TMI Blog2012 (9) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax (International Taxation), Delhi-XXIX. The grounds of appeal read as under:- 1. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in holding that the capital gain arising to the assessee are to be computed by applying Cost Inflation Index for the year of acquisition by the previous owner, in violation of the provisions of explanation (iii) to Section 48, which provides that indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as 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. 2. On the facts and in the circumstances of the case the Ld. CIT (A) has erred in relying upon the provisions of explanation 1 (i) (b) to Section 2 (42A) in contravention of the provisions of explanation (iii) to Section 48, although explanation 1 (i) (b) to section 2 (42A) is only for the purpose to distinguish about the asset being Short Term or Long Term, whereas explanation (vii) to Section 48 specifically provides for the manner of computation of capital gains. 2. The facts are that the assessee acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Explanation 1 (i)(b) to Section 2 (42A) of the Act in contravention of the provisions of Explanation (iii) to Section 48, although Explanation 1 (i) (b) to Section 2 (42A) is only for the purpose of distinguishing the asset as to whether it is a short-term asset or a long-term asset, whereas Explanation (vii) to Section 48 of the Act specifically provides for the manner of computation of capital gains; and that, as such, the order of the ld. Commissioner (Appeals) being illegal and erroneous, the same be set aside and that of the Assessing Officer be revived by allowing the appeal filed by the department. 5. The ld. Counsel of the assessee, on the other hand, has placed reliance on the order under appeal, contending that the matter now stands decided squarely in favour of the assessee by the decisions in the following cases:- i) Commissioner of Income-tax-XII vs. Manjula J. Shah (Bom) (copy placed on record). ii) DCIT 12 (2) vs. Manjula J. Shah 35 SOT 205 (Mum) (SB). iii) Arun Shungloo Trust vs. Commissioner of Income-tax (Del). 6. Relying on the aforementioned decisions, the ld. Counsel for the assessee has submitted that in view of these decisions, it now stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession, trust etc. and improvement was made by the previous owner. [Para 13]. If the contention of the Revenue is accepted, then benefit of indexed cost of acquisition, will not available to an assessee in a case covered by Section 49 from the date on which the asset was held by the previous owner but only from the date the capital asset was transferred to the assessee. This will lead to a disconnect and contradiction between "indexed cost of acquisition" and "indexed cost of improvement" in the case of capital assets where Section 49 applies. This cannot be the intention behind the enactment of Section 49 and its Explanation to Section 48. There is no reason or ground why the legislative would want to deny or deprive an assessee benefit/advantage of the previous holding for computing "indexed cost of acquisition" while allowing the said benefit for computing "indexed cost of improvement". [Para 14] In the present case, as noticed above, the construction placed by the Revenue will lead to inconsistency and incongruities, when we refer to Section 49 and clause (iv) to Explanation (1) to Section 48. This will result in absurdities because the holding of predecessor has to be acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. [Para 20]. Resultantly, the question of law is to be decided in favour of the assessee. 9. In Manjula J. Shah (supra), the Hon ble Bombay High Court has held, inter alia, as follows:- Section 45 provides that any profits or gains arising from the transfer of a capital in the previous year shall be chargeable to income tax under the head 'capital gains'. Where the gains arise on transfer of a short term capital asset as defined under Section 2(42A) of the Act, the gains are taxed as short term capital gains. Where the gains arise on transfer of long term capital asset, as defined under Section 2(29A) of the Act, the said gains are taxed as long term capital gains. Section 47(iii) of the Act provides that where a capital asset is transferred under a gift or will, 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. [Para 10]. The mode and the manner of computing the capital gains is provided under Section 48 of the Act. As per Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 48 of the Act, that expression has to be understood as defined under Section 2 of the Act. Explanation 1(i)(b) to Section 2(42A) of the Act provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the previous owner shall be included. As the previous owner held the capital asset from 29/1/1993, as per Explanation 1(i)(b) to Section 2(42A) of the Act, the assessee is deemed to have held the capital asset from 29/1/1993. By reason of the deemed holding of the asset from 29/1/1993, the assessee is deemed to have held the asset as a long term capital asset. If the long term capital gains liability has to be computed under Section 48 of the Act by treating that the assessee held the capital asset from 29/1/1993, then, naturally in determining the indexed cost of acquisition under Section 48 of the Act, the assessee must be treated to have held the asset from 29/1/19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clause (iii) of the Explanation to Section 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 Explanation 1(i)(b) to section 2(42A). [Para 19]. 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 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. In Section 48, the expression 'asset held by the assessee' is not defined and, therefore, in the absence of any intention to the contrary the expression 'asset held by the assessee' in clause (iii) of the Explanation to Section 48 of the Act has to be construed in consonance with the meaning g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. [Para 22]. Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. [Para 23]. In the result, that the Tribunal was justified in holding that while computing the capital gains arising on transfer of a 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. [Para 24]. 10. From the above, evidently, the issue stands decided in favour of the assessee and against the department. As such, the Ld. CIT (A), having followed the Special Bench of the Tribunal in Manjula J. Shah , cannot be said to have committed any error. Therefore, the grievance sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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