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The Income Tax Officer, International Taxation - 2 (2) , Chennai Versus Shri Abdul Samad Khanaruzzaman and Shri Sulaiman Shaikh Mohamed

2015 (8) TMI 1206 - ITAT CHENNAI

Computation of capital gains - whether indexed cost of acquisition has to be computed with reference to the year in which the previous owner was held the assessee as held by CIT(A) or the year in which the assessee become owner by way of inheritance? - Held that:- The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per the CBDT Circular No.636 dated 31/8/1992 [see 198 ITR 1 (St)] a fair method of allowing relief by way of indexat .....

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asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in 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. See CIT v. Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT]

The expression “held by the assessee” used in Explanation (iii) to Section 48 has to be understood in the context and harmo .....

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Alankamony AND Shri V. Durga Rao, JJ. For The Appellant : Dr. B. Nischal, JCIT For The Respondent : None ORDER PER V. DURGA RAO, JUDICIAL MEMBER: These three appeals filed by the Revenue pertaining to three different assessees are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 16, Chennai all dated 26.12.2014 relevant to the assessment year 2006-07. Since issue involved in these appeals are common, heard together and being disposed of by this common order for .....

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by way of gift from her mother in the year 1953. As per the letter of the administration granted by the High Court of Madras, all the 7 clause III legal heirs had to share 75% of the estate. After the death of Mrs. Nazneen Ahmed Ali on 06.06.2005, the assessee along with the other coowners inherited the property and sold the same during the assessment year 2006-07. 3. The property consisting of land and building was sold on 18.01.2006 for a total consideration of Rs..14,25,00,000/-. The share be .....

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e of the cost of acquisition, whereas the property was first held by the assessee only after 06.06.2005 i. E., financial year 2005-06. The assessee has claimed indexation benefit under section 48 of the Act on the fair market value as on 01.04.1981. The Assessing Officer has disallowed the indexation benefit claimed by the assessee with effect from 01.04.1981 and assessed the long term capital gains of Rs..1,36,07,518/-, thereby added an additional capital gains of Rs..21,71,878/-. 4. On appeal, .....

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appeal before us and the ld. DR has relied on the order of the Assessing Officer. 6. None appeared on behalf of the assessee despite service of notice. Hence, we proceed to decide the issue on merits after hearing the ld. DR. 7. We have heard the ld. DR and perused the materials on record and gone through the orders of authorities below. The only issue involved in these appeals is whether, for the purpose of computation of capital gains, indexed cost of acquisition has to be computed with refer .....

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asset was held by the assessee in clause (iii) of Explanation to Section 48 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 tran .....

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e 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 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 se .....

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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 given in Section 2(42A) of the Act. If the meaning given in Section 2(42A) is not adopted in construing the words used in Section 48 of the Act, then the gains arising on transfer of a capital asset acquired under a gift or will be outside the purview of the .....

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d 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 .....

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f by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at . The indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under Section 49(1) of the Act, the per .....

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under: 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 repugnance or inconsistencies. In such circumstances the expression/words can be interpreted by the courts to avoid absurdities and inconsistencies betw .....

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below, even for the purpose of deciding whether the transaction is a short term capital gain or long term capital gain, the holding by the predecessor is to be taken into consideration. 16. Benefit of indexed cost of inflation is given to ensure that the taxpayer pays capital gain tax on the real or actual gain and not on the increase in the capital value of the property due to inflation. This is the object or purpose in allowing benefit of indexed cost of improvement, even if the improvement wa .....

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