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2015 (10) TMI 1074 - ITAT MUMBAI

2015 (10) TMI 1074 - ITAT MUMBAI - TMI - Date of index cost of acquisition for computation of capital gain - whether should be the year in which the previous owner acquired the property and not the year in which the assessee became the owner of such property? - Held that:- Construing the words 'asset was held by the assessee' in cl. (iii) of Expln.to s. 48 of the Act, one has to see the object with which the said words are used in the statute. If one reads Expln. 1(i)(b) to s. 2(42A) together wi .....

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ising on transfer of a capital asset acquired under a gift or will or inheritance by including 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 assessee.

Apart from the above, s. 55(1)(b)(2)(ii) of the Act .....

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nder s. 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 s. 49(1) of the Act, the capital gains liability 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 d .....

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h the previous owner first held the asset and not the year in which the assessee became the owner of such asset. See Commissioner of Income-tax Versus Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT ] - Decided in favour of assessee. - ITA NO.445/Mum/2014 - Dated:- 1-7-2015 - Shri Joginder Singh, Judicial Member, and Shri Rajendra, Accountant Member For The Revenue : Shri Jeetendra Kumar-DR For The Assessee : Shri Rajendr Kumar I.Jain ORDER Per Joginder Singh (Judicial Member) The Revenue .....

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cal to the ground raised by defending the assessment order. On the other hand, Shri Rajendra Kumar I. Jain, ld. counsel for the assessee, defended the conclusion arrived at in the impugned order by placing reliance upon the decision from Hon ble jurisdictional High Court in the case of CIT vs Manjula J. Shah (2012) 68 DTR (BOM) 269: 2012 249 CTR (BOM) 270. This assertion of the assessee was not controverted by the ld. DR with the help of any other case or on different facts. 2.1. We have conside .....

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ts in the property, the accounts of the firm were made up on the date of sale and sale consideration so received was distributed among all the legal heirs of the partners of the firm. The assessee received 1/8th share out of the total sale consideration and the same was offered for tax in his return under the head income from long term capital gain. The Assessing Officer was of the view that the right on the property arise in the hands of the assessee after the dissolution of the firm, therefore .....

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re considered and following the decision from the Hon ble High Court in the case of CIT vs Manjula J. Shah, the issue was decided in favour of the assessee and the ld. Assessing Officer was directed to adopt the cost inflation index as on 01/04/2008. The Revenue is aggrieved and is in appeal before this Tribunal. 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made .....

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said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis. 24. In the result, we hold 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 ass .....

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ear shall be chargeable to income-tax under the head 'Capital gains'. Where the gains arise on transfer of long-term capital asset, as defined under s. 2(29A) of the Act, the said gains are taxed as long-term capital gains. Sec. 47(iii) of the Act provides that where a capital asset is transferred under a gift or will or inheritance, 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 .....

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ith such transfer and the cost of acquisition of the asset and the cost of any improvement thereto. Where the assessee acquires any capital asset under a gift or will without incurring any cost of acquisition, there would be no capital gains liability. However, s. 49(1)(ii) of the Act provides that in the case of an assessee acquiring an asset under a gift or will, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as inc .....

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ion. 2.5. For better appreciation of the dispute, we quote the relevant part of s. 48 of the Act hereunder : "48. The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any i .....

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cost of any improvement' had respectively been substituted : Provided also ........ 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 1 .....

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ise in the consumer price index for urban nonmanual employees for the immediately preceding previous year to such previous year, by notification in the Official Gazette, specify, in this behalf." 2.6. Thus, 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 s. 48 of the Act, that expression has .....

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as a long-term capital asset. If the long-term capital gains liability has to be computed under s. 48 of the Act by treating that the assessee held the capital asset from 1975, then, naturally in determining the indexed cost of acquisition under s. 48 of the Act, the assessee must be treated to have held the asset from 1975 and accordingly would be applicable in determining the indexed cost of acquisition. 2.7. If the argument of the Revenue that the deeming fiction contained in Expln. 1(i)(b) .....

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lature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or will and the capital gains under s. 48 of the Act has to be computed by applying the deemed fiction, it is not possible to accept the contention of Revenue that the fiction contained in Expln. 1(i)(b) to s. 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under s. 48 of the Act. 2.8. It is true that the words of a statute are to be und .....

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pital 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 as provided under s. 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 asset acquired under a gift or will or inheritance by including the period for which the said asset was held by the previou .....

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strued in accordance with the object of the statute, that is, in the manner set out in Expln. 1(i)(b) to s. 2(42A) of the Act. 2.9. Apart from the above, s. 55(1)(b)(2)(ii) of the Act provides that where the capital asset became the property of the assessee by any of the modes specified under s. 49(1) of the Act, not only the cost of improvement incurred by the assessee but also the cost of improvement incurred by the previous owner shall be deducted from the total consideration received by the .....

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