value of the property, for the purposes of computation of LTCG, in the hands of the assessee, at ₹ 4,64,250/- i.e. 1/8th of ₹ 45,14,000/-, as per valuation of MundrakZilaAdhikari, thus, the long term capital gain, in the hands of the assessee, was computed at ₹ 21,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et is transferred under a gift or will or inheritance, 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. The mode and the manner of computing the capital gains is provided under s. 48 of the Act. As per s. 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, s. 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 the cost for which the previous owner of the property acquired it, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Cost Inflation Index', in relation to a previous year, means such index as the Central Government may, having regard to seventy-five per cent of average rise in the consumer price index for urban nonmanual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf. 2.6. Thus, 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 s. 48 of the Act, that expression has to be understood as defined under s. 2 of the Act. Explanation 1(i)(b) to s. 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee as was held by the previous owner shall be included. As the previous owner held the capital asset from 1975, as per Expln. 1(i)(b) to s. 2(42A) of the Act, the assessee is deemed to have held the capital asset from 1975. By reason of the deemed holding of the asset from 1975, the assessee is deemed to have held the asset as a long-term capital asset. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including 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 cl. (iii) of the Explanation to s. 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 Expln. 1(i)(b) to s. 2(42A) of the Act. 2.9. Apart from the above, s. 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 s. 49(1) of the Act, not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under s. 48 of the Act. The question of deducting the cost of improvement incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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