TMI Blog2012 (2) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (iii) to Section 48 of the Act can be interpreted without considering the effect of Section 49(1) Explanation and Explanation 1(i)(b) of Section 2 (42A), when all three sections relate to the same subject matter of computation of capital gains on the sale of a capital asset, description of the previous owner and the period of holding of the asset by the assessee. 2. We have heard the counsel for the parties and thus, proceed to pronounce our decision on the aforesaid substantial question of law. 3. Facts are undisputed and may be noticed. 4. One Mr.Arun Shungloo acquired property No.D-11, Maharani Bagh, New Delhi, sometime before 1st April, 1981. On 5th January, 1996, Mr.Arun Shungloo transferred the property to the trust managed by the appellant, i.e., Arun Shungloo Trust. 5. During the period relevant to the assessment year 2001-02, the appellant Trust sold and transferred the acquired property to a third party. The substantial question of law mentioned above relates to the computation of long term capital gains. The contention of the Revenue which has been accepted by the Tribunal is that appellant is entitled to indexed cost of acquisition for the period on or af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted. Explanation : For the purposes of this section, -- (i) ; (ii) ; (iii) "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 or for the year beginning on the 1st day of April, 1981, whichever is later; (iv) "Indexed cost of any improvement" means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place; (v) ... xxxx xxxx xxxx Section 49 (1) Where the capital asset became the property of the assessee - (i) On any distribution of assets on the total or parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition and indexed cost of improvement in case of long term capital gains (except in case of sale of shares, etc. by a non-resident). 10. Section 49 of the Act stipulates that in case of acquisition of a capital asset under gift or will, by succession, inheritance or devolution, creation of trust, etc., the cost of acquisition shall be deemed to be the cost http: at which the previous owner of the property has acquired the capital asset as increased by the cost of improvement, if any, of the assets, as may be incurred or borne by the previous owner or the assessee, as the case may be. Thus, as per Section 49, the cost of acquisition in the hands of an assessee is treated as the cost of acquisition by the previous owner. Similar benefit/ advantage is given in respect of cost of improvement. Sections 48 and 49 have to be read harmoniously to give full effect to the legislative intent. 11. This brings us to the Explanation to Section 48 which defines, for the purpose of the said Section, the indexed cost of acquisition and indexed of any improvement . 12. Learned counsel for the Revenue has emphasized and submitted that in Clause (iii) of Explanation to Section 48, inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 15. Normally literal rule of construction is applied and the words of the statute are to be understood in their ordinary and popular sense, but this is subject to the rider that this should not lead to absurdity, contradiction or stultification of the statutory objective. Literal construction should be avoided, if it leads to unwarranted repugnances or inconsistencies. In such circumstances the expression/words can be interpreted by the courts to avoid absurdities and inconsistencies between the provisions. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in the circumstances mentioned in [sub-section(1) ] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section. 20. Clause (iii) to Explanation to Section 48 is applicable when the transfer is a long term capital gain and not a short term capital gains. The legislature was conscious of definition of the expression held by the assessee in Explanation 1(i)(b) of Section 2(42A) and, therefore, has used the same expression in Explanation (iii) to Section 48 of the Act. The aforesaid Explanation to Section 2(42A) was referred to by the Bombay High Court in CIT v. Manjula J.Shah (Mumbai), (2011) 16 Taxman 42 (Bom), wherein a similar controversy/question was examined and it was held as under: 17. We see no merit in the above contention. As rightly contended by Mr. Rai, learned counsel for the assessee, 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 Section 48 of the Act, that expression has to be understoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, one has to see the object with which the said words are used in the statute. If one reads Explanation 1(i)(b) to Section 2(42A) together with Section 48 and 49 of the Act, it becomes absolutely clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee under a gift or will as provided under Section 49 of the Act where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital acquired under a gift or will by including 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 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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