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2009 (10) TMI 646 - AT - Income TaxComputation of capital gains - acquired the asset transferred under gift - whether indexed cost of acquisition was to be computed with reference to the year in which the previous owner first held the asset or the year in which the assessee became the owner of the asset - HELD THAT:- In the case where capital asset has become a property of the assessee under a gift prior to the cut-off date of 1-4-1981 but the same is transferred by him only after 1-4-1981; say in financial year 1987-88, the year to be adopted for indexation as per the contention of the learned D.R., would be financial year 1987-88. However, the cost of acquisition of capital asset in such case would be taken as Fair Market Value of 1-4-1981 being the cut-off date embedded in the indexation scheme as agreed even by the learned D.R. The situation will thus arise where the cost of acquisition of capital asset would be taken as of 1-4-1981 whereas the cost inflation index for the year 1987-88 would be applied to the said cost to work out the indexed cost of acquisition. Such a working will not stand to any reasonability or logic and will certainly defeat the very purpose of indexation scheme as explained in the aforesaid Circular No. 636, dated 31-8-1990. Considering the facts of the case and relevant material on record, We are of the view that for the purpose of computing long-term capital gain arising from the transfer of a capital asset which had become property of the assessee under gift, the first year in which the capital asset was held by the assessee has to be determined to work out the indexed cost of acquisition as envisaged in Explanation (iii) to section 48 after taking into account the period for which the said capital asset was held by the previous owner. In that view of the matter, we hold that the indexed cost of acquisition of such capital asset has to be computed with reference to the year in which the previous owner first held the asset. Accordingly, we answer the question referred to us in favour of the assessee and uphold the impugned order of the learned CIT(A) on this issue. In the result the appeal of the revenue is dismissed.
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