9911796707
TMI Blog2016 (4) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... y right as capital receipt and stated that same was not taxable within the meaning of section 55(2)(ii) of the Act. However, the AO did not agree with the assessee and held that assessee's claim for taking the sale proceeds received against the tenancy right was capital receipts was not as per law, that the receipt in question was taxable within the meaning of section 45 r. w. s. 49 and 55(2) of the Act. The AO referred the matter to the JCIT u/s. 144A of the Act, who observed that the assessee had not denied that the tenancy right was a capital asset, that there was transfer of tenancy right in respect of immovable property, that the consideration received on transfer of tenancy right was capital receipt. He referred to the provisions of section 49 and section 55(2)of the Act and held that in the case under consideration the father of the assessee had acquired the tenancy right without payment of any money, that the cost of acquisition had to be taken as nil in the hands of the father of the assessee as per the provisions of section 55(2)(a) of the Act, that there was no cost of any improvement incurred or borne by the father of the assessee or by the assessee himself, that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order, the FAA held that section 49(1)(ii) was an exception to the main provisions provided under section 55 (2) of the act and therefore the cost could not be taken as nil, that in case of the assessee the law to prior to assessment year 1995-96 would apply, that the capital assets in light of the provisions of section 45 and 48 of the act could be divided into three categories-a. )Assets where there is no cost, b. )Assets where there is cost. In such cases cost and cost of improvement or at the option of the assessee fair market value as on 1/04/1981+ indexed course of improvement is to be considered c. )Nil cost is provided by section 55 with effect from 1/4/1996 applicable to some category of assets by fiction of law barring the sets falling under section 49 (1), that in the case of the assessee FMV as on 01. 04. 1981 was to be adopted for determining the taxable capital gains. After considering the submissions of the assessee and assessment order, the FAA held that assessee was not justified in claiming the amount received by him was not taxable as LTCG, that provisions of sec. 55(2)were amended from 1. 4. 95, that law as stood prior to 1996 will not be applicable, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancy right of the property, that the AO had taxed the entire amount, that the FAA had given part relief to the assessee. Before proceedings, further, we would like to refer to certain principles governing the provisions of sections 48, 49 and 55 of the Act and they stipulate as under: i. Section 48 of the Act deals with the mode of computation of capital gains, whereas section 49 refers to cost with reference to certain modes of acquisition are machinery provisions relating to the assessment of capital gains meant for computing the capital gains under different circumstances. Sections 48, 49 and 55 are not charging sections. ii. Section 49 of the Act stipulates cost of acquisition with reference to the specified modes of acquisition. Sections 47 and 49 of the Act go together and have to be read as part of one scheme, the legislative intent being that when the first transaction is not brought to charge, the assessee having benefited once, should not benefit once again by claiming a higher cost at the time of a subsequent transaction. iiii. Section 49 of the Act deals with the cost with reference to certain modes of acquisition and same is provided in sub-clauses (i) to (iv) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding of the property by the assessee. The mother held the property since 1968, as indicated above. Here is, as such, the reason why the assessee in the case before us can be said to have held the property since 1968. In order to ascertain the cost of acquisition to the assessee reference can also be made to section 55(2)(b)(ii) which reads as follows : "(ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee. " 11. Based on the aforesaid provision the cost of acquisition of capital asset at the option of the assessee is the fair market value of the asset on April 1, 1981. When that is permissible in law, indexation on the fair market value as on April 1, 1981, until the date of transfer has to be allowed. Any other interpretation will not only lead to absurd result but shall also cause immense prejudice to the assessee. If the previous owner, that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious 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 fic tion 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 Legislature has provided that cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by any cost of improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. If the interpretation of the counsel for the Revenue was cor rect, this later reference to the cost of improvement borne by the assessee would not have been necessary since section 48 itself would take care of any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of improvement incurred by the previous owner shall be deducted from the total consideration received by the assessee while computing the capital gains under section 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 section 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 section 49(1) of the Act the capital gains lia bility 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. The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per CBDT Circular No. 636, dated August 31, 1992 (see [1992] 198 ITR (St. ) 1 ) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
